SmartFinancial Announces Results for the Second Quarter 2022

Jul 25th, 2022 21:00 EST

Highlights for the Second Quarter of 2022

  • Operating earnings1 of $10.3 million, or $0.61 per diluted common share, for the second quarter of 2022
  • Net organic loan and lease growth of over $206.8 million - 30% annualized quarter-over-quarter increase
  • Non-maturity deposit growth of over $128.1 million – 14% annualized quarter-over-quarter increase
  • Net interest income growth of $2.9 million or 39% annualized quarter-over-quarter increase
  • Credit quality remains solid with nonperforming assets to total assets of 0.11%

KNOXVILLE, Tenn., July 25, 2022 (GLOBE NEWSWIRE) -- SmartFinancial, Inc. ("SmartFinancial" or the "Company"; NASDAQ: SMBK), today announced net income of $10.2 million, or $0.61 per diluted common share, for the second quarter of 2022, compared to net income of $8.8 million, or $0.58 per diluted common share, for the second quarter of 2021, and compared to prior quarter net income of $8.3 million, or $0.49 per diluted common share. Operating earnings1, which excludes securities gains and merger related and restructuring expenses, totaled $10.3 million, or $0.61 per diluted common share, in the second quarter of 2022, compared to $9.1 million, or $0.60 per diluted common share, in the second quarter of 2021, and compared to $8.6 million, or $0.51 per diluted common share, in the first quarter of 2022.

Billy Carroll, President & CEO, stated: "I am extremely pleased with another outstanding quarter as our team executes our strategy. We continue to grow revenue, from both strong loan growth and enhanced non-interest income lines, while starting to realize operating leverage.  Earnings performance was right in-line with our plan, and as we monitor the economy, we remain bullish on our outlook."

SmartFinancial's Chairman, Miller Welborn, concluded: “Impressive performance by our team. Our southeastern economy continues to be very strong, and all of our markets are executing at a high level.” 

Net Interest Income and Net Interest Margin

Net interest income was $33.1 million for the second quarter of 2022, compared to $30.1 million for the prior quarter. Average earning assets totaled $4.32 billion, an increase of $98.1 million. The growth in average earnings assets was primarily driven by an increase in average loans and leases of $145.5 million and securities of $100.6 million, offset by a decrease in average interest-earning cash of $147.2 million as the Bank continues to deploy excess liquidity into loans and leases.   Average interest-bearing liabilities increased $16.1 million as a result of core deposit growth of $54.3 million and a decrease in borrowings of $38.2 million.

The tax equivalent net interest margin was 3.08% for the second quarter of 2022, compared to 2.91% for the prior quarter. The tax equivalent net interest margin was positively impacted by the continued deployment of excess cash and cash equivalents into loans and leases and the increase in rates by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).

The yield on interest-bearing liabilities increased to 0.42% for the second quarter of 2022 compared to 0.36% for the prior quarter. The cost of average interest-bearing deposits was 0.33% for the second quarter of 2022 compared to 0.27% for the prior quarter, an increase of 6 basis points, primarily attributable to the increases in rates by the Federal Reserve. The cost of total deposits for the second quarter of 2022 was 0.24% compared to 0.20% in the prior quarter.

________________________1 Non-GAAP measures. See “Non-GAAP Financial Measures” for more information and see the Non-GAAP reconciliation

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

  Three Months Ended   
  Jun Mar Increase 
Selected Interest Rates and Yields 2022 2022 (Decrease) 
Yield on loans and leases 4.40%4.40%-%
Yield on earning assets, FTE 3.39%3.18%0.21%
Cost of interest-bearing deposits 0.33%0.27%0.06%
Cost of total deposits 0.24%0.20%0.04%
Cost of interest-bearing liabilities 0.42%0.36%0.06%
Net interest margin, FTE 3.08%2.91%0.17%

Provision for Loan and Lease Losses and Credit Quality

At June 30, 2022, the allowance for loan and lease losses was $21.9 million. The allowance for loan and lease losses to total loans and leases was 0.73% as of June 30, 2022, compared to 0.72% at March 31, 2022.   For the Company’s originated loans and leases, the allowance for loan and lease losses to originated loans and leases, less PPP loans, was 0.74% as of June 30, 2022, and March 31, 2022, respectively. The remaining discounts on the acquired loan and lease portfolio totaled $14.7 million, or 4.17% of acquired loans and leases as of June 30, 2022.  

