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SmartFinancial Reports Third Quarter Results

KNOXVILLE, Tenn., Oct. 26, 2016 (GLOBE NEWSWIRE) -- SmartFinancial, Inc. ("SmartFinancial"); (NASDAQ:SMBK), announced today net income of $1.6 million in its third quarter of 2016, compared to $(0.1) million a year ago. In the third quarter 2015, SmartFinancial successfully completed the merger of two holding companies, legacy SmartFinancial, Inc. and Cornerstone Bancshares, Inc., and carried forward the name "SmartFinancial, Inc." In the first quarter of 2016, SmartFinancial completed the merger of Cornerstone Community Bank with and into SmartBank. This quarter completes the fourth full quarter’s results from the combined company and the second full quarter's results of the merged bank.

Billy Carroll, President & CEO, stated: "We are pleased to see the hard work of our associates materialize in the form of improved results for our shareholders with increases in earnings per share, return on equity and return on assets this quarter. Loan growth was over 12 percent annualized, which was the second quarter it grew at a double digit pace. Our non-interest income is improving thanks to the results from our mortgage business and higher deposit service charges driven by balance growth. Our non interest expense reduction was primarily due to merger efficiencies. We are excited to put our merger expenses behind us and concentrate on the successful execution of our 2016 goals.”

SmartFinancial's Chairman, Miller Welborn, concluded: "It is exciting to see the internal achievements we have made as a company translate into improved external results. To be able to grow while maintaining a strong margin, improving asset quality, and increasing efficiencies is a testament to leadership at all levels of our company. Every day we strive to achieve our goals of being a best place to work, a great place to bank and especially rewarding for our shareholders."

Performance Highlights

  • Net income available to common shareholders totaled $1.3 million or $0.23 per share during the third quarter of 2016.
  • Annualized return on average assets equaled 0.63 percent in the third quarter of 2016, compared to 0.48 percent in the previous quarter.
  • Annualized net loan growth was approximately 12.42 percent in the third quarter of 2016, with a healthy mix of construction & development, residential real estate, and commercial real estate loan growth.
  • Asset quality was outstanding with nonperforming assets to total assets dropping to just 0.41 percent.
  • Non interest income as a percent of average assets increased to 0.47 percent as the sale of mortgage and SBA loans increased over 45 percent.

Third Quarter 2016 compared to Second Quarter 2016

Net operating earnings available to common shareholders, which excludes purchased loans accounting adjustments, securities gains, merger and conversion costs, and foreclosed assets gains and losses, totaled $1,131 thousand in the third quarter of 2016 compared to $634 thousand in the previous quarter. Net income available to common shareholders totaled $1.3 million in the third quarter of 2016, or $0.22 per diluted share, compared to $0.9 million, or $0.15 per diluted share, in the second quarter of 2016.

Net interest income to average assets of 3.79 percent for the quarter decreased from 3.87 percent in the second quarter of 2016. Net interest income totaled $9.7 million in the third quarter of 2016 compared to $9.6 million in the second quarter of 2016. Net interest income was positively impacted during the quarter by increased loan balances. Net interest margin, taxable equivalent, fell slightly from 4.11 percent in the second quarter of 2016 to 4.03 percent in the third quarter of 2016 primarily as a result of a reduction in purchased loan accounting adjustments and lower balances and yields in the securities portfolio.

Provision for loan losses was $261 thousand in the third quarter of 2016, compared to $218 thousand in the second quarter of 2016. The increase in provision for loan losses was primarily due to the growth of the loan portfolio during the quarter. Annualized net charge-offs remained the same at 0.01 percent of average loans in the second third quarter of 2016.

The ALLL was $5.0 million, or 0.62 percent of total loans as of September 30, 2016, compared to $4.7 million, or 0.61 percent of total loans, as of June 30, 2016. Adjusted ALLL, which includes the ALLL as well as net acquisition accounting fair value adjustments for acquired loans, was 1.93 percent of total loans as of September 30, 2016, which was down from 2.00 percent as of June 30, 2016. The reduction in adjusted ALLL resulted from continued accretion of fair value discounts.

