KNOXVILLE, Tenn., Jan. 19, 2021 (GLOBE NEWSWIRE) -- SmartFinancial, Inc. ("SmartFinancial" or the "Company"; NASDAQ: SMBK), today announced net income of $9.0 million, or $0.59 per diluted common share, for the fourth quarter of 2020, compared to net income of $6.4 million, or $0.42 per diluted common share for the third quarter of 2020. Operating earnings (Non-GAAP), which excludes securities gains, merger related and restructuring expenses and non-operating items, totaled $9.2 million, or $0.61 per diluted common share, in the fourth quarter of 2020, compared to $6.6 million, or $0.44 per diluted common share, in the third quarter of 2020.

Highlights for the Fourth Quarter of 2020

  • Net income of $9.0 million and operating earnings of $9.2 million (Non-GAAP)
  • Operating noninterest income (Non-GAAP) increased $381 thousand or 36.9% annualized quarter-over-quarter
  • Tangible book value per share (Non-GAAP) of $17.92, a 15.1% annualized quarter-over-quarter increase
  • Deposits increased by $153.2 million or 23.1% annualized from September 30, 2020
  • Paid off $237.8 million in borrowings from the Federal Reserve Bank Paycheck Protection Program Liquidity Facility (“PPPLF”)
  • COVID loan modifications declined to 0.7% of total loans

Billy Carroll, President & CEO, stated: "We are extremely pleased with our results for the quarter and for the year.  The year was unprecedented on several fronts, but our energetic, entrepreneurial team rose to the occasion and posted very sound results.  Our continued focus on diversification of revenue and work on efficiency gains are being seen in our metrics, and that, coupled with our solid credit quality, keeps us very excited about our future.”

SmartFinancial's Chairman, Miller Welborn, concluded: “The fourth quarter of 2020 and the entire year of 2020 exceeded our expectations. Our Board could not be happier or prouder of the entire team for the incredible effort and execution of our Strategic Plan. This COVID pandemic has affected a tremendous number of people and the SmartBank team continues to help our clients and the communities we serve.”

Net Interest Income and Net Interest Margin

Net interest income increased $463 thousand to $26.5 million for the fourth quarter of 2020 or approximately 1.8% when compared to $26.0 million for the third quarter of 2020, mainly attributable to a reduction in the cost of interest-bearing liabilities. Average earning assets totaled $3.0 billion, a decrease of $106.9 million, primarily driven by a decrease in cash and cash equivalents used to pay off $237.8 million in borrowings related to PPPLF funding. Average interest-bearing liabilities decreased $139.4 million, primarily as a result of the PPPLF pay off, and was offset by an increase of $80.1 million in average interest-bearing deposits.

The tax equivalent net interest margin was 3.57% for the fourth quarter of 2020, compared to 3.39% for the third quarter of 2020. The tax equivalent net interest margin was positively impacted by a 13 basis point increase in the average yield on interest-earning assets and a 5 basis point decline in the rate on interest-bearing liabilities over the prior quarter. Lower market interest rates continue to negatively impact earning asset yields, but these declines have been largely mitigated by a lower cost of funds. The primary drivers of the yield increase on interest-earning assets during the fourth quarter of 2020 was an increase in total loan fees of $748 thousand which was offset by a $192 thousand decline in discount accretion. The increase in loan fees during the quarter is attributable to $2.2 million of the Paycheck Protection Program (“PPP”) fee accretion and $1.3 million of other loan fees compared to $1.8 million of PPP fee accretion, and $905 thousand of other loan fees recognized in the third quarter of 2020. Accretion income on acquired loans for the quarter totaled $768 thousand compared to $960 thousand recognized in the third quarter of 2020. The Company continues to carry excess liquidity on the balance sheet that resulted from significant deposit growth during the second and third quarters and continued muted loan growth. The lower cost of deposits realized during the current quarter was attributable to the maturing and repricing of time deposits and the payoff of the PPPLF borrowing, which further contributed to the increase in the tax equivalent net interest margin.

The yield on interest-bearing liabilities decreased to 0.60% for the fourth quarter of 2020 when compared to 0.65% for the third quarter of 2020. The cost of average interest-bearing deposits was 0.50% for the fourth quarter of 2020 compared to 0.59% for the third quarter of 2020, a decrease of 9 basis points. The lower cost of average deposits was attributable to the maturing and repricing of time deposits, with average costs decreasing 18 basis points. The cost of total deposits for the fourth quarter of 2020 was 0.38%.

The following table presents selected interest rates and yields for the periods indicated:

          
  Three Months Ended
   
  Dec Sep Increase 
Selected Interest Rates and Yields 2020 2020 (Decrease) 
Yield on loans 4.72% 4.71% 0.01 %
Yield on earning assets, FTE 4.01% 3.88% 0.13 %
Cost of interest-bearing deposits 0.50% 0.59% (0.09)%
Cost of total deposits 0.38% 0.44% (0.06)%
Cost of interest-bearing liabilities 0.60% 0.65% (0.05)%
Net interest margin, FTE 3.57% 3.39% 0.18 %

Provision for Loan Loss and Credit Quality

There was no provision for loan losses during the fourth quarter of 2020, compared to $2.6 million in the third quarter of 2020. At December 31, 2020, the allowance for loan losses was $18.3 million. The allowance for loan losses to total loans was 0.77% as of December 31, 2020, compared to 0.78% as of September 30, 2020. For the Company’s originated loans, the allowance for loan losses to originated loans, less PPP loans, was 0.96% as of December 31, 2020, compared to 1.00% as of September 31, 2020. The remaining discounts on the acquired loan portfolio totaled $14.5 million, or 3.76% of acquired loans as of December 31, 2020.    During the quarter, the Company added a qualitative factor to the loan loss model, which is based upon the average number of COVID cases within our footprint.

