SmartFinancial Announces Results for the Third Quarter 2020

Rhea-AI Summary

SmartFinancial, Inc. (NASDAQ: SMBK) reported a net income of $6.4 million or $0.42 per diluted share for Q3 2020, up from $6.2 million in Q2 2020. Operating earnings (Non-GAAP) totaled $6.6 million or $0.44 per diluted share, a decrease from Q2's $7.3 million. Deposits surged by 29.5% year-over-year, while nonperforming assets improved to 0.18% of total assets. Despite a 62.1% decline in COVID loan modifications, net interest margin fell to 3.39%. Tangible book value per share rose 5.5% year-over-year to $17.27.

Positive

• Net income increased to $6.4 million, up from $6.2 million in Q2 2020.
• Deposits increased by $604.8 million, or 29.5%, year-over-year.
• Tangible book value per share reached $17.27, up 5.5% from the previous year.
• Nonperforming assets to total assets improved to 0.18% from 0.28%.

Negative

• Operating earnings (Non-GAAP) decreased from $7.3 million in Q2 to $6.6 million in Q3.
• Net interest margin fell from 3.63% in Q2 to 3.39% in Q3.
• Provision for loan losses increased to $2.6 million from $2.9 million in Q2.

KNOXVILLE, Tenn., Oct. 20, 2020 (GLOBE NEWSWIRE) -- SmartFinancial, Inc. ("SmartFinancial" or the "Company"; NASDAQ: SMBK), today announced net income of $6.4 million, or $0.42 per diluted common share, for the third quarter of 2020, compared to net income of $6.2 million, or $0.41 per diluted common share for the second quarter of 2020.  Operating earnings (Non-GAAP), which excludes securities gains, merger related and restructuring expenses and non-operating items, totaled $6.6 million, or $0.44 per diluted common share, in the third quarter of 2020, compared to $7.3 million, or $0.48 per diluted common share, in the second quarter of 2020.

Highlights for the Third Quarter of 2020

• Net income of $6.4 million and operating earnings of $6.6 million (Non-GAAP)
• Tangible book value per share (Non-GAAP) of $17.27, a 5.5% year-over-year increase
• Deposits increased by $604.8 million or 29.5% from December 31, 2019
• COVID loan modifications declined 62.1% from prior quarter
• Total nonperforming assets to total assets improved to 0.18% for the quarter, as compared to 0.28% in the prior quarter

Billy Carroll, President & CEO, stated: "We are extremely pleased with our results on another very solid quarter.  Our credit metrics continue to be outstanding and our projections on loan modifications have been right on target and reducing as we have planned.  This tremendous asset quality, coupled with the work we are doing on growth in our noninterest income and improvement in efficiency give us reason to feel very good regarding the outlook for our company.”

SmartFinancial's Chairman, Miller Welborn, concluded: “The quarter was, once again, strong and right on plan for SmartFinancial. Our Board is extremely happy with the continued progress and improvements that we are making every day. 2020 has certainly been a challenge, but our team has executed superbly.”

Net Interest Income and Net Interest Margin

Net interest income increased $297 thousand to $26.0 million for the third quarter of 2020, compared to $25.7 million for the second quarter of 2020, due to a higher balance of interest-earning assets at lower yields supplemented by increased balances of interest-bearing liabilities at lower costs. Average earning assets totaled $3.1 billion, an increase of $205.8 million, which reflects a $51.1 million increase in average loans, a $12.4 million increase in average securities and a $141.1 million increase in average other earning assets. Average interest-bearing liabilities increased by $137.0 million to $2.3 billion, driven by an increase of $54.9 million in average interest-bearing deposits and an increase of $82.1 million in average borrowings.

The tax equivalent net interest margin was 3.39% for the third quarter of 2020, compared to 3.63% for the second quarter of 2020. The tax equivalent net interest margin was impacted by a 34 basis point decline in the average yield on interest-earning assets offset by a 12 basis point decline in the rate on interest-bearing liabilities over the last quarter. The excess liquidity realized during the third quarter, which is reflected in the increases in the average balance of Federal funds sold and other earning assets, had a negative impact on the tax equivalent net interest margin of 15 bps. The tax equivalent net interest margin, less discount accretion was 3.26% for the third quarter of 2020, a decrease from 3.50% for the second quarter of 2020.

The tax equivalent average yield on interest-earning assets was 3.88% for the third quarter of 2020, a decrease from 4.22% for the second quarter of 2020. The yield on average loans was 4.71% for the third quarter of 2020, compared to 4.87% for the second quarter of 2020. Included in the yield on average loans for the third quarter of 2020 was $1.8 million of the Payroll Protection Program (“PPP”) fee accretion and $960 thousand of discount accretion on acquired loans, compared to $1.9 million of PPP fee accretion and $888 thousand of discount accretion recognized in the second quarter of 2020.

The yield on interest-bearing liabilities decreased to 0.65% for the third quarter of 2020 when compared to 0.77% for the second quarter of 2020. The cost of average interest-bearing deposits was 0.59% for the third quarter of 2020 compared to 0.71% for the second quarter of 2020, a decrease of 12 basis points. The lower cost of average deposits was attributable to the maturing and repricing of time deposits, with average costs decreasing 20 basis points.  The cost of total deposits for the third quarter of 2020 was 0.44%.

