Company Quick10K Filing
Quick10K
Smartfinancial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$20.74 14 $289
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-07 Shareholder Vote
8-K 2019-05-06 Officers, Exhibits
8-K 2019-04-24 Earnings, Regulation FD, Exhibits
8-K 2019-04-23 Leave Agreement, Regulation FD, Exhibits
8-K 2019-02-05 Regulation FD, Exhibits
8-K 2019-01-23 Earnings, Regulation FD, Exhibits
8-K 2019-01-23 Earnings, Regulation FD, Exhibits
8-K 2019-01-15 Enter Agreement, Officers, Regulation FD, Exhibits
8-K 2018-11-20 Other Events, Exhibits
8-K 2018-11-01 M&A, Other Events, Exhibits
8-K 2018-10-24 Earnings, Regulation FD, Exhibits
8-K 2018-10-01 Enter Agreement, Off-BS Arrangement, Regulation FD, Other Events, Exhibits
8-K 2018-07-30 Regulation FD, Exhibits
8-K 2018-07-24 Earnings, Regulation FD, Exhibits
8-K 2018-06-27 Enter Agreement, Regulation FD, Exhibits
8-K 2018-06-05 Regulation FD, Exhibits
8-K 2018-05-29 Officers, Shareholder Vote
8-K 2018-05-07 M&A, Other Events, Exhibits
8-K 2018-04-24 Earnings, Regulation FD, Exhibits
8-K 2018-03-27 Accountant, Exhibits
8-K 2018-01-31 Earnings, Regulation FD, Exhibits
8-K 2018-01-30 Officers
MSG Madison Square Garden 7,040
PBF PBF Energy 3,600
KEN Kenon Holdings 1,050
FLMN Falcon Minerals 701
PEI Pennsylvania Real Estate Investment Trust 559
TGH Textainer Group Holdings 543
OOMA Ooma 285
HFBC Hopfed Bancorp 130
RXR Northstar/RXR New York Metro Real Estate 0
MMTRS Mills Music Trust 0
SMBK 2019-03-31
Part I -Financial Information
Item 1. Consolidated Financial Statements
Note 1. Presentation of Financial Information
Note 2. Earnings per Share
Note 3. Securities
Note 4. Loans and Allowance for Loan Losses
Note 5. Commitments and Contingent Liabilities
Note 6. Fair Value Disclosures
Note 7. Derivatives
Note 8. Leases
Note 9. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits
EX-31.1 smbk_033019xex311.htm
EX-31.2 smbk_033119xex312.htm
EX-32.1 smbk_033119xex321.htm
EX-32.2 smbk_033119xex322.htm

Smartfinancial Earnings 2019-03-31

SMBK 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 smbk_033119x10qdocument.htm 10-Q SMARTFINANCIAL INC MARCH 31 2019 Document


United States Securities and Exchange Commission
Washington, D.C. 20549
 
FORM 10-Q
(Mark One) 
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
¨
TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to               

Commission File Number:333-203449
tlogoa01.jpg 

(Exact name of small business issuer as specified in its charter) 
Tennessee
 
62-1173944
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
5401 Kingston Pike, Suite 600 Knoxville, Tennessee
 
37919
(Address of principal executive offices)
 
(Zip Code)
 
 
 
865-453-2650
 
 
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal
 
 
year, if changes since last report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x   No  ¨
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such period that the registrant was required to submit such files).
Yes  x    No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or and emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  ¨
Accelerated filer  x
Non-accelerated filer  ¨
Smaller reporting company  x
Emerging growth company ¨
 
 
If an emerging growth company, indicate by check market if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

1



Yes  ¨    No  x

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common
SMBK
NASDAQ

As of May 1, 2019 there were 13,951,590 shares of common stock, $1.00 par value per share, issued and outstanding.

2



TABLE OF CONTENTS
 
 


3



FORWARD-LOOKING STATEMENTS
 
Certain of the statements made in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” and “estimate,” and similar expressions, are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking, including statements pertaining to the intent, belief, or current expectations of SmartFinancial’s management regarding the company’s strategic direction, plans, objectives, prospects, or future results or financial performance. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of SmartFinancial to differ materially from any results, performance, or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, among others, (1) the risk that the recent announcement of the termination of our agreement and plan of merger with Entegra Financial Corp. (the “Entegra Merger Agreement”) could have adverse effects on the market price of our common stock; (2) the risk that the termination of the Entegra Merger Agreement or the announcement of the same could have an adverse effect on our business generally, including our ability to retain customers, retain or hire key personnel, or maintain relationships with customers or suppliers; (3) reputational risk from the announcement of the termination of the Entegra Merger Agreement.; (4) the fact that we have incurred significant costs and expenses related to the Entegra Merger Agreement and the transactions that were contemplated by the Entegra Merger Agreement; (5) the risk of litigation related to the termination of the Entegra Merger Agreement or the abandonment of the transactions that were contemplated by the Entegra Merger Agreement; (6) potential changes to, or the risk that we may not be able to execute on, our business strategy as a result of the termination of the Entegra Merger Agreement; (7) the risk that cost savings and revenue synergies from recently completed acquisitions may not be realized or may take longer than anticipated to realize, (8) disruption from recently completed acquisitions with customer, supplier, employee, or other business relationships, (9) our ability to successfully integrate the businesses acquired as part of previous acquisitions with the business of SmartBank, (10) changes in management’s plans for the future, (11) prevailing, or changes in, economic or political conditions, particularly in our market areas, (12) credit risk associated with our lending activities, (13) changes in interest rates, loan demand, real estate values, or competition, (14) changes in accounting principles, policies, or guidelines, (15) changes in applicable laws, rules, or regulations, and (16) other general competitive, economic, political, and market factors, including those affecting our business, operations, pricing, products, or services. Certain additional factors which could affect the forward-looking statements can be found in SmartFinancial’s annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, in each case filed with or furnished to the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website (www.sec.gov). SmartFinancial disclaims any obligation to update or revise any forward-looking statements contained in this report, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise.