As of December 31, 2020, the Company had COIVD related modified loans totaling $17.2 million, or 0.7%, of the loan portfolio, as compared to $232.5 million or 9.7%, of the loan portfolio on September 30, 2020. 

The following table presents detailed information related to the provision for loan losses for the periods indicated (dollars in thousands):

             
  Three Months Ended     
   Dec   Sep     
Provision for Loan Losses Rollforward  2020    2020    Change 
Beginning balance $18,817   $16,254   $2,563  
Charge-offs  (520)   (174)   (346) 
Recoveries  49    103    (54) 
Net charge-offs  (471)   (71)   (400) 
Provision  -    2,634    (2,634) 
Ending balance $18,346   $18,817   $(471) 
             
Allowance for loan losses to total loans, gross  0.77 %  0.78 %  (0.01)%

The Company is not required to implement the provisions of the CECL accounting standard until January 1, 2023 and is continuing to account for the allowance for loan losses under the incurred loss model.

Nonperforming loans as a percentage of total loans was 0.24% as of December 31, 2020, an increase of fifteen basis points from the 0.09% reported in the third quarter of 2020. Total nonperforming assets (which include nonaccrual loans, loans past due 90 days or more and still accruing, and other real estate owned) as a percentage of total assets was 0.31% as of December 31, 2020, as compared to 0.18% as of September 30, 2020. 

The following table presents detailed information related to credit quality for the periods indicated (dollars in thousands):

             
  Three Months Ended     
  Dec  Sep   Increase 
Credit Quality 2020  2020   (Decrease) 
Nonaccrual loans $5,633  $2,248  $3,385 
Loans past due 90 days or more and still accruing  149   -   149 
Total nonperforming loans  5,782   2,248   3,534 
Other real estate owned  4,619   3,932   687 
Total nonperforming assets $10,401  $6,180  $4,221 
             
Nonperforming loans to total loans, gross  0.24%  0.09%  0.15%
Nonperforming assets to total assets  0.31%  0.18%  0.13%

Noninterest Income

Noninterest income increased $855 thousand to $5.0 million for the fourth quarter of 2020 compared to $4.1 million for the third quarter of 2020. During the fourth quarter of 2020, the primary components of the changes in noninterest income were as follows:

  • Increase in service charges on deposit accounts of $140 thousand, primarily related to increased transaction volume;
  • Increase in mortgage banking income of $302 thousand, continued to experience high volume during the quarter;
  • Increase in other income of $476 thousand, related to $465 thousand of previously reserved funds from a dissolved loan program from the Alabama Department of Economic and Community Affairs (“ADECA”). These funds were placed in reserves for potential future losses. During the fourth quarter of 2020, these specific loans paid-off and the reserve was no longer required; and
  • Decrease in interchange and debit card transaction fees of $108 thousand, due to a one-time credit of $130 thousand from vendor reported during the third quarter of 2020.

The following table presents detailed information related to noninterest income for the periods indicated (dollars in thousands):

          
  Three Months Ended   
   Dec  Sep  Increase
Noninterest Income  2020  2020
  (Decrease)
Service charges on deposit accounts $1,032 $892  $140 
Gain (loss) on sale of securities, net  -  (9)  9 
Mortgage banking income  1,331  1,029   302 
Investment services  407  359   48 
Insurance commissions  548  560   (12)
Interchange and debit card transaction fees  760  868   (108)
Other  898  422   476 
Total noninterest income $4,976 $4,121  $855 

Noninterest Expense

Noninterest expense was $20.0 million for the fourth quarter of 2020 compared to $19.2 million for the third quarter of 2020. During the fourth quarter of 2020, the primary components of the changes in noninterest expense were as follows:

  • Salaries and employee benefits increased $484 thousand, increase is primarily attributable to year-end employee incentive accrual adjustments and various other employee benefit related accruals;
  • Professional services increased $192 thousand, due to increased volume of services performed;
  • Amortization of intangibles increased $169 thousand, increase is from a cumulative adjustment for the amortization of intangible assets (client list and trademark) related to the insurance company purchased in the acquisition of Progressive Financial Group (“PFG”);
  • Merger related and restructuring expense increased $412 thousand, primarily related from the consolidation and termination of two leased properties;  
  • FDIC insurance decreased $237 thousand, the decrease was related to an elevated third quarter expense due to an accrual adjustment; and
  • Other real estate and loan related expenses decreased $127 thousand, primarily attributable to decreased activity in loan related activity.

The following table presents detailed information related to noninterest expense for the periods indicated (dollars in thousands):

          
  Three Months Ended   
   Dec  Sep  Increase
Noninterest Expense  2020  2020  (Decrease)
Salaries and employee benefits $11,516 $11,032 $484 
Occupancy and equipment  2,256  2,186  70 
FDIC insurance  297  534  (237)
Other real estate and loan related expenses  516  643  (127)
Advertising and marketing  181  253  (72)
Data processing  592  558  34 
Professional services  786  594  192 
Amortization of intangibles  571  402  169 
Software as service contracts  590  573  17 
Merger related and restructuring expenses  702  290  412 
Other  1,946  2,102  (156)
Total noninterest expense $19,953 $19,167 $786 

Income Tax Expense

Income tax expense was $2.5 million for the fourth quarter of 2020, an increase of $531 thousand, compared to $2.0 million for the third quarter of 2020.

For the fourth quarter of 2020, the effective tax rate was 21.7% compared to 23.5% for the third quarter of 2020.   The lower effective tax rate during the fourth quarter of 2020 was primarily from tax benefits associated with a program the State of Tennessee manages for Community Investment loans.

