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Press Release

SmartFinancial Announces Results for the Third Quarter 2020

Company Release - 10/20/2020 5:00 PM ET

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

Non-GAAP Financial Measures

Statements included in this earnings release include measures not recognized under U.S. generally accepted accounting principles (“GAAP”) and therefore are considered non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of Non-GAAP financial measures to GAAP financial measures. SmartFinancial management uses several Non-GAAP financial measures, including: (i) operating earnings, (ii) operating return on average assets, (iii) operating pre-tax pre-provision return on average assets, (iv) operating return on average shareholder' equity, (v) return on average tangible common equity, (vi) operating return on average tangible common equity, (vii) operating efficiency ratio, (viii) operating noninterest income, (ix) operating pre-tax pre-provision income, (x) operating noninterest expense, (xi) tangible common equity, (xii) average tangible common equity, (xiii) tangible book value, (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%