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

		Three Months Ended
		Sep		Jun		Increase
Selected Interest Rates and Yields		2020		2020		(Decrease)
Yield on loans		4.71	%	4.87	%	(0.17	)	%
Yield on earning assets, FTE		3.88	%	4.22	%	(0.34	)	%
Cost of interest-bearing deposits		0.59	%	0.71	%	(0.12	)	%
Cost of total deposits		0.44	%	0.54	%	(0.10	)	%
Cost of interest-bearing liabilities		0.65	%	0.77	%	(0.12	)	%
Net interest margin, FTE		3.39	%	3.63	%	(0.24	)	%

Provision for Loan Loss and Credit Quality

Provision for loan losses was $2.6 million in the third quarter of 2020, compared to $2.9 million in the second quarter of 2020.  At September 30, 2020, the allowance for loan losses was $18.8 million.  The allowance for loan losses to total loans was 0.78% as of September 30, 2020, compared to 0.67% as of June 30, 2020.  For the Company’s originated loans, the allowance for loan losses to originated loans, less PPP loans, was 1.00% as of September 30, 2020, compared to 0.89% as of June 30, 2020.  The remaining discounts on the acquired loan portfolio totaled $15.1 million, or 3.53% of acquired loans as of September 30, 2020.  The increase in the allowance for loan losses for the third quarter is primarily attributable to the ongoing economic uncertainties related to the COVID-19 pandemic.  Also, during the quarter, the Company refined the qualitative factors of the allowance for loan loss calculation to include additional granularity related to the hospitality and restaurant industries which are most impacted by the pandemic within our footprint at this time.

As of June 30, 2020, the Company had modified loans totaling $615.7 million, or 25.6%, of the loan portfolio.  As of September 30, 2020, $383.2 million of those modifications had resumed their normal payment schedule leaving $232.5 million, or 9.7%, still under modification plans.

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

		Three Months Ended
		Sep				Jun
Provision for Loan Losses Rollforward		2020				2020				Change
Beginning balance		$	16,254			$	13,431			$	2,823
Charge-offs			(174	)			(75	)			(99	)
Recoveries			103				48				55
Net charge-offs			(71	)			(27	)			(44	)
Provision			2,634				2,850				(216	)
Ending balance		$	18,817			$	16,254			$	2,563
Allowance for loan losses to total loans, gross			0.78		%		0.67		%		0.11		%

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 0.09% as of September 30, 2020, a decrease of seven basis points from the 0.16% reported in the second 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 0.18% as of September 30, 2020, as compared to 0.28% as of June 30, 2020. 

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

		Three Months Ended
		Sep			Jun			Increase
Credit Quality		2020			2020			(Decrease)
Nonaccrual loans		$	2,248		$	2,899		$	(651	)
Loans past due 90 days or more and still accruing			-			877			(877	)
Total nonperforming loans			2,248			3,776			(1,528	)
Other real estate owned			3,932			5,524			(1,592	)
Total nonperforming assets		$	6,180		$	9,300		$	(3,120	)
Nonperforming loans to total loans, gross			0.09	%		0.16	%		(0.07	)	%
Nonperforming assets to total assets			0.18	%		0.28	%		(0.10	)	%

Noninterest Income

Noninterest income increased $610 thousand to $4.1 million for the third quarter of 2020 compared to $3.5 million for the second quarter of 2020.  During the third quarter of 2020, the primary components of the changes in noninterest income were as follows:

• Increase in service charges on deposit accounts of $183 thousand, primarily related to increased volume; 
• Increase in mortgage banking income of $98 thousand, continued to experience high volume during the quarter; and
• Increase in interchange and debit card transaction fees of $360 thousand, includes a $130 thousand one-time credit from vendor.

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

		Three Months Ended
		Sep				Jun			Increase
Noninterest Income		2020				2020			(Decrease)
Service charges on deposit accounts		$	892			$	709		$	183
Gain (loss) on sale of securities, net			(9	)			16			(25	)
Mortgage banking income			1,029				931			98
Investment services			359				363			(4	)
Insurance commissions			560				473			87
Interchange and debit card transaction fees			868				508			360
Other			422				511			(89	)
Total noninterest income		$	4,121			$	3,511		$	610

Noninterest Expense

Noninterest expense was $19.2 million for the third quarter of 2020 compared to $18.8 million for the second quarter of 2020. During the third quarter of 2020, the primary components of the changes in noninterest expense were as follows:

• Salaries and employee benefits increased $675 thousand, increase is primarily attributable to the deferred salary cost in the second quarter related to the origination of PPP loans;
• FDIC insurance increased $354 thousand related to increase in assets due to overall asset growth stemming from our recent acquisition, deposit growth and production of PPP loans;
• Other real estate and loan related expenses increased $297 thousand, primarily attributable to increased activity in loan related production and a $90 thousand evaluation adjustment on other real estate owned;
• Professional services decreased $274 thousand, due to a lower volume of expenses;
• Decrease of $1.2 million in merger related and restructuring expenses; and
• Other noninterest expenses increased $282 thousand, due to overall franchise growth.