Non-GAAP Financial Measures

Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure. The SEC has exempted from the definition of non-GAAP financial measures certain commonly used financial measures that are not based on GAAP. However, two non-GAAP financial measures commonly used by financial institutions, namely tax-equivalent net interest income and tax-equivalent net interest margin (as presented in the tables in the section labeled “Net Interest Income and Yield Analysis”), have not been specifically exempted by the SEC, and may therefore constitute non-GAAP financial measures under Regulation G. We are unable to state with certainty whether the SEC would regard those measures as subject to Regulation G. Management believes that these non-GAAP financial measures are useful in evaluating the company’s financial performance and facilitate comparisons with the performance of other financial institutions. However, that information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP.




4



PART I –FINANCIAL INFORMATION 
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 
SMARTFINANCIAL, INC. AND SUBSIDIARY 
CONSOLIDATED BALANCE SHEETS 
 
 
Unaudited
March 31,
2019
 
December 31,
2018
ASSETS
 
 

 
 

Cash and due from banks
 
$
47,667,920

 
$
40,015,438

Interest-bearing deposits at other financial institutions
 
85,326,515

 
75,807,021

Total cash and cash equivalents
 
132,994,435

 
115,822,459

 
 
 
 
 
Securities available-for-sale, at fair value
 
198,272,685

 
201,687,683

Restricted investments, at cost
 
12,397,950

 
11,499,000

Loans, net of allowance for loan losses of $8,704,413 at March 31, 2019 and $8,275,055 at December 31, 2018
 
1,831,864,834

 
1,768,963,569

Bank premises and equipment, net
 
56,582,528

 
56,012,184

Foreclosed assets
 
2,066,263

 
2,495,458

Goodwill and core deposit intangible, net
 
78,690,076

 
79,033,607

Cash surrender value of life insurance
 
24,539,512

 
24,381,485

Other assets
 
16,572,478

 
14,513,890

Total assets
 
$
2,353,980,761

 
$
2,274,409,335

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 

 
 

Deposits:
 
 

 
 

Noninterest-bearing demand deposits
 
$
329,095,443

 
$
319,861,237

Interest-bearing demand deposits
 
331,628,819

 
311,482,434

Money market and savings deposits
 
698,430,851

 
641,944,880

Time deposits
 
635,175,084

 
648,675,440

Total deposits
 
1,994,330,197

 
1,921,963,991

 
 
 
 
 
Securities sold under agreement to repurchase
 
7,069,668

 
11,755,923

Federal Home Loan Bank advances and other borrowings
 
8,604,917

 
11,242,533

Subordinated debt
 
39,198,068

 
39,176,947

Accrued expenses and other liabilities
 
14,297,108

 
7,258,460

Total liabilities
 
2,063,499,958

 
1,991,397,854

 
 
 
 
 
Shareholders' equity:
 
 

 
 

Preferred stock - $1 par value; 2,000,000 shares authorized; None issued and outstanding as of March 31, 2019 and December 31, 2018
 

 

Common stock - $1 par value; 40,000,000 shares authorized; 13,951,590 and 13,933,504 shares issued and outstanding  in 2019 and 2018, respectively
 
13,951,590

 
13,933,504

Additional paid-in capital
 
232,240,747

 
231,851,730

Retained earnings
 
44,722,239

 
39,990,990

Accumulated other comprehensive loss
 
(433,773
)
 
(2,764,743
)
Total shareholders' equity
 
290,480,803

 
283,011,481

 
 
 
 
 
Total liabilities and shareholders' equity
 
$
2,353,980,761

 
$
2,274,409,335


The Notes to Consolidated Financial Statements are an integral part of these statements.

5



SMARTFINANCIAL, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 
 
 
Three Months Ended
March 31,
 
 
2019
 
2018
INTEREST INCOME
 
 

 
 

Loans, including fees
 
$
24,974,939

 
$
18,227,880

Securities and interest-bearing deposits at other financial institutions
 
1,787,632

 
1,049,356

Federal funds sold and other earning assets
 
179,964

 
100,818

Total interest income
 
26,942,535

 
19,378,054

INTEREST EXPENSE
 
 

 
 

Deposits
 
5,250,501

 
2,401,462

Securities sold under agreements to repurchase
 
7,788

 
12,496

Subordinated debt
 
583,621

 

Federal Home Loan Bank advances and other borrowings
 
103,385

 
152,775

Total interest expense
 
5,945,295

 
2,566,733

Net interest income before provision for loan losses
 
20,997,240

 
16,811,321

Provision for loan losses
 
797,129

 
688,796

Net interest income after provision for loan losses
 
20,200,111

 
16,122,525

NONINTEREST INCOME
 
 