Balance Sheet Trends

Total assets at December 31, 2020, were $3.30 billion compared with $2.45 billion at December 31, 2019. The increase of $855.8 million is primarily attributable to assets acquired from the acquisition of PFG of approximately $308.2 million, increase in cash and cash equivalents of $241.8 million and the net originations of $288.9 million of PPP loans.

Total liabilities increased to $2.95 billion at December 31, 2020 from $2.14 billion at December 31, 2019. The increase of $811.4 million was primarily from organic deposit growth of $486.0 million, acquired deposits from the acquisition of PFG in the amount of $272.0 million, and an increase in borrowings of $49.6 million.

Shareholders' equity at December 31, 2020, totaled $357.2 million, an increase of $44.4 million, from December 31, 2019. The increase in shareholders' equity was primarily from the issuance of common stock for the acquisition of PFG of $24.5 million, net income of $24.3 million for the year ended December 31, 2020 and a net change in accumulated other comprehensive income of $2.0 million, which was offset by the repurchase of the Company's common stock of $4.3 million and $3.0 million of dividends paid. Tangible book value per share (Non-GAAP) was $17.92 at December 31, 2020, an increase from $16.82 at December 31, 2019. Tangible common equity (Non-GAAP) as a percentage of tangible assets (Non-GAAP) was 8.41% at December 31, 2020, compared with 9.93% at December 31, 2019.

The following table presents selected balance sheet information for the periods indicated (dollars in thousands):

          
  Dec Dec Increase
Selected Balance Sheet Information 2020 2019 (Decrease)
Total assets $3,304,949 $2,449,123 $855,826
Total liabilities  2,947,781  2,136,376  811,405
Total equity  357,168  312,747  44,421
Securities available-for-sale, at fair value  215,634  178,348  37,286
Loans  2,382,243  1,897,392  484,851
Deposits  2,805,215  2,047,214  758,001
Borrowings  81,199  31,623  49,576

Conference Call Information

SmartFinancial issued this earnings release for the fourth quarter of 2020 on Tuesday, January 19, 2021, and will host a conference call on Wednesday, January 20, 2021, at 10:00 a.m. ET. To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 0205038. A replay of the conference call will be available through January 20, 2022, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10151327. Conference call materials will be published on the Company’s webpage located at http://www.smartfinancialinc.com/CorporateProfile, at 9:00 am ET prior to the conference call.

About SmartFinancial, Inc.

SmartFinancial, Inc., based in Knoxville, Tennessee, is the bank holding company for SmartBank. SmartBank is a full-service commercial bank founded in 2007, with 35 branches across East and Middle Tennessee, Alabama, and the Florida Panhandle. Recruiting the best people, delivering exceptional client service, strategic branching, and a disciplined approach to lending have contributed to SmartBank’s success. More information about SmartFinancial can be found on its website: www.smartfinancialinc.com.

  
Source 
SmartFinancial, Inc. 
  
Investor Contacts 
Billy CarrollRon Gorczynski
President & CEOExecutive Vice President, Chief Financial Officer
(865) 868-0613   billy.carroll@smartbank.com(865) 437-5724 ron.gorczynski@smartbank.com
  
Media Contact 
Kelley Fowler 
Senior Vice President, Public Relations & Marketing 
(865) 868-0611    kelley.fowler@smartbank.com 
  

Non-GAAP Financial Measures

Statements included in this earnings release include measures not recognized under U.S. generally accepted accounting principles (“GAAP”) and therefore are considered non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of Non-GAAP financial measures to GAAP financial measures. SmartFinancial management uses several Non-GAAP financial measures, including: (i) operating earnings, (ii) operating return on average assets, (iii) operating pre-tax pre-provision return on average assets (iv) operating return on average shareholder' equity, (v) return on average tangible common equity, (vi) operating return on average tangible common equity, (vii) operating efficiency ratio, (viii) operating noninterest income, (ix) operating pre-tax pre-provision income (x) operating noninterest expense, (xi) tangible common equity, (xii) average tangible common equity, (xiii) tangible book value; and ratios derived therefrom, in its analysis of the company's performance. Operating earnings excludes the following from net income: securities gains and losses, expenses related to the termination of an Alabama Department of Economic and Community Affairs (“ADECA”) loan program, merger termination fee of $6.4 million in the second quarter of 2019, merger related and restructuring expenses. Operating return on average assets is the annualized operating earnings divided by average assets. Operating pre-tax pre-provision return on average assets is the annualized operating pre-tax pre-provision income divided by average assets. Operating return on average shareholders' equity is the annualized operating earnings divided by average equity. Return on average tangible common equity is the annualized net income divided by average tangible common equity. Operating return on average tangible common equity is the annualized operating earnings divided by average tangible common equity (Non-GAAP). The operating efficiency ratio includes an adjustment for taxable equivalent yields and excludes securities gains and losses and merger related and restructuring expenses from the efficiency ratio. Operating noninterest income excludes the following from noninterest income: securities gains and losses, expenses related to the termination of the ADECA loan program and the merger termination fee of $6.4 million in the second quarter of 2019. Operating pre-tax pre-provision income is net interest expense plus operating noninterest income less operating noninterest expense. Operating noninterest expense excludes the following from noninterest expense: prior year adjustments to salaries, merger related and restructuring expenses and certain franchise tax true-up expenses. Tangible common equity and average tangible common equity excludes goodwill and other intangible assets from shareholders' equity and average shareholders' equity, respectively. Tangible book value is tangible common equity divided by common shares outstanding.   Management believes that Non-GAAP financial measures provide additional useful information that allows investors to evaluate the ongoing performance of the company and provide meaningful comparisons to its peers. Management believes these non-GAAP financial measures also enhance investors' ability to compare period-to-period financial results and allow investors and company management to view our operating results excluding the impact of items that are not reflective of the underlying operating performance. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider SmartFinancial's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

