EX-99.1 2 a2017q2earningsrelease-ex9.htm EXHIBIT 99.1
Exhibit 99.1
2 Q 2017
SmartFinancial Reports Second Quarter Diluted Earnings Per Share of $0.20, up 33% Year over Year
KNOXVILLE, TN - July 25, 2017 - SmartFinancial, Inc. ("SmartFinancial"; NASDAQ: SMBK), announced today net income of $1.6 million in its second quarter of 2017, compared to $1.2 million a year ago. Net income available to common shareholders totaled $1.6 million for second quarter of 2017 compared to $0.9 million during the second quarter of 2016.
Billy Carroll, President & CEO, stated: "In the second quarter net income was up over thirty-eight percent from a year ago as we continue to leverage capital while controlling expenses to increase profitability. Compared to last year we grew net interest income by seven percent while limiting noninterest expense increases to four percent. We increased net interest income not only by growing gross loans, twelve percent year over year, but also by increasing asset yields and thus keeping our net interest margin above four percent. Over the same period we were able to reduce the efficiency ratio by over three percentage points, in spite of $420 thousand merger and conversion costs during the current quarter. We look forward to the second half of 2017 which we believe will be even stronger than the first.”
SmartFinancial's Chairman, Miller Welborn, concluded: "During the last quarter we continued to achieve our goal of increasing the value of our franchise by expanding the footprint with strategic accretive acquisitions, prudently growing organically in great markets, and increasing our efficiencies every single day. We completed the acquisition of our branch in Cleveland, Tennessee, and announced our pending acquisition of Capstone Bancshares in Alabama, which we expect to close the fourth quarter this year. At the same time we organically grew loans by over $35 million and were able to increase net interest margin even with a slight increase in deposit costs. Perhaps most importantly, we have done all of this while controlling expense growth by reducing operational headcount while increasing the number of client facing associates. Finally we are proud that our company was recognized as a 'Top place to work 2017' by the Knoxville News Sentinel, which truly illustrates what a great culture we have created."
Performance Highlights

• | Net income available to common shareholders totaled $1.6 million during the second quarter of 2017 compared to $0.9 million during the second quarter of 2016 while net operating earnings available to common shareholders increased to $1.6 million from $0.6 million over the same period.

• | Closed acquisition of Cleveland, Tennessee, branch purchasing approximately $24.4 million in loans and assuming $24.8 million in deposits, in book value, resulting in approximately $1.0 million in intangible assets.

• | Gross loan growth of $58 million for the quarter driven by over $35 million in organic growth.

• | Increased net interest margin, taxable equivalent, compared to the prior the quarter to 4.15 percent due to higher average loan balances and increases the yields of the securities portfolio.

• | Asset quality was outstanding with nonperforming assets to total assets dropping to just 0.31 percent.

Second Quarter 2017 compared to Second Quarter 2016
Net income available to common shareholders totaled $1.6 million in the second quarter of 2017, or $0.20 per diluted share, compared to $0.9 million, or $0.15 per diluted share, in the second 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 $1.6 million in the second quarter of 2017 compared to $0.6 million in the second quarter of 2016.
Net interest income to average assets of 3.81 percent for the quarter decreased from 3.88 percent in the second quarter of 2016 as the percentage of non-earning assets increased compared to the prior year. Net interest income totaled $10.2 million in the second quarter of 2017 compared to $9.6 million in the second quarter of 2016. Net interest income was positively impacted compared to the prior year primarily due to increases in loan balances. Net interest margin, taxable equivalent, decreased slightly from 4.16 percent in the second quarter of 2016 to 4.15 percent in the second quarter of 2017 as a result of higher costs on interest-bearing deposits.

