KNOXVILLE – SmartFinancial, Inc. (“SmartFinancial” or the “Company”; NASDAQ: SMBK), today announced net income of $8.3 million, or $0.49 per diluted common share, for the first quarter of 2022, compared to net income of $9.8 million, or $0.65 per diluted common share, for the first quarter of 2021, and compared to prior quarter net income of $6.7 million, or $0.40 per diluted common share. Operating earnings1, which excludes securities gains, merger related and restructuring expenses and non-operating items, totaled $8.6 million, or $0.51 per diluted common share, in the first quarter of 2022, compared to $9.8 million, or $0.65 per diluted common share, in the first quarter of 2021, and compared to $8.7 million, or $0.52 per diluted common share, in the fourth quarter of 2021.
Highlights for the First Quarter of 2022
- Operating earnings[1] of $8.6 million, or $0.51 per diluted common share, for the first quarter of 2022
- Net organic loan and lease growth of over $136.9 million – 21% annualized quarter-over-quarter increase
- Non-time deposit growth of over $195.0 million – 23% annualized quarter-over-quarter increase
- Credit quality remains solid with nonperforming assets to total assets of 0.11%
Billy Carroll, President & CEO, stated: “I am extremely pleased with our results for the first quarter. Both loans and deposits grew at an outstanding pace, as our sales team executed our organic growth strategy. Our wealth platform, insurance platform and equipment finance group all also had strong performance. Earnings performance was on target and while keeping an eye on inflationary pressure in our economy, we remain bullish on the company’s 2022 outlook.”
SmartFinancial’s Chairman, Miller Welborn, concluded: “2022 has certainly started on a good note for us. Just as we projected and forecasted our plan is on track. The execution at all levels shows our commitment and discipline to be a top performing bank”.
Net Interest Income and Net Interest Margin
Net interest income was $30.1 million for the first quarter of 2022, compared to $29.9 million for the prior quarter. Average earning assets totaled $4.22 billion, an increase of $139.1 million. The growth in average earnings assets was primarily driven by an increase in average securities of $276.1 million and average loans and leases of $54.3 million, offset by a decrease in average interest-earning cash of $190.1 million, primarily from the purchase of securities. Average interest-bearing liabilities increased $121.8 million, related to continued core deposit growth.
The tax equivalent net interest margin was 2.91% for the first quarter of 2022, compared to 2.92% for the prior quarter. The tax equivalent net interest margin was positively impacted by several factors, mainly the continued deployment of excess cash and cash equivalents into loans and securities. However, the deployment of total cash and cash equivalents was partially offset by a quarter-over-quarter deposit increase of over $169 million. Additionally, the yield on interest-earning assets was negatively impacted due to a decrease quarter-over-quarter in loan discount and Payroll Protection Program (“PPP”) fee accretion of $727 thousand.
The yield on interest-bearing liabilities decreased to 0.36% for the first quarter of 2022 compared to 0.39% for the prior quarter. The cost of average interest-bearing deposits was 0.27% for the first quarter of 2022 compared to 0.29% for the prior quarter, a decrease of 2 basis points. The lower cost of average deposits was attributable to the growth of non-time deposits and the continued maturation and repricing of time deposits. The cost of total deposits for the first quarter of 2022 was 0.20% compared to 0.22% in the prior quarter.
Provision for Loan and Lease Losses and Credit Quality
At March 31, 2022, the allowance for loan and lease losses was $20.1 million. The allowance for loan and lease losses to total loans and leases was 0.72% as of March 31, 2022, and December 31, 2021, respectively. For the Company’s originated loans and leases, the allowance for loan and lease losses to originated loans and leases, less PPP loans, was 0.71% as of March 31, 2022, compared to 0.74% as of December 31, 2021. The remaining discounts on the acquired loan and lease portfolio totaled $14.9 million, or 3.64% of acquired loans and leases as of March 31, 2022.
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 0.12% as of March 31, 2022, and December 31, 2021, respectively. 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 March 31, 2022, and December 31, 2021, respectively.
Noninterest Income
Noninterest income increased $305 thousand to $7.1 million for the first quarter of 2022 compared to $6.8 million for the prior quarter. During the first quarter of 2022, the primary components of the changes in noninterest income were as follows:
- Increase in investment services, income led by the new Gulf Coast advisory team’s continued client onboarding;
- Increase in insurance commissions, driven by seasonality;
- Decrease in interchange and debit card transaction fees, related to lower volume; and
- Decrease in other, primarily from the gain on sale of credit card portfolio in prior quarter.
Noninterest Expense
Noninterest expense decreased $2.1 million to $25.7 million for the first quarter of 2022 compared to $27.8 million for the prior quarter. During the first quarter of 2022, the primary components of the changes in noninterest expense were as follows:
- Increase in other real estate and loan related expenses, primarily attributable to increased activity in loan related production;
- Increase in advertising and marketing, related to additional advertising and public relations across the Company;
- Decrease in data processing and technology as a result of continued efficiency efforts;
- Increase in professional services, related to additional services performed during the quarter; and
- Decrease in other expense, related to year-end expenses in prior period and continued efficiency efforts.
Income tax expense was $2.2 million for the first quarter of 2022, an increase of $485 thousand, compared to $1.8 million for the prior quarter.
The effective tax rate was 21.38% for the first quarter of 2022 and 20.93% for the prior quarter.
Balance Sheet Trends
Total assets at March 31, 2022 were $4.72 billion compared with $4.61 billion at December 31, 2021. The increase of $107.0 million is primarily attributable to increases in securities of $270.6 million, loans and leases of $112.6 million, and other assets of $6.3 million, offset by a decrease in cash and cash equivalents of $281.1 million, primarily from the purchase of securities.
Total liabilities increased to $4.30 billion at March 31, 2022 from $4.18 billion at December 31, 2021. The increase of $116.4 million was primarily from organic deposit growth of $169.4 million, offset by a decrease in borrowings of $50.9 million.
Shareholders’ equity at March 31, 2022 totaled $420.0 million, a decrease of $9.4 million, from December 31, 2021. The decrease in shareholders’ equity was primarily from the change in accumulated other comprehensive income (loss) of $17.0 million and dividends paid of $1.2 million, offset by net income of $8.3 million for the three months ended March 31, 2022. Tangible book value per share[2] was $18.64 at March 31, 2022, compared to $19.26 at December 31, 2021. Tangible common equity1 as a percentage of tangible assets1 was 6.82% at March 31, 2022, compared with 7.18% at December 31, 2021.
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.
