KNOXVILLE – SmartFinancial, Inc. (“SmartFinancial” or the “Company”; NASDAQ: SMBK), today announced net income of $6.7 million, or $0.40 per diluted common share, for the fourth quarter of 2021, compared to net income of $9.0 million, or $0.59 per diluted common share, for the fourth quarter of 2020, and compared to prior quarter net income of $9.6 million, or $0.61 per diluted common share. Operating earnings (Non-GAAP), which excludes securities gains, merger related and restructuring expenses and non-operating items, totaled $8.7 million, or $0.52 per diluted common share, in the fourth quarter of 2021, compared to $9.2 million, or $0.61 per diluted common share, in the fourth quarter of 2020, and compared to $9.9 million, or $0.63 per diluted common share, in the third quarter of 2021.
Highlights for the Fourth Quarter of 2021
- Operating earnings of $0.52 and $2.39 per diluted common share for the 2021 fourth quarter and year end, respectively
- 31% increase in year-over-year operating earnings1 per diluted common share
- Net organic loan growth of over $75 million, a 12% annualized quarter-over-quarter increase
- Tangible book value per share1 of $19.26, a 4.8% annualized quarter-over-quarter increase
- Strategic Nashville, TN MSA2 enhancement with several senior relationship manager hires
- Gulf Coast Wealth Management team lift-out previously responsible for managing ~$350 million in AUM
- Completion of Sevier County Bancshares, Inc. (“SCB”) integration; five branch closures with near full realization of operational efficiencies
- Opening of Mobile, AL branch office and application approval of Auburn, Dothan and Montgomery branch offices
- Opening of Birmingham, AL loan production office
Billy Carroll, President & CEO, stated: “SmartFinancial reported another solid quarter as we wrapped up an outstanding year for our company. Loans and deposits continued to organically grow at a strong pace. We also expanded our sales team again this quarter with experienced and seasoned industry professionals. The investments we made in 2021 are positioning us very well as we look into 2022 and beyond.”
SmartFinancial’s Chairman, Miller Welborn, concluded: “We couldn’t be more excited about where we are as a company. Our 2021 was a fantastic year on many fronts and it’s nice to finish with strong numbers and incredible momentum. Our team is poised and ready for 2022”.
Net Interest Income and Net Interest Margin
Net interest income was $29.9 million for the fourth quarter of 2021, compared to $30.4 million for the prior quarter. Average earning assets totaled $4.08 billion, an increase of $469.4 million. The growth in average earnings assets was primarily driven by an increase in average securities of $167.7 million, average interest-earning cash of $163.2 million and average loans and leases of $137.3 million. Average interest-bearing liabilities increased $354.3 million, related to continued core deposit growth.
The tax equivalent net interest margin was 2.92% for the fourth quarter of 2021, compared to 3.35% for the prior quarter. The tax equivalent net interest margin was impacted by a 47 basis point decrease in the average yield on interest-earning assets and offset by a 5 basis point decline in the rate on interest-bearing liabilities over the prior quarter. The decrease in yield on interest-earning assets was due to the combined impact of a quarter-over-quarter loan discount accretion and Payroll Protection Program (“PPP”) fee accretion decrease of $2.5 million and increased interest-earning cash position.
The yield on interest-bearing liabilities decreased to 0.39% for the fourth quarter of 2021 compared to 0.44% for the prior quarter. The cost of average interest-bearing deposits was 0.29% for the fourth quarter of 2021 compared to 0.34% for the prior quarter, a decrease of 5 basis points. The lower cost of average deposits was attributable to the maturing and repricing of time deposits, which decreased 13 basis points during the period. The cost of total deposits for the fourth quarter of 2021 was 0.22% compared to 0.25% in the prior quarter.
Provision for Loan and Lease Losses and Credit Quality
At Dec. 31, 2021, the allowance for loan and lease losses was $19.4 million. The allowance for loan and lease losses to total loans and leases was 0.72% as of Dec. 31, 2021, compared to 0.73% as of September 30, 2021. 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 Dec. 31, 2021, compared to 0.76% as of September 30, 2021. The remaining discounts on the acquired loan and lease portfolio totaled $15.5 million, or 3.42% of acquired loans and leases as of Dec. 31, 2021.
The Company is not required to implement the provisions of the Current Expected Credit Losses (“CECL”) accounting standard until Jan. 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 Dec. 31, 2021, a decrease of 1 basis point from the 0.13% reported in the third quarter of 2021. 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 Dec. 31, 2021, as compared to 0.14% as of Sept. 30, 2021.
Noninterest income increased $497 thousand to $6.8 million for the fourth quarter of 2021 compared to $6.3 million for the prior quarter. During the fourth quarter of 2021, the primary components of the changes in noninterest income were as follows:
- Increase in service charges on deposit accounts, related to the SCB acquisition, account growth and transaction volume;
- Increase in investment income, related to increased volume;
- Decrease in insurance commissions, due to lower transaction volume, primarily driven by seasonality;
- Increased interchange and debit card transaction fees, related to higher volume, account growth and the SCB acquisition; and
- Increase in other, primarily from the gain on sale of credit card portfolio
Noninterest expense increased $4.5 million to $27.8 million for the fourth quarter of 2021 compared to $23.3 million for the prior quarter. During the fourth quarter of 2021, the primary components of the changes in noninterest expense were as follows:
- Increase in salaries and employee benefits, primarily due to:
- Additional personnel related to the SCB acquisition;
- Banking team hires in Auburn, Dothan, Montgomery and Birmingham, AL, Tallahassee, FL and Nashville, TN;
- The Gulf Coast Wealth Management team lift-out;
- Increase in occupancy and equipment expense from the SCB acquisition and expansion in Alabama; and
- Increase in other expense, primarily related to overall franchise growth.
Income Tax Expense
Income tax expense was $1.8 million for the fourth quarter of 2021, a decrease of $872 thousand, compared to $2.6 million for the prior quarter.
The effective tax rate was 20.9% for the fourth quarter of 2021 and 21.5% for the prior quarter.
Balance Sheet Trends
Total assets at Dec. 31, 2021 were $4.61 billion compared with $3.30 billion at Dec. 31, 2020. The increase of $1.31 billion is primarily attributable to increases in cash and cash equivalents of $563.4 million, securities of $343.8 million, loans and leases of $311.2 million, bank owned life insurance of $48.4 million and goodwill and intangibles of $19.4 million related to the SCB acquisition and the acquisition of Fountain Equipment Finance, LLC.
Total liabilities increased to $4.18 billion at Dec. 31, 2021 from $2.95 billion at Dec. 31, 2020. The increase of $1.23 billion was primarily from organic deposit growth of $809.8 million and deposits of $407.0 million from the SCB acquisition.
Shareholders’ equity at Dec. 31, 2021 totaled $429.4 million, an increase of $72.3 million, from Dec. 31, 2020. The increase in shareholders’ equity was primarily from the issuance of $42.3 million of common stock for the acquisition of SCB and net income of $34.8 million for the twelve months ended Dec. 31, 2021, which was offset by repurchase of the Company’s common stock of $1.2 million and $3.7 million of dividends paid. Tangible book value per share (Non-GAAP) was $19.26 at Dec. 31, 2021, compared to $17.92 at Dec. 31, 2020. Tangible common equity (Non-GAAP) as a percentage of tangible assets (Non-GAAP) was 7.18% at Dec. 31, 2021, compared with 8.41% at Dec. 31, 2020.
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 35 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.