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

  Three Months Ended     
  Jun Mar     
Provision for Loan and Lease Losses Rollforward  2022   2022   Change  
Beginning balance $20,078  $19,352  $726  
Charge-offs  (143)  (488)  345  
Recoveries  753   208   545  
Net charge-offs  610   (280)  890  
Provision  1,250   1,006   244  
Ending balance $21,938  $20,078  $1,860  
            
Allowance for loan losses to total loans and leases, gross  0.73 % 0.72 % 0.01 %

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

Nonperforming loans and leases as a percentage of total loans and leases was 0.11% as of June 30, 2022, a decrease of 1 basis point from the 0.12% reported in the first quarter of 2022.   Total nonperforming assets (which include nonaccrual loans and leases, loans and leases past due 90 days or more and still accruing, other real estate owned and other repossessed assets) as a percentage of total assets was 0.11% as of June 30, 2022, and March 31, 2022, respectively. 

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

  Three Months Ended    
   Jun   Mar   Increase 
Credit Quality  2022   2022   (Decrease) 
Nonaccrual loans and leases $3,413  $3,342  $71  
Loans and leases past due 90 days or more and still accruing  -   -   -  
Total nonperforming loans and leases  3,413   3,342   71  
Other real estate owned  1,612   1,612   -  
Other repossessed assets  17   27   (10) 
Total nonperforming assets $5,042  $4,981  $61  
             
Nonperforming loans and leases to total loans and leases, gross  0.11 % 0.12 % (0.01)%
Nonperforming assets to total assets  0.11 % 0.11 % - %

Noninterest Income

Noninterest income increased $118 thousand to $7.2 million for the second quarter of 2022 compared to $7.1 million for the prior quarter. During the second quarter of 2022, the primary components of the changes in noninterest income were as follows:

  • Increase in service charges on deposit accounts, related to deposit growth and transaction volume;
  • Decrease in mortgage banking income, related to lower volume of secondary market activity;
  • Decrease in insurance commissions, driven by annual contingency payments in the prior quarter;
  • Increase in interchange and debit card transaction fees, related to higher volume; and
  • Increase in other, primarily related to increased fees from capital markets activity.

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

  Three Months Ended   
   Jun   Mar  Increase
Noninterest Income  2022   2022  (Decrease)
Service charges on deposit accounts $1,446  $1,319  $127 
Mortgage banking income  471   834   (363)
Investment services  1,065   1,070   (5)
Insurance commissions  598   901   (303)
Interchange and debit card transaction fees  1,467   1,284   183 
Other  2,182   1,703   479 
Total noninterest income $7,229  $7,111  $118 

Noninterest Expense

Noninterest expense increased $208 thousand to $25.9 million for the second quarter of 2022 compared to $25.7 million for the prior quarter. During the second quarter of 2022, the primary components of the changes in noninterest expense were as follows:

  • Increase in salaries and employee benefits, primarily attributable to full quarters effect of merit increases and increased employee insurance cost;
  • Decrease in occupancy and equipment as a result of prior quarter maintenance expenditures and lower utility expenses in current quarter;
  • Increase in data processing and technology as a result of continued infrastructure improvements;
  • Decrease in professional services, related to fewer services performed during the quarter; and
  • Increase in other expense, related to disposal of fixed assets, training and education initiatives.

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

  Three Months Ended   
   Jun   Mar  Increase
Noninterest Expense  2022   2022  (Decrease)
Salaries and employee benefits $15,673  $15,046  $627 
Occupancy and equipment  2,793   3,059   (266)
FDIC insurance  676   641   35 
Other real estate and loan related expenses  636   729   (93)
Advertising and marketing  327   369   (42)
Data processing and technology  1,728   1,586   142 
Professional services  745   1,242   (497)
Amortization of intangibles  633   637   (4)
Merger related and restructuring expenses  81   439   (358)
Other  2,634   1,970   664 
Total noninterest expense $25,926  $25,718  $208 

Income Tax Expense

Income tax expense was $2.9 million for the second quarter of 2022, an increase of $654 thousand, compared to $2.2 million for the prior quarter.

The effective tax rate was 22.11% for the second quarter of 2022 and 21.38% for the prior quarter.

Balance Sheet Trends

Total assets at June 30, 2022 were $4.79 billion compared with $4.61 billion at December 31, 2021. The increase of $176.5 million is primarily attributable to increases in loans and leases of $300.7 million, securities of $253.8 million, and other assets of $14.6 million, offset by a decrease in cash and cash equivalents of $390.1 million, primarily from the funding of loans and leases and purchase of securities.

Total liabilities increased to $4.37 billion at June 30, 2022 from $4.18 billion at December 31, 2021. The increase of $185.5 million was primarily from organic deposit growth of $259.7 million, offset by a decrease in borrowings of $75.0 million.

Shareholders' equity at June 30, 2022 totaled $420.4 million, a decrease of $9.0 million, from December 31, 2021. The decrease in shareholders' equity was primarily from the change in accumulated other comprehensive income (loss) of $26.1 million and dividends paid of $2.4 million, offset by net income of $18.5 million for the six months ended June 30, 2022.   Tangible book value per share2 was $18.69 at June 30, 2022, compared to $19.26 at December 31, 2021. Tangible common equity1 as a percentage of tangible assets1 was 6.74% at June 30, 2022, compared with 7.18% at December 31, 2021.

