SmartFinancial, Inc. announced Tuesday net income of $1.3 million in its first quarter, compared to $1.2 million in the prior quarter. In the third quarter 2015, SmartFinancial completed the merger of two holding companies, legacy SmartFinancial, Inc. and Cornerstone Bancshares, Inc., and carried forward the name "SmartFinancial, Inc.". This quarter completes a second full quarter’s results from the combined company; in addition, SmartBank and Cornerstone Community Bank completed their merger at the end of February.
Billy Carroll, president and CEO said, "We are pleased with these results as our newly combined company continues to build momentum and realize greater efficiencies. It’s powerful to move past internally focused merger work and set the stage for growth. Our organic loan and deposit growth kept good pace during the first quarter, even with a number of our team members involved in the bank integration. We’re on plan and expect continued merger efficiencies in the coming months. We’ll remain focused on fundamentals and strengthening our foundation to support organic growth and increased earnings.
“We secured a talented mortgage team in 2015 which has allowed us to expand our mortgage capabilities franchise-wide. We are beginning to close loans with these new products, using this new channel. We have significant opportunity to serve more clients with even better solutions across our entire footprint while driving greater margins in residential lending. To leverage these capabilities, we continue to identify and recruit revenue producers for residential and other areas of the bank in every market we serve.”
SmartFinancial's Chairman Miller Welborn said, "This board could not be more enthusiastic about the brand, the vision and the talent of this team. We have a strong story to tell and have every confidence that we’ll achieve the ‘sweet spot’ for community banking which will include 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 $1.1 million or $0.20 per share during the first quarter of 2016.
• Annualized return on average assets equaled 0.54 percent in the first quarter of 2016, up from 0.47 percent in the fourth quarter of 2015.
• Annualized net loan growth was approximately 6.4 percent in the first quarter of 2016, with the growth coming from increases in owner occupied commercial real estate, residential real estate, and construction and development loans.
• Gain on sale of assets increased to $222 thousand as results from the mortgage unit accelerated even in spite of what is a normally weak quarter due to seasonality.
• Maintained outstanding asset quality with just 0.82 percent of nonperforming assets to total assets.
1Q 2016 compared to 4Q 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 $780,000 in the first quarter of 2016 compared to $584,000 in the fourth quarter of 2015. Net income available to common shareholders totaled $1.1 million in the first quarter of 2016, or $0.19 per diluted share, compared to $1.2 million, or $0.19 per diluted share, in the fourth quarter of 2015.
Net interest income to average assets of 3.67 percent for the quarter was down from 3.79 percent in the fourth quarter of 2015. Net interest income totaled $9.1 million in the first quarter of 2016 compared to $9.5 million in the fourth quarter of 2015. Net interest income was negatively impacted during the quarter primarily by a reduction in purchased loan accounting adjustments, said officials. One fewer day and slightly lower yields on loan balances had a marginal impact. Net interest margin, taxable equivalent, decreased from 4.10 percent in the fourth quarter of 2015 to 4.00 percent in the first quarter of 2016 due to lower yields for the reasons mentioned above.
Provision for loan losses was $138,000 in the first quarter of 2016 compared to $567,000 in the fourth quarter of 2015. The decrease in provision for loan losses was primarily due to a reduction in historical loss rates used in the company's ALLL model due to improvement in charge-off levels. Annualized net charge-offs were (0.02) percent of average loans in the first quarter of 2016 compared to 0.02 percent of average loans in the fourth quarter of 2015.
The ALLL was $4.5 million, or 0.61 percent of total loans as of March 31, compared to $4.4 million, or 0.60 percent of total loans, as of Dec. 31, 2015. Adjusted ALLL, which includes the ALLL as well as net acquisition accounting fair value adjustments for acquired loans, was 2.11 percent of total loans as of March 31, which was down from 2.18 percent as of Dec. 31, 2015. The reduction in adjusted ALLL resulted from continued accretion of fair value discounts.
Nonperforming loans as a percentage of total loans was 0.43 percent as of March 31, which was up slightly from 0.38 percent as of Dec. 31, 2015. 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 0.82 percent as of March 31, compared to 0.79 percent as of Dec. 31, 2015.
Non-interest income to average assets of 0.43 percent for the quarter was down from 0.46 percent in the fourth quarter of 2015. Non-interest income totaled $1.1 million in the first quarter of 2016, compared to $1.2 million in the fourth quarter of 2015. Merger related reclassification drove a $101 decline in service charges and fees and a $72,000 increase in other non-interest income. Gain on securities totaled $83,000. Gain on sale of loans and other assets which includes both SBA and mortgage loan income was $222,000, compared to $86,000 in the fourth quarter of 2015. Gains on the sale of foreclosed assets were $58,000 for the quarter.
Non-interest expense to average assets of 3.19 percent for the quarter was down slightly from 3.20 percent in the fourth quarter of 2015. Non-interest expense totaled $8.0 million in the first quarter of 2016, which was down $100,000 from the fourth quarter of 2015. Salaries and employee benefits increased by $287,000 in the first quarter mainly due to additions to the mortgage staff and annual performance based salary increases. Occupancy expense of $990,000 was up $80,000 from the previous quarter. Data processing and professional expenses fell a combined $473,000 compared to the fourth quarter primarily due to a reduction in merger related costs. Marketing expenses of $173,000 were up from $100,000 in the fourth quarter primarily due to rebranding initiatives related to merger integration.
Income tax expense was $764,000 in the first quarter of 2016 compared to $901,000 in the fourth quarter of 2015. The company's effective tax rate was 36.2 percent in the first quarter of 2015 compared to 43.2 percent in the fourth quarter of 2015. The fourth quarter 2015 effective tax rate was negatively impacted by merger costs which were non-deductible.
1Q 2016 compared to 1Q 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 $780,000 in the first quarter of 2016 compared to $41,000 in the first quarter of 2015. Net income available to common shareholders totaled $1.1 million in the first quarter of 2016, or $0.19 per diluted share, compared to $308,000, or $0.09 per diluted share, in the first 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 1Q 2016 are not comparable to results reported for 1Q 2015, said oddicials.