Nonperforming loans as a percentage of total loans was 0.21 percent as of September 30, 2016, which was down from 0.29 percent in the prior quarter. Total nonperforming assets (which include nonaccrual loans, loans past due 90 days or more and still accruing, and foreclosed assets) as a percentage of total assets was 0.41 percent as of September 30, 2016, compared to 0.69 percent as of June 30, 2016.

Non-interest income to average assets of 0.47 percent for the quarter increased from 0.39 percent in the second quarter of 2016. Non-interest income totaled $1.2 million in the third quarter of 2016, compared to $961 thousand in the second quarter of 2016. The increase in non-interest income was primarily due to higher service charges and fees, higher gains on the sale of SBA and mortgage loans, and gains on sale of foreclosed assets.

Non-interest expense to average assets of 3.16 percent for the quarter was down from 3.41 percent in the second quarter of 2016. Non-interest expense totaled $8.0 million in the third quarter of 2016, which was down $422 thousand from the second quarter of 2016 primarily due to normalized post merger data processing costs, the completion of repairs at one branch, and a drop in salary and employee benefit expenses. Occupancy expense of $965 thousand was down $172 thousand from the previous quarter due to the completion of a repair project at one branch. Data processing expenses decreased $98 thousand compared to the second quarter in the absence of merger related costs.

Income tax expense was $947 thousand in the third quarter of 2016 compared to $691 thousand in the second quarter of 2016. The company's effective tax rate was 37.02 percent in the third quarter of 2016 compared to 36.71 percent in the second quarter of 2016.

Third Quarter 2016 compared to Third Quarter 2015

Net operating earnings available to common shareholders, which excludes purchased loans accounting adjustments, securities gains, merger and conversion costs, and foreclosed assets gains and losses, totaled $1.1 million in the third quarter of 2016 compared to $154 thousand in the third quarter of 2015. Net income available to common shareholders totaled $1.3 million in the third quarter of 2016, or $0.22 per diluted share, compared to $(107) thousand, or $(0.03) per diluted share, in the third quarter of 2015. The company's operations and financial performance were significantly impacted in nearly every respect by the merger of SmartFinancial, Inc. and Cornerstone Bancshares, Inc. on August 31, 2015. Therefore, financial results in 3Q 2016 are not comparable to results reported for 3Q 2015.

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 twelve branches, two loan production offices, and one mortgage production office located in East Tennessee, the Florida Panhandle, and North Georgia. Recruiting the best people, delivering exceptional client service, strategic branching and a conservative and disciplined approach to lending have all given rise to SmartBank’s success. More information about SmartFinancial can be found on its website: www.smartbank.com.

This release contains forward-looking statements. SmartFinancial cautions you that a number of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: changes in management’s plans for the future, prevailing economic and political conditions, particularly in our market area; credit risk associated with our lending activities; changes in interest rates, loan demand, real estate values and competition; changes in accounting principles, policies, and guidelines; changes in any applicable law, rule, regulation or practice with respect to tax or legal issues; and other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services and other factors that may be described in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission from time to time. The forward-looking statements are made as of the date of this release, and, except as may be required by applicable law or regulation, SmartFinancial assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

Statements included in this press release include 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 non-GAAP financial measures, including: (i) net operating earnings available to common shareholders; (ii) operating efficiency ratio; (iii) adjusted allowance for loan losses to loans; and (iv) tangible common equity, in its analysis of the company's performance. Net operating earnings available to common shareholders excludes the following from net income available to common shareholders: securities gains and losses, merger and conversion costs, OREO gain and losses, and the income tax effect of adjustments. The operating efficiency ratio excludes securities gains and losses, merger and conversion costs, and adjustment for OREO gains and losses from the efficiency ratio. Adjusted allowance for loan losses adds net acquisition accounting fair value discounts to the allowance for loan losses. Tangible common equity excludes total preferred stock, preferred stock paid in capital, goodwill, and other intangible assets.