________________________1 Non-GAAP measures. See “Non-GAAP Financial Measures” for more information and see the Non-GAAP reconciliation

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

            
  Jun Dec Increase
Selected Balance Sheet Information 2022 2021 (Decrease)
Total assets $4,788,113  $4,611,579  $176,534 
Total liabilities  4,367,686   4,182,149   185,537 
Total equity  420,427   429,430   (9,003)
Securities  813,227   617,452   195,775 
Loans and leases  2,994,074   2,693,397   300,677 
Deposits  4,281,632   4,021,938   259,694 
Borrowings  12,549   87,585   (75,036)

Conference Call Information

SmartFinancial issued this earnings release for the second quarter of 2022 on Monday, July 25, 2022, and will host a conference call on Tuesday, July 26, 2022, at 10:00 a.m. ET. To access this interactive teleconference, dial (844) 200-6205 or (646) 904-5544 and entering the access code, 357084. A replay of the conference call will be available through September 26, 2022, by dialing (866) 813-9403 or (929) 458-6194 and entering the access code, 729133.   Conference call materials will be published on the Company’s webpage located at http://www.smartfinancialinc.com/CorporateProfile, at 9:00 a.m. ET prior to the conference call.

About SmartFinancial, Inc.

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

 
Source
SmartFinancial, Inc.
 
Investor Contacts
Billy Carroll
President & CEO
(865) 868-0613   [email protected]
 
Ron Gorczynski
Executive Vice President, Chief Financial Officer
(865) 437-5724 [email protected]
 
Media Contact
Kelley Fowler
Senior Vice President, Public Relations & Marketing
(865) 868-0611    [email protected]
 

Non-GAAP Financial Measures

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

Forward-Looking Statements

This news release may contain statements that are based on management’s current estimates or expectations of future events or future results, and that may be deemed to constitute forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These statements, including statements regarding the effects of the COVID-19 pandemic and related variants on the Company’s business and financial results and conditions, are not historical in nature and can generally be identified by such words as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “may,” “estimate,” and similar expressions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results of SmartFinancial to differ materially from future results expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, among others, (1) risks associated with our growth strategy, including a failure to implement our growth plans or an inability to manage our growth effectively; (2) claims and litigation arising from our business activities and from the companies we acquire, which may relate to contractual issues, environmental laws, fiduciary responsibility, and other matters; (3) the risk that cost savings and revenue synergies from recently completed acquisitions may not be realized or may take longer than anticipated to realize; (4) disruption from recently completed acquisitions with customer, supplier, employee, or other business relationships; (5) our ability to successfully integrate the businesses acquired as part of previous acquisitions with the business of SmartBank; (6) risks related to the acquisition of Sevier County Bancshares, Inc. (“SCB”); (7) the risk that the anticipated benefits from the acquisition of SCB may not be realized in the time frame anticipated; (8) changes in management’s plans for the future; (9) prevailing, or changes in, economic or political conditions, particularly in our market areas; (10) credit risk associated with our lending activities; (11) changes in interest rates, loan demand, real estate values, or competition; (12) changes in prices, values and sales volumes of residential and commercial real estate; (13) changes in accounting principles, policies, or guidelines; (14) changes in applicable laws, rules, or regulations; (15) 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 and related variants; (16) the impact of the COVID-19 pandemic and related variants on the Company’s assets, business, cash flows, financial condition, liquidity, prospects and results of operations; (17) higher inflation and its impacts; (18) the effects of war or other conflicts including the impacts related to or resulting from Russia’s military action in Ukraine; and (19) 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 SubsidiaryCondensed Consolidated Financial Information - (unaudited)(dollars in thousands)

