SmartFinancial Announces Earnings with Third Quarter 2019 Net Income of $6.0 million

Monday, 21. October 2019 23:00

Performance Highlights for Third Quarter of 2019

Return on average assets of 1.01% and net operating return on average assets (Non-GAAP) of 1.02%
Asset quality remains outstanding with nonperforming assets to total assets of 0.20%
Loan growth of $31.8 million, or 6.9% annualized
Tangible book value (Non-GAAP) per share of $16.37, a 13.8% year-over-year increase
Noninterest-bearing demand deposit growth of 8.7% annualized

KNOXVILLE, Tenn., Oct. 21, 2019 (GLOBE NEWSWIRE) -- SmartFinancial, Inc. ("SmartFinancial"; NASDAQ: SMBK), today announced net income of $6.0 million, or $0.42 per diluted common share, for the third quarter of 2019, compared to net income of $4.3 million, or $0.34 per diluted common share, for the third quarter of 2018. Net operating earnings (Non-GAAP), which excludes securities gains, and merger related and restructuring expenses, totaled $6.0 million, or $0.43 per diluted common share, in the third quarter of 2019 compared to $5.0 million, or $0.39 per diluted common share, in the third quarter of 2018.

Billy Carroll, President & CEO, stated: "This was another very solid quarter for our company, as we are starting to see the positive results of our recent integration initiatives.  Our continued focus on organic growth and cost savings are allowing us to drive stronger profitability, which has positioned us well for the future."

SmartFinancial's Chairman, Miller Welborn, concluded:  "The consistency we are beginning to show in our financial metrics is very exciting, as our team continues to execute on our strategy while maintaining a keen focus on growing our shareholder value."

Third Quarter 2019 compared to Second Quarter 2019

Net income totaled $6.0 million, or $0.42 per diluted common share, for the third quarter of 2019, a decrease of $3.1 million, compared to $9.1 million, or $0.65 per diluted common share, for the second quarter of 2019, primarily due to a $6.4 million fee received in the second quarter of 2019 in connection with the merger termination with Entegra Financial Corp. Net operating earnings (Non-GAAP) totaled $6.0 million, or $0.43 per diluted common share, in the third quarter of 2019 compared to $5.6 million, or $0.40 per diluted common share, in the previous quarter.

Net interest income increased $338 thousand to $21.1 million for the third quarter of 2019 compared to $20.8 million for the second quarter of 2019. The tax equivalent net interest margin was 3.91% for the third quarter of 2019 compared to 3.94% for the second quarter of 2019.  The tax equivalent average yield on interest-earning assets was 5.05% for the third quarter of 2019, a decrease from 5.17% for the second quarter of 2019. The yield on interest-bearing liabilities decreased to 1.47% for the third quarter of 2019 from 1.54% for the second quarter of 2019.

The yield on average loans was 5.48% for the third quarter of 2019 compared to 5.53% for the second quarter of 2019.  The decrease in yield on average loans was primarily due to the impact from two Federal rate decreases which effected the repricing of variable rate loans and new loan production.  During the third quarter of 2019, lower discount accretion was recorded on acquired loans (26 basis points in the third quarter of 2019 versus 30 basis points in the second quarter of 2019) being offset by increased loan fees (20 basis points in the third quarter of 2019 versus 16 basis points in the second quarter of 2019).  For the third quarter of 2019, the yield on average loans, excluding accretion, was 5.22%, a decrease of one basis point from the second quarter of 2019.

The cost of average interest-bearing deposits decreased to 1.37% for the third quarter of 2019 from 1.42% for the second quarter of 2019.  The decrease was driven primarily by the reduction in money market and savings rates of 21 basis points, offset partially by an eight basis point increase in time deposit rates.

Provision for loan losses was $724 thousand in the third quarter of 2019, compared to $393 thousand in the second quarter of 2019.  The increase in provision was primarily due to higher organic loan growth and an increase in specific reserves.  The allowance for loan losses was $9.8 million, or 0.53% of total loans, as of September 30, 2019, compared to $9.1 million, or 0.50% of total loans, as of June 30, 2019.

