Highlights for the Second Quarter of 2022

• Operating earnings ¹ 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.

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_{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:

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):

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):

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):

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):

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.

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_{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):

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.

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 Subsidiary
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SmartFinancial, Inc. and Subsidiary
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YIELD ANALYSIS

¹ Taxable equivalent
² 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 Subsidiary
Condensed Consolidated Financial Information - (unaudited)
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YIELD ANALYSIS

¹ Taxable equivalent
² Includes average balance of $44,082 and $289,220 in PPP loans for the six months ended June 30, 2022, and 2021, respectively.

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¹Total common equity less intangibles divided by total assets less intangibles. See reconciliation of Non-GAAP measures.
²All periods presented are estimated.
³ Current period capital ratios are estimated as of the date of this earnings release.

SmartFinancial, Inc. and Subsidiary
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¹Non-GAAP measure. See reconciliation of Non-GAAP measures.

SmartFinancial, Inc. and Subsidiary
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NON-GAAP RECONCILIATIONS