 
 

Customer service fees
 
654,000

 
578,003

Gain on sale of loans and other assets
 
281,903

 
325,345

Interchange and debit card transaction fees
 
174,912

 
145,536

Other noninterest income
 
587,355

 
406,308

Total noninterest income
 
1,698,170

 
1,455,192

NONINTEREST EXPENSES
 
 

 
 

Salaries and employee benefits
 
8,398,191

 
7,176,344

Net occupancy and equipment expense
 
1,640,126

 
1,533,413

FDIC insurance
 
178,832

 
101,804

Foreclosed assets
 
61,918

 
189,427

Advertising
 
295,237

 
184,476

Data processing
 
614,858

 
526,308

Professional services
 
796,856

 
898,360

Amortization of intangible assets
 
343,531

 
187,757

Software as service contracts
 
567,296

 
478,607

Merger expenses
 
923,141

 
497,740

Other operating expenses
 
1,759,512

 
1,448,255

Total noninterest expenses
 
15,579,498

 
13,222,491

Income before income tax expense
 
6,318,783

 
4,355,226

Income tax expense
 
1,587,534

 
940,455

Net income available to common shareholders
 
$
4,731,249

 
$
3,414,771

EARNINGS PER COMMON SHARE
 
 

 
 

Basic
 
$
0.34

 
$
0.30

Diluted
 
0.34

 
0.30

Weighted average common shares outstanding
 
 

 
 

Basic
 
13,942,016

 
11,210,836

Diluted
 
14,018,163

 
11,319,694


The Notes to Consolidated Financial Statements are an integral part of these statements.

6



SMARTFINANCIAL, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (Unaudited) 
 
 
Three Months Ended
March 31,
 
 
2019
 
2018
Net income available to common shareholders
 
$
4,731,249

 
$
3,414,771

Other comprehensive loss, net of tax:
 
 

 
 

Unrealized holding gains (losses) on securities arising during the period, net of tax expense (benefit) of $700,014 and $(445,994) in 2019 and 2018, respectively
 
2,330,970

 
(1,371,394
)
 
 
 
 
 
Total other comprehensive income (loss)
 
2,330,970

 
(1,371,394
)
 
 
 
 
 
Comprehensive income
 
$
7,062,219

 
$
2,043,377

 
 
 
 
 
The Notes to Consolidated Financial Statements are an integral part of these statements. 


7



SMARTFINANCIAL, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - (Unaudited) 
For the Three Months Ended March 31, 2019 and 2018
 
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders'
Equity
 
 
 
 
 
 
 
 
 
 
 
BALANCE, December 31, 2018
 
$
13,933,504

 
$
231,851,730

 
$
39,990,990

 
$
(2,764,743
)
 
$
283,011,481

 
 
 
 
 
 
 
 
 
 
 
Net income
 

 

 
4,731,249

 

 
4,731,249

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income
 

 

 

 
2,330,970

 
2,330,970

 
 
 
 
 
 
 
 
 
 
 
Issuance of stock grants and restricted stock
 
3,298

 
61,409

 

 

 
64,707

 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options
 
14,788

 
184,219

 

 

 
199,007

 
 
 
 
 
 
 
 
 
 
 
Stock compensation expense
 

 
143,389

 

 

 
143,389

 
 
 
 
 
 
 
 
 
 
 
BALANCE, March 31, 2019
 
$
13,951,590

 
$
232,240,747

 
$
44,722,239

 
$
(433,773
)
 
$
290,480,803

 
 
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders'
Equity
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, December 31, 2017
 
 
$
11,152,561

 
$
174,008,753

 
$
21,888,575

 
$
(1,198,049
)
 
$
205,851,840

 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 

 

 
3,414,771

 

 
3,414,771

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss
 
 

 

 

 
(1,371,394
)
 
(1,371,394
)
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options
 
 
81,245

 
869,276

 

 

 
950,521

 
 
 
 
 
 
 
 
 
 
 
 
Stock compensation expense
 
 

 
103,177

 

 

 
103,177

 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, March 31, 2018
 
 
$
11,233,806

 
$
174,981,206

 
$
25,303,346

 
$
(2,569,443
)
 
$
208,948,915

 
The Notes to Consolidated Financial Statements are an integral part of these statements 

8



SMARTFINANICAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
4,731,249

 
$
3,414,771

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation, amortization and accretion
 
(560,383
)
 
(645,364
)
Provision for loan losses
 
797,129

 
688,796

Stock compensation expense
 
143,389

 
103,177

Deferred income tax expense
 
1,038,865

 
1,315,696

Income on bank owned life insurance
 
(158,027
)
 
(150,066
)
 Loss on disposal of fixed assets
 
6,961

 
40,956

Net gains from sale of loans and other assets
 
(281,903
)
 
(325,345
)
Net losses from sale of foreclosed assets
 
25,558

 
146,540

Loans originated for sale
 
(16,804,564
)
 
(10,213,891
)
Proceeds from sale of loans originated for sale
 
16,061,157

 
11,217,169

Changes in other assets and liabilities:
 
 
 
 
Accrued interest receivable
 
(1,092,865
)
 
