SmartFinancial(US:SMBK)2022-03-14 21:12Interest Rate Sensitivity - SmartFinancial reported a net interest income sensitivity of a maximum decline of 6.03% with a 100 basis points increase in interest rates over the next 12 months[296]. - The company anticipates a maximum decline of 12.32% in net interest income with a 200 basis points increase in interest rates over the same period[297]. - Economic value of equity is projected to decline by 3.48% with a 100 basis points increase in prevailing interest rates[299]. - A 200 basis points increase in interest rates could lead to a 7.38% decline in economic value of equity[299]. Liquidity Management - The company is focused on managing liquidity through asset maturities and core deposit growth, with ongoing monitoring by the Asset Liability Management Committee (ALCO)[302]. - Scheduled loan payments provide a stable source of funds, but fluctuations in loan payoffs and deposit flows are influenced by interest rates and economic conditions[303]. Growth Strategy and Acquisitions - SmartFinancial's growth strategy includes identifying acquisition targets and successfully integrating them to realize expected revenue synergies[1]. - The Company completed the acquisition of Sevier County Bancshares, Inc. for $51.8 million and Fountain Leasing, LLC for $59.8 million, recognizing $17.2 million and $2.4 million of goodwill, respectively[324]. - The Company completed the acquisition of Sevier County Bancshares, Inc. on September 1, 2021, acquiring $484.9 million in assets and assuming $443.1 million in liabilities[431]. - The total consideration for the merger included 1,692,168 shares of common stock and $9.6 million in cash, resulting in goodwill of $17.2 million[432]. - The acquisition of Fountain Leasing, LLC involved $54.1 million in assets and $683 thousand in liabilities, with a total consideration of $14 million in cash and a potential earnout of up to $6 million[439]. - The merger with Progressive Financial Group, Inc. resulted in the acquisition of $301 million in assets and $272 million in liabilities, with a total consideration of $9.8 million in cash and 1,292,578 shares issued[446]. Financial Performance - Total assets increased to $4,611,579 thousand in 2021, up from $3,304,949 thousand in 2020, representing a growth of 39.5%[349]. - Net income for 2021 was $34,790 thousand, a 42.9% increase compared to $24,332 thousand in 2020[351]. - Net interest income after provision for loan and lease losses rose to $111,761 thousand in 2021, up from $92,183 thousand in 2020, reflecting a growth of 21.3%[351]. - Total deposits increased to $4,021,938 thousand in 2021, compared to $2,805,215 thousand in 2020, marking a growth of 43.3%[349]. - Noninterest income grew to $23,949 thousand in 2021, a 55.5% increase from $15,426 thousand in 2020[351]. - Earnings per common share increased to $2.23 in 2021, up from $1.63 in 2020, representing a growth of 36.8%[351]. - Comprehensive income for 2021 was $34,050 thousand, compared to $26,347 thousand in 2020, representing an increase of 29.0%[353]. Credit Risk and Allowance for Loan Losses - The Company maintains an allowance for loan and lease losses, which includes specific and general components based on historical loss experience and qualitative factors[380]. - The evaluation of the allowance for loan and lease losses involved significant judgment regarding economic conditions and qualitative factors[323]. - The allowance for loan and lease losses was $19,352 thousand in 2021, compared to $18,346 thousand in 2020, indicating a slight increase of 5.5%[349]. - The provision for loan and lease losses for the year ended December 31, 2021, was $1.6 million, a significant decrease of $7.1 million from $8.7 million in the same period of 2020[486]. - The Company’s total allowance for loan and lease losses increased from $18.346 million in 2020 to $19.352 million in 2021, reflecting a proactive approach to risk management[485]. Internal Control and Compliance - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2021, concluding it was effective based on COSO criteria[314]. - The independent auditor expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2021[315]. - The Company excluded the acquired businesses from its internal control assessment, which represented approximately 2.67% and 8.30% of total revenue and assets for Sevier County Bancshares, Inc., and 3.18% and 1.28% for Fountain Leasing, LLC[333]. Economic Impact and Regulatory Environment - The impact of the COVID-19 pandemic continues to be a significant factor affecting the company's financial condition and loan loss provisions[3]. - Regulatory authorities may require the company to increase its allowance for credit losses or change its business practices based on examination results[4]. - The CARES Act provides an estimated $2.2 trillion to stimulate the economy, with provisions applicable to the Company including loan modifications and participation in the Paycheck Protection Program[426]. - The Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic, which do not need to be accounted for as troubled debt restructurings (TDRs)[429]. Asset Management and Securities - The Company recognizes revenue from service charges on deposit accounts at the end of the statement period when performance obligations are satisfied[402]. - Investment services revenue is recognized over the period services are performed, based on a percentage of the value of assets under management[403]. - The Company transferred $74.6 million of available-for-sale debt securities to the held-to-maturity category during Q4 2021[455]. - The total carrying value of other investments was $16,494,000 as of December 31, 2021, compared to $14,794,000 in 2020, representing an increase of approximately 11.5%[463]. - The company reported no impairment on its other investment securities as of December 31, 2021, indicating stable performance in this area[462]. - The company expects to recover the entire amortized cost of all securities, as unrealized losses are primarily due to changes in interest rates and market conditions[461].