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

		Three Months Ended
		Sep			Jun			Increase
Noninterest Expense		2020			2020			(Decrease)
Salaries and employee benefits		$	11,032		$	10,357		$	675
Occupancy and equipment			2,186			1,996			190
FDIC insurance			534			180			354
Other real estate and loan related expenses			643			346			297
Advertising and marketing			253			202			51
Data processing			558			594			(36	)
Professional services			594			868			(274	)
Amortization of intangibles			402			405			(3	)
Software as service contracts			573			561			12
Merger related and restructuring expenses			290			1,477			(1,187	)
Other			2,102			1,820			282
Total noninterest income		$	19,167		$	18,806		$	361

Income Tax Expense

Income tax expense was $2.0 million for the third quarter of 2020, an increase of $541 thousand, compared to $1.4 million for the second quarter of 2020.

For the third quarter of 2020, the effective tax rate was 23.5% compared to 18.8% for the second quarter of 2020.  The lower effective tax rate during the second quarter of 2020 included an additional tax benefit from the Company’s overall reconciliation of the tax rates from operations, and the final effects of the CARES Act legislation.

Balance Sheet Trends

Total assets at September 30, 2020, were $3.39 billion compared with $2.45 billion at December 31, 2019.  The increase of $938.5 million is primarily attributable to assets acquired from the acquisition of Progressive Financial Group (“PFG”) of approximately $308.2 million, increase in cash and cash equivalents of $301.8 million and the origination of $300.8 million of PPP loans.

Total liabilities increased to $3.04 billion at September 30, 2020 from $2.14 billion at December 31, 2019.  The increase of $901.4 million was primarily from deposit growth of $332.8 million, acquired deposits from the acquisition of PFG in the amount of $272.0 million, and an increase in borrowings of $287.8 million.

Shareholders' equity at September 30, 2020, totaled $349.8 million, an increase of $37.0 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 $15.3 million for the nine months ended September 30, 2020 and a net change in accumulated other comprehensive income of $844 thousand, which was offset by the repurchase of the Company's common stock of $2.1 million and $2.2 million of dividends paid. Tangible book value per share (Non-GAAP) was $17.27 at September 30, 2020, an increase from $16.82 at December 31, 2019.  Tangible common equity (Non-GAAP) as a percentage of tangible assets (Non-GAAP) was 7.97% at September 30, 2020, compared with 9.93% at December 31, 2019.

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

		Sep			Dec			Increase
Selected Balance Sheet Information		2020			2019			(Decrease)
Total assets		$	3,387,588		$	2,449,123		$	938,465
Total liabilities			3,037,799			2,136,376			901,423
Total equity			349,789			312,747			37,042
Securities available-for-sale, at fair value			214,634			178,348			36,286
Loans			2,404,057			1,897,392			506,665
Deposits			2,652,023			2,047,214			604,809
Borrowings			319,391			31,623			287,768

Conference Call Information

SmartFinancial issued this earnings release for the third quarter of 2020 on Tuesday, October 20, 2020, and will host a conference call on Wednesday, October 21, 2020, at 10:00 a.m. ET.  To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 9589795.  A replay of the conference call will be available through October 21, 2021, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10148910.  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 36 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, (xiv) tax equivalent net interest margin, (xv) tax equivalent average yield in earning 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, 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.  Tax equivalent net interest margin is the annualized net interest income plus tax equivalent income divided by average interest earning assets. Tax equivalent average yield in earning assets is the annualized interest income plus tax equivalent income divided by average interest earning 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 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
		Sep				Jun				Mar				Dec				Sep
		2020				2020				2020				2019				2019
Assets:
Cash and cash equivalents		$	541,815			$	399,467			$	309,089			$	183,971			$	170,934
Securities available-for-sale, at fair value			214,634				219,631				201,002				178,348				171,507
Other investments			14,829				14,829				14,113				12,913				12,913
Loans held for sale			11,292				6,330				6,045				5,856				3,068
Loans			2,404,057				2,408,284				2,139,247				1,897,392				1,864,679
Less: Allowance for loan losses			(18,817	)			(16,254	)			(13,431	)			(10,243	)			(9,792	)
Loans, net			2,385,240				2,392,030				2,125,816				1,887,149				1,854,887
Premises and equipment, net			73,934				73,868				73,801				59,433				58,386
Other real estate owned			3,932				5,524				5,894				1,757				1,561
Goodwill and core deposit intangibles, net			86,710				86,327				86,503				77,193				77,534
Bank owned life insurance			31,034				30,853				30,671				24,949				24,796
Other assets			24,168				37,126				20,781				17,554				14,899
Total assets		$	3,387,588			$	3,265,985			$	2,873,715			$	2,449,123			$	2,390,485
Liabilities:
Deposits:
Noninterest-bearing demand		$	669,733			$	645,650			$	431,781			$	364,155			$	365,024
Interest-bearing demand			534,128				479,212				444,141				380,234				351,474
Money market and savings			871,098				762,246				730,392				623,284				634,934
Time deposits			577,064				652,581				735,616				679,541				646,641
Total deposits			2,652,023				2,539,689				2,341,930				2,047,214				1,998,073
Borrowings			319,391				318,855				131,603				31,623				29,828
Subordinated debt			39,325				39,304				39,283				39,261				39,240
Other liabilities			27,060				24,649				24,699				18,278				17,304
Total liabilities			3,037,799				2,922,497				2,537,515				2,136,376				2,084,445
Shareholders' Equity:
Common stock			15,233				15,217				15,222				14,008				13,958
Additional paid-in capital			254,626				254,396				254,356				232,732				232,573
Retained earnings			78,918				73,283				67,869				65,839				59,806
Accumulated other comprehensive income (loss)			1,012				592				(1,247	)			168				(297	)
Total shareholders' equity			349,789				343,488				336,200				312,747				306,040
Total liabilities & shareholders' equity		$	3,387,588			$	3,265,985			$	2,873,715			$	2,449,123			$	2,390,485