(352,171
)
Accrued interest payable
 
747,512

 
21,507

Other assets and liabilities
 
3,040,906

 
(2,618,866
)
Net cash provided by operating activities
 
7,694,984

 
2,642,909

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Proceeds from sales, maturities, and paydowns of securities available-for-sale
 
8,172,785

 
5,007,826

Purchase of securities available-for-sale
 
(1,053,710
)
 
(11,239,649
)
Purchase of restricted investments
 
(898,950
)
 
(1,377,600
)
Loan originations and principal collections, net
 
(61,010,912
)
 
(50,058,787
)
Purchase of bank premises and equipment
 
(1,296,250
)
 
(1,830,300
)
Proceeds from sale of foreclosed assets
 
458,157

 
320,417

Net cash used in investing activities
 
(55,628,880
)
 
(59,178,093
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Net increase in deposits
 
72,166,029

 
60,954,797

Net decrease in securities sold under agreements to repurchase
 
(4,686,255
)
 
(8,086,929
)
Issuance of common stock
 
263,714

 
950,521

Proceeds from Federal Home Loan Bank advances and other borrowings
 
50,094,474

 
65,000,000

Repayment of Federal Home Loan Bank advances and other borrowings
 
(52,732,090
)
 
(78,600,000
)
Net cash provided by financing activities
 
65,105,872

 
40,218,389

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
17,171,976

 
(16,316,795
)
CASH AND CASH EQUIVALENTS, beginning of year
 
115,822,459

 
113,026,884

CASH AND CASH EQUIVALENTS, end of period
 
$
132,994,435

 
$
96,710,089

 
 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
 
Cash paid during the period for interest
 
$
5,197,783

 
$
2,545,226

 
 
 
 
 
NONCASH INVESTING AND FINANCING ACTIVITIES
 
 
 
 
Change in unrealized losses on securities available for sale
 
$
(3,030,984
)
 
$
1,817,388

Acquisition of real estate through foreclosure
 
54,520

 
135,038

Financed sales of foreclosed assets
 

 
257,416

Change in goodwill due to acquisition
 

 
10,778


The Notes to Consolidated Financial Statements are an integral part of these statements.

9

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



Note 1. Presentation of Financial Information
  
Interim Financial Information (Unaudited):
 
The financial information in this report for March 31, 2019 and March 31, 2018 has not been audited. The information included herein should be read in conjunction with the Company’s annual consolidated financial statements and footnotes included in the Company's most recent Annual Report on Form 10-K. The consolidated financial statements presented herein conform to U.S. generally accepted accounting principles and to general industry practices. In the opinion of SmartFinancial’s management, the accompanying interim financial statements contain all material adjustments necessary to present fairly the Company's financial condition, the results of operations, and cash flows for the interim period. Results for interim periods are not necessarily indicative of the results to be expected for a full year.
 
Basis of Presentation and Accounting Estimates:
 
All adjustments consisting of normal recurring accruals that in the opinion of management are necessary for a fair presentation of the financial position and the results of operations for the periods covered by the report have been included. The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with those appearing in the most recent Annual Report previously filed on Form 10-K.
 
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.
 
In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the U.S, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed assets and deferred taxes, other than temporary impairments of securities, the fair value of financial instruments, goodwill, and business combination elements (Day 1 and Day 2 Valuation).

Recently Issued and Adopted Accounting Pronouncements:

As of January 1, 2019, the Company adopted certain accounting standard updates related to accounting for leases (Topic 842 - Leases), primarily Accounting Standards Update ASU 2016-02 and subsequent updates. Among other things, these updates require lessees to recognize a lease liability, measured on a discounted basis, related to the lessee's obligation to make lease payments arising under a lease contract; and a right-of-use asset related to the lessee's right to use, or control the use of, a specified asset for the lease term. The updates did not significantly change lease accounting requirements applicable to lessors and did not significantly impact the Company's consolidated financial statements in relation to contracts whereby the Company acts as a lessor. The Company adopted the updates using a modified-retrospective transition approach and recognized right-of-use lease assets and related lease liabilities totaling $2.3 million each as of January 1, 2019. As of March 31, 2019, right-of-use lease assets and related lease liabilities totaled $2.2 million each.

In February 2016, the FASB issued ASU No. 2016-02, Leases. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee’s obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standard. All entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. All entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. As the Company elected the transition option provided in ASU No. 2018-11 (see below), the modified retrospective approach was applied on January 1, 2019.

10

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 1. Presentation of Financial Information, Continued

Recently Issued and Adopted Accounting Pronouncements (continued):
 
The Company also elected certain relief options offered in ASU 2016-02 including the package of practical expedients, the option not to separate lease and non-lease components and instead to account for them as a single lease component, and the option not to recognize right-of-use assets and lease liabilities that arise from short-term leases (i.e., leases with terms of twelve months or less). We elected to apply certain practical adoption expedients provided under the updates whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. The Company did not elect the hindsight practical expedient, which allows entities to use hindsight when determining lease term and impairment of right-of-use assets. The Company has several lease agreements, such as branch locations or office space, which are considered operating leases, and therefore, were not previously recognized on the Company’s consolidated balance sheet. The new guidance requires these lease agreements to be recognized on the consolidated balance sheet as a right-of-use asset and a corresponding lease liability. The new guidance did not have a material impact on the consolidated statements of income or the consolidated statements of cash flows. See Note 8 Leases for more information.
 
