SmartFinancial Announces Results for the Fourth Quarter 2020

Source: Nasdaq GlobeNewswire / 19 Jan 2021 16:00:01 America/Chicago

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 Carroll	Ron Gorczynski
President & CEO	Executive 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	%

¹Taxable 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	%

¹Taxable 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.

SmartFinancial Announces Results for the Fourth Quarter 2020

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