Forward-Looking Statements

This news release may contain statements that are based on management’s current estimates or expectations of future events or future results, and that may be deemed to constitute forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These statements, including statements regarding the potential effects of the COVID-19 pandemic on the Company’s business and financial results and conditions, are not historical in nature and can generally be identified by such words as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “may,” “estimate,” and similar expressions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results of SmartFinancial to differ materially from future results expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, among others, (1) risks associated with our growth strategy, including a failure to implement our growth plans or an inability to manage our growth effectively; (2) claims and litigation arising from our business activities and from the companies we acquire, which may relate to contractual issues, environmental laws, fiduciary responsibility, and other matters; (3) the risk that cost savings and revenue synergies from recently completed acquisitions may not be realized or may take longer than anticipated to realize; (4) disruption from recently completed acquisitions with customer, supplier, employee, or other business relationships; (5) our ability to successfully integrate the businesses acquired as part of previous acquisitions with the business of SmartBank; (6) risks related to the completed acquisition of PFG; (7) the risk that the anticipated benefits from the completed acquisition of PFG may not be realized in the time frame anticipated; (8) changes in management’s plans for the future; (9) prevailing, or changes in, economic or political conditions, particularly in our market areas; (10) credit risk associated with our lending activities; (11) changes in interest rates, loan demand, real estate values, or competition; (12) changes in accounting principles, policies, or guidelines; (13) changes in applicable laws, rules, or regulations, including changes to statutes, regulations or regulatory policies or practices as a result of, or in response to COVID-19; (14) adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions, including as a result of the Company’s participation in and execution of government programs related to the COVID-19 pandemic; (15) the impact of the COVID-19 pandemic on the Company’s assets, business, cash flows, financial condition, liquidity, prospects and results of operations; (16) potential increases in the provision for loan losses resulting from the COVID-19 pandemic; and (17) other general competitive, economic, political, and market factors, including those affecting our business, operations, pricing, products, or services. These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found in SmartFinancial’s most recent 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). Undue reliance should not be placed on forward-looking statements. SmartFinancial disclaims any obligation to update or revise any forward-looking statements contained in this release, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise.

 
SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands)
 
  Ending Balances
  Dec Sep Jun
 Mar Dec
  2020  2020
 2020
 2020
 2019
Assets:               
Cash and cash equivalents $481,719  $541,815  $399,467  $309,089  $183,971 
Securities available-for-sale, at fair value  215,634   214,634   219,631   201,002   178,348 
Other investments  14,794   14,829   14,829   14,113   12,913 
Loans held for sale  11,721   11,292   6,330   6,045   5,856 
Loans  2,382,243   2,404,057   2,408,284   2,139,247   1,897,392 
Less: Allowance for loan losses  (18,346)  (18,817)  (16,254)  (13,431)  (10,243)
Loans, net  2,363,897   2,385,240   2,392,030   2,125,816   1,887,149 
Premises and equipment, net  72,682   73,934   73,868   73,801   59,433 
Other real estate owned  4,619   3,932   5,524   5,894   1,757 
Goodwill and core deposit intangibles, net  86,471   86,710   86,327   86,503   77,193 
Bank owned life insurance  31,215   31,034   30,853   30,671   24,949 
Other assets  22,197   24,168   37,126   20,781   17,554 
Total assets $3,304,949  $3,387,588  $3,265,985  $2,873,715  $2,449,123 
Liabilities:               
Deposits:               
Noninterest-bearing demand $685,957  $669,733  $645,650  $431,781  $364,155 
Interest-bearing demand  649,129   534,128   479,212   444,141   380,234 
Money market and savings  919,631   871,098   762,246   730,392   623,284 
Time deposits  550,498   577,064   652,581   735,616   679,541 
Total deposits  2,805,215   2,652,023   2,539,689   2,341,930   2,047,214 
Borrowings  81,199   319,391   318,855   131,603   31,623 
Subordinated debt  39,346   39,325   39,304   39,283   39,261 
Other liabilities  22,021   27,060   24,649   24,699   18,278 
Total liabilities  2,947,781   3,037,799   2,922,497   2,537,515   2,136,376 
Shareholders' Equity:               
Common stock  15,107   15,233   15,217   15,222   14,008 
Additional paid-in capital  252,693   254,626   254,396   254,356   232,732 
Retained earnings  87,185   78,918   73,283   67,869   65,839 
Accumulated other comprehensive income (loss)  2,183   1,012   592   (1,247)  168 
Total shareholders' equity  357,168   349,789   343,488   336,200   312,747 
Total liabilities & shareholders' equity $3,304,949  $3,387,588  $3,265,985  $2,873,715  $2,449,123 


SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands except share and per share data)
 