SmartFinancial, Inc. and Subsidiary Condensed Consolidated Financial Information - (unaudited) (dollars in thousands except share and per share data)
	Three Months Ended																	Nine Months Ended
	Sep				Jun			Mar			Dec			Sep				Sep			Sep
	2020				2020			2020			2019			2019				2020			2019
Interest income:
Loans, including fees	$	28,621			$	28,663		$	26,434		$	25,398		$	25,515			$	83,718		$	75,768
Securities available-for-sale:
Taxable		546				589			679			698			748				1,813			2,591
Tax-exempt		364				416			283			345			338				1,064			1,173
Federal funds sold and other earning assets		327				277			602			587			743				1,206			2,059
Total interest income		29,858				29,945			27,998			27,028			27,344				87,801			81,591
Interest expense:
Deposits		2,897				3,366			4,754			5,271			5,605				11,016			16,644
Borrowings		334				249			89			70			15				674			250
Subordinated debt		584				584			584			584			584				1,751			1,757
Total interest expense		3,815				4,199			5,427			5,924			6,204				13,441			18,651
Net interest income		26,043				25,746			22,571			21,104			21,140				74,360			62,940
Provision for loan losses		2,634				2,850			3,200			685			724				8,683			1,914
Net interest income after provision for loan losses		23,409				22,896			19,371			20,419			20,416				65,677			61,026
Noninterest income:
Service charges on deposit accounts		892				709			770			773			767				2,370			2,129
Gain (loss) on sale of securities, net		(9	)			16			—			—			1				6			34
Mortgage banking		1,029				931			584			374			518				2,544			1,192
Investment services		359				363			437			261			260				1,159			684
Insurance commissions		560				473			269			—			—				1,302			—
Interchange and debit card transaction fees		868				508			276			163			148				1,652			467
Merger termination fee		—				—			—			—			—				—			6,400
Other		422				511			482			1,269			502				1,417			1,405
Total noninterest income		4,121				3,511			2,818			2,840			2,196				10,450			12,311
Noninterest expense:
Salaries and employee benefits		11,032				10,357			10,006			10,278			9,072				31,395			26,357
Occupancy and equipment		2,186				1,996			1,911			1,749			1,635				6,093			4,967
FDIC insurance		534				180			180			—			(219	)			894			140
Other real estate and loan related expense		643				346			545			253			335				1,535			1,067
Advertising and marketing		253				202			198			166			263				653			817
Data processing		558				594			538			530			273				1,689			1,465
Professional services		594				868			711			652			573				2,172			1,724
Amortization of intangibles		402				405			362			340			341				1,169			1,027
Software as service contracts		573				561			470			500			560				1,604			1,696
Merger related and restructuring expenses		290				1,477			2,096			427			73				3,863			2,792
Other		2,102				1,820			1,776			1,157			1,802				5,699			5,045
Total noninterest expense		19,167				18,806			18,793			16,052			14,708				56,766			47,097
Income before income taxes		8,363				7,601			3,396			7,206			7,904				19,361			26,240
Income tax expense		1,968				1,427			664			473			1,941				4,059			6,425
Net income	$	6,395			$	6,174		$	2,732		$	6,733		$	5,963			$	15,302		$	19,815
Earnings per common share:
Basic	$	0.42			$	0.41		$	0.19		$	0.48		$	0.43			$	1.03		$	1.42
Diluted	$	0.42			$	0.41		$	0.19		$	0.48		$	0.42			$	1.02		$	1.41
Weighted average common shares outstanding:
Basic		15,160,579				15,152,768			14,395,103			13,965,877			13,955,859				14,903,757			13,949,325
Diluted		15,210,611				15,202,335			14,479,679			14,066,269			14,053,432				14,965,455			14,038,414