  Ending Balances
  Jun Mar Dec Sep Jun
  2022 2022 2021 2021 2021
Assets:               
Cash and cash equivalents $654,945  $763,968  $1,045,077  $1,091,160  $673,515 
Securities available-for-sale, at fair value  524,864   540,483   482,453   339,343   250,817 
Securities held-to-maturity, at amortized cost  288,363   289,532   76,969       
Other investments  16,569   16,499   16,494   14,972   14,584 
Loans held for sale  1,707   5,894   5,103   3,418   4,334 
Loans and leases  2,994,074   2,806,026   2,693,397   2,652,663   2,468,318 
Less: Allowance for loan and lease losses  (21,938)  (20,078)  (19,352)  (19,295)  (18,310)
Loans and leases, net  2,972,136   2,785,948   2,674,045   2,633,368   2,450,008 
Premises and equipment, net  89,950   84,793   85,958   85,346   72,314 
Other real estate owned  1,612   1,612   1,780   2,415   2,499 
Goodwill and other intangibles, net  104,582   105,215   105,852   104,930   90,966 
Bank owned life insurance  80,537   80,074   79,619   79,145   72,013 
Other assets  52,848   44,561   38,229   29,934   23,306 
Total assets $4,788,113  $4,718,579  $4,611,579  $4,384,031  $3,654,356 
Liabilities:               
Deposits:               
Noninterest-bearing demand $1,162,843  $1,093,933  $1,055,125  $977,180  $807,560 
Interest-bearing demand  999,893   975,272   899,158   847,007   702,470 
Money market and savings  1,607,714   1,573,101   1,493,007   1,389,393   1,140,029 
Time deposits  511,182   549,047   574,648   585,692   489,413 
Total deposits  4,281,632   4,191,353   4,021,938   3,799,272   3,139,472 
Borrowings  12,549   36,713   87,585   88,748   78,834 
Subordinated debt  41,973   41,952   41,930   41,909   39,388 
Other liabilities  31,532   28,519   30,696   29,382   23,269 
Total liabilities  4,367,686   4,298,537   4,182,149   3,959,311   3,280,963 
Shareholders' Equity:               
Common stock  16,898   16,893   16,803   16,801   15,110 
Additional paid-in capital  293,815   293,376   292,937   292,760   252,039 
Retained earnings  134,362   125,329   118,247   112,600   103,906 
Accumulated other comprehensive income (loss)  (24,648)  (15,556)  1,443   2,559   2,338 
Total shareholders' equity  420,427   420,042   429,430   424,720   373,393 
Total liabilities & shareholders' equity $4,788,113  $4,718,579  $4,611,579  $4,384,031  $3,654,356 

SmartFinancial, Inc. and SubsidiaryCondensed Consolidated Financial Information - (unaudited)(dollars in thousands except share and per share data)

                           
 Three Months Ended  Six Months Ended
 Jun Mar Dec Sep Jun Jun Jun
 2022 2022 2021 2021 2021 2022 2021
Interest income:                          
Loans and leases, including fees$31,530  $29,643  $30,567  $31,674  $28,323  $61,172  $56,341 
Investment securities:                          
Taxable 2,908   2,418   1,341   832   916   5,327   1,640 
Tax-exempt 441   368   322   331   304   809   563 
Federal funds sold and other earning assets 1,430   486   547   474   309   1,916   600 
Total interest income 36,309   32,915   32,777   33,311   29,852   69,224   59,144 
Interest expense:                          
Deposits 2,504   2,014   2,116   2,153   2,248   4,518   4,579 
Borrowings 117   157   180   121   123   274   241 
Subordinated debt 626   626   626   655   584   1,252   1,167 
Total interest expense 3,247   2,797   2,922   2,929   2,955   6,044   5,987 
Net interest income 33,062   30,118   29,855   30,382   26,897   63,180   53,157 
Provision for loan and lease losses 1,250   1,006   422   1,149   (5)  2,256   62 
Net interest income after provision for loan and lease losses 31,812   29,112   29,433   29,233   26,902   60,924   53,095 
Noninterest income:                          
Service charges on deposit accounts 1,446   1,319   1,372   1,220   1,048   2,765   2,057 
Gain (loss) on sale of securities, net          45          
Mortgage banking 471   834   803   994   1,105   1,305   2,244 
Investment services 1,065   1,070   621   448   567   2,135   1,098 
Insurance commissions 598   901   517   745   557   1,499   2,023 
Interchange and debit card transaction fees 1,467   1,284   1,445   1,078   922   2,751   1,761 
Other 2,182   1,703   2,048   1,779   944   3,885   1,652 
Total noninterest income 7,229   7,111   6,806   6,309   5,143   14,340   10,835 
Noninterest expense:                          
Salaries and employee benefits 15,673   15,046   14,990   13,594   12,203   30,719   23,072 
Occupancy and equipment 2,793   3,059   3,026   2,536   2,294   5,852   4,635 
FDIC insurance 676   641   567   525   371   1,317   741 
Other real estate and loan related expense 636   729   583   407   506   1,365   1,108 
Advertising and marketing 327   369   176   235   230   697   419 
Data processing and technology 1,728   1,586   1,722   1,753   1,509   3,314   2,889 
Professional services 745   1,242   847   810   849   1,987   1,490 
Amortization of intangibles 633   637   660   711   441   1,270   886 
Merger related and restructuring expenses 81   439   2,762   464   372   520   475 
Other 2,634   1,970   2,490   2,274   2,022   4,602   4,547 
Total noninterest expense 25,926   25,718   27,823   23,309   20,797   51,643   40,262 
Income before income taxes 13,115   10,505   8,416   12,233   11,248   23,621   23,668 
Income tax expense 2,900   2,246   1,761   2,633   2,470   5,146   5,134 
Net income$10,215  $8,259  $6,655  $9,600  $8,778  $18,475  $18,534 
Earnings per common share:                          
Basic$0.61  $0.49  $0.40  $0.62  $0.59  $1.11  $1.24 
Diluted$0.61  $0.49  $0.40  $0.61  $0.58  $1.10  $1.23 
Weighted average common shares outstanding:                          
Basic 16,734,930   16,718,371   16,699,010   15,557,528   15,003,657   16,726,696   15,007,593 
Diluted 16,867,774   16,858,288   16,846,315   15,691,126   15,126,184   16,863,299   15,118,924 