 Three Months Ended  Year Ended
 Dec Sep Jun Mar Dec Dec Dec
 2020 2020 2020 2020
 2019 2020 2019
Interest income:                    
Loans, including fees$28,594 $28,621  $28,663 $26,434 $25,398 $112,312 $101,002
Securities available-for-sale:                    
Taxable 609  546   589  679  698  2,423  3,289
Tax-exempt 306  364   416  283  345  1,369  1,518
Federal funds sold and other earning assets 303  327   277  602  587  1,509  2,646
Total interest income 29,812  29,858   29,945  27,998  27,028  117,613  108,455
Interest expense:                    
Deposits 2,580  2,897   3,366  4,754  5,271  13,597  21,915
Borrowings 142  334   249  89  70  816  319
Subordinated debt 584  584   584  584  584  2,334  2,341
Total interest expense 3,306  3,815   4,199  5,427  5,924  16,747  24,575
Net interest income 26,506  26,043   25,746  22,571  21,104  100,866  83,880
Provision for loan losses   2,634   2,850  3,200  685  8,683  2,599
Net interest income after provision for loan losses 26,506  23,409   22,896  19,371  20,419  92,183  81,281
Noninterest income:                    
Service charges on deposit accounts 1,032  892   709  770  773  3,403  2,902
Gain (loss) on sale of securities, net   (9)  16      6  34
Mortgage banking 1,331  1,029   931  584  374  3,875  1,566
Investment services 407  359   363  437  261  1,566  946
Insurance commissions 548  560   473  269    1,850  
Interchange and debit card transaction fees 760  868   508  276  163  2,413  628
Merger termination fee              6,400
Other 898  422   511  482  1,269  2,313  2,839
Total noninterest income 4,976  4,121   3,511  2,818  2,840  15,426  15,315
Noninterest expense:                    
Salaries and employee benefits 11,516  11,032   10,357  10,006  10,278  42,911  36,635
Occupancy and equipment 2,256  2,186   1,996  1,911  1,749  8,348  6,716
FDIC insurance 297  534   180  180    1,190  140
Other real estate and loan related expense 516  643   346  545  253  2,050  1,320
Advertising and marketing 181  253   202  198  166  834  983
Data processing 592  558   594  538  530  2,281  1,995
Professional services 786  594   868  711  652  2,958  2,375
Amortization of intangibles 571  402   405  362  340  1,740  1,368
Software as service contracts 590  573   561  470  500  2,195  2,195
Merger related and restructuring expenses 702  290   1,477  2,096  427  4,565  3,219
Other 1,946  2,102   1,820  1,776  1,157  7,647  6,205
Total noninterest expense 19,953  19,167   18,806  18,793  16,052  76,719  63,151
Income before income taxes 11,529  8,363   7,601  3,396  7,206  30,890  33,445
Income tax expense 2,499  1,968   1,427  664  473  6,558  6,897
Net income$9,030 $6,395  $6,174 $2,732 $6,733 $24,332 $26,548
Earnings per common share:                    
Basic$0.60 $0.42  $0.41 $0.19 $0.48 $1.63 $1.90
Diluted$0.59 $0.42  $0.41 $0.19 $0.48 $1.62 $1.89
Weighted average common shares outstanding:                    
Basic 15,109,298  15,160,579   15,152,768  14,395,103  13,965,877  14,955,423  13,953,497
Diluted 15,182,796  15,210,611   15,202,335  14,479,679  14,066,269  15,019,175  14,046,366


SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands)
YIELD ANALYSIS
 
  Three Months Ended  
  December 31, 2020 September 30, 2020 December 31, 2019 
  Average    Yield/ Average    Yield/ Average    Yield/ 
  Balance Interest1 Cost1 Balance Interest1 Cost1 Balance Interest1 Cost1 
Assets:                         
Loans, including fees2 $2,401,406 $28,506 4.72%$2,410,173 $28,508 4.71%$1,876,953 $25,350 5.36%
Loans held for sale  10,191  88 3.45% 8,048  113 5.57% 4,548  48 4.19%
Taxable securities  119,936  609 2.02% 132,642  546 1.64% 116,278  698 2.38%
Tax-exempt securities  90,200  456 2.01% 88,129  515 2.32% 59,048  461 3.09%
Federal funds sold and other earning assets  349,167  303 0.35% 438,785  327 0.30% 133,681  587 1.74%
Total interest-earning assets  2,970,900  29,962 4.01% 3,077,777  30,009 3.88% 2,190,508  27,144 4.92%
Noninterest-earning assets  255,477       262,764       190,083      
Total assets $3,226,377      $3,340,541      $2,380,591      
                          
Liabilities and Stockholders’ Equity:                         
Interest-bearing demand deposits $570,326  230 0.16%$509,999  199 0.16%$351,901  486 0.55%
Money market and savings deposits  903,235  774 0.34% 833,022  704 0.34% 632,555  1,695 1.06%
Time deposits  565,237  1,576 1.11% 615,714  1,994 1.29% 633,867  3,090 1.93%
Total interest-bearing deposits  2,038,798  2,580 0.50% 1,958,735  2,897 0.59% 1,618,323  5,271 1.29%
Borrowings3  99,777  142 0.57% 319,265  334 0.42% 30,870  70 0.90%
Subordinated debt  39,332  584 5.90% 39,311  584 5.91% 39,248  584 5.90%
Total interest-bearing liabilities  2,177,907  3,306 0.60% 2,317,311  3,815 0.65% 1,688,441  5,924 1.39%
Noninterest-bearing deposits  670,820       649,489       363,542      
Other liabilities  23,624       25,834       19,836      
Total liabilities  2,872,351       2,992,634       2,071,819      
Shareholders' equity  354,026       347,907       308,772      
Total liabilities and shareholders' equity $3,226,377      $3,340,541      $2,380,591      
                          
Net interest income, taxable equivalent    $26,656      $26,194      $21,220   
Interest rate spread       3.41%      3.22%      3.52%
Tax equivalent net interest margin       3.57%      3.39%      3.84%
                          
Percentage of average interest-earning assets to average interest-bearing liabilities       136.41%      132.82%      129.74%
Percentage of average equity to average assets       10.97%      10.41%      12.97%

1 Taxable equivalent
2 Includes average balance of $296,337 and $295,045 in PPP loans for the quarters ended December 31, 2020 and September 30, 2020, respectively.
3 Includes average balance of $18,092 and $237,780 in Paycheck Protection Program Liquidity Facility (“PPPLF”) funding for the quarters ended December 31, 2020 and September 30, 2020, respectively.

