KNOXVILLE, TN – April 25, 2017 – SmartFinancial, Inc. (“SmartFinancial”; NASDAQ: SMBK), announced today net income of $1.6 million in its first quarter of 2017, compared to $1.3 million a year ago. 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 of the merged bank.
Billy Carroll, President & CEO, stated: “In the first quarter this year net income was up over twenty percent from a year ago as the company is capitalizing on the synergies of our merger. Compared to last year we increased net interest income by over seven percent while keeping noninterest expense growth below three percent. We grew net interest income not only by growing gross loans approximately nine percent year over year but also by increasing asset yields and net interest margin. At the same time we were able to reduce the efficiency ratio by over two percentage points. We are off to a great start in 2017 and look forward to a very successful year for our associates and our shareholders.”
SmartFinancial’s Chairman, Miller Welborn, concluded: “In the past year our company merged the banks, grew earning assets while increasing margin, improved asset quality, opened a branch in Panama City, completed a capital raise, redeemed our SBLF preferred stock, and increased net income available to our shareholders by over twenty five percent. This year we look forward to the completion of our Cleveland branch acquisition, moving our Panama City branch to a new permanent facility, and of course increasing the returns for our shareholders. We will continue to execute our objectives of growing the company while maintaining a strong margin, rigorous underwriting standards, and increasing efficiency. Every day we strive to achieve our goals of being a great place to work, a great place to bank, and making our company a rewarding investment for our shareholders.”
Performance Highlights
- Net income available to common shareholders totaled $1.4 million or $0.19 per share during the first quarter of 2017 compared to $1.1 million or $0.20 per share during the first quarter of 2016.
- Annualized return on average assets was 0.64 percent in the first quarter of 2017, compared to 0.54 percent a year ago.
- Net interest margin increased during the quarter due to increases in average loan balances, increases in average balances and yields of the securities portfolio, and reductions in FHLB advances and other borrowings.
- Asset quality was outstanding with nonperforming assets to total assets dropping to just 0.36 percent.
- Dividends on preferred stock dropped to $195 thousand as the company used proceeds from the capital raise to redeem the preferred stock during the quarter.
First Quarter 2017 compared to First Quarter 2016
Net income available to common shareholders totaled $1.4 million in the first quarter of 2017, or $0.19 per diluted share, compared to $1.1 million, or $0.19 per diluted share, in the first quarter of 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 $1.1 million in the first quarter of 2017 compared to $780 thousand in the first quarter of 2016.
Net interest income to average assets of 3.81 percent for the quarter increased substantially from 3.67 percent in the first quarter of 2016. Net interest income totaled $9.8 million in the first quarter of 2017 compared to $9.1 million in the first quarter of 2016. Net interest income was positively impacted compared to the prior year primarily due to increased loan balances. Net interest margin, taxable equivalent, increased substantially from 3.96 percent in the first quarter of 2016 to 4.07 percent in the first quarter of 2017 as a result of higher loan balances, higher yields on securities, and increased balances of noninterest-bearing deposits.
Provision for loan losses was $12 thousand in the first quarter of 2017, compared to $137 thousand in the first quarter of 2016. The decrease in provision for loan losses was due to a decrease in loan growth during the quarter when compared to the prior year. Annualized net charge-offs (recoveries) at (0.02) percent of average loans in the first quarter of 2017 was unchanged from a year ago. The ALLL was $5.2 million, or 0.64 percent of total loans as of March 31, 2017, compared to $4.5 million, or 0.61 percent of total loans, as of March 31, 2016. Adjusted ALLL, which includes the ALLL as well as net acquisition accounting fair value adjustments for acquired loans, was 1.82 percent of total loans as of March 31, 2017, which was down from 2.11 percent as of March 31, 2016. The reduction in adjusted ALLL resulted from continued accretion of fair value discounts.
Nonperforming loans as a percentage of total loans was 0.18 percent as of March 31, 2017, which was down from 0.43 percent in the prior year. 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 0.36 percent as of March 31, 2017, compared to 0.82 percent as of March 31, 2016.