In July 2018, the FASB issued ASU No. 2018-11, Leases - Targeted Improvements to provide entities with relief from the costs of implementing certain aspects of the new leasing standard, ASU No. 2016-02. Specifically, under the amendments in ASU 2018-11: (1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments have the same effective date as ASU 2016-02 (January 1, 2019 for the Company). The Company adopted ASU 2018-11 on its required effective date of January 1, 2019 and elected both transition options mentioned above.

As of January 1, 2019, the Company adopted ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The ASU expands the scope of Topic 718, Compensation-Stock Compensation (which previously only included payments to employees), to include share-based payment transactions for acquiring goods and services from non-employees. This required entities to apply the requirements of Topic 718 to non-employee awards, except for specific guidance on inputs to an option pricing model and the attribution of cost (i.e., the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). Additionally, the amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in the grantor’s own operations by issuing share-based payment awards, and clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer, or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

As of January 1, 2019, the Company adopted ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization on Purchased Callable Debt Securities. The ASU shortens the amortization period for certain callable debt securities held at a premium. The premium on individual callable debt securities shall be amortized to the earliest call date. This guidance does not apply to securities for which prepayments are estimated on a large number of similar loans where prepayments are probable and reasonably estimable. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Not Yet Effective Accounting Pronouncements:

During interim periods, the Company follows the accounting policies set forth in its annual audited financial statements for the year ended December 31, 2018 as filed with the Securities and Exchange Commission. The following is a summary of recent authoritative pronouncements issued since December 31, 2018 but not yet effective that could impact the accounting, reporting, and/or disclosure of financial information by the Company .


11

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 1. Presentation of Financial Information, Continued

Recently Not Yet Effective Accounting Pronouncements (continued):

In June 2016, FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU changed the credit loss model on financial instruments measured at amortized cost, available for sale securities and certain purchased financial instruments. Credit losses on financial instruments measured at amortized cost will be determined using a current expected credit loss model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. Purchased financial assets with more-than-insignificant credit deterioration since origination ("PCD assets" which are currently named "PCI Loans") measured at amortized cost will have an allowance for credit losses established at acquisition as part of the purchase price. Subsequent increases or decreases to the allowance for credit losses on PCD assets will be recognized in the income statement. Interest income should be recognized on PCD assets based on the effective interest rate, determined excluding the discount attributed to credit losses at acquisition. Credit losses relating to available-for-sale debt securities will be recognized through an allowance for credit losses. The amount of the credit loss is limited to the amount by which fair value is below amortized cost of the available-for-sale debt security. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years for the Company and other SEC filers. Early adoption is permitted and if early adopted, all provisions must be adopted in the same period. The amendments should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the period adopted. A prospective approach is required for securities with other than temporary impairment recognized prior to adoption. The Company is continuing its implementation efforts through its company-wide implementation team. The implementation team meets periodically to discuss the latest developments and ensure progress is being made. The team also keeps current on evolving interpretations and industry practices related to ASU 2016-13 via webcasts, publications, conferences, and peer bank meetings. The team continues to evaluate and validate data resources and different loss methodologies. The Company’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to impact the Company’s consolidated financial statements, in particular an increase to the level of the reserve for credit losses. However, the Company continues to evaluate the extent of the potential impact. The guidance of ASU 2016-13 was recently amended by ASU 2018-19, Codification Improvements to Topic 326, Financial

Instruments - Credit Losses, which changed the effective date for non-public companies and clarified that operating lease receivables are not within the scope of the standard.

Reclassifications:

Certain captions and amounts in the 2018 consolidated financial statements were reclassified to conform to the 2019 presentation and these reclassifications had no impact on net income or shareholders' equity as previously reported.

Earnings per common share:
 
Basic earnings per common share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance (excluding tax impact). Potential common shares that may be issued by the Company relate solely to outstanding stock options, determined using the treasury stock method, and restricted stock awards, determined by the fair value of the Company's stock on date of grant.


12

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 2. Earnings per share
 
The following is a summary of the basic and diluted earnings per share for the three months ended March 31, 2019 and 2018.

 
Three Months Ended March 31,
 
 
2019
 
2018
 
Net income available to common shareholders
$
4,731,249

 
$
3,414,771

 
Weighted average common shares outstanding
13,942,016

 
11,210,836

 
Effect of dilutive stock options
76,147

 
108,858

 
Diluted shares
14,018,163

 
11,319,694

 
Basic earnings per common share
$
0.34

 
$
0.30

 
Diluted earnings per common share
$
0.34

 
$
0.30

 

There were no antidilutive shares for the three month periods ending March 31, 2019 and 2018.