Provision for loan losses was $298 thousand in the second quarter of 2017, compared to $218 thousand in the second quarter of 2016. The increase in provision for loan losses was due to higher loan growth. Annualized net charge-offs (recoveries) at (0.04) percent of average loans in the second quarter of 2017 was the lowest of any of the last five quarters. The ALLL was $5.5 million, or 0.64 percent of total loans as of June 30, 2017, compared to $4.7 million, or 0.61 percent of total loans, as of June 30, 2016. In addition to the allowance there was $9.1 million additional discounts on $186.0 million in purchased loans.
Nonperforming loans as a percentage of total loans was 0.13 percent as of June 30, 2017, which was down substantially from 0.29 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 0.31 percent as of June 30, 2017, compared to 0.69 percent as of June 30, 2016.
Noninterest income to average assets of 0.47 percent for the quarter was up from 0.39 percent in the second quarter of 2016. Noninterest income totaled $1.3 million in the second quarter of 2017, compared to $1.0 million in the second quarter of 2016. The increase in non-interest income was primarily due to gains from higher sales volumes of SBA and mortgage loans.
Noninterest expense to average assets of 3.29 percent for the quarter was down from 3.42 percent in the second quarter of 2016 as the company continues to capture the efficiencies from economies of scale. Noninterest expense totaled $8.8 million in the second quarter of 2017, which was up from $8.5 million in the second quarter of 2016. The increase in noninterest expense compared to the prior year was primarily due to merger and conversion costs related to this quarter's branch acquisition and the pending Capstone Bancshares acquisition. Income tax expense was $726 thousand in the second quarter of 2017 compared to $691 thousand in the second quarter of 2016. The company's effective tax rate dropped to 30.6 percent in the second quarter of 2017 compared to 36.7 percent in the second quarter of 2016, as tax credits at the state level more than offset non-deductible merger expenses.
Second Quarter 2017 compared to First Quarter 2017
Net income available to common shareholders totaled $1.6 million in the second quarter of 2017, or $0.20 per diluted share, compared to $1.4 million, or $0.19 per diluted share, in the first quarter of 2017. 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 $1.6 million in the second 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 was unchanged from the first quarter of 2017. Net interest income totaled $10.2 million in the second quarter of 2017 compared to $9.8 million in the first quarter of 2017. Net interest income was positively impacted by approximately $117 thousand due to the one extra day in the current period. Net interest margin, taxable equivalent, increased from 4.07 percent in the first quarter of 2016 to 4.15 percent in the second quarter of 2017 as a result of increases in average loan balances and increases in the yields of the securities portfolio.
Provision for loan losses was $298 thousand in the second quarter of 2017, compared to $12 thousand in the first quarter of 2017. The increase in provision was due to loan portfolio growth during the quarter. The ALLL was $5.5 million, or 0.64 percent of total loans as of June 30, 2017, compared to $5.2 million, or 0.64 percent of total loans, as of March 31, 2017.
Nonperforming loans as a percentage of total loans was 0.13 percent as of June 30, 2017, which was down from 0.18 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 0.31 percent as of June 30, 2017, compared to 0.36 percent as of March 31, 2017.
Noninterest income to average assets of 0.47 percent for the period increases from 0.36 percent in the first quarter of 2017. Noninterest income totaled $1.3 million in the second quarter of 2017, compared to $0.9 million in the first quarter of 2017. The increase in non-interest income was primarily due to gains from higher sales volumes of SBA and mortgage loans.
Noninterest expense to average assets of 3.29 percent for the quarter was up from 3.16 percent in the first quarter of 2017. Noninterest expense totaled $8.8 million in the second quarter of 2017, which was up $684 thousand from the first quarter of 2017, primarily due to merger and conversion costs related to this quarter's branch acquisition and the pending Capstone Bancshares acquisition. Income tax expense was $726 thousand in the second quarter of 2017 compared to $946 thousand in the first quarter of 2017. The company's effective tax rate dropped to 30.6 percent in the second quarter of 2017 compared to 36.5 percent in the first quarter of 2017, as tax credits at the state level more than offset non-deductible merger expenses.

Conference Call Information
SmartFinancial plans to issue its earnings release for the second quarter of 2017 on Tuesday, July 25, 2017, and will host a conference call on Wednesday, July 26, at 10:00 a.m. ET. To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number: 7107357
A replay of the conference call will be available through August 3, 2017, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number: 10110303. 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 EST prior to the morning of 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 fourteen branches, one loan production office, 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: the expected revenue synergies and cost savings from the proposed merger with Capstone may not be fully realized or may take longer than anticipated to be realized; the disruption from the proposed Capstone merger with customers, suppliers or employees or other business partners’ relationships; the risk of successful integration of our business with that of Capstone after consummation of the proposed merger; the failure of SmartFinancial’s or Capstone’s shareholders to approve the merger agreement; 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; and (iii) 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.

Source
SmartFinancial, Inc.
Investor Contacts
Billy Carroll Frank Hughes
President & CEO Executive Vice President, Investor Relations
(865) 868-0613 (423) 385-3009
Media Contact
Kelley Fowler
First Vice President, Public Relations & Marketing
SmartBank
(865) 868-0611
kelley.fowler@smartbank.com
Important Information for Investors and Shareholders
In connection with the proposed merger, SmartFinancial has filed with the Securities and Exchange Commission (“SEC”) a registration statement on Form S-4 containing a joint proxy statement/prospectus of Capstone Bancshares, Inc. and SmartFinancial. A definitive joint proxy statement/prospectