Regulatory Matters

6 Months Ended

Jun. 30, 2020

Banking and Thrift [Abstract]

Regulatory Matters

Note 13. Regulatory Matters

Regulatory Capital Requirements:

The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgements by regulators. Failure to meet capital requirements can initiate regulatory action. Under the standards initially adopted by the Basel Committee on Banking Supervision in December 2010, the Company must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is 2.50%. At June 30, 2020, the Company and the Bank exceeded the minimum regulatory requirements and exceeded the threshold for the "well capitalized" regulatory classification.

Regulatory Restrictions on Dividends:

Pursuant to Tennessee banking law, the Bank may not, without the prior consent of the Commissioner of the Tennessee Department of Financial Institutions (the “TDFI”), pay any dividends to the Company in a calendar year in excess of the total of the Bank’s retained net income for that year plus the retained net income for the preceding two years.  Because this test involves a measure of net income, any charge on the Bank’s income statement, such as an impairment of goodwill, could impair the Bank’s ability to pay dividends to the Company. Under Tennessee corporate law, the Company is not permitted to pay dividends if, after giving effect to such payment, it would not be able to pay its debts as they become due in the usual course of business or its total assets would be less than the sum of its total liabilities plus any amounts needed

to satisfy any preferential rights if it were dissolving. In addition, in deciding whether or not to declare a dividend of any particular size, the Company’s board of directors must consider its and the Bank’s current and prospective capital, liquidity, and other needs. In addition to state law limitations on the Company’s ability to pay dividends, the Federal Reserve imposes limitations on the Company’s ability to pay dividends. Federal Reserve regulations limit dividends, stock repurchases and discretionary bonuses to executive officers if the Company’s regulatory capital is below the level of regulatory minimums plus the applicable capital conservation buffer.

During the three months ended June 30, 2020, the Bank did not pay dividends to the Company. During the six months ended June 30, 2020, the Bank paid $7.5 million in dividends to the Company. Since the fourth quarter of 2019, the Company has paid a quarterly common stock dividend of $0.05 per share. The amount and timing of all future dividend payments by the Company, if any, is subject to discretion of the Company’s board of directors and will depend on the Company’s earnings, capital position, financial condition and other factors, including new regulatory capital requirements, as they become known to the Company.

Regulatory Capital Levels:

Actual and required capital levels at June 30, 2020, and December 31, 2019 are presented below (dollars in thousands):

									Minimum to be
									well
									capitalized under
					Minimum for				prompt
					capital				corrective action
		Actual			adequacy purposes				provisions1
	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2020
SmartFinancial:
Total Capital (to Risk Weighted Assets)	$	315,306	13.25	%	$	190,305	8.00	%		N/A	N/A
Tier 1 Capital (to Risk Weighted Assets)		259,748	10.92	%		142,729	6.00	%		N/A	N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		259,748	10.92	%		107,047	4.50	%		N/A	N/A
Tier 1 Capital (to Average Assets)2		259,748	8.83	%		117,636	4.00	%		N/A	N/A
SmartBank:
Total Capital (to Risk Weighted Assets)	$	304,993	12.82	%	$	190,259	8.00	%	$	237,824	10.00	%
Tier 1 Capital (to Risk Weighted Assets)		288,739	12.14	%		142,694	6.00	%		190,259	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		288,739	12.14	%		107,021	4.50	%		154,586	6.50	%
Tier 1 Capital (to Average Assets)2		288,739	9.82	%		117,619	4.00	%		147,024	5.00	%
December 31, 2019
SmartFinancial:
Total Capital (to Risk Weighted Assets)	$	287,937	14.02	%	$	164,313	8.00	%		N/A	N/A
Tier 1 Capital (to Risk Weighted Assets)		238,433	11.61	%		123,235	6.00	%		N/A	N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		238,433	11.61	%		92,426	4.50	%		N/A	N/A
Tier 1 Capital (to Average Assets)		238,433	10.34	%		92,258	4.00	%		N/A	N/A
SmartBank:
Total Capital (to Risk Weighted Assets)	$	273,432	13.31	%	$	164,305	8.00	%	$	205,382	10.00	%
Tier 1 Capital (to Risk Weighted Assets)		263,189	12.81	%		123,229	6.00	%		164,305	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		263,189	12.81	%		92,422	4.50	%		133,498	6.50	%
Tier 1 Capital (to Average Assets)		263,189	11.41	%		92,254	4.00	%		115,317	5.00	%

¹The prompt corrective action provisions are applicable at the Bank level only.

²Average assets for the above calculations were based on the most recent quarter.