KNOXVILLE, Tenn., Oct. 23, 2023 (GLOBE NEWSWIRE) -- SmartFinancial, Inc. ("SmartFinancial" or the "Company"; SMBK), today announced net income of $2.1 million, or $0.12 per diluted common share, for the third quarter of 2023, compared to net income of $11.5 million, or $0.68 per diluted common share, for the third quarter of 2022, and compared to prior quarter net income of $8.8 million, or $0.52 per diluted common share. Operating earnings1, which excludes securities gains (losses) and merger related and restructuring expenses, net of tax adjustments, totaled $7.2 million, or $0.43 per diluted common share, in the third quarter of 2023, compared to $11.6 million, or $0.69 per diluted common share, in the third quarter of 2022, and compared to $8.8 million, or $0.52 per diluted common share, in the second quarter of 2023.
Highlights for the Third Quarter of 2023
- Operating earnings1 of $7.2 million, or $0.43 per diluted common share
- Repositioned $159.6 million of available-for-sale securities, moving into higher yielding assets
- Net organic loan and lease growth of $42 million - 5% annualized quarter-over-quarter increase
- Credit quality remains solid with nonperforming assets to total assets of 0.12%
- Deposit growth of $46.9 million – 4.5% annualized quarter-over-quarter increase
Billy Carroll, President & CEO, stated: “Our Company and employees continue to operate at a high level, providing excellent client service while tactfully navigating a difficult operating landscape. During September, we strategically took advantage of a balance sheet optimization opportunity, reallocating $160 million from low-yielding investments into higher yielding assets. We felt it prudent to capitalize on the current rate environment and better position our balance sheet as we look toward 2024. Our team continues to grow new loan and deposit relationships despite the higher rate headwinds, a testament to their professionalism and reputations within their respective markets. As our Bank absorbs and moves through the impacts of the recent Fed rate increases, we look forward to continued revenue expansion and remain bullish on our Company outlook.”
SmartFinancial's Chairman, Miller Welborn, concluded: "The entire SmartBank team worked diligently over the past quarter and, quite frankly, over the entire year to exceed client expectations and drive consistent growth. However, this quarter I was especially pleased that SmartBank was once again honored with the “Top Workplace” designation as voted on by employees for the seventh year in a row! I’m so proud of where we are as a company and extremely optimistic about the future.”
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1 Non-GAAP measure. See “Non-GAAP Financial Measures” for more information and see the Non-GAAP reconciliation
Net Interest Income and Net Interest Margin
Net interest income was $31.0 million for the third quarter of 2023, compared to $31.6 million for the prior quarter. Average earning assets totaled $4.40 billion, an increase of $58.5 million from the prior quarter. The increase in average earnings assets was primarily driven by an increase in average loans and leases of $52.1 million and average interest-earning cash of $34.2 million, offset by a decrease in average securities of $27.8 million. Average interest-bearing liabilities increased by $73.5 million from the prior quarter, attributable to an increase in average deposits of $82.1 million, offset by a decrease in average borrowings of $8.6 million.
The tax equivalent net interest margin was 2.81% for the third quarter of 2023, compared to 2.93% for the prior quarter. The tax equivalent net interest margin was negatively impacted by the continued rise in the cost of interest-bearing liabilities and increased pricing competition. The yield on loans and leases, excluding loan fees was 5.52% for the third quarter, compared to 5.39% for the prior quarter.
The cost of total deposits for the third quarter of 2023 was 2.20% compared to 1.89% in the prior quarter. The cost of interest-bearing liabilities increased to 2.89% for the third quarter of 2023 compared to 2.53% for the prior quarter. The cost of average interest-bearing deposits was 2.84% for the third quarter of 2023 compared to 2.46% for the prior quarter, an increase of 38 basis points. The increase in the cost of deposits is due to an increase in interest rates, customer migration to higher rate deposit products and increased competition for deposits.
The following table presents selected interest rates and yields for the periods indicated:
| Three Months Ended | ||||||||||
| Sep | Jun | Increase | ||||||||
| Selected Interest Rates and Yields | 2023 | 2023 | (Decrease) | |||||||
| Yield on loans and leases, excluding loan fees | 5.52 | % | 5.39 | % | 0.13 | % | ||||
| Yield on loans and leases | 5.61 | % | 5.51 | % | 0.10 | % | ||||
| Yield on earning assets, on a fully tax equivalent basis (FTE) | 4.99 | % | 4.82 | % | 0.17 | % | ||||
| Cost of interest-bearing deposits | 2.84 | % | 2.46 | % | 0.38 | % | ||||
| Cost of total deposits | 2.20 | % | 1.89 | % | 0.31 | % | ||||
| Cost of interest-bearing liabilities | 2.89 | % | 2.53 | % | 0.36 | % | ||||
| Net interest margin, FTE | 2.81 | % | 2.93 | % | (0.12 | ) | % | |||
Provision for Credit Losses on Loans and Leases and Credit Quality
At September 30, 2023, the allowance for credit losses was $33.7 million. The allowance for credit losses to total loans and leases was 1.00% as of September 30, 2023, compared to 0.98% as of June 30, 2023.