Nonperforming loans as a percentage of total loans was 0.17% as of September 30, 2019, an increase of two basis points from the 0.15% reported in the second quarter of 2019.  Total nonperforming assets (which include nonaccrual loans, loans past due 90 days or more and still accruing, and other real estate owned) as a percentage of total assets was 0.20% as of September 30, 2019 as compared to 0.19%  at June 30, 2019.

Noninterest income decreased by $6.2 million to $2.2 million for the third quarter of 2019 compared to $8.4 million for the second quarter of 2019 primarily due to the $6.4 million merger termination fee received in the second quarter of 2019, and was offset by increases in mortgage banking of $126 thousand and service charges on deposit accounts of $60 thousand.  Operating noninterest income (Non-GAAP) to average assets (excluding the $6.4 million merger termination fee) of 0.37% for the third quarter of 2019 increased from 0.35% in the second quarter of 2019.

Noninterest expense decreased by $2.1 million to $14.7 million for the third quarter of 2019 compared to $16.8 million for the second quarter of 2019.  The decrease is primarily due to the reduction of merger-related and restructuring expenses of $1.7 million.  Operating noninterest expense (Non-GAAP,  excludes merger-related and restructuring expenses) decreased by $378 thousand to $14.6 million for the third quarter of 2019 compared to $15.0 million for the second quarter of 2019.  This decrease was primarily due to a credit recognized during the third quarter of 2019 from the FDIC as a result of the FDIC Deposit Insurance exceeding 1.38% of insured deposits at June 30, 2019, as such, no FDIC insurance expense was recognized during the third quarter of 2019.  Operating noninterest expense (Non-GAAP) to average assets was 2.47% for the third quarter of 2019 which is a decrease from 2.57% in the second quarter of 2019.

Under FDIC regulations, banks having consolidated assets below $10 billion paid a refundable assessment into the FDIC insurance fund over a nine quarter period beginning with the third quarter of 2016. That assessment was to be credited back to the institution if and when the deposit insurance fund (“DIF”) exceeded 1.38% of insured deposits, which occurred with the June 30, 2019 computation. Additionally, if the DIF remains above 1.38% of insured deposits assessment at December 31, 2019, an additional credit will be applied to the fourth quarter of 2019.

Income tax expense was $1.9 million in the third quarter of 2019 compared to $2.9 million in the second quarter of 2019.  The decrease of $1.0 million in income tax expense, was primarily due to the $6.4 million termination fee recognized in the second quarter of 2019.   The overall effective tax rate was 24.6% for the third quarter of 2019 compared to 24.1% in the second quarter of 2019.

Third Quarter 2019 compared to Third Quarter 2018

Net income increased by $1.7 million to $6.0 million, or $0.42 per diluted common share, for the third quarter of 2019 compared to $4.3 million, or $0.34 per diluted common share, for the third quarter of 2018 primarily due to the operating effects of the Tennessee Bancshares, Inc. and Foothills Bancorp, Inc. acquisitions which were completed in the second and fourth quarters of 2018, respectively. Net operating earnings (Non-GAAP) totaled $6.0 million, or $0.43 per diluted common share, in the third quarter of 2019 compared to $5.0 million, or $0.39 per diluted common share, for the third quarter of 2018.

Net interest income increased $2.2 million to $21.1 million for the third quarter of 2019 compared to $18.9 million for the third quarter of 2018. The tax equivalent net interest margin was 3.91% for the third quarter of 2019 compared to 4.11% for the third quarter of 2018.  The tax equivalent average yield on interest-earning assets was 5.05% for the third quarter of 2019 increasing slightly from 5.03% for the third quarter of 2018, while the yield on interest bearing liabilities increased to 1.47% for the third quarter of 2019 from 1.15% for the third quarter of 2018.

The yield on average loans was 5.48% for the third quarter of 2019 compared to 5.43% for the third quarter of 2018. The increase in yield on average loans was primarily due to increases in yields on average loans of 10 basis points, offset by lower discount accretion on acquired loans (26 basis points in the third quarter of 2019 versus 31 basis points in the third quarter of 2018).  For the third quarters of 2019 and 2018, the yield on average loans, excluding accretion, was 5.22% and 5.12%, respectively.