Note 3. Securities
 
The amortized cost and fair value of securities available-for-sale at March 31, 2019 and December 31, 2018 are summarized as follows (in thousands):
 
 
 
March 31, 2019
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
U.S. Government-sponsored enterprises (GSEs)
 
$
39,106

 
$
21

 
$
(299
)
 
$
38,828

Municipal securities
 
58,260

 
1,506

 
(838
)
 
58,928

Other debt securities
 
978

 

 
(43
)
 
935

Mortgage-backed securities (GSEs)
 
100,600

 
95

 
(1,113
)
 
99,582

 
 
$
198,944

 
$
1,622

 
$
(2,293
)
 
$
198,273


 
 
December 31, 2018
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
U.S. Government-sponsored enterprises (GSEs)
 
$
44,117

 
$
12

 
$
(626
)
 
$
43,503

Municipal securities
 
55,248

 
276

 
(363
)
 
55,161

Other debt securities
 
977

 

 
(67
)
 
910

Mortgage-backed securities (GSEs)
 
103,875

 
153

 
(1,914
)
 
102,114

 
 
$
204,217

 
$
441

 
$
(2,970
)
 
$
201,688

 
At March 31, 2019 and December 31, 2018, securities with a carrying value totaling approximately $108.0 million and $97.2 million, respectively, were pledged to secure public funds and securities sold under agreements to repurchase.

For the three months ended March 31, 2019 and March 31, 2018, there were no available-for-sale securities sold which resulted in no gross gains or losses realized. For the three months ended March 31, 2019, there was one security called/redeemed for $5 million.


13

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 3. Securities, Continued

The amortized cost and estimated fair value of securities at March 31, 2019, by contractual maturity for non-mortgage backed securities are shown below (in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 
 
Amortized
Cost
 
Fair
Value
Due in one year or less
 
$

 
$

Due from one year to five years
 
31,111

 
30,930

Due from five years to ten years
 
14,567

 
14,352

Due after ten years
 
52,666

 
53,409

 
 
98,344

 
98,691

Mortgage-backed securities
 
100,600

 
99,582

 
 
$
198,944

 
$
198,273


The following tables present the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities available-for-sale have been in a continuous unrealized loss position, as of March 31, 2019 and December 31, 2018 (in thousands): 
 
 
As of March 31, 2019
 
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
U.S. Government- sponsored enterprises (GSEs)
 
$

 
$

 
$
28,807

 
$
(299
)
 
$
28,807

 
$
(299
)
Municipal securities
 

 

 
4,059

 
(838
)
 
4,059

 
(838
)
Other debt securities
 

 

 
935

 
(43
)
 
935

 
(43
)
Mortgage-backed securities (GSEs)
 
8,915

 
(29
)
 
72,886

 
(1,084
)
 
81,801

 
(1,113
)
 
 
$
8,915

 
$
(29
)
 
$
106,687

 
$
(2,264
)
 
$
115,602

 
$
(2,293
)
 
 
As of December 31, 2018
 
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
U.S. Government- sponsored enterprises (GSEs)
 
$
14,763

 
$
(237
)
 
$
13,728

 
$
(389
)
 
$
28,491

 
$
(626
)
Municipal securities
 
16,455

 
(150
)
 
4,767

 
(213
)
 
21,222

 
(363
)
Other debt securities
 

 

 
910

 
(67
)
 
910

 
(67
)
Mortgage-backed securities (GSEs)
 
10,516

 
(155
)
 
69,884

 
(1,759
)
 
80,400

 
(1,914
)
 
 
$
41,734

 
$
(542
)
 
$
89,289

 
$
(2,428
)
 
$
131,023

 
$
(2,970
)


14

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 3. Securities, Continued

At March 31, 2019, the categories of temporarily impaired securities, and management’s evaluation of those securities, are as follows:

U.S. Government-sponsored enterprises: At March 31, 2019, 8 (or eight) investments in U.S. GSE securities had unrealized losses. These unrealized losses related principally to changes in market interest rates. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Bank does not intend to sell the investments and it is more likely than not that the Bank will not be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Bank does not consider these investments to be other-than temporarily impaired at March 31, 2019.

Municipal securities: At March 31, 2019, 8 (or eight) investments in obligations of municipal securities had unrealized losses. The Bank believes the unrealized losses on those investments were caused by the interest rate environment and do not relate to the underlying credit quality of the issuers. Because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Bank does not consider these investments to be other-than temporarily impaired at March 31, 2019.

Other debt securities: At March 31, 2019, 1 (or one) investment in other debt securities had unrealized losses. The Bank believes the unrealized loss on this investment was caused by the interest rate environment and does not relate to the underlying credit quality of the issuer. Because the Bank does not intend to sell the investment and it is not more likely than not that the Bank will be required to sell the investment before recovery of its amortized cost bases, which may be maturity, the Bank does not consider this investment to be other-than temporarily impaired at March 31, 2019.

Mortgage-backed securities: At March 31, 2019, 68 (or sixty-eight) investments in residential mortgage-backed securities had unrealized losses.  This impairment is believed to be caused by the current interest rate environment.  The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government.  Because the decline in market value is attributable to the current interest rate environment and not credit quality, and because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Bank does not deem these investments to be other-than-temporarily impaired at March 31, 2019. 