The following table presents detailed information related to the provision for credit losses for the periods indicated (dollars in thousands):
| Three Months Ended | |||||||||||||
| Sep | Jun | ||||||||||||
| Provision for Credit Losses on Loans and Leases Rollforward | 2023 | 2023 | Change | ||||||||||
| Beginning balance | $ | 32,747 | $ | 32,279 | $ | 468 | |||||||
| Charge-offs | (417 | ) | (207 | ) | (210 | ) | |||||||
| Recoveries | 73 | 255 | (182 | ) | |||||||||
| Net (charge-offs) recoveries | (344 | ) | 48 | (392 | ) | ||||||||
| Provision for credit losses (1) | 1,284 | 420 | 864 | ||||||||||
| Ending balance | $ | 33,687 | $ | 32,747 | $ | 940 | |||||||
| Allowance for credit losses to total loans and leases, gross | 1.00 | % | 0.98 | % | 0.02 | % | |||||||
| (1) | The current quarter-ended and prior quarter-ended, excludes unfunded commitments release of $489 thousand and $307 thousand, respectively. At September 30, 2023, the unfunded commitment liability totaled $2.3 million. | |
Nonperforming loans and leases as a percentage of total loans and leases was 0.12% as of September 30, 2023, an increase of 1 basis point from the 0.11% reported in the second quarter of 2023. Total nonperforming assets (which include nonaccrual loans and leases, loans and leases past due 90 days or more and still accruing, other real estate owned and other repossessed assets) as a percentage of total assets was 0.12% as of September 30, 2023, and June 30, 2023.
The following table presents detailed information related to credit quality for the periods indicated (dollars in thousands):
| Three Months Ended | |||||||||||||
| Sep | Jun | Increase | |||||||||||
| Credit Quality | 2023 | 2023 | (Decrease) | ||||||||||
| Nonaccrual loans and leases | $ | 3,934 | $ | 3,722 | $ | 212 | |||||||
| Loans and leases past due 90 days or more and still accruing | 229 | - | 229 | ||||||||||
| Total nonperforming loans and leases | 4,163 | 3,722 | 441 | ||||||||||
| Other real estate owned | 1,370 | 1,708 | (338 | ) | |||||||||
| Other repossessed assets | 348 | 282 | 66 | ||||||||||
| Total nonperforming assets | $ | 5,881 | $ | 5,712 | $ | 169 | |||||||
| Nonperforming loans and leases to total loans and leases, gross | 0.12 | % | 0.11 | % | 0.01 | % | |||||||
| Nonperforming assets to total assets | 0.12 | % | 0.12 | % | - | % | |||||||
Noninterest Income
Noninterest income decreased $6.4 million to $691 thousand for the third quarter of 2023 compared to $7.1 million for the prior quarter. The current quarter decrease was associated with a $6.8 million pre-tax loss on the sale of $159.6 million of available for sale securities, moving into higher yielding assets. Excluding the loss on securities, noninterest income increased $362 thousand.
The following table presents detailed information related to noninterest income for the periods indicated (dollars in thousands):
| Three Months Ended | ||||||||||||
| Sep | Jun | Increase | ||||||||||
| Noninterest Income | 2023 | 2023 | (Decrease) | |||||||||
| Service charges on deposit accounts | $ | 1,736 | $ | 1,657 | $ | 79 | ||||||
| Gain (loss) on sale of securities, net | (6,801 | ) | - | (6,801 | ) | |||||||
| Mortgage banking income | 309 | 332 | (23 | ) | ||||||||
| Investment services | 1,461 | 1,300 | 161 | |||||||||
| Insurance commissions | 1,153 | 1,139 | 14 | |||||||||
| Interchange and debit card transaction fees | 1,357 | 1,347 | 10 | |||||||||
| Other | 1,476 | 1,355 | 121 | |||||||||
| Total noninterest income | $ | 691 | $ | 7,130 | $ | (6,439 | ) | |||||
Noninterest Expense
Noninterest expense increased $1.1 million to $28.5 million for the third quarter of 2023 compared to $27.4 million for the prior quarter. The current quarter increase was primarily related to increases in health insurance claims, incentives and additional commission expense associated with higher production from our leasing company, wealth and capital markets teams.