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

  Three Months Ended  
  June 30, 2022 March 31, 2022 June 30, 2021 
  Average    Yield/ Average    Yield/ Average    Yield/ 
  Balance Interest1 Cost1 Balance Interest1 Cost1 Balance Interest1 Cost1 
Assets:                         
Loans and leases, including fees2 $2,869,687 $31,492 4.40%$2,724,206 $29,570 4.40%$2,508,388 $28,256 4.52%
Loans held for sale  3,061  38 4.94% 3,890  73 7.62% 5,315  67 5.03%
Taxable securities  717,507  2,908 1.63% 612,980  2,418 1.60% 164,935  916 2.23%
Tax-exempt securities  101,585  609 2.40% 105,516  533 2.05% 89,296  453 2.04%
Federal funds sold and other earning assets  628,677  1,430 0.91% 775,834  486 0.25% 531,125  309 0.23%
Total interest-earning assets  4,320,517  36,477 3.39% 4,222,426  33,080 3.18% 3,299,059  30,001 3.65%
Noninterest-earning assets  374,776       381,807       286,211      
Total assets $4,695,293      $4,604,233      $3,585,270      
                          
Liabilities and Stockholders’ Equity:                         
Interest-bearing demand deposits $968,806  734 0.30%$921,835  446 0.20%$688,756  304 0.18%
Money market and savings deposits  1,559,963  1,126 0.29% 1,523,188  859 0.23% 1,117,290  905 0.32%
Time deposits  531,783  644 0.49% 561,207  709 0.51% 502,755  1,039 0.83%
Total interest-bearing deposits  3,060,552  2,504 0.33% 3,006,230  2,014 0.27% 2,308,801  2,248 0.39%
Borrowings  31,510  117 1.49% 69,769  157 0.91% 81,525  123 0.61%
Subordinated debt  41,959  626 5.98% 41,938  626 6.05% 39,375  584 5.95%
Total interest-bearing liabilities  3,134,021  3,247 0.42% 3,117,937  2,797 0.36% 2,429,701  2,955 0.49%
Noninterest-bearing deposits  1,112,643       1,028,298       768,399      
Other liabilities  28,903       30,053       17,845      
Total liabilities  4,275,567       4,176,288       3,215,945      
Shareholders' equity  419,726       427,945       369,325      
Total liabilities and shareholders' equity $4,695,293      $4,604,233      $3,585,270      
                          
Net interest income, taxable equivalent    $33,230      $30,283      $27,046   
Interest rate spread       2.97%      2.82%      3.16%
Tax equivalent net interest margin       3.08%      2.91%      3.29%
                          
Percentage of average interest-earning assets to average interest-bearing liabilities       137.86%      135.42%      135.78%
Percentage of average equity to average assets       8.94%      9.29%      10.30%

1 Taxable equivalent2 Includes average balance of $34,307, $53,966 and $266,114 in PPP loans for the quarters ended June 30, 2022, March 31, 2022, and June 30, 2021, respectively.

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

  Six Months Ended
  June 30, 2022 June 30, 2021 
  Average    Yield/ Average    Yield/ 
  Balance Interest1 Cost1 Balance Interest1 Cost1 
Assets:                  
Loans and leases, including fees2 $2,797,348 $61,061  4.40%$2,468,665 $56,200 4.59%
Loans held for sale  3,473  111  6.43% 6,607  141 4.31%
Taxable securities  665,532  5,327  1.61% 150,792  1,640 2.19%
Tax-exempt securities  103,540  1,142  2.22% 90,068  862 1.93%
Federal funds sold and other earning assets  701,850  1,916  0.55% 474,449  600 0.26%
Total interest-earning assets  4,271,743  69,557  3.28% 3,190,581  59,443 3.76%
Noninterest-earning assets  378,271        280,772      
Total assets $4,650,014       $3,471,353      
                   