Management believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the company and provide meaningful comparisons to its peers. 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.

SmartFinancial, Inc. and Subsidiaries
Condensed Consolidated Financial Information (unaudited)
(In thousands except per share data)
As of and for the three months ending
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
Selected Performance Ratios (Annualized)
Return on average assets 0.63% 0.48% 0.54% 0.47% (0.04)%
Net operating return on average assets (Non-GAAP) 0.44% 0.26% 0.40% 0.24% 0.10%
Return on average shareholder equity 6.19% 4.64% 5.29% 4.75% (0.44)%
Net operating return on average shareholder equity (Non-GAAP) 4.35% 2.47% 3.89% 2.47% 1.05%
Net interest income / average assets 3.79% 3.87% 3.67% 3.79% 3.65%
Yield on earning assets, TE (Non-GAAP) 4.48% 4.56% 4.40% 4.54% 4.50%
Cost of interest-bearing liabilities 0.57% 0.56% 0.53% 0.52% 0.53%
Net interest margin, TE (Non-GAAP) 4.03% 4.11% 3.96% 4.10% 4.04%
Non-interest income / average assets 0.47% 0.39% 0.43% 0.46% 0.10%
Non-interest expense / average assets 3.16% 3.41% 3.19% 3.20% 3.69%
Efficiency ratio 74.06% 80.13% 77.95% 75.24% 98.38%
Operating efficiency ratio (Non-GAAP) 80.31% 85.49% 82.09% 85.73% 90.96%
Pre-tax pre-provision income / average assets 1.09% 0.85% 0.90% 1.05% 0.06%
Per Common Share
Net income, basic $0.23 $0.16 $0.20 $0.20 $(0.03)
Net income, diluted 0.22 0.15 0.19 0.19 (0.03)
Net operating earnings, basic (Non-GAAP) 0.19 0.11 0.13 0.10 0.04
Net operating earnings, diluted (Non-GAAP) 0.19 0.10 0.13 0.10 0.04
Book value as of 15.80 15.64 15.47 15.19 15.07
Tangible book value (Non-GAAP) as of 14.67 14.48 14.29 13.99 13.84
Common shares outstanding as of 5,897 5,824 5,817 5,806 5,735
Composition Of Loans
Commercial & financial $83,471 $87,253 $83,197 $85,526 $81,107
Real estate construction & Development 128,727 115,385 113,028 105,132 97,050
Real estate commercial 394,989 389,368 370,922 369,263 365,607
owner occupied 172,397 177,052 166,364 161,698 153,496
non-owner occupied 222,592 212,315 204,558 207,565 212,111
Real estate residential 182,952 174,013 166,214 161,427 162,090
Other loans 7,263 7,377 7,578 6,368 4,585
Total loans $797,402 $773,396 $740,939 $727,716 $710,439