The following table presents detailed information related to noninterest expense for the periods indicated (dollars in thousands):
| Three Months Ended | ||||||||||||
| Sep | Jun | Increase | ||||||||||
| Noninterest Expense | 2023 | 2023 | (Decrease) | |||||||||
| Salaries and employee benefits | $ | 16,785 | $ | 15,947 | $ | 838 | ||||||
| Occupancy and equipment | 3,547 | 3,318 | 229 | |||||||||
| FDIC insurance | 825 | 875 | (50 | ) | ||||||||
| Other real estate and loan related expenses | 603 | 441 | 162 | |||||||||
| Advertising and marketing | 346 | 305 | 41 | |||||||||
| Data processing and technology | 2,378 | 2,235 | 143 | |||||||||
| Professional services | 735 | 764 | (29 | ) | ||||||||
| Amortization of intangibles | 647 | 675 | (28 | ) | ||||||||
| Merger related and restructuring expenses | 110 | - | 110 | |||||||||
| Other | 2,540 | 2,850 | (310 | ) | ||||||||
| Total noninterest expense | $ | 28,516 | $ | 27,410 | $ | 1,106 | ||||||
Income Tax Expense
Income tax expense was $319 thousand for the third quarter of 2023, a decrease of $2.0 million, compared to $2.3 million for the prior quarter.
The effective tax rate was 13.37% for the third quarter of 2023 and 20.98% for the prior quarter. The primary reason for the 7.61% decline in the effective tax rate was due to lower earnings, largely from the $6.8 million pre-tax loss on sale of available-for-sale securities during the quarter.
Balance Sheet Trends
Total assets at September 30, 2023 were $4.80 billion compared to $4.64 billion at December 31, 2022. The $159.7 million increase is primarily attributable to increases in loans and leases of $125.4 million, cash and cash equivalents of $133.8 million and other assets of $15.1 million. Asset increases were offset by a decrease in securities of $102.4 million and an increase in the allowance for credit losses of $10.4 million, primarily for the one-time adjustment of $8.7 million related to the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit losses on Financial Instruments (“ASU 2016-13”) on January 1, 2023.
Total liabilities increased to $4.35 billion at September 30, 2023 from $4.21 billion at December 31, 2022. The increase of $145.5 million was primarily from organic deposit growth of $169.4 million, offset by a decrease in borrowings of $27.7 million.
Shareholders' equity at September 30, 2023 totaled $446.7 million, an increase of $14.2 million, from December 31, 2022. The increase in shareholders' equity was primarily driven by net income of $22.4 million for the nine months ended September 30, 2023, offset by the impact of the adoption of ASU 2016-13 on January 1, 2023, of $6.6 million (net of taxes), and dividends paid of $4.1 million. Tangible book value per share1 was $19.94 at September 30, 2023, compared to $19.09 at December 31, 2022. Tangible common equity1 as a percentage of tangible assets1 was 7.23% at September 30, 2023, compared with 7.13% at December 31, 2022.
The following table presents selected balance sheet information for the periods indicated (dollars in thousands):
| Sep | Dec | Increase | ||||||||||
| Selected Balance Sheet Information | 2023 | 2022 | (Decrease) | |||||||||
| Total assets | $ | 4,797,171 | $ | 4,637,498 | $ | 159,673 | ||||||
| Total liabilities | 4,350,519 | 4,205,046 | 145,473 | |||||||||
| Total equity | 446,652 | 432,452 | 14,200 | |||||||||
| Securities | 667,444 | 769,842 | (102,398 | ) | ||||||||
| Loans and leases | 3,378,999 | 3,253,627 | 125,372 | |||||||||
| Deposits | 4,246,509 | 4,077,100 | 169,409 | |||||||||
| Borrowings | 14,117 | 41,860 | (27,743 | ) | ||||||||
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1 Non-GAAP measure. See “Non-GAAP Financial Measures” for more information and see the Non-GAAP reconciliation
Conference Call Information
SmartFinancial issued this earnings release for the third quarter of 2023 on Monday, October 23, 2023, and will host a conference call on Tuesday, October 24, 2023, at 10:00 a.m. ET. To access this interactive teleconference, dial (833) 470-1428 or (404) 975-4839 and entering the access code, 071225. A replay of the conference call will be available through December 23, 2023, by dialing (866) 813-9403 or (929) 458-6194 and entering the access code, 816201. Conference call materials will be published on the Company’s webpage located at http://www.smartfinancialinc.com/CorporateProfile, at 9:00 a.m. 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 branches across Tennessee, Alabama, and Florida. 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 Carroll |
| President & CEO |
| (865) 868-0613 [email protected] |
| Ron Gorczynski |
| Executive Vice President, Chief Financial Officer |