Liabilities and Stockholders’ Equity:                  
Interest-bearing demand deposits $945,450  1,181  0.25%$665,116  560 0.17%
Money market and savings deposits  1,541,678  1,985  0.26% 1,050,961  1,726 0.33%
Time deposits  546,413  1,352  0.50% 514,344  2,293 0.90%
Total interest-bearing deposits  3,033,541  4,518  0.30% 2,230,421  4,579 0.41%
Borrowings  50,533  274  1.09% 81,680  241 0.59%
Subordinated debt  41,949  1,252  6.02% 39,364  1,167 5.98%
Total interest-bearing liabilities  3,126,023  6,044  0.39% 2,351,465  5,987 0.51%
Noninterest-bearing deposits  1,070,703        734,867      
Other liabilities  29,475        19,876      
Total liabilities  4,226,201        3,106,208      
Shareholders' equity  423,813        365,145      
Total liabilities and shareholders' equity $4,650,014       $3,471,353      
                   
Net interest income, taxable equivalent    $63,513       $53,456   
Interest rate spread        2.89%      3.25%
Tax equivalent net interest margin        3.00%      3.38%
                   
Percentage of average interest-earning assets to average interest-bearing liabilities        136.65%      135.68%
Percentage of average equity to average assets        9.11%      10.52%

1 Taxable equivalent2 Includes average balance of $44,082 and $289,220 in PPP loans for the six months ended June 30, 2022, and 2021, respectively.

SmartFinancial, Inc. and SubsidiaryCondensed Consolidated Financial Information - (unaudited)(dollars in thousands)

  As of and for The Three Months Ended  
  Jun Mar Dec Sep Jun 
  2022 2022 2021 2021 2021 
Composition of Loans and Leases:                    
Commercial real estate:                    
owner occupied $684,250  $612,675  $590,064  $560,671  $492,750  
non-owner occupied  850,338   863,181   794,092   752,576   669,741  
Commercial real estate, total  1,534,588   1,475,856   1,384,156   1,313,247   1,162,491  
Commercial & industrial  483,588   461,153   488,024   469,739   496,114  
Construction & land development  364,368   314,654   278,386   326,374   300,704  
Consumer real estate  533,582   483,229   477,272   478,161   444,640  
Leases  63,264   59,892   53,708   53,396   53,038  
Consumer and other  14,684   11,242   11,851   11,746   11,331  
Total loans and leases $2,994,074  $2,806,026  $2,693,397  $2,652,663  $2,468,318  
                     
Asset Quality and Additional Loan Data:                    
Nonperforming loans and leases $3,413  $3,342  $3,188  $3,567  $3,758  
Other real estate owned  1,612   1,612   1,780   2,415   2,499  
Other repossessed assets  17   27   90   77   199  
Total nonperforming assets $5,042  $4,981  $5,058  $6,059  $6,456  
Restructured loans and leases not included in nonperforming loans and leases $678  $625  $206  $212  $219  
Net charge-offs to average loans and leases (annualized)  (0.09)% 0.04 % 0.05 % 0.03 % 0.01 %
Allowance for loan and leases losses to loans and leases  0.73 % 0.72 % 0.72 % 0.73 % 0.74 %
Nonperforming loans and leases to total loans and leases, gross  0.11 % 0.12 % 0.12 % 0.13 % 0.15 %
Nonperforming assets to total assets  0.11 % 0.11 % 0.11 % 0.14 % 0.18 %
Acquired loan and lease fair value discount balance $14,737  $14,913  $15,483  $13,001  $12,982  
Accretion income on acquired loans and leases  225   389   457   1,760   761  
PPP net fees deferred balance  301   972   2,038   3,783   6,651  
PPP net fees recognized  669   1,066   1,725   2,873   2,132  
                     
Capital Ratios:                    
Equity to Assets  8.78 % 8.90 % 9.31 % 9.69 % 10.22 %
Tangible common equity to tangible assets (Non-GAAP)1  6.74 % 6.82 % 7.18 % 7.47 % 7.93 %
                     
SmartFinancial, Inc.2                    
Tier 1 leverage  7.48 % 7.41 % 7.45 % 8.36 % 8.10 %
Common equity Tier 1  9.95 % 10.30 % 10.56 % 10.85 % 10.63 %
Tier 1 capital  9.95 % 10.30 % 10.56 % 10.85 % 10.63 %
Total capital  11.80 % 12.22 % 12.55 % 12.92 % 12.80 %
                     
SmartBank  Estimated3                 
Tier 1 leverage  8.33 % 8.24 % 8.23 % 9.20 % 8.75 %
Common equity Tier 1  11.08 % 11.46 % 11.66 % 11.94 % 11.50 %
Tier 1 capital  11.08 % 11.46 % 11.66 % 11.94 % 11.50 %
Total capital  11.72 % 12.08 % 12.29 % 12.59 % 12.19 %