SmartFinancial, Inc. and Subsidiaries
Condensed Consolidated Financial Information (unaudited)
(In thousands except per share data)
As of and for the three months ending
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
Asset Quality Data and Ratios
Nonperforming loans $1,688 $2,226 $3,171 $2,754 $1,715
Foreclosed assets 2,536 4,936 5,133 5,358 9,647
Total nonperforming assets $4,224 $7,162 $8,304 $8,112 $11,362
Restructured loans not included in
nonperforming loans
$3,388 $3,639 $3,677 $3,693 $3,731
Net charge-offs to average loans (annualized) 0.01% 0.01% (0.02)% 0.02% 0.03%
Allowance for loan losses to loans 0.62% 0.61% 0.61% 0.60% 0.54%
Adjusted allowance for loan losses to loans
(Non-GAAP)
1.93% 2.00% 2.11% 2.18% 2.26%
Nonperforming loans to total loans, gross 0.21% 0.29% 0.43% 0.38% 0.24%
Nonperforming assets to total assets 0.41% 0.69% 0.82% 0.79% 1.13%
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Capital Ratios
Tangible equity to tangible assets 9.53% 9.37% 9.43% 9.17% 9.14%
Tangible common equity to tangible assets 8.37% 8.20% 8.24% 7.99% 7.94%
SmartFinancial Inc.: Estimated
Tier 1 leverage 9.92% 9.66% 9.74% 9.45% 9.31%
Common equity Tier 1 10.36% 10.53% 10.61% 10.3% 10.25%
Tier 1 risk-based capital 11.83% 12.04% 12.14% 11.78% 11.77%
Total risk-based capital 12.39% 12.60% 12.70% 12.32% 12.25%
SmartBank: Estimated
Tier 1 leverage 9.85% 9.70% 9.49% 10.05% 10.13%
Common equity Tier 1 11.48% 11.31% 11.64% 12.16% 12.57%
Tier 1 risk-based capital 11.48% 11.31% 11.64% 12.16% 12.57%
Total risk-based capital 12.05% 11.87% 12.20% 12.97% 13.43%


SmartFinancial, Inc. and Subsidiaries
Condensed Consolidated Financial Information (unaudited)
(In thousands)
BALANCE SHEET
Ending Balances
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
Assets
Cash & cash equivalents $58,587 $71,737 $68,933 $79,965 $89,936
Securities available for sale 138,628 142,875 157,560 166,413 152,150
Other investments 4,451 4,451 4,451 4,451 4,451
Total investment securities 143,079 147,326 162,011 170,864 156,601
Total loans 797,403 773,396 740,939 727,716 710,439
Allowance for loan losses (4,964) (4,720) (4,527) (4,355) (3,828)
Loans net 792,439 768,676 736,412 723,361 706,611
Premises and equipment 27,863 25,844 25,680 25,038 25,266
Foreclosed assets 2,536 4,936 5,133 5,358 9,647
Goodwill and other intangibles 6,675 6,754 6,848 6,941 7,034
Other assets 9,371 9,524 11,207 12,436 11,962
Total assets $1,040,550 $1,034,798 $1,016,224 $1,023,963 $1,007,057
Liabilities
Non-interest demand $145,509 $145,864 $132,481 $131,419 $123,551
Interest-bearing demand 152,216 153,166 161,454 149,424 144,012
Money market and savings 271,259 258,281 241,500 236,901 231,477
Time deposits 291,857 331,438 323,676 340,739 347,951
Total deposits 860,842 888,749 859,111 858,483 846,992
Repurchase agreements 24,202 26,883 20,747 28,068 18,442
FHLB & other borrowings 43,048 10,091 30,125 34,187 39,278
Other liabilities 7,287 6,011 4,253 3,048 3,908
Total liabilities 935,379 931,734 914,236 923,786 908,621
Shareholders' Equity
Preferred stock 12 12 12 12 12
Common stock 5,897 5,824 5,817 5,806 5,732
Additional paid-in capital 83,319 82,800 82,717 82,616 81,628
Retained earnings 15,494 14,153 13,231 12,095 10,942
Accumulated other comprehensive loss 449 275 211 (352) 122
Total shareholders' equity 105,171 103,064 101,988 100,177 98,436
Total liabilities & shareholders' equity $1,040,550 $1,034,798 $1,016,224 $1,023,963 $1,007,057