The cost of average interest-bearing deposits increased to 1.37% for the third quarter of 2019 from 1.11% for the third quarter of 2018. Deposit rates remain elevated at the end of the third quarter of 2019 due to a higher interest rate environment in 2019 and continued competition for deposits.

Provision for loan losses was $724 thousand in the third quarter of 2019, compared to $302 thousand in the third quarter of 2018. The increase in provision was primarily due to higher organic loan growth and an increase in specific reserves during the third quarter of 2019 when compared to the third quarter of 2018.  The allowance for loan losses was $9.8 million, or 0.53% of total loans, as of September 30, 2019, compared to $7.2 million, or 0.45% of total loans, as of September 30, 2018.

Nonperforming loans as a percentage of total loans was 0.17% as of September 30, 2019 and September 30, 2018. Total nonperforming assets (which include nonaccrual loans, loans past due 90 days or more and still accruing, and other real estate owned) as a percentage of total assets was 0.20% as of September 30, 2019, compared to 0.34% as of September 30, 2018.

Noninterest income increased by $365 thousand to $2.2 million for the third quarter of 2019 compared to $1.8 million for the third quarter of 2018 primarily due to increases in deposit services charges of $143 thousand, increases in mortgage banking of $25 thousand and wealth revenue of $135 thousand. Noninterest income to average assets of 0.37% for the third quarter of 2019 increased from 0.36% in the third quarter of 2018.

Noninterest expense was $14.7 million for the third quarter of 2019 compared to $14.8 million for the third quarter of 2018, remaining flat for compared periods. Operating noninterest expense (Non-GAAP, excludes merger-related and restructuring expenses of $73 thousand for third quarter of 2019 and $838 thousand for third quarter of 2018) increased by $0.7 million to $14.6 million for the third quarter of 2019 compared to $13.9 million for the third quarter of 2018.  This increase was primarily due to increases in personnel expense, as the second and third quarters of 2019 began to show the full effects of acquisitions completed during the prior reporting periods. Operating noninterest expense (Non-GAAP, excludes merger-related and restructuring expenses) to average assets of 2.47% for the third quarter of 2019 decreased from 2.73% in the third quarter of 2018.

Income tax expense was $1.9 million in the third quarter of 2019 compared to $1.3 million in the third quarter of 2018. The overall effective tax rate was 24.6% for the third quarter of 2019 compared 23.2% for the third quarter of 2018.

Certain captions and amounts in the prior periods presented were reclassified to conform to the current presentation.  Such reclassifications had no effect on net income or shareholders' equity.

Conference Call Information

SmartFinancial will issue its earnings release for the third quarter of 2019 on Monday, October 21, 2019, and will host a conference call on Tuesday, October 22, 2019 at 10:00 a.m. ET.  To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 0242522.  A replay of the conference call will be available through October 22, 2020, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10135243.  Conference call materials (earnings release & conference call presentation) will be published on the company’s webpage located at http://www.smartfinancialinc.com/CorporateProfile, at 9:00 am ET prior to the conference call.

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 29 branches across 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.

Source
SmartFinancial, Inc.

Investor Contacts 
Billy CarrollRon Gorczynski
President & CEOExecutive Vice President, Chief Financial Officer
(865) 868-0613   billy.carroll@smartbank.com
(865) 437-5724  ron.gorczynski@smartbank.com
  
Media Contact 
Kelley Fowler 
Senior Vice President, Public Relations & Marketing
(865) 868-0611   kelley.fowler@smartbank.com
 

