Regulatory Matters

12 Months Ended

Dec. 31, 2015

Banking and Thrift [Abstract]

Regulatory Capital Requirements under Banking Regulations [Text Block]

Note 13. Regulatory Matters

Regulatory Capital Requirements

The Company and the Banks are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Banks must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.

Effective January 1, 2015, the Company and the Banks are subject to the new regulatory risk-based capital rules adopted by the federal banking agencies implementing Basel III. Under the new capital guidelines, Tier 1 capital generally consists of common stock (plus related surplus) and retained earnings, limited amounts of minority interest in the form of additional Tier 1 capital instruments, and non-cumulative preferred stock and related surplus, subject to certain eligibility standards, less goodwill and other specified intangible assets and other regulatory deductions. Cumulative preferred stock and trust preferred securities issued after May 19, 2010 will no longer qualify as Tier 1 capital, but such securities issued prior to May 19, 2010, including in the case of bank holding companies with less than $15 billion in total assets at that date, trust preferred securities issued prior to that date, will continue to count as Tier 1 capital subject to certain limitations. Tier 2 capital consists of the allowance for loan and lease losses in an amount not exceeding 1.25% of standardized risk-weighted assets, plus qualifying preferred stock, qualifying subordinated debt and qualifying total capital minority interest, net of Tier 2 investments in financial institutions. Total Tier 1 capital, plus Tier 2 capital, constitutes total risk-based capital. The required minimum ratios are as follows:

⋅ common equity Tier 1 capital ratio (common equity Tier 1 capital to standardized total risk-weighted assets) of 4.5%;

⋅ Tier 1 capital ratio (Tier 1 capital to standardized total risk-weighted assets) of 6%;

⋅ total capital ratio (total capital to standardized total risk-weighted assets) of 8%; and

⋅ leverage ratio (Tier 1 capital to average total consolidated assets) of 4%.

The new capital guidelines also provide that all covered banking organizations must maintain a new capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonus payments to executive officers. The capital conservation buffer requirement will be phased in beginning in January 1, 2016 at the 0.625% level and will be increased by that same amount on each subsequent January 1 until it reaches 2.5% on January 1, 2019. When fully phased in, the capital conservation buffer effectively will result in a required minimum common equity Tier 1 capital ratio of at least 7.0%, Tier 1 capital ratio of at least 8.5% and total capital ratio of at least 10.5%. The capital guidelines also provide for a “countercyclical capital buffer” that is applicable only to certain covered institutions and does not have any current applicability to the Company and the Banks. Failure to satisfy the capital buffer requirements will result in increasingly stringent limitations on various types of capital distributions, including dividends, share buybacks and discretionary payments on Tier 1 instruments, and discretionary bonus payments.

The final regulatory capital rules also incorporate these changes in regulatory capital into the prompt corrective action framework, under which the thresholds for “adequately capitalized” banking organizations are equal to the new minimum capital requirements. Under this framework, in order to be considered “well capitalized”, insured depository institutions are required to maintain a Tier 1 leverage ratio of 5%, a common equity Tier 1 risk-based capital measure of 6.5%, a Tier 1 risked-based capital ratio of 8% and a total risk-based capital ratio of 10%.

At December 31, 2015, under the new regulations in effect on January 1, 2015, both the Company and the Banks were “well capitalized”. As permitted for regulated institutions that are not designated as ”advanced approach” banking organizations (those with assets greater than $250 billion or with foreign exposures greater than $10 billion), the Company and the Banks made a one-time, permanent election to opt out of the requirement to include most components of accumulated other comprehensive income in regulatory capital. At December 31, 2014, the Banks were “well capitalized” under the standards in effect at that time. In 2014 the Company was not subject to the regulatory capital reporting requirements.

Regulatory Restrictions on Dividends

Pursuant to Tennessee banking law, the Banks may not, without the prior consent of the Commissioner of the Tennessee Department of Financial Institutions (TDFI), pay any dividends to the Company in a calendar year in excess of the total of the Banks’ retained net income for that year plus the retained net income for the preceding two years. During the year ended December 31, 2015, SmartBank paid $500,000 in dividends to the Company. As of December 31, 2015, the Banks could pay approximately $7.4 million of dividends to the Company without prior approval of the Commissioner of the TDFI.

Regulatory Capital Levels

Actual and required capital levels at December 31, 2015 and 2014 are presented below (dollars in thousands):

											Minimum to be well
						Minimum for capital					capitalized under prompt
	Actual					adequacy purposes					corrective action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2015
SmartFinancial, Inc.
Total Capital (to Risk-Weighted Assets)	$	99,616		12.32	%	$	64,668		8.00	%	$	80,835		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		95,253		11.78	%		48,501		6.00	%		64,668		8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)		83,253		10.30	%		36,376		4.50	%		52,543		6.50	%
Tier 1 Capital (to Average Assets)		95,253		9.45	%		40,307		4.00	%		50,383		5.00	%
Cornerstone Community Bank
Total Capital (to Risk-Weighted Assets)	$	40,227		11.69	%	$	27,559		8.00	%	$	34,449		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		39,717		11.53	%		20,669		6.00	%		27,559		8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)		39,717		11.53	%		15,502		4.50	%		22,392		6.50	%
Tier 1 Capital (to Average Assets)		39,717		9.05	%		17,550		4.00	%		21,938		5.00	%
SmartBank
Total Capital (to Risk-Weighted Assets)	$	60,349		13.03	%	$	37,057		8.00	%	$	46,322		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		56,546		12.21	%		27,793		6.00	%		37,057		8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)		56,546		12.21	%		20,845		4.50	%		30,109		6.50	%
Tier 1 Capital (to Average Assets)		56,546		10.05	%		22,501		4.00	%		28,126		5.00	%

											Minimum to be well
						Minimum for capital					capitalized under prompt
	Actual					adequacy purposes					corrective action provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2014
SmartBank
Total Capital (to Risk-Weighted Assets)	$	59,088		14.73	%	$	32,085		8.00	%	$	40,106		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		55,457		13.83	%		16,042		4.00	%		24,064		6.00	%
Tier 1 Capital (to Average Assets)		55,457		10.83	%		20,475		4.00	%		25,594		5.00	%