SmartFinancial, Inc. and Subsidiaries
Condensed Consolidated Financial Information (unaudited)
(In thousands)
INCOME STATEMENT
Three months ending
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
Interest Income
Loans, including fees $10,111 $9,954 $9,374 $9,875 $6,660
Investment securities 602 665 717 630 458
Other interest income 51 50 63 62 35
Total interest income 10,763 10,670 10,154 10,567 7,153
Interest Expense
Deposits 1,065 1,013 961 937 688
Repurchase agreements 17 15 17 17 7
FHLB and other borrowings 17 29 45 66 32
Total interest expense 1,099 1,057 1,023 1,020 727
Net interest income 9,665 9,613 9,131 9,547 6,426
Provision for loan losses 261 218 138 567 32
Net interest income after provision for loan losses 9,404 9,394 8,993 8,980 6,394
Non-interest income
Service charges on deposit accounts 296 259 296 397 237
Gain on securities 18 98 83
Gain on sale of loans and other assets 287 197 222 86 (294)
Gain (loss) on sale of foreclosed assets 130 (4) 58 332 (86)
Other non-interest income 472 410 412 340 317
Total non-interest income 1,204 961 1,071 1,155 174
Non-interest expense
Salaries and employee benefits 4,312 4,486 4,495 4,208 3,187
Occupancy expense 965 1,137 1,018 910 688
FDIC premiums 153 151 136 148 144
Foreclosed asset expense 79 64 57 110 91
Marketing 179 184 173 100 142
Data Processing 457 555 341 510 278
Professional expenses 558 551 455 760 908
Amortization of other intangibles 80 93 93 93 58
Service contracts 272 316 286 248 192
Other non-interest expense 994 936 897 965 805
Total non-interest expense 8,050 8,472 7,952 8,052 6,493
Earnings before income taxes 2,558 1,883 2,112 2,083 75
Income tax expense 947 691 764 901 152
Net income (loss) 1,611 1,192 1,348 1,182 (77)
Dividends on preferred stock 270 270 212 30 30
Net income available to common shareholders $1,341 $922 $1,136 $1,152 $(107)
NET INCOME PER COMMON SHARE
Basic $0.23 $0.16 $0.20 $0.20 $(0.03)
Diluted 0.22 0.15 0.19 0.19 (0.03)
Weighted average common shares outstanding
Basic 5,846 5,820 5,807 5,750 3,937
Diluted 6,108 6,132 6,108 6,037 4,244


SmartFinancial, Inc. and Subsidiaries
Condensed Consolidated Financial Information (unaudited)
(In thousands)
YIELD ANALYSIS
Three Months Ended September 30,
2016
Three months ended June 30,
2016
Three Months Ended September 30,
2015
Average Yield/ Average Yield/ Average Yield/
Balance Interest * Cost* Balance Interest * Cost* Balance Interest * Cost*
Assets
Loans $788,585 $10,112 5.09% $751,425 $9,955 5.26% $489,926 $6,661 5.39%
Investment securities and interest
bearing due froms
159,683 615 1.53% 171,526 678 1.57% 107,061 449 1.66%
Federal funds and other 5,442 51 3.72% 5,719 50 3.47% 33,539 44 0.52%
Total interest-earning assets 953,710 10,778 4.48% 928,670 10,683 4.56% 630,526 7,154 4.50%
Non-interest-earning assets 66,735 65,380 72,898
Total assets $1,020,445 $994,050 $703,424
Liabilities and Stockholders’ Equity
Interest-bearing demand deposits $147,102 $73 0.20% $153,881 $69 0.18% $114,727 $45 0.16%
Money market and savings deposits 268,307 283 0.42% 248,401 299 0.48% 169,916 176 0.41%
Time deposits 312,889 709 0.90% 321,244 645 0.80% 234,017 468 0.79%
Total interest-bearing deposits 728,298 1,065 0.58% 723,526 1,013 0.56% 518,660 689 0.53%
Securities sold under agreement to repurchase 22,471 17 0.30% 19,742 15 0.30% 11,095 7 0.25%
Federal Home Loan Bank advances
and other borrowings
11,187 17 0.60% 11,287 29 1.02% 13,806 31 0.89%
Total interest-bearing liabilities 761,956 1,099 0.57% 754,555 1,057 0.56% 543,561 727 0.53%
Noninterest-bearing deposits 148,178 132,765 88,468
Other liabilities 6,194 4,111 2,141
Total liabilities 916,328 891,431 634,170
Shareholders’ equity 104,117 102,619 69,254
Total liabilities and stockholders’ equity $1,020,445 $994,050 $703,424
Net interest income, taxable equivalent $9,679 $9,626 $6,427
Interest rate spread 3.91% 4.00% 3.97%
Tax equivalent net interest margin 4.03% 4.11% 4.04%
Percentage of average interest-earning
assets to average interest-bearing liabilities
125.17% 123.08% 116.0%
Percentage of average equity to average assets 10.20% 10.32% 9.85%
* Taxable equivalent basis