Non-GAAP Financial Measures

Statements included in this presentation 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 several Non-GAAP financial measures, including: (i) net operating earnings, (ii) net operating return on average assets, (iii) net operating return on average shareholder equity, (iv) return on average tangible common equity, (v) net operating return on average tangible common equity, (vi) operating efficiency ratio; (vii) tangible common equity; (viii) average tangible common equity; (ix) operating noninterest income; (x) operating noninterest expenses; and ratios derived therefrom, in its analysis of the company's performance. Net operating earnings excludes the following from net income: securities gains and losses, merger termination fee, merger related and restructuring expenses, the effect of the December, 2017 tax law change on deferred tax assets, tax benefit from director options previously exercised, and the income tax effect of adjustments. Net operating return on average equity is the annualized net operating earnings divided by average assets. Net operating return on average equity is the annualized net operating earnings divided by average equity. Return on average tangible common equity is the annualized net income divided by average tangible common equity. Net operating return on average tangible common equity is the annualized net operating earnings divided by average tangible common equity (Non-GAAP). The operating efficiency ratio includes an adjustment for taxable equivalent yields and excludes securities gains and losses and merger related and restructuring expenses from the efficiency ratio. Tangible common equity and average tangible common equity excludes goodwill and other intangible assets.  Operating noninterest income excludes the merger termination fee.  Operating noninterest excludes merger-related and restructuring cost.  Management believes that Non-GAAP financial measures provide additional useful information that allows investors to evaluate the ongoing performance of the company and provide meaningful comparisons to its peers.  Management believes these non-GAAP financial measures also enhance investors' ability to compare period-to-period financial results and allow investors and company management to view our operating results excluding the impact of items that are not reflective of the underlying operating performance.  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.

Forward-Looking Statements

This news release may contain statements that are based on management’s current estimates or expectations of future events or future results, and that may be deemed to constitute forward-looking statements as defined under U.S. federal securities laws.  These statements are not historical in nature and can generally be identified by such words as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “may,” “estimate,” and similar expressions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results of SmartFinancial to differ materially from future results expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, among others, (1) the risk of litigation related to the termination of our agreement and plan of merger with Entegra Financial Corp. (the “Entegra Merger Agreement”) or the abandonment of the transactions that were contemplated by the Entegra Merger Agreement; (2) reputational risk resulting from the termination of the Entegra Merger Agreement; (3) potential changes to, or the risk that we may not be able to execute on, our business strategy as a result of the termination of the Entegra Merger Agreement; (4) the risk that cost savings and revenue synergies from recently completed acquisitions may not be realized or may take longer than anticipated to realize; (5) disruption from recently completed acquisitions with customer, supplier, employee, or other business relationships; (6) our ability to successfully integrate the businesses acquired as part of previous acquisitions with the business of SmartBank; (7) changes in management’s plans for the future; (8) prevailing, or changes in, economic or political conditions, particularly in our market areas; (9) credit risk associated with our lending activities; (10) changes in interest rates, loan demand, real estate values, or competition; (11) changes in accounting principles, policies, or guidelines; (12) changes in applicable laws, rules, or regulations; and (13) other general competitive, economic, political, and market factors, including those affecting our business, operations, pricing, products, or services. These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found in SmartFinancial’s most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, in each case filed with or furnished to the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website (www.sec.gov). Undue reliance should not be placed on forward-looking statements.  SmartFinancial disclaims any obligation to update or revise any forward-looking statements contained in this release, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise.

SmartFinancial, Inc. and Subsidiary    
Condensed Consolidated Financial Information - (unaudited)      
(dollars in thousands except share and per share data)    
 As of and for The Three Months Ended
 September 30, June 30, March 31, December 31, September 30,
 2019 2019 2019 2018 2018
     
Selected Performance Ratios (Annualized):      
Return on average assets1.01% 1.56% 0.84% 1.17% 0.85%
Return on average shareholders' equity7.80% 12.34% 6.71% 9.44% 6.86%
Return on average tangible common equity (Non-GAAP)¹10.52% 16.78% 9.26% 13.09% 9.45%
Noninterest income / average assets0.37% 1.44% 0.30% 0.31% 0.36%
Noninterest expense / average assets2.48% 2.88% 2.77% 2.84% 2.90%
Efficiency ratio63.03% 57.53% 68.65% 67.71% 71.33%
          
Operating Selected Performance Ratios (Annualized):         
Net operating return on average assets (Non-GAAP)¹1.02% 0.96% 0.98% 1.07% 0.98%
Net operating return on average shareholders' equity (Non-GAAP)¹7.87% 7.58% 7.81% 8.65% 7.88%
Net operating return on average tangible common equity (Non-GAAP)¹10.61% 10.31% 10.79% 12.00% 10.84%
Operating efficiency ratio (Non-GAAP)¹62.42% 65.56% 64.25% 61.72% 67.17%
          