 
SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands)
YIELD ANALYSIS
 
  Year Ended
  December 31, 2020 December 31, 2019 
  Average    Yield/ Average    Yield/ 
  Balance Interest1 Cost1 Balance Interest1 Cost1 
Assets:                  
Loans, including fees2 $2,289,612 $111,992  4.89%$1,836,963 $100,831 5.49%
Loans held for sale  7,360  320  4.34% 3,858  171 4.43%
Taxable securities  122,900  2,423  1.97% 129,705  3,289 2.54%
Tax-exempt securities  83,765  1,941  2.32% 56,458  1,972 3.49%
Federal funds sold and other earning assets  308,843  1,509  0.49% 110,380  2,646 2.40%
Total interest-earning assets  2,812,480  118,185  4.20% 2,137,364  108,909 5.10%
Noninterest-earning assets  250,955        201,976      
Total assets $3,063,435       $2,339,340      
                   
Liabilities and Stockholders’ Equity:                  
Interest-bearing demand deposits $481,050  1,013  0.21%$333,100  1,883 0.57%
Money market and savings deposits  788,006  3,482  0.44% 651,855  7,827 1.20%
Time deposits  641,647  9,102  1.42% 635,451  12,205 1.92%
Total interest-bearing deposits  1,910,703  13,597  0.71% 1,620,406  21,915 1.35%
Borrowings3  177,204  816  0.46% 21,526  319 1.48%
Subordinated debt  39,301  2,334  5.94% 39,216  2,341 5.97%
Total interest-bearing liabilities  2,127,208  16,747  0.79% 1,681,148  24,575 1.46%
Noninterest-bearing deposits  571,282        343,611      
Other liabilities  23,775        15,852      
Total liabilities  2,722,265        2,040,611      
Shareholders' equity  341,170        298,729      
Total liabilities and shareholders' equity $3,063,435       $2,339,340      
                   
Net interest income, taxable equivalent    $101,438       $84,334   
Interest rate spread        3.41%      3.64%
Tax equivalent net interest margin        3.61%      3.95%
                   
Percentage of average interest-earning assets to average interest-bearing liabilities        132.21%      127.14%
Percentage of average equity to average assets        11.14%      12.77%

1 Taxable equivalent
2 Includes average balance of $201,470 in PPP loans for the twelve months ended December 31, 2020.
3 Includes average balance of $91,190 in PPPLF funding for the twelve months ended December 31, 2020.

 
SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands)
 
  As of and for The Three Months Ended  
  Dec Sep Jun Mar Dec 
  2020 2020 2020 2020 2019 
Composition of Loans:                
Commercial real estate                
owner occupied $463,771 $467,569 $464,073 $473,398 $429,269 
non-owner occupied  549,205  563,082  552,958  535,637  476,038 
Commercial real estate, total  1,012,976  1,030,651  1,017,031  1,009,035  905,307 
Commercial & industrial  634,446  644,498  637,450  377,173  337,075 
Construction & land development  278,075  275,172  279,216  253,445  227,626 
Consumer real estate  443,930  440,310  459,861  482,728  417,481 
Consumer and other  12,816  13,426  14,726  16,866  9,903 
Total loans $2,382,243 $2,404,057 $2,408,284 $2,139,247 $1,897,392 
                 
Asset Quality and Additional Loan Data:                
Nonperforming loans $5,782 $2,248 $3,776 $3,069 $3,350 
Other real estate owned  4,619  3,932  5,524  5,894  1,757 
Total nonperforming assets $10,401 $6,180 $9,300 $8,963 $5,107 
Restructured loans not included in nonperforming loans $257 $8 $9 $9 $61 
Net charge-offs to average loans (annualized)  0.08% 0.01% % % 0.01%
Allowance for loan losses to loans  0.77% 0.78% 0.67% 0.63% 0.54%
Nonperforming loans to total loans, gross  0.24% 0.09% 0.16% 0.14% 0.18%
Nonperforming assets to total assets  0.31% 0.18% 0.28% 0.31% 0.21%
Acquired loan fair value discount balance $14,467 $15,141 $16,187 $17,237 $15,348 
Accretion income on acquired loans  768  960  888  1,841  1,375 
PPP net fees deferred balance  4,190  6,348  8,582     
PPP net fees recognized  2,157  1,812  1,909     
                 
Capital Ratios:                
Equity to Assets  10.81% 10.33% 10.52% 11.70% 12.77%
Tangible common equity to tangible assets (Non-GAAP)1  8.41% 7.97% 8.09% 8.96% 9.93%
                 
SmartFinancial, Inc.2                
Tier 1 leverage  8.69% 8.78% 8.83% 10.28% 10.34%
Common equity Tier 1  11.61% 11.33% 10.92% 10.87% 11.61%
Tier 1 capital  11.61% 11.33% 10.92% 10.87% 11.61%
Total capital  14.07% 13.81% 13.25% 13.13% 14.02%
                 
SmartBank  Estimated3             
Tier 1 leverage  9.58% 9.74% 9.82% 11.42% 11.41%
Common equity Tier 1  12.79% 12.57% 12.14% 12.05% 12.81%
Tier 1 risk-based capital  12.79% 12.57% 12.14% 12.05% 12.81%
Total risk-based capital  13.57% 13.37% 12.82% 12.62% 13.31%

1Total common equity less intangibles divided by total assets less intangibles. See reconciliation of Non-GAAP measures.
2All periods presented are estimated.
3 Current period capital ratios are estimated as of the date of this earnings release.