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 SubsidiaryCondensed 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   Six Months Ended  
 Jun Mar Dec Sep Jun  Jun Jun 
 2022 2022 2021 2021 2021  2022 2021 
Selected Performance Ratios (Annualized):                      
Return on average assets 0.87% 0.73% 0.59% 0.97% 0.98%  0.80% 1.08%
Return on average shareholders' equity 9.76% 7.83% 6.19% 9.70% 9.53%  8.79% 10.24%
Return on average tangible common equity¹ 13.02% 10.39% 8.18% 12.84% 12.54%  11.70% 13.46%
Noninterest income / average assets 0.62% 0.63% 0.60% 0.64% 0.58%  0.62% 0.63%
Noninterest expense / average assets 2.21% 2.27% 2.47% 2.35% 2.33%  2.24% 2.34%
Efficiency ratio 64.35% 69.08% 75.89% 63.53% 64.91%  66.62% 62.92%
                       
Operating Selected Performance Ratios (Annualized):                      
Operating return on average assets1 0.88% 0.76% 0.77% 1.00% 1.01%  0.82% 1.10%
Operating PTPP return on average assets1 1.23% 1.05% 1.03% 1.39% 1.30%  1.14% 1.41%
Operating return on average shareholders' equity1 9.82% 8.14% 8.09% 10.01% 9.83%  8.97% 10.43%
Operating return on average tangible common equity1 13.09% 10.80% 10.70% 13.26% 12.93%  11.94% 13.72%
Operating efficiency ratio1 63.88% 67.60% 68.07% 62.10% 63.46%  65.67% 61.89%
Operating noninterest income / average assets1 0.62% 0.63% 0.60% 0.63% 0.58%  0.62% 0.63%
Operating noninterest expense / average assets1 2.21% 2.23% 2.23% 2.30% 2.29%  2.22% 2.31%
                       
Selected Interest Rates and Yields:                      
Yield on loans and leases 4.40% 4.40% 4.53% 4.95% 4.52%  4.40% 4.59%
Yield on earning assets, FTE 3.39% 3.18% 3.20% 3.67% 3.65%  3.28% 3.76%
Cost of interest-bearing deposits 0.33% 0.27% 0.29% 0.34% 0.39%  0.30% 0.41%
Cost of total deposits 0.24% 0.20% 0.22% 0.25% 0.29%  0.22% 0.31%
Cost of interest-bearing liabilities 0.42% 0.36% 0.39% 0.44% 0.49%  0.39% 0.51%
Net interest margin, FTE 3.08% 2.91% 2.92% 3.35% 3.29%  3.00% 3.38%
                       
Per Common Share:                      
Net income, basic$0.61 $0.49 $0.40 $0.62 $0.59  $1.11 $1.24 
Net income, diluted 0.61  0.49  0.40  0.61  0.58   1.10  1.23 
Operating earnings, basic¹ 0.61  0.51  0.52  0.64  0.60   1.13  1.25 
Operating earnings, diluted¹ 0.61  0.51  0.52  0.63  0.60   1.12  1.25 
Book value 24.88  24.86  25.56  25.28  24.71   24.88  24.71 
Tangible book value¹ 18.69  18.64  19.26  19.03  18.69   18.69  18.69 
Common shares outstanding 16,898,405  16,893,282  16,802,990  16,801,447  15,109,736   16,898,405  15,109,736 

¹Non-GAAP measure. See reconciliation of Non-GAAP measures.

SmartFinancial, Inc. and SubsidiaryCondensed Consolidated Financial Information - (unaudited)(dollars in thousands)NON-GAAP RECONCILIATIONS

  Three Months Ended   Six Months Ended  
  Jun Mar Dec Sep Jun  Jun Jun 
  2022 2022 2021 2021 2021  2022 2021 
Operating Earnings:                       
Net income (GAAP) $10,215  $8,259  $6,655  $9,600  $8,778   $18,475  $18,534  
Noninterest income:                       
Securities gains (losses), net           (45)           
Noninterest expenses:                       
Merger related and restructuring expenses  81   439   2,762   464   372    520   475  
Income taxes:                       
Income tax effect of adjustments  (21)  (113)  (713)  (108)  (96)   (134)  (123) 
Operating earnings (Non-GAAP) $10,275  $8,585  $8,704  $9,911  $9,054   $18,861  $18,886  
Operating earnings per common share (Non-GAAP):                       
Basic $0.61  $0.51  $0.52  $0.64  $0.60   $1.13  $1.25  
Diluted  0.61   0.51   0.52   0.63   0.60    1.12   1.25  
                        
Operating Noninterest Income:                       
Noninterest income (GAAP) $7,229  $7,111  $6,806  $6,309  $5,143   $14,340  $10,835  
Securities gains (losses), net           (45)           
Operating noninterest income (Non-GAAP) $7,229  $7,111  $6,806  $6,264  $5,143   $14,340  $10,835  
Operating noninterest income (Non-GAAP)/average assets1  0.62 % 0.63 % 0.60 % 0.63 % 0.58 %  0.62 % 0.63 %
                        
