SmartFinancial Announces Results for the Third Quarter 2021

KNOXVILLE, Tenn., Oct. 19, 2021 (GLOBE NEWSWIRE) -- SmartFinancial, Inc. ("SmartFinancial" or the "Company"; NASDAQ: SMBK), today announced net income of $9.6 million, or $0.61 per diluted common share, for the third quarter of 2021, compared to net income of $6.4 million, or $0.42 per diluted common share, for the third quarter of 2020, and compared to net income of $8.8 million, or $0.58 per diluted common share, for the second quarter of 2021. Operating earnings (Non-GAAP), which excludes securities gains, merger related and restructuring expenses and non-operating items, totaled $9.9 million, or $0.63 per diluted common share, in the third quarter of 2021, compared to $6.6 million, or $0.44 per diluted common share, in the third quarter of 2020, and compared to $9.1 million, or $0.60 per diluted common share, in the second quarter of 2021.

Highlightsfor the Third Quarter of 2021

• Net organic loan growth of over $52 million, an 8.6% annualized quarter-over-quarter increase
• Operating earnings (non-GAAP) of $0.63 per diluted share, a 43.2% increase from the prior-year-quarter
• Tangible book value per share (Non-GAAP) of $19.03, a 7.3% annualized quarter-over-quarter increase
• Completed the acquisition of Sevier County Bancshares (“SCB”)
• Hired seasoned commercial banking team members in Dothan, Montgomery and Birmingham, Alabama and Tallahassee, Florida
  

Billy Carroll, President & CEO, stated: “Our company is continuing to perform at a very high level, and we are extremely pleased with our results and accomplishments this quarter. In addition to our solid financial performance, we closed our SCB transaction and added several outstanding, seasoned bankers to our staff. The momentum around our team is strong and I am very excited with the direction of our company.”

SmartFinancial's Chairman, Miller Welborn, concluded: “The execution of our Strategic Plan is really coming together. All of our operating metrics are on target, and we are excited about our future.”

Net Interest Income and Net Interest Margin

Net interest income was $30.4 million for the third quarter of 2021, compared to $26.9 million for the second quarter of 2021. Average earning assets totaled $3.61 billion, an increase of $314.9 million. The growth was primarily driven by an increase in average cash and cash equivalents of $271.6 million and average loans and leases of $24.2 million. Average interest-bearing liabilities increased $212.2 million, related to continued core deposit growth and the acquisition of SCB.

The tax equivalent net interest margin was 3.35% for the third quarter of 2021, compared to 3.29% for the second quarter of 2021. The tax equivalent net interest margin was impacted by a 2 basis point increase in the average yield on interest-earning assets and offset by a 5 basis point decline in the rate on interest-bearing liabilities over the prior quarter. The increase in yield on interest-earning assets was primarily driven by an increase of $1.7 million of loan discount accretion and Payroll Protection Program (“PPP”) fee accretion during the third quarter of 2021 when compared to the second quarter of 2021, offset by lower yielding excess liquidity.

The yield on interest-bearing liabilities decreased to 0.44% for the third quarter of 2021 when compared to 0.49% for the second quarter of 2021. The cost of average interest-bearing deposits was 0.34% for the third quarter of 2021 compared to 0.39% for the second quarter of 2021, a decrease of 5 basis points. The lower cost of average deposits was attributable to the maturing and repricing of time deposits, which decreased 16 basis points during the period. The cost of total deposits for the third quarter of 2021 was 0.25% compared to 0.29% in the second quarter of 2021.

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

Provision for Loan and Lease Losses and Credit Quality

At September 30, 2021, the allowance for loan and lease losses was $19.3 million. The allowance for loan and lease losses to total loans and leases was 0.73% as of September 30, 2021, compared to 0.74% as of June 30, 2021. For the Company’s originated loans and leases, the allowance for loan and lease losses to originated loans and leases, less PPP loans, was 0.76% as of September 30, 2021, compared to 0.86% as of June 30, 2021. The remaining discounts on the acquired loan and lease portfolio totaled $13.0 million, or 2.48% of acquired loans and leases as of September 30, 2021.

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

The Company is not required to implement the provisions of the Current Expected Credit Losses (“CECL”) accounting standard until January 1, 2023 and is continuing to account for the allowance for loan and lease losses under the incurred loss model.

Nonperforming loans and leases as a percentage of total loans and leases was 0.13% as of September 30, 2021, a decrease of 2 basis points from the 0.15% reported in the second quarter of 2021. Total nonperforming assets (which include nonaccrual loans and leases, loans and leases past due 90 days or more and still accruing, other real estate owned and other repossessed assets) as a percentage of total assets was 0.14% as of September 30, 2021, as compared to 0.18% as of June 30, 2021.