Selected Interest Rates and Yields:         
Yield on loans5.48% 5.53% 5.62% 5.81% 5.43%
Yield on earning assets, FTE5.05% 5.17% 5.25% 5.36% 5.03%
Cost of interest-bearing deposits1.37% 1.42% 1.32% 1.21% 1.11%
Cost of total deposits1.13% 1.18% 1.10% 1.00% 0.91%
Cost of interest-bearing liabilities1.47% 1.54% 1.45% 1.33% 1.15%
Net interest margin, FTE3.91% 3.94% 4.10% 4.28% 4.11%
          
Per Common Share:         
Net income, basic$0.43  $0.65  $0.34  $0.48  $0.34 
Net income, diluted0.42  0.65  0.34  0.47  0.34 
Net operating earnings, basic (Non-GAAP)¹0.43  0.40  0.40  0.44  0.39 
Net operating earnings, diluted (Non-GAAP)¹0.43  0.40  0.39  0.43  0.39 
Book value21.93  21.47  20.82  20.31  19.74 
Tangible book value (Non-GAAP)¹16.37  15.86  15.18  14.64  14.38 
Common shares outstanding13,957,973  13,953,209  13,951,590  13,933,504  12,750,272 
          
¹See reconciliation of Non-GAAP measures         
          
          
          
          
          
SmartFinancial, Inc. and Subsidiary    
Condensed Consolidated Financial Information - (unaudited)      
(In thousands)    
 As of and for The Three Months Ended
 September 30, June 30, March 31, December 31, September 30,
 2019 2019 2019 2018 2018
Composition of Loans:    
Commercial real estate         
owner occupied$422,363  $415,502  $416,152  $372,030  $364,164 
non-owner occupied468,099  464,160  472,790  487,997  401,922 
Commercial real estate, total890,462  879,662  888,942  860,027  766,086 
Commercial & industrial341,207  334,258  341,471  308,254  289,784 
Construction & land development219,751  204,731  187,009  187,895  165,906 
Consumer real estate405,531  406,357  410,981  407,254  350,422 
Consumer and other10,796  11,981  12,166  13,809  12,996 
Total loans$1,867,747  $1,836,989  $1,840,569  $1,777,239  $1,585,194 
          
Asset Quality and Additional Loan Data:         
Nonperforming loans$3,166  $2,838  $2,282  $3,280  $2,686 
Other real estate owned1,561  1,814  2,066  2,495  4,230 
Total nonperforming assets$4,727  $4,652  $4,348  $5,775  $6,916 
Restructured loans not included in nonperforming loans$61  $62  $62  $116  $693 
Net charge-offs (recoveries) to average loans (annualized)0.01% % 0.08% 0.04% 0.06%
Allowance for loan losses to loans0.53% 0.50% 0.47% 0.47% 0.45%
Nonperforming loans to total loans, gross0.17% 0.15% 0.12% 0.18% 0.17%
Nonperforming assets to total assets0.20% 0.19% 0.18% 0.25% 0.34%
Purchase accounting discount balance$16,784  $18,571  $19,954  $21,528  $19,500 
Accretion income on acquired loans1,246  1,374  1,717  2,343  1,208 
          
Capital Ratios:         
Equity to Assets12.80% 12.53% 12.34% 12.44% 12.27%
Tangible common equity to tangible assets (Non-GAAP)39.88% 9.57% 9.31% 9.29% 9.25%
          
SmartFinancial, Inc.1         
Tier 1 leverage10.02% 9.92% 9.29% 9.47% 9.26%
Common equity Tier 111.54% 11.21% 10.61% 10.81% 10.88%
Tier 1 capital11.54% 11.21% 10.61% 10.81% 10.88%
Total capital13.98% 13.65% 13.01% 13.29% 13.57%
          
SmartBankEstimated2        
Tier 1 leverage11.23% 10.92% 10.96% 11.17% 10.55%
Common equity Tier 112.71% 12.37% 12.18% 12.31% 11.99%
Tier 1 risk-based capital12.71% 12.37% 12.18% 12.31% 11.99%
Total risk-based capital13.20% 12.82% 12.62% 12.74% 12.40%

1All periods presented are estimated.
2 Current period capital ratios are estimated as of the date of this earnings release.
3Total common equity less intangibles divided by total assets less intangibles.