SmartFinancial, Inc. and Subsidiary Condensed Consolidated Financial Information - (unaudited) (dollars in thousands) YIELD ANALYSIS
		Three Months Ended
		September 30, 2020								June 30, 2020								September 30, 2019
		Average						Yield/		Average						Yield/		Average						Yield/
		Balance			Interest1			Cost1		Balance			Interest1			Cost1		Balance			Interest1			Cost1
Assets:
Loans, including fees2		$	2,410,173		$	28,508		4.71	%	$	2,359,101		$	28,590		4.87	%	$	1,842,007		$	25,471		5.49	%
Loans held for sale			8,048			113		5.57	%		6,868			73		4.28	%		4,189			44		4.17	%
Taxable securities			132,642			546		1.64	%		122,135			589		1.94	%		118,955			748		2.49	%
Tax-exempt securities			88,129			515		2.32	%		86,227			570		2.66	%		56,598			448		3.14	%
Federal funds sold and other earning assets			438,785			327		0.30	%		297,696			277		0.37	%		135,444			743		2.18	%
Total interest-earning assets			3,077,777			30,009		3.88	%		2,872,027			30,099		4.22	%		2,157,193			27,454		5.05	%
Noninterest-earning assets			262,764								260,089								191,940
Total assets		$	3,340,541							$	3,132,116							$	2,349,133
Liabilities and Stockholders’ Equity:
Interest-bearing demand deposits		$	509,999			199		0.16	%	$	453,795			148		0.13	%	$	343,827			511		0.59	%
Money market and savings deposits			833,022			704		0.34	%		748,673			614		0.33	%		637,290			1,829		1.14	%
Time deposits			615,714			1,994		1.29	%		701,390			2,604		1.49	%		640,679			3,265		2.02	%
Total interest-bearing deposits			1,958,735			2,897		0.59	%		1,903,858			3,366		0.71	%		1,621,796			5,605		1.37	%
Borrowings3			319,265			334		0.42	%		237,143			249		0.42	%		13,310			15		0.45	%
Subordinated debt			39,311			584		5.91	%		39,290			584		5.98	%		39,226			584		5.91	%
Total interest-bearing liabilities			2,317,311			3,815		0.65	%		2,180,291			4,199		0.77	%		1,674,332			6,204		1.47	%
Noninterest-bearing deposits			649,489								587,322								353,315
Other liabilities			25,834								24,642								18,286
Total liabilities			2,992,634								2,792,255								2,045,933
Shareholders' equity			347,907								339,861								303,200
Total liabilities and shareholders' equity		$	3,340,541							$	3,132,116							$	2,349,133
Net interest income, taxable equivalent					$	26,194							$	25,900							$	21,250
Interest rate spread								3.22	%							3.44	%							3.58	%
Tax equivalent net interest margin								3.39	%							3.63	%							3.91	%
Percentage of average interest-earning assets to average interest-bearing liabilities								132.82	%							131.73	%							128.84	%
Percentage of average equity to average assets								10.41	%							10.85	%							12.91	%

¹ Taxable equivalent
² Includes average balance of $295,045 and $208,814 in PPP loans for the quarters ended September 30, 2020 and June 30, 2020, respectively.
³ Includes average balance of $237,780 and $108,082 in Paycheck Protection Program Liquidity Facility (“PPPLF”) funding for the quarters ended September 30, 2020 and June 30, 2020, respectively.

SmartFinancial, Inc. and Subsidiary Condensed Consolidated Financial Information - (unaudited) (dollars in thousands) YIELD ANALYSIS
		Nine Months Ended
		September 30, 2020									September 30, 2019
		Average						Yield/			Average						Yield/
		Balance			Interest1			Cost1			Balance			Interest1			Cost1
Assets:
Loans, including fees2		$	2,252,075		$	83,487			4.95	%	$	1,823,523		$	75,645		5.55	%
Loans held for sale			6,409			231			4.81	%		3,589			123		4.58	%
Taxable securities			123,895			1,813			1.95	%		134,230			2,591		2.58	%
Tax-exempt securities			81,604			1,486			2.43	%		55,585			1,512		3.64	%
Federal funds sold and other earning assets			296,449			1,206			0.54	%		102,528			2,056		2.68	%
Total interest-earning assets			2,760,432			88,223			4.27	%		2,119,455			81,927		5.17	%
Noninterest-earning assets			248,293									205,984
Total assets		$	3,008,725								$	2,325,439
Liabilities and Stockholders’ Equity:
Interest-bearing demand deposits		$	451,074			782			0.23	%	$	326,764			1,397		0.57	%
Money market and savings deposits			749,316			2,707			0.48	%		658,358			6,131		1.25	%
Time deposits			667,303			7,527			1.51	%		635,986			9,116		1.92	%
Total interest-bearing deposits			1,867,693			11,016			0.79	%		1,621,108			16,644		1.37	%
Borrowings3			203,202			674			0.44	%		18,377			250		1.82	%
Subordinated debt			39,290			1,751			5.95	%		39,205			1,757		5.99	%
Total interest-bearing liabilities			2,110,185			13,441			0.85	%		1,678,690			18,651		1.49	%
Noninterest-bearing deposits			537,860									336,895
Other liabilities			23,826									14,509
Total liabilities			2,671,871									2,030,094
Shareholders' equity			336,854									295,345
Total liabilities and shareholders' equity		$	3,008,725								$	2,325,439
Net interest income, taxable equivalent					$	74,782								$	63,276
Interest rate spread									3.42	%							3.68	%
Tax equivalent net interest margin									3.62	%							3.99	%
Percentage of average interest-earning assets to average interest-bearing liabilities									130.81	%							126.26	%
Percentage of average equity to average assets									11.20	%							12.70	%