Note 4. Loans and Allowance for Loan Losses
 
Portfolio Segmentation:
 
At March 31, 2019 and December 31, 2018, loans are summarized as follows (in thousands):
 
 
 
March 31, 2019
 
December 31, 2018
 
 
PCI Loans1
 
All Other
Loans
 
Total
 
PCI Loans1
 
All Other
Loans
 
Total
Commercial real estate
 
$
17,299

 
$
871,643

 
$
888,942

 
$
17,682

 
$
842,345

 
$
860,027

Consumer real estate
 
8,146

 
402,835

 
410,981

 
8,712

 
398,542

 
407,254

Construction and land development
 
4,670

 
182,339

 
187,009

 
4,602

 
183,293

 
187,895

Commercial and industrial
 
2,300

 
339,171

 
341,471

 
2,557

 
305,697

 
308,254

Consumer and other
 
453

 
11,713

 
12,166

 
605

 
13,204

 
13,809

Total loans
 
32,868

 
1,807,701

 
1,840,569

 
34,158

 
1,743,081

 
1,777,239

Less:  Allowance for loan losses
 
(54
)
 
(8,650
)
 
(8,704
)
 

 
(8,275
)
 
(8,275
)
Loans, net
 
$
32,814

 
$
1,799,051

 
$
1,831,865

 
$
34,158

 
$
1,734,806

 
$
1,768,964

1 Purchased Credit Impaired loans (“PCI loans”) are loans with evidence of credit deterioration at purchase.

For purposes of the disclosures required pursuant to the adoption of ASC 310, the loan portfolio was disaggregated into segments. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. There are five loan portfolio segments that include commercial real estate, consumer real estate, construction and land development, commercial and industrial, and consumer and other.


15

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 4. Loans and Allowance for Loan Losses, Continued

Credit Risk Management:

The composition of loans by loan classification for impaired and performing loan status at March 31, 2019 and December 31, 2018, is summarized in the tables below (in thousands):

 
 
March 31, 2019
 
 
Commercial
Real Estate
 
Consumer
Real Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Performing loans
 
$
871,007

 
$
401,937

 
$
181,684

 
$
338,806

 
$
11,660

 
$
1,805,094

Impaired loans
 
636

 
898

 
655

 
365

 
53

 
2,607

 
 
871,643

 
402,835

 
182,339

 
339,171

 
11,713

 
1,807,701

PCI loans
 
17,299

 
8,146

 
4,670

 
2,300

 
453

 
32,868

Total
 
$
888,942

 
$
410,981

 
$
187,009

 
$
341,471

 
$
12,166

 
$
1,840,569

 
 
December 31, 2018
 
 
Commercial
Real Estate
 
Consumer
Real Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Performing loans
 
$
841,709

 
$
397,306

 
$
182,746

 
$
304,673

 
$
13,088

 
$
1,739,522

Impaired loans
 
636

 
1,236

 
547

 
1,024

 
116

 
3,559

 
 
842,345

 
398,542

 
183,293

 
305,697

 
13,204

 
1,743,081

PCI loans
 
17,682

 
8,712

 
4,602

 
2,557

 
605

 
34,158

Total loans
 
$
860,027

 
$
407,254

 
$
187,895

 
$
308,254

 
$
13,809

 
$
1,777,239


The following tables show the allowance for loan losses allocation by loan classification for impaired, PCI, and performing loans as of March 31, 2019 and December 31, 2018 (in thousands):

 
 
March 31, 2019
 
 
Commercial
Real Estate
 
Consumer
Real Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and
Other
 
Total
Performing loans
 
$
4,023

 
$
1,902

 
$
846

 
$
1,545

 
$
114

 
$
8,430

PCI loans
 
40

 
14

 

 

 

 
54

Impaired loans
 
11

 
33

 
8

 
164

 
4

 
220

Total
 
$
4,074

 
$
1,949

 
$
854

 
$
1,709

 
$
118

 
$
8,704


 
 
December 31, 2018
 
 
Commercial
Real Estate
 
Consumer
Real Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and
Other
 
Total
Performing loans
 
$
3,639

 
$
1,763

 
$
795

 
$
1,304

 
$
240

 
$
7,741

PCI loans
 

 

 

 

 

 

Impaired loans
 

 
26

 

 
442

 
66

 
534

Total
 
$
3,639

 
$
1,789

 
$
795

 
$
1,746

 
$
306

 
$
8,275

 

16

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 4. Loans and Allowance for Loan Losses, Continued

Credit Risk Management (continued):
The following tables detail the changes in the allowance for loan losses for the three month periods ending March 31, 2019 and March 31, 2018, by loan classification (in thousands):

 
 
March 31, 2019
 
 
Commercial
Real Estate
 
Consumer
Real
Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Beginning balance
 
$
3,639

 
$
1,789

 
$
795

 
$
1,746

 
$
306

 
$
8,275

Loans charged off
 

 
(2
)
 

 
(318
)
 
(130
)
 
(450
)
Recoveries of loans charged off
 
2

 
4

 
2

 
12

 
62

 
82

Provision (reallocation) charged to expense
 
433

 
158

 
57

 
269

 
(120
)
 
797

Ending balance
 
$
4,074

 
$
1,949

 
$
854

 
$
1,709

 
$
118

 
$
8,704


 
 
March 31, 2018
 
 
Commercial
Real Estate
 
Consumer
Real
Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Beginning balance
 
$
2,465

 
$
1,596

 
$
521

 
$
1,062

 
$
216

 
$
5,860

Loans charged off
 
(38
)
 

 

 
(78
)
 
(42
)
 
(158
)
Recoveries of charge-offs
 

 
23

 
2

 
40

 
21

 
86

Provision (reallocation) charged to expense
 
498

 
(100
)
 
104

 
186

 
1

 
689

Ending balance
 
$
2,925

 
$
1,519

 
$
627

 
$
1,210

 
$
196

 
$
6,477


The following table details the changes in the allowance for loan losses for the year ending December 31, 2018, by loan classification (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
Commercial
Real Estate
 
Consumer
Real
Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Beginning balance
 
$
2,465

 
$
1,596

 
$
521

 
$
1,062

 
$
216

 
$
5,860

Loans charged off
 
(38
)
 
(275
)
 

 
(177
)
 
(370
)
 
(860
)
Recoveries of charge-offs
 
2

 
100

 
9

 
72

 
156

 
339

Provision (reallocation) charged to expense
 
1,210

 
368

 
265

 
789

 
304

 
2,936

Ending balance
 
$
3,639

 
$
1,789

 
$
795

 
$
1,746

 
$
306

 
$
8,275



17

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 4. Loans and Allowance for Loan Losses, Continued

Credit Risk Management (continued):

The following tables outline the amount of each loan classification and the amount categorized into each risk rating as of March 31, 2019 and December 31, 2018 (in thousands):

 
 
March 31, 2019
Non PCI Loans
 
Commercial
Real Estate
 
Consumer
Real Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Pass
 
$
863,455

 
$
400,139

 
$
180,904

 
$
333,423

 
$
11,527

 
$
1,789,448

Watch
 
7,547

 
1,775

 
623

 
4,228

 
131

 
14,304

Special mention
 

 
15

 
157

 
1,155

 

 
1,327

Substandard
 
641

 
906

 
655

 
357

 
55

 
2,614

Doubtful
 

 

 

 
8

 

 
8

Total
 
$
871,643

 
$
402,835

 
$
182,339

 
$
339,171

 
$
11,713

 
$
1,807,701

PCI Loans
 

 

 

 

 

 

Pass
 
$
12,825

 
$
5,555

 
$
3,554

 
$
2,196

 
$
397

 
$
24,527

Watch
 
2,736

 
581

 
1,116

 

 
16

 
4,449

Special mention
 
1,010

 
440

 

 

 
9

 
1,459

Substandard
 
728

 
1,570

 

 
104

 
31

 
2,433

Doubtful
 

 

 

 

 

 

Total
 
$
17,299

 
$
8,146

 
$
4,670

 
$
2,300

 
$
453

 
$
32,868

Total loans
 
$
888,942

 
$
410,981

 
$
187,009

 
$
341,471

 
$
12,166

 
$
1,840,569


 
 
December 31, 2018
Non PCI Loans
 
Commercial
Real Estate
 
Consumer
Real Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Pass
 
$
834,912

 
$
394,728

 
$
182,524

 
$
303,805

 
$
12,927

 
$
1,728,896

Watch
 
6,791

 
2,678

 
64

 
1,090

 
135

 
10,758

Special mention
 

 
14

 
158

 
137

 

 
309

Substandard
 
642

 
1,122

 
547

 
462

 
142

 
2,915

Doubtful
 

 

 

 
203

 

 
203

Total
 
$
842,345

 
$
398,542

 
$
183,293

 
$
305,697

 
$
13,204

 
$
1,743,081


PCI Loans
 

 

 

 

 

 

Pass
 
$
14,050

 
$
5,617

 
$
4,033

 
$
2,382

 
$
541

 
$
26,623

Watch
 
1,805

 
756

 
569

 

 
17

 
3,147

Special mention
 
1,030

 
446

 

 
50

 
10

 
1,536

Substandard
 
797

 
1,893

 

 
125

 
37

 
2,852

Doubtful
 

 

 

 

 

 

Total
 
$
17,682

 
$
8,712

 
$
4,602

 
$
2,557

 
$
605

 
$
34,158

Total loans
 
$
860,027

 
$
407,254

 
$
187,895

 
$
308,254

 
$
13,809

 
$
1,777,239




18

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 4. Loans and Allowance for Loan Losses, Continued

Past Due Loans:
 
A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. Generally, management places a loan on nonaccrual when there is a clear indicator that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due.
 
The following tables present the aging of the recorded investment in loans as of March 31, 2019 and December 31, 2018 (in thousands): 
 
 
March 31, 2019
 
 
30-60 Days
 Past Due and
Accruing
 
61-89 Days
 Past Due and
Accruing
 
Past Due 90
 Days or More
and Accruing
 
Nonaccrual
 
Total
 Past Due
and NonAccrual
 
PCI Loans
 
Current
Loans
 
Total
Loans
Commercial real estate
 
$
1,625

 
$
764

 
$

 
$
272

 
$
2,661

 
$
17,299

 
$
868,982

 
$
888,942

Consumer real estate
 
1,492

 
123

 
73

 
807

 
2,495

 
8,146

 
400,340

 
410,981

Construction and land development
 

 
79

 

 
655

 
734

 
4,670

 
181,605

 
187,009

Commercial and industrial
 
92

 
165

 
114

 
296

 
667

 
2,300

 
338,504

 
341,471

Consumer and other
 
132

 
131

 
23

 
42

 
328

 
453

 
11,385

 
12,166

Total
 
$
3,341

 
$
1,262

 
$
210

 
$
2,072

 
$
6,885

 
$
32,868

 
$
1,800,816

 
$
1,840,569


 
 
December 31, 2018