SmartFinancial, Inc. and Subsidiary        
Condensed Consolidated Financial Information - (unaudited)      
(dollars in thousands)         
 Ending Balances
  September 30,  June 30,  March 31,  December 31, September 30,
  2019  2019  2019  2018 2018
Assets:         
Cash and cash equivalents$170,934  $199,534  $132,994  $115,822  $130,104 
Securities available-for-sale, at fair value171,507  174,114  198,273  201,688  173,039 
Other investments12,913  12,905  12,398  11,499  10,736 
Loans held for sale3,068  4,087  2,103  1,979  4,038 
Loans1,864,679  1,832,902  1,838,466  1,775,260  1,581,155 
Less: Allowance for loan losses(9,792) (9,097) (8,704) (8,275) (7,156)
Loans, net1,854,887  1,823,805  1,829,762  1,766,985  1,573,999 
Premises and equipment, net58,386  56,589  56,583  56,012  51,138 
Other real estate owned1,561  1,814  2,066  2,495  4,230 
Goodwill and core deposit intangibles, net77,534  78,348  78,690  79,034  68,254 
Bank owned life insurance24,796  24,695  24,540  24,381  22,088 
Other assets14,899  15,366  16,572  14,514  13,320 
Total assets$2,390,485  $2,391,257  $2,353,981  $2,274,409  $2,050,946 
          
Liabilities:         
Deposits:         
Noninterest-bearing demand$365,024  $357,220  $329,095  $319,861  $301,197 
Interest-bearing demand351,474  333,705  331,629  311,482  267,146 
Money market and savings634,934  648,132  698,431  641,945  570,172 
Time deposits646,641  673,243  635,175  648,676  568,796 
Total deposits1,998,073  2,012,300  1,994,330  1,921,964  1,707,311 
Securities sold under agreements to repurchase4,368  8,219  7,070  11,756  16,786 
FHLB & other borrowings25,460  15,460  8,605  11,243  25,324 
Subordinated debt39,240  39,219  39,198  39,177  39,158 
Other liabilities17,304  16,448  14,297  7,258  10,725 
Total liabilities2,084,445  2,091,646  2,063,500  1,991,398  1,799,304 
Shareholders' Equity:         
Common stock13,958  13,953  13,952  13,933  12,750 
Additional paid-in capital232,573  232,386  232,241  231,852  208,999 
Retained earnings59,806  53,843  44,722  39,991  33,559 
Accumulated other comprehensive loss(297) (571) (434) (2,765) (3,666)
Total shareholders' equity306,040  299,611  290,481  283,011  251,642 
Total liabilities & shareholders' equity$2,390,485  $2,391,257  $2,353,981  $2,274,409  $2,050,946 



SmartFinancial, Inc. and Subsidiary    
Condensed Consolidated Financial Information - (unaudited)      
(dollars in thousands, except per share data)    
 Three Months Ended
  September 30,  June 30,  March 31,  December 31,  September 30,
  2019  2019  2019  2018  2018
  
Interest income: 
Loans, including fees$25,515  $25,278  $24,975  $25,018  $21,571 
Securities available-for-sale:         
 Taxable748  871  971  900  839 
 Tax-exempt338  411  424  347  129 
Federal funds sold and other earning assets743  743  573  506  529 
Total interest income27,344  27,303  26,943  26,771  23,068 
          
Interest expense:         
Deposits5,605  5,788  5,251  4,680  3,969 
Securities sold under agreements to repurchase5  6  8  9  11 
FHLB advances and other borrowings10  117  103  51  209 
Subordinated debt584  590  584  584  19 
Total interest expense6,204  6,501  5,946  5,324  4,208 
Net interest income21,140  20,802  20,997  21,447  18,860 
Provision for loan losses724  393  797  1,329  302 
Net interest income after provision for loan losses20,416  20,409  20,200  20,118  18,558 
          
Noninterest income:         
Service charges on deposit accounts767  707  654  663  624 
Gain on sale of securities, net1  33    2   
Mortgage banking518  392  282  251  493 
Interchange and debit card transaction fees
148  143  175  162  144 
Merger termination fee  6,400       
Other762  741  587  602  570 
Total noninterest income2,196  8,416  1,698  1,680  1,831 
          