 
SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands except share and per share data)
 
 As of and for The  As of and for The 
 Three Months Ended   Year Ended  
 Dec Sep Jun Mar Dec  Dec Dec 
 2020 2020 2020 2020 2019  2020 2019 
Selected Performance Ratios (Annualized):                      
Return on average assets 1.11% 0.76% 0.79% 0.43% 1.12%  0.79% 1.13%
Return on average shareholders' equity 10.15% 7.31% 7.31% 3.33% 8.65%  7.13% 8.89%
Return on average tangible common equity¹ 13.43% 9.72% 9.80% 4.41% 11.55%  9.50% 12.04%
Noninterest income / average assets 0.61% 0.49% 0.45% 0.44% 0.47%  0.50% 0.65%
Noninterest expense / average assets 2.46% 2.28% 2.41% 2.96% 2.68%  2.50% 2.70%
Efficiency ratio 63.38% 63.54% 64.28% 74.02% 67.04%  65.97% 63.66%
                       
Operating Selected Performance Ratios (Annualized):                      
Operating return on average assets1 1.14% 0.79% 0.93% 0.67% 1.08%  0.89% 1.01%
Operating PTPP return on average assets1 1.45% 1.35% 1.53% 1.37% 1.31%  1.43% 1.39%
Operating return on average shareholders' equity1 10.34% 7.57% 8.58% 5.22% 8.34%  8.02% 7.91%
Operating return on average tangible common equity1 13.69% 10.06% 11.51% 6.90% 11.12%  10.67% 10.71%
Operating efficiency ratio1 60.86% 62.25% 58.95% 65.46% 64.95%  61.75% 64.29%
Operating noninterest income / average assets1 0.56% 0.49% 0.45% 0.44% 0.35%  0.49% 0.35%
Operating noninterest expense / average assets1 2.37% 2.25% 2.23% 2.63% 2.56%  2.36% 2.55%
                       
Selected Interest Rates and Yields:                      
Yield on loans 4.72% 4.71% 4.87% 5.35% 5.36%  4.89% 5.49%
Yield on earning assets, FTE 4.01% 3.88% 4.22% 4.83% 4.92%  4.20% 5.10%
Cost of interest-bearing deposits 0.50% 0.59% 0.71% 1.10% 1.29%  0.71% 1.35%
Cost of total deposits 0.38% 0.44% 0.54% 0.91% 1.06%  0.55% 1.12%
Cost of interest-bearing liabilities 0.60% 0.65% 0.77% 1.20% 1.39%  0.79% 1.46%
Net interest margin, FTE 3.57% 3.39% 3.63% 3.90% 3.84%  3.61% 3.95%
                       
Per Common Share:                      
Net income, basic$0.60 $0.42 $0.41 $0.19 $0.48  $1.63 $1.90 
Net income, diluted 0.59  0.42  0.41  0.19  0.48   1.62  1.89 
Operating earnings, basic¹ 0.61  0.44  0.48  0.30  0.46   1.83  1.69 
Operating earnings, diluted¹ 0.61  0.44  0.48  0.30  0.46   1.82  1.68 
Book value 23.64  22.96  22.57  22.09  22.33   23.64  22.33 
Tangible book value¹ 17.92  17.27  16.90  16.40  16.82   17.92  16.82 
Common shares outstanding 15,107,214  15,233,227  15,216,932  15,221,990  14,008,233   15,107,214  14,008,233 

¹See reconciliation of Non-GAAP measures

 
SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands)
NON-GAAP RECONCILIATIONS
 
  Three Months Ended   Year Ended  
  Dec Sep Jun Mar Dec  Dec Dec 
  2020
 2020
 2020
 2020
 2019
  2020
 2019
 
Operating Earnings:                       
Net income (GAAP) $9,030  $6,395  $6,174  $2,732  $6,733   $24,332  $26,548  
 Noninterest income:                       
 Securities gains (losses), net     9   (16)         (6)  (34) 
 ADECA termination proceeds  (465)           (720)   (465)  (720) 
 Merger termination fee                     (6,400) 
Noninterest expenses:                       
 Salaries - prior year adjustment              603       603  
 Merger related and restructuring expenses  702   290   1,477   2,096   427    4,565   3,219  
 Other - prior year franchise tax true-up              (312)      (312) 
Income taxes:                       
 Tax benefit - prior year amended return              (304)      (304) 
Income tax effect of adjustments  (62)  (77)  (382)  (548)  60    (1,071)  1,015  
Operating earnings (Non-GAAP) $9,205  $6,617  $7,253  $4,280  $6,487   $27,355  $23,615  
Operating earnings per common share (Non-GAAP):                       
 Basic $0.61  $0.44  $0.48  $0.30  $0.46   $1.83  $1.69  
 Diluted  0.61   0.44   0.48   0.30   0.46    1.82   1.68  
                        
Operating Noninterest Income:                       
 Noninterest income (GAAP) $4,976  $4,121  $3,511  $2,818  $2,840   $15,426  $15,315  
 Securities gains (losses), net     9   (16)         (6)  (34) 
 ADECA termination proceeds  (465)           (720)   (465)  (720) 
 Merger termination fee                     (6,400) 
 Operating noninterest income (Non-GAAP) $4,511  $4,130  $3,495  $2,818  $2,120   $14,955  $8,161  
 Operating noninterest income (Non-GAAP)/average assets1  0.56 % 0.49 % 0.45 % 0.44 % 0.35 %  0.49 % 0.35 %
                        