Operating Noninterest Expense:                       
Noninterest expense (GAAP) $25,926  $25,718  $27,823  $23,309  $20,797   $51,643  $40,262  
Merger related and restructuring expenses  (81)  (439)  (2,762)  (464)  (372)   (520)  (475) 
Operating noninterest expense (Non-GAAP) $25,845  $25,279  $25,061  $22,845  $20,425   $51,123  $39,787  
Operating noninterest expense (Non-GAAP)/average assets2  2.21 % 2.23 % 2.23 % 2.30 % 2.29 %  2.22 % 2.31 %
                        
Operating Pre-tax Pre-provision ("PTPP") Earnings:                       
Net interest income (GAAP) $33,062  $30,118  $29,855  $30,382  $26,897   $63,180  $53,157  
Operating noninterest income (Non-GAAP)  7,229   7,111   6,806   6,264   5,143    14,340   10,835  
Operating noninterest expense (Non-GAAP)  (25,845)  (25,279)  (25,061)  (22,845)  (20,425)   (51,123)  (39,787) 
Operating PTPP earnings (Non-GAAP) $14,446  $11,950  $11,600  $13,801  $11,615   $26,397  $24,205  
                        
Non-GAAP Return Ratios:                       
Operating return on average assets (Non-GAAP)3  0.88 % 0.76 % 0.77 % 1.00 % 1.01 %  0.82 % 1.10 %
Operating PTPP return on average assets (Non-GAAP)4  1.23 % 1.05 % 1.03 % 1.39 % 1.30 %  1.14 % 1.41 %
Return on average tangible common equity (Non-GAAP)5  13.02 % 10.39 % 8.18 % 12.84 % 12.54 %  11.70 % 13.46 %
Operating return on average shareholders' equity (Non-GAAP)6  9.82 % 8.14 % 8.09 % 10.01 % 9.83 %  8.97 % 10.43 %
Operating return on average tangible common equity (Non-GAAP)7  13.09 % 10.80 % 10.70 % 13.26 % 12.93 %  11.94 % 13.72 %
                        
Operating Efficiency Ratio:                       
Efficiency ratio (GAAP)  64.35 % 69.08 % 75.89 % 63.53 % 64.91 %  66.62 % 62.92 %
Adjustment for taxable equivalent yields  (0.27)% (0.31)% (0.32)% (0.25)% (0.30)%  (0.29)% (0.31)%
Adjustment for securities gains (losses)   %  %  % (0.08)%  %   %  %
Adjustment for merger related income and costs  (0.20)% (1.17)% (7.50)% (1.10)% (1.15)%  (0.66)% (0.72)%
Operating efficiency ratio (Non-GAAP)  63.88 % 67.60 % 68.07 % 62.10 % 63.46 %  65.67 % 61.89 %

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 shareholders’ 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 SubsidiaryCondensed Consolidated Financial Information - (unaudited)(dollars in thousands)NON-GAAP RECONCILIATIONS

  Three Months Ended   Six Months Ended
  Jun Mar Dec Sep Jun  Jun Jun
  2022 2022 2021 2021 2021  2022 2021
Tangible Common Equity:                      
Shareholders' equity (GAAP) $420,427  $420,042  $429,430  $424,720  $373,393   $420,427  $373,393 
Less goodwill and other intangible assets  104,582   105,215   105,852   104,930   90,966    104,582   90,966 
Tangible common equity (Non-GAAP) $315,845  $314,827  $323,578  $319,790  $282,427   $315,845  $282,427 
                       
Average Tangible Common Equity:                      
Average shareholders' equity (GAAP) $419,726  $427,945  $426,808  $392,798  $369,325   $423,813  $365,145 
Less average goodwill and other intangible assets  104,986   105,617   104,193   96,250   88,551    105,300   87,494 
Average tangible common equity (Non-GAAP) $314,740  $322,328  $322,615  $296,548  $280,774   $318,513  $277,651 
                       
Tangible Book Value per Common Share:                      
Book value per common share (GAAP) $24.88  $24.86  $25.56  $25.28  $24.71   $24.88  $24.71 
Adjustment due to goodwill and other intangible assets  (6.19)  (6.23)  (6.30)  (6.25)  (6.02)   (6.19)  (6.02)
Tangible book value per common share (Non-GAAP)1 $18.69  $18.64  $19.26  $19.03  $18.69   $18.69  $18.69 
                       
Tangible Common Equity to Tangible Assets:                      
Total Assets $4,788,113  $4,718,579  $4,611,579  $4,384,031  $3,654,356   $4,788,113  $3,654,356 
Less goodwill and other intangibles  104,582   105,215   105,852   104,930   90,966    104,582   90,966 
Tangible Assets (Non-GAAP): $4,683,531  $4,613,364  $4,505,727  $4,279,101  $3,563,390   $4,683,531  $3,563,390 
Tangible common equity to tangible assets (Non-GAAP)  6.74%  6.82%  7.18%  7.47%  7.93%   6.74%  7.93%

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

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