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

Noninterest Income

Noninterest income increased $1.2 million to $6.3 million for the third quarter of 2021 compared to $5.1 million for the second quarter of 2021. During the third quarter of 2021, the primary components of the changes in noninterest income were as follows:

• Increase in service charges on deposit accounts, related to the SCB acquisition, deposit growth and transaction volume;
• Increase in insurance commissions due to improved activity;
• Increase in interchange and debit card transaction fees, related to increased volume, deposit growth and the SCB acquisition; and
• Increase in other, includes $469 thousand in SWAP fee income from newly created capital markets program and $159 thousand in income from the Company’s bank owned life insurance program.

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

Noninterest Expense

Noninterest expense increased $2.5 million to $23.3 million for the third quarter of 2021 compared to $20.8 million for the second quarter of 2021. During the third quarter of 2021, the primary components of the changes in noninterest expense were as follows:

• Increase in salaries and employee benefits, primarily due to the hiring of additional talent from both the SCB acquisition and the Auburn, Dothan, Montgomery and Birmingham, Alabama and Tallahassee, Florida teams;
• Increase in occupancy and equipment expense from the SCB acquisition and expansion in Alabama;
• Increase in FDIC insurance from continued asset growth; and
• Increase in data processing and technology, primarily from continued infrastructure build.

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

Income Tax Expense

Income tax expense was $2.6 million for the third quarter of 2021, an increase of $163 thousand, compared to $2.5 million for the second quarter of 2021.

The effective tax rate was 22.0% for the third and second quarters of 2021, respectively.

Balance Sheet Trends

Total assets at September 30, 2021 were $4.38 billion compared with $3.30 billion at December 31, 2020. The increase of $1.08 billion is primarily attributable to increases in cash and cash equivalents of $609.4 million, securities available-for-sale of $123.7 million, loans and leases of $270.4 million, bank owned life insurance of $47.9 million and goodwill and intangibles of $14.5 related to the SCB acquisition.

Total liabilities increased to $3.96 billion at September 30, 2021 from $2.95 billion at December 31, 2020. The increase of $1.01 billion million was primarily from organic deposit growth of $561.4 million and deposits of $432.7 million from the SCB acquisition.

Shareholders' equity at September 30, 2021 totaled $424.7 million, an increase of $67.6 million, from December 31, 2020. The increase in shareholders' equity was primarily from the issuance of $42.3 million of common stock for the acquisition of SCB and net income of $28.1 million for the nine months ended September 30, 2021, which was offset by repurchase of the Company's common stock of $1.2 million and $2.7 million of dividends paid. Tangible book value per share (Non-GAAP) was $19.03 at September 30, 2021, compared to $17.92 at December 31, 2020. Tangible common equity (Non-GAAP) as a percentage of tangible assets (Non-GAAP) was 7.47% at September 30, 2021, compared with 8.41% at December 31, 2020.

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

Conference Call Information

SmartFinancial issued this earnings release for the third quarter of 2021 on Tuesday, October 19, 2021, and will host a conference call on Wednesday, October 20, 2021, at 10:00 a.m. ET. To access this interactive teleconference, dial (844) 200-6205 or (646) 904-5544 and enter the confirmation number, 289025. A replay of the conference call will be available through December 22, 2021, by dialing (866) 813-9403 or (929) 458-6194 and entering the confirmation number, 781192. 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 branches across 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.

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 shareholders' 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 earnings (x) operating noninterest expense, (xi) tangible common equity, (xii) average tangible common equity, (xiii) tangible book value; (xiv) tangible assets; and ratios derived therefrom, in its analysis of the company's performance. Operating earnings excludes the following from net income: securities gains and losses, proceeds related to the termination of an Alabama Department of Economic and Community Affairs (“ADECA”) loan program, 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 earnings 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, proceeds related to the termination of the ADECA loan program. Operating pre-tax pre-provision earnings is net interest income 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. Tangible assets excludes goodwill and other intangibles from total assets. 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 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 acquisition of Sevier County Bancshares, Inc. (“SCB”); (7) the risk that the anticipated benefits from the acquisition of SCB 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.

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YIELD ANALYSIS

1 Taxable equivalent
2 Includes average balance of $128,408, $266,114 and $295,045 in PPP loans for the quarters ended September 30, 2021, June 30, 2021, and September 30, 2020, respectively.
3 Includes average balance of $237,780 in Paycheck Protection Program Liquidity Facility (“PPPLF”) funding for the quarter ended September 30, 2020. No PPPLF funding was used for the quarters ended September 30, 2021, and June 30, 2021.

SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands)
YIELD ANALYSIS

1 Taxable equivalent
2 Includes average balance of $235,027 and $169,617 in PPP loans for the six months ended September 30, 2021, and 2020, respectively.
3 Includes average balance of $115,734 in Paycheck Protection Program Liquidity Facility (“PPPLF”) funding for the nine months ended September 30, 2020. No PPPLF funding was used for the nine months ended September 30, 2021.

SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands)
YIELD ANALYSIS

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 twelve months ended December 31, 2020.

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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
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¹See reconciliation of Non-GAAP measures

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NON-GAAP RECONCILIATIONS