SmartFinancial, Inc. and Subsidiaries
Condensed Consolidated Financial Information (unaudited)
(In thousands)
Three months ending
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
Operating Earnings
Net income (loss) (GAAP) $1,611 $1,192 $1,348 $1,182 $(77)
Purchased loan accounting adjustments* (450) (597) (541) (818) (412)
Securities (gains) losses (18) (98) (83)
Merger and conversion costs 153 105 230 748
Foreclosed assets (gains) losses (130) 4 (58) (332) 86
Income tax effect of adjustments 388 250 221 352 (161)
Net operating earnings (Non-GAAP) 1,401 904 992 614 184
Dividends on preferred stock (270) (270) (212) (30) (30)
Net operating earnings available to common
shareholders (Non-GAAP)
$1,131 $634 $780 $584 $154
Net operating earnings per common share:
Basic $0.19 $0.11 $0.13 $0.10 $0.04
Diluted 0.19 0.10 0.13 0.10 0.04
Operating Efficiency Ratio
Efficiency ratio (GAAP) 74.06% 80.13% 77.95% 75.24% 98.38%
Adjustment for amortization of intangibles (0.99)% (1.10)% (1.17)% (1.16)% (0.90)%
Adjustment for taxable equivalent yields (0.18)% (0.16)% (0.17)% (0.26)% (0.02)%
Adjustment for purchased loan accounting adjustments* 5.59% 7.05% 6.81% 10.16% 6.34%
Adjustment for securities (gains) losses 0.22% 1.16% 1.05% % %
Adjustment for merger and conversion costs % (1.81)% (1.33)% (2.85)% (11.51)%
Adjustment for OREO (gains) losses 1.61% (0.05)% 0.73% 4.13% (1.32)%
Operating efficiency ratio (Non-GAAP) 80.31% 85.22% 83.87% 85.26% 90.97%
Adjusted Allowance for Loan Losses
Allowance for loan losses (GAAP) $4,964 $4,720 $4,527 $4,355 $3,828
Net acquisition accounting fair value discounts to loans 10,742 11,053 11,381 11,781 12,520
Adjusted allowance for loan losses (Non-GAAP) 15,706 15,773 15,908 16,136 16,348
Loans (excluding acquisition accounting fair
value discounts)
813,109 789,169 752,321 739,497 722,959
Adjusted allowance for loan losses to loans (Non-GAAP) 1.93% 2.00% 2.11% 2.18% 2.26%
Tangible Common Equity
Shareholders' equity (GAAP) $105,171 $103,064 $101,988 $100,177 $98,436
Less preferred stock & preferred stock paid in capital 12,000 12,000 12,000 12,000 12,000
Less goodwill and other intangible assets 6,675 6,754 6,848 6,941 7,034
Tangible common equity (Non-GAAP) $86,496 $84,310 $83,140 $81,236 $79,402

*Consists of ASC 310-30 accretion above (below) contractual loan income and ASC 310-20 accretion


Investor Contacts Billy Carroll President & CEO 865.868.0613 Frank Hughes Executive Vice President Investor Relations 423.385.3009 Media Contact Kelley Fowler First Vice President, Public Relations & Marketing SmartBank 865.868.0611 kfowler@smartbank.net

Source:SmartFinancial, Inc