Noninterest expense:         
Salaries and employee benefits9,072  8,984  8,398  7,871  7,934 
Occupancy and equipment1,635  1,658  1,640  1,610  1,638 
FDIC insurance (credit)(219) 180  179  209  158 
Other real estate and loan related expense335  242  490  738  578 
Advertising and marketing263  259  295  246  228 
Data processing273  577  615  372  407 
Professional services573  489  662  707  727 
Amortization of intangibles341  342  344  312  248 
Software as service contracts560  568  567  577  507 
Merger related and restructuring expenses73  1,796  923  1,322  838 
Other1,802  1,714  1,466  1,697  1,497 
Total noninterest expense14,708  16,809  15,579  15,661  14,760 
Income before income taxes7,904  12,016  6,319  6,137  5,629 
Income tax expense1,941  2,895  1,588  (307) 1,305 
Net income$5,963  $9,121  $4,731  $6,444  $4,324 
          
Earnings Per Common Share:         
Basic$0.43  $0.65  $0.34  $0.48  $0.34 
Diluted$0.42  $0.65  $0.34  $0.47  $0.34 
Weighted average common shares outstanding:         
Basic13,955,859  13,951,643  13,942,016  13,534,806  12,718,861 
Diluted14,053,432  14,046,500  14,018,163  13,616,616  12,817,556 


SmartFinancial, Inc. and Subsidiary 
Condensed Consolidated Financial Information - (unaudited) 
(In thousands) 
YIELD ANALYSIS 
  Three Months Ended
  September 30, 2019 June 30, 2019 September 30, 2018
  Average   Yield/ Average   Yield/ Average   Yield/
  Balance Interest1 Cost1 Balance Interest1 Cost1 Balance Interest1 Cost1
Assets:                  
Loans $1,846,196  $25,515  5.48% $1,832,639  $25,278  5.53% $1,577,222  $21,573  5.43%
Taxable securities 118,955  748  2.49% 136,859  871  2.55% 141,750  839  2.35%
Tax-exempt securities 56,598  448  3.14% 56,475  527  3.75% 17,329  166  3.80%
Federal funds sold and other earning assets 135,444  743  2.18% 102,253  743  2.91% 85,995  526  2.43%
Total interest-earning assets 2,157,193  27,454  5.05% 2,128,226  27,419  5.17% 1,822,296  23,104  5.03%
Noninterest-earning assets 191,940      215,010      198,215     
Total assets $2,349,133      $2,343,236      $2,020,511     
                   
Liabilities and Stockholders’ Equity:                  
Interest-bearing demand deposits $343,827  511  0.59% $329,556  464  0.57% $239,220  283  0.47%
Money market and savings deposits 637,290  1,829  1.14% 673,502  2,272  1.35% 615,334  1,595  1.03%
Time deposits 640,679  3,265  2.02% 629,480  3,052  1.94% 564,945  2,091  1.47%
Total interest-bearing deposits 1,621,796  5,605  1.37% 1,632,538  5,788  1.42% 1,419,499  3,969  1.11%
Securities sold under agreement to repurchase 6,490  5  0.31% 7,249  6  0.33% 17,694  11  0.25%
Federal funds purchased and other borrowings 6,820  10  0.58% 16,436  117  2.87% 16,415  209  5.05%
Subordinated debt 39,226  584  5.91% 39,205  590  6.03% 1,304  19  5.78%
Total interest-bearing liabilities 1,674,332  6,204  1.47% 1,695,428  6,501  1.54% 1,454,912  4,208  1.15%
Noninterest-bearing deposits 353,315      336,871      307,007     
Other liabilities 18,286      14,367      8,529     
Total liabilities 2,045,933      2,046,666      1,770,448     
Stockholders’ equity 303,200      296,570      250,063     
Total liabilities and stockholders’ equity $2,349,133      $2,343,236      $2,020,511     
                   
Net interest income, taxable equivalent   $21,250      $20,918      $18,896   
Interest rate spread     3.58%     3.63%     3.88%
Tax equivalent net interest margin     3.91%     3.94%     4.11%
                   
Percentage of average interest-earning assets to average interest-bearing liabilities     128.84%     125.53%     125.25%
Percentage of average equity to average assets     12.91%     12.66%     12.38%
                   