¹ Taxable equivalent
² Includes average balance of $169,617 in PPP loans for the nine months ended September 30, 2020
³ Includes average balance of $115,734 in PPPLF funding for the nine months ended September 30, 2020

SmartFinancial, Inc. and Subsidiary Condensed Consolidated Financial Information - (unaudited) (dollars in thousands)
		As of and for The Three Months Ended
		Sep			Jun			Mar			Dec			Sep
		2020			2020			2020			2019			2019
Composition of Loans:
Commercial real estate
owner occupied		$	467,569		$	464,073		$	473,398		$	429,269		$	422,363
non-owner occupied			563,082			552,958			535,637			476,038			468,099
Commercial real estate, total			1,030,651			1,017,031			1,009,035			905,307			890,462
Commercial & industrial			644,498			637,450			377,173			337,075			341,207
Construction & land development			275,172			279,216			253,445			227,626			219,751
Consumer real estate			440,310			459,861			482,728			417,481			402,463
Consumer and other			13,426			14,726			16,866			9,903			10,796
Total loans		$	2,404,057		$	2,408,284		$	2,139,247		$	1,897,392		$	1,864,679
Asset Quality and Additional Loan Data:
Nonperforming loans		$	2,248		$	3,776		$	3,069		$	3,350		$	3,166
Other real estate owned			3,932			5,524			5,894			1,757			1,561
Total nonperforming assets		$	6,180		$	9,300		$	8,963		$	5,107		$	4,727
Restructured loans not included in nonperforming loans		$	8		$	9		$	9		$	61		$	61
Net charge-offs to average loans (annualized)			0.01	%		—	%		—	%		0.01	%		0.01	%
Allowance for loan losses to loans			0.78	%		0.67	%		0.63	%		0.54	%		0.53	%
Nonperforming loans to total loans, gross			0.09	%		0.16	%		0.14	%		0.18	%		0.17	%
Nonperforming assets to total assets			0.18	%		0.28	%		0.31	%		0.21	%		0.20	%
Acquired loan fair value discount balance		$	15,141		$	16,187		$	17,237		$	15,348		$	16,784
Accretion income on acquired loans			960			888			1,841			1,375			1,246
PPP net fees deferred balance			6,348			8,582			—			—			—
PPP net fees recognized			1,812			1,909			—			—			—
Capital Ratios:
Equity to Assets			10.33	%		10.52	%		11.70	%		12.77	%		12.80	%
Tangible common equity to tangible assets (Non-GAAP)1			7.97	%		8.09	%		8.96	%		9.93	%		9.88	%
SmartFinancial, Inc.2
Tier 1 leverage			8.78	%		8.83	%		10.28	%		10.34	%		10.02	%
Common equity Tier 1			11.33	%		10.92	%		10.87	%		11.61	%		11.54	%
Tier 1 capital			11.33	%		10.92	%		10.87	%		11.61	%		11.54	%
Total capital			13.82	%		13.25	%		13.13	%		14.02	%		13.98	%
SmartBank			Estimated3
Tier 1 leverage			9.74	%		9.82	%		11.42	%		11.41	%		11.22	%
Common equity Tier 1			12.57	%		12.14	%		12.05	%		12.81	%		12.71	%
Tier 1 risk-based capital			12.57	%		12.14	%		12.05	%		12.81	%		12.71	%
Total risk-based capital			13.37	%		12.82	%		12.62	%		13.31	%		13.19	%