Noninterest income to average assets of 0.36 percent for the quarter was down from 0.43 percent in the first quarter of 2016. Noninterest income totaled $927 thousand in the first quarter of 2017, compared to $1.1 million in the first quarter of 2016. The decrease in non-interest income was primarily due to higher losses on the sale of foreclosed assets and the absence of securities gains.
Noninterest expense to average assets of 3.16 percent for the quarter was down from 3.19 percent in the first quarter of 2016. Noninterest expense totaled $8.1 million in the first quarter of 2017, which was up slightly from $8.0 million in the first quarter of 2016. The increase in noninterest expense compared to the prior year was primarily due to annual merit based salary increases and increases in professional expenses. Income tax expense was $946 thousand in the first quarter of 2017 compared to $764 thousand in the first quarter of 2016. The company’s effective tax rate was 36.5 percent in the first quarter of 2017 compared to 36.2 percent in the first quarter of 2016.
First Quarter 2017 compared to Fourth Quarter 2016
Net income available to common shareholders totaled $1.4 million in the first quarter of 2017, or $0.19 per diluted share, compared to $1.4 million, or $0.22 per diluted share, in the fourth quarter of 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 $1.1 million in the first quarter of 2017 compared to $1.1 million in the previous quarter.
Net interest income to average assets of 3.81 percent for the quarter decreased from 3.80 percent in the fourth quarter of 2017. Net interest income totaled $9.8 million in the first quarter of 2017 compared to $9.9 million in the fourth quarter of 2016. Net interest income was negatively impacted by approximately $230 thousand due to the two fewer days in the current period. Net interest margin, taxable equivalent, increased from 4.06 percent in the fourth quarter of 2016 to 4.07 percent in the first quarter of 2017 as a result of increases in average loan balances, increases in average balances and yields of the securities portfolio, and reductions in FHLB advances and other borrowings.
Provision for loan losses was $12 thousand in the first quarter of 2017, compared to $171 thousand in the fourth quarter of 2016. The decrease in provision for loan losses was due to the balance reduction in the loan portfolio during the quarter. Annualized net charge-offs (recoveries) remained very low at (0.02) percent of average loans as recoveries outpaced charge-offs in the first quarter of 2017. The ALLL was $5.2 million, or 0.64 percent of total loans as of March 31, 2017, compared to $5.1 million, or 0.63 percent of total loans, as of December 31, 2016. Adjusted ALLL, which includes the ALLL as well as net acquisition accounting fair value adjustments for acquired loans, was 1.82 percent of total loans as of March 31, 2017, which was down from 1.86 percent as of December 31, 2016. The reduction in adjusted ALLL resulted from continued accretion of fair value discounts.
Nonperforming loans as a percentage of total loans was 0.18 percent as of March 31, 2017, which was down from 0.26 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 0.36 percent as of March 31, 2017, compared to 0.43 percent as of December 31, 2016.
Noninterest income to average assets of 0.36 percent for the period decreased from 0.37 percent in the fourth quarter of 2016. Noninterest income totaled $927 thousand in the first quarter of 2017, compared to $948 thousand in the fourth quarter of 2016. The slight decrease in non-interest income was primarily due to losses on sale of foreclosed assets during the period.
Noninterest expense to average assets of 3.16 percent for the quarter was up slightly from 3.09 percent in the fourth quarter of 2016. Noninterest expense totaled $8.1 million in the first quarter of 2017, which was up $118 thousand from the fourth quarter of 2016, primarily due to annual merit based salary increases. Income tax expense was $946 thousand in the first quarter of 2017 compared to $960 thousand in the fourth quarter of 2016. The company’s effective tax rate was 36.5 percent in the first quarter of 2017 compared to 36.8 percent in the fourth quarter of 2016.
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 thirteen 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 contributed to SmartBank’s success. More information about SmartFinancial can be found on its website: www.smartfinancialinc.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.