1 Taxable equivalent


SmartFinancial, Inc. and Subsidiary    
Condensed Consolidated Financial Information - (unaudited)      
(In thousands)    
NON-GAAP RECONCILIATIONS 
 Three Months Ended
  September 30,  June 30,  March 31  December 31,  September 30,
  2019  2019  2019  2018  2018
  
Operating Earnings: 
Net income (GAAP)$5,963  $9,121  $4,731  $6,444  $4,324 
Securities (gains) losses(1) (33)   (2)  
Merger termination fee  (6,400)      
Merger related and restructuring expenses73  1,796  923  1,322  838 
Tax benefit from director options previously exercised
      (1,600)  
Income tax effect of adjustments(19) 1,119  (145) (257) (196)
Net operating earnings (Non-GAAP)$6,016  $5,603  $5,509  $5,907  $4,966 
Net operating earnings per common share (Non-GAAP):         
Basic$0.43  $0.40  $0.40  $0.44  $0.39 
Diluted0.43  0.40  0.39  0.43  0.39 
          
Operating Noninterest Income:         
  Noninterest income (GAAP)$2,196  $8,416  $1,698  $1,680  $1,831 
  Merger termination fee  (6,400)      
  Operating noninterest income (Non-GAAP)$2,196  $2,016  $1,698  $1,680  $1,831 
          
Operating Noninterest Expense:         
  Noninterest expense (GAAP)$14,708  $16,809  $15,579  $15,661  $14,760 
  Merger related and restructuring expenses(73) (1,796) (923) (1,322) (838)
  Operating noninterest expense (Non-GAAP)$14,635  $15,013  $14,656  $14,339  $13,922 
          
Non-GAAP Return Ratios:         
Net operating return on average assets (Non-GAAP)11.02% 0.96% 0.98% 1.07% 0.98%
Return on average tangible common equity (Non-GAAP)210.52% 16.78% 9.26% 13.09% 9.45%
Net operating return on average shareholder equity (Non-GAAP)37.87% 7.58% 7.81% 8.65% 7.88%
Net operating return on average tangible common  equity (Non-GAAP)410.61% 10.31% 10.79% 12.00% 10.84%
          
Operating Efficiency Ratio:         
Efficiency ratio (GAAP)63.03% 57.53% 68.65% 67.71% 71.33%
Adjustment for taxable equivalent yields(0.37)% (0.50)% (0.49)% (0.45)% (0.18)%
Adjustment for securities gains (losses)% 0.14% % 0.01% %
Adjustment for merger related income and costs(0.24)% 8.39% (3.91)% (5.55)% (3.98)%
Operating efficiency ratio (Non-GAAP)62.42% 65.56% 64.25% 61.72% 67.17%
          
1 Net operating return on average assets (Non-GAAP) is the annualized net operating earnings (Non-GAAP) divided by average assets.
2 Return on average tangible common equity (Non-GAAP) is the annualized net income divided by average tangible common equity (Non-GAAP).
3 Net operating return on average equity (Non-GAAP) is the annualized net operating earnings (Non-GAAP) divided by average equity.
4 Net operating return on average tangible common equity (Non-GAAP) is the annualized net operating earnings (Non-GAAP) divided by average tangible common equity (Non-GAAP).
 


SmartFinancial, Inc. and Subsidiary                   
Condensed Consolidated Financial Information - (unaudited)                   
(In thousands)                   
NON-GAAP RECONCILIATIONS                   
 Three Months Ended
 September 30, June 30, March 31, December 31, September 30,
   2019 2019 2019 2018 2018
Tangible Common Equity:                   
Shareholders' equity (GAAP)$306,040  $299,611  $290,481  $283,011  $251,642 
Less goodwill and other intangible assets77,534  78,348  78,690  79,034  68,254 
Tangible common equity (Non-GAAP)$228,506  $221,263  $211,791  $203,977  $183,388 
          
Average Tangible Common Equity:         
Average shareholders' equity (GAAP)$303,200  $296,570  $286,076  $270,884  $250,063 
Less average goodwill and other intangible assets78,222  78,564  78,913  75,547  68,389 
Average tangible common equity (Non-GAAP)$224,978  $218,006  $207,163  $195,337  $181,674 


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