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																Nine Months Ended
	Sep			Jun			Mar			Dec			Sep				Sep			Sep
	2020			2020			2020			2019			2019				2020			2019
Selected Performance Ratios (Annualized):
Return on average assets		0.76	%		0.79	%		0.43	%		1.12	%		1.01	%			0.68	%		1.14	%
Return on average shareholders' equity		7.31	%		7.31	%		3.33	%		8.65	%		7.80	%			6.07	%		8.97	%
Return on average tangible common equity¹		9.72	%		9.80	%		4.41	%		11.55	%		10.52	%			8.10	%		12.22	%
Noninterest income / average assets		0.49	%		0.45	%		0.44	%		0.47	%		0.37	%			0.46	%		0.71	%
Noninterest expense / average assets		2.28	%		2.41	%		2.96	%		2.68	%		2.48	%			2.52	%		2.71	%
Efficiency ratio		63.54	%		64.28	%		74.02	%		67.04	%		63.03	%			66.93	%		62.59	%
Operating Selected Performance Ratios (Annualized):
Operating return on average assets1		0.79	%		0.93	%		0.67	%		1.08	%		1.02	%			0.81	%		0.98	%
Operating PTPP return on average assets1		1.35	%		1.53	%		1.37	%		1.31	%		1.47	%			1.42	%		1.41	%
Operating return on average shareholders' equity1		7.57	%		8.58	%		5.22	%		8.34	%		7.87	%			7.20	%		7.75	%
Operating return on average tangible common equity1		10.06	%		11.51	%		6.90	%		11.12	%		10.61	%			9.60	%		10.56	%
Operating efficiency ratio1		62.25	%		58.95	%		65.46	%		64.95	%		62.42	%			62.07	%		64.07	%
Operating noninterest income / average assets1		0.49	%		0.45	%		0.44	%		0.35	%		0.37	%			0.46	%		0.34	%
Operating noninterest expense / average assets1		2.25	%		2.23	%		2.63	%		2.56	%		2.47	%			2.35	%		2.55	%
Selected Interest Rates and Yields:
Yield on loans		4.71	%		4.87	%		5.35	%		5.36	%		5.49	%			4.95	%		5.55	%
Yield on earning assets, FTE		3.88	%		4.22	%		4.83	%		4.92	%		5.05	%			4.27	%		5.17	%
Cost of interest-bearing deposits		0.59	%		0.71	%		1.10	%		1.29	%		1.37	%			0.79	%		1.37	%
Cost of total deposits		0.44	%		0.54	%		0.91	%		1.06	%		1.13	%			0.61	%		1.14	%
Cost of interest-bearing liabilities		0.65	%		0.77	%		1.20	%		1.39	%		1.47	%			0.85	%		1.49	%
Net interest margin, FTE		3.39	%		3.63	%		3.90	%		3.84	%		3.91	%			3.62	%		3.99	%
Per Common Share:
Net income, basic	$	0.42		$	0.41		$	0.19		$	0.48		$	0.43			$	1.03		$	1.42
Net income, diluted		0.42			0.41			0.19			0.48			0.42				1.02			1.41
Operating earnings, basic¹		0.44			0.48			0.30			0.46			0.43				1.22			1.23
Operating earnings, diluted¹		0.44			0.48			0.30			0.46			0.43				1.21			1.22
Book value		22.96			22.57			22.09			22.33			21.93				22.96			21.93
Tangible book value¹		17.27			16.90			16.40			16.82			16.37				17.27			16.37
Common shares outstanding		15,233,227			15,216,932			15,221,990			14,008,233			13,957,973				15,233,227			13,957,973

¹See reconciliation of Non-GAAP measures

SmartFinancial, Inc. and Subsidiary Condensed Consolidated Financial Information - (unaudited) (dollars in thousands) NON-GAAP RECONCILIATIONS
		Three Months Ended																					Nine Months Ended
		Sep				Jun				Mar				Dec				Sep					Sep				Sep
		2020				2020				2020				2019				2019					2020				2019
Operating Earnings:
Net income (GAAP)		$	6,395			$	6,174			$	2,732			$	6,733			$	5,963				$	15,302			$	19,815
Noninterest income:
Securities gains (losses), net			9				(16	)			—				—				(1	)				(6	)			(34	)
ADECA termination proceeds			—				—				—				(720	)			—					—				—
Merger termination fee			—				—				—				—				—					—				(6,400	)
Noninterest expenses:
Salaries - prior year adjustment			—				—				—				603				—					—				—
Merger related and restructuring expenses			290				1,477				2,096				427				73					3,863				2,792
Other - prior year franchise tax true-up			—				—				—				(312	)			—					—				—
Income taxes:
Tax benefit - prior year amended return			—				—				—				(304	)			—					—				—
Income tax effect of adjustments			(77	)			(382	)			(548	)			60				(19	)				(1,009	)			955
Operating earnings (Non-GAAP)		$	6,617			$	7,253			$	4,280			$	6,487			$	6,016				$	18,150			$	17,128
Operating earnings per common share (Non-GAAP):
Basic		$	0.44			$	0.48			$	0.30			$	0.46			$	0.43				$	1.22			$	1.23
Diluted			0.44				0.48				0.30				0.46				0.43					1.21				1.22
Operating Noninterest Income:
Noninterest income (GAAP)		$	4,121			$	3,511			$	2,818			$	2,840			$	2,196				$	10,450			$	12,311
Securities gains (losses), net			9				(16	)			—				—				(1	)				(6	)			(34	)
ADECA termination proceeds			—				—				—				(720	)			—					—				—
Merger termination fee			—				—				—				—				—					—				(6,400	)
Operating noninterest income (Non-GAAP)		$	4,130			$	3,495			$	2,818			$	2,120			$	2,195				$	10,444			$	5,877
Operating noninterest income (Non-GAAP)/average assets1			0.49		%		0.45		%		0.44		%		0.35		%		0.37		%			0.46		%		0.34		%
Operating Noninterest Expense:
Noninterest expense (GAAP)		$	19,167			$	18,806			$	18,793			$	16,052			$	14,708				$	56,766			$	47,097
Salaries - prior year adjustment			—				—				—				(603	)			—					—				—
Merger related and restructuring expenses			(290	)			(1,477	)			(2,096	)			(427	)			(73	)				(3,863	)			(2,792	)
Other - prior year franchise tax true-up			—				—				—				312				—					—				—
Operating noninterest expense (Non-GAAP)		$	18,877			$	17,329			$	16,697			$	15,334			$	14,635				$	52,903			$	44,305
Operating noninterest expense (Non-GAAP)/average assets2			2.25		%		2.23		%		2.63		%		2.56		%		2.47		%			2.35		%		2.55		%
Operating Pre-tax Pre-provision ("PTPP") Earnings:
Net interest income (GAAP)		$	26,043			$	25,746			$	22,571			$	21,104			$	21,140				$	74,360			$	62,940
Operating noninterest income			4,130				3,495				2,818				2,120				2,195					10,444				5,877
Operating noninterest expense			(18,877	)			(17,329	)			(16,697	)			(15,334	)			(14,635	)				(52,903	)			(44,305	)
Operating PTPP earnings (Non-GAAP)		$	11,296			$	11,912			$	8,692			$	7,890			$	8,700				$	31,901			$	24,512
Non-GAAP Return Ratios:
Operating return on average assets (Non-GAAP)3			0.79		%		0.93		%		0.67		%		1.08		%		1.02		%			0.81		%		0.98		%
Operating PTPP return on average assets (Non-GAAP)4			1.35		%		1.53		%		1.37		%		1.31		%		1.47		%			1.42		%		1.41		%
Return on average tangible common equity (Non-GAAP)5			9.72		%		9.80		%		4.41		%		11.55		%		10.52		%			8.10		%		12.22		%
Operating return on average shareholder equity (Non-GAAP)6			7.57		%		8.58		%		5.22		%		8.34		%		7.87		%			7.20		%		7.75		%
Operating return on average tangible common equity (Non-GAAP)7			10.06		%		11.51		%		6.90		%		11.12		%		10.61		%			9.60		%		10.56		%
Operating Efficiency Ratio:
Efficiency ratio (GAAP)			63.54		%		64.28		%		74.02		%		67.04		%		63.03		%			66.93		%		62.59		%
Adjustment for taxable equivalent yields			(0.32	)	%		(0.34	)	%		(0.34	)	%		(0.33	)	%		(0.30	)	%			(0.33	)	%		(0.28	)	%
Adjustment for securities gains (losses)			0.02		%		(0.04	)	%		—		%		—		%		—		%			(0.01	)	%		(0.03	)	%
Adjustment for merger related income and costs			(0.99	)	%		(4.95	)	%		(8.21	)	%		(1.76	)	%		(0.31	)	%			(4.52	)	%		1.79		%
Operating efficiency ratio (Non-GAAP)			62.25		%		58.95		%		65.46		%		64.95		%		62.42		%			62.07		%		64.07		%