Operating Noninterest Expense:                       
 Noninterest expense (GAAP) $19,953  $19,167  $18,806  $18,793  $16,052   $76,719  $63,151  
 Salaries - prior year adjustment              (603)      (603) 
 Merger related and restructuring expenses  (702)  (290)  (1,477)  (2,096)  (427)   (4,565)  (3,219) 
 Other - prior year franchise tax true-up              312       312  
 Operating noninterest expense (Non-GAAP) $19,251  $18,877  $17,329  $16,697  $15,334   $72,154  $59,641  
 Operating noninterest expense (Non-GAAP)/average assets2  2.37 % 2.25 % 2.23 % 2.63 % 2.56 %  2.36 % 2.55 %
                        
Operating Pre-tax Pre-provision ("PTPP") Earnings:                       
 Net interest income (GAAP) $26,506  $26,043  $25,746  $22,571  $21,104   $100,866  $83,880  
 Operating noninterest income  4,511   4,130   3,495   2,818   2,120    14,955   8,161  
 Operating noninterest expense  (19,251)  (18,877)  (17,329)  (16,697)  (15,334)   (72,154)  (59,641) 
 Operating PTPP earnings (Non-GAAP) $11,766  $11,296  $11,912  $8,692  $7,890   $43,667  $32,400  
                        
Non-GAAP Return Ratios:                       
 Operating return on average assets (Non-GAAP)3  1.14 % 0.79 % 0.93 % 0.67 % 1.08 %  0.89 % 1.01 %
 Operating PTPP return on average assets (Non-GAAP)4  1.45 % 1.35 % 1.53 % 1.37 % 1.31 %  1.43 % 1.39 %
 Return on average tangible common equity (Non-GAAP)5  13.43 % 9.72 % 9.80 % 4.41 % 11.55 %  9.50 % 12.04 %
 Operating return on average shareholder equity (Non-GAAP)6  10.34 % 7.57 % 8.58 % 5.22 % 8.34 %  8.02 % 7.91 %
 Operating return on average tangible common equity (Non-GAAP)7  13.69 % 10.06 % 11.51 % 6.90 % 11.12 %  10.67 % 10.71 %
                        
Operating Efficiency Ratio:                       
 Efficiency ratio (GAAP)  63.38 % 63.54 % 64.28 % 74.02 % 67.04 %  65.97 % 63.66 %
 Adjustment for taxable equivalent yields  (0.30)% (0.32)% (0.34)% (0.34)% (0.33)%  (0.33)% (0.29)%
 Adjustment for securities gains (losses)   % 0.02 % (0.04)%  %  %  (0.01)% (0.02)%
 Adjustment for merger related income and costs  (2.22)% (0.99)% (4.95)% (8.21)% (1.76)%  (3.88)% 0.94 %
 Operating efficiency ratio (Non-GAAP)  60.86 % 62.25 % 58.95 % 65.46 % 64.95 %  61.75 % 64.29 %

1Operating noninterest income (Non-GAAP) is annualized and divided by average assets.
2Operating noninterest expense (Non-GAAP) is annualized and divided by average assets.
3Operating return on average assets (Non-GAAP) is the annualized operating earnings (Non-GAAP) divided by average assets.
4Operating PTPP return on average assets (Non-GAAP) is the annualized operating PTPP earnings (Non-GAAP) divided by average assets.
5Return on average tangible common equity (Non-GAAP) is the annualized net income divided by average tangible common equity (Non-GAAP).
6Operating return on average equity (Non-GAAP) is the annualized operating earnings (Non-GAAP) divided by average equity.
7Operating return on average tangible common equity (Non-GAAP) is the annualized operating earnings (Non-GAAP) divided by average tangible common equity (Non-GAAP).

 
SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands)
NON-GAAP RECONCILIATIONS
 
  Three Months Ended  Year Ended
  Dec Sep Jun Mar Dec Dec Dec
  2020 2020 2020 2020 2019 2020 2019
Tangible Common Equity:                     
Shareholders' equity (GAAP) $357,168  $349,789  $343,488  $336,200  $312,747  $357,168  $312,747 
Less goodwill and other intangible assets  86,471   86,710   86,327   86,503   77,193   86,471   77,193 
Tangible common equity (Non-GAAP) $270,697  $263,079  $257,161  $249,697  $235,554  $270,697  $235,554 
                      
Average Tangible Common Equity:                     
Average shareholders' equity (GAAP) $354,026  $347,907  $339,861  $329,692  $308,772  $341,170  $298,729 
Less average goodwill and other intangible assets  86,561   86,206   86,484   80,370   77,400   84,913   78,270 
Average tangible common equity (Non-GAAP) $267,465  $261,701  $253,377  $249,322  $231,372  $256,257  $220,459 
                      
Tangible Book Value per Common Share:                     
Book value per common share (GAAP) $23.64  $22.96  $22.57  $22.09  $22.33  $23.64  $22.33 
Adjustment due to goodwill and other intangible assets  (5.72)  (5.69)  (5.67)  (5.69)  (5.51)  (5.72)  (5.51)
Tangible book value per common share (Non-GAAP)1 $17.92  $17.27  $16.90  $16.40  $16.82  $17.92  $16.82 
                      
Tangible Common Equity to Tangible Assets:                     
Total Assets $3,304,949  $3,387,588  $3,265,985  $2,873,715  $2,449,123  $3,304,949  $2,449,123 
Less goodwill and other intangibles  86,471   86,710   86,327   86,503   77,193   86,471   77,193 
Tangible Assets (Non-GAAP): $3,218,478  $3,300,878  $3,179,658  $2,787,212  $2,371,930  $3,218,478  $2,371,930 
Tangible common equity to tangible assets (Non-GAAP)  8.41%  7.97%  8.09%  8.96%  9.93%  8.41%  9.93%

1Tangible book value per share is computed by dividing total stockholder's equity, less goodwill and other intangible assets by common shares outstanding.