SmartFinancial, Inc. announced Wednesday 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 and 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 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 and 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 $1,131,000 in the third quarter of 2016 compared to $634,000 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 $261,000 in the third quarter of 2016, compared to $218,000 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 Sept. 30, compared to $4.7 million, or 0.61 percent of total loans, as of June 30. 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 Sept. 30, which was down from 2.00 percent as of June 30. 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 Sept. 30, 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 Sept. 30, compared to 0.69 percent as of June 30.
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 $961,000 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 $422,000 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 $965,000 was down $172,000 from the previous quarter
due to the completion of a repair project at one branch. Data processing expenses decreased $98,000 compared to the second quarter in the absence of merger related costs.
Income tax expense was $947,000 in the third quarter of 2016 compared to $691,000 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 Aug. 31, 2015. Therefore, financial results in 3Q 2016 are not
comparable to results reported for 3Q 2015.