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																				Nine Months Ended
		Sep				Jun				Mar				Dec				Sep				Sep				Sep
		2020				2020				2020				2019				2019				2020				2019
Tangible Common Equity:
Shareholders' equity (GAAP)		$	349,789			$	343,488			$	336,200			$	312,747			$	306,040			$	349,789			$	306,040
Less goodwill and other intangible assets			86,710				86,327				86,503				77,193				77,534				86,710				77,534
Tangible common equity (Non-GAAP)		$	263,079			$	257,161			$	249,697			$	235,554			$	228,506			$	263,079			$	228,506
Average Tangible Common Equity:
Average shareholders' equity (GAAP)		$	347,907			$	339,861			$	329,692			$	308,772			$	303,200			$	336,854			$	295,345
Less average goodwill and other intangible assets			86,206				86,484				80,370				77,400				78,222				84,361				78,563
Average tangible common equity (Non-GAAP)		$	261,701			$	253,377			$	249,322			$	231,372			$	224,978			$	252,493			$	216,782
Tangible Book Value per Common Share:
Book value per common share (GAAP)		$	22.96			$	22.57			$	22.09			$	22.33			$	21.93			$	22.96			$	21.93
Adjustment due to goodwill and other intangible assets			(5.69	)			(5.67	)			(5.69	)			(5.51	)			(5.56	)			(5.69	)			(5.56	)
Tangible book value per common share (Non-GAAP)1		$	17.27			$	16.90			$	16.40			$	16.82			$	16.37			$	17.27			$	16.37
Tangible Common Equity to Tangible Assets:
Total Assets		$	3,387,588			$	3,265,985			$	2,873,715			$	2,449,123			$	2,390,485			$	3,387,588			$	2,390,485
Less goodwill and other intangibles			86,710				86,327				86,503				77,193				77,534				86,710				77,534
Tangible Assets (Non-GAAP):		$	3,300,878			$	3,179,658			$	2,787,212			$	2,371,930			$	2,312,951			$	3,300,878			$	2,312,951
Tangible common equity to tangible assets (Non-GAAP)			7.97	%			8.09	%			8.96	%			9.93	%			9.88	%			7.97	%			9.88	%

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

FAQ

What were SmartFinancial's net earnings for Q3 2020?

SmartFinancial reported net earnings of $6.4 million for Q3 2020.

How did deposits change for SmartFinancial in Q3 2020?

Deposits increased by $604.8 million or 29.5% year-over-year.

What is the tangible book value per share for SMBK in Q3 2020?

The tangible book value per share for SmartFinancial in Q3 2020 was $17.27.

How did nonperforming assets perform in Q3 2020 for SMBK?

Nonperforming assets improved to 0.18% of total assets in Q3 2020.

What was the operating earnings for SmartFinancial in Q3 2020?

Operating earnings (Non-GAAP) were $6.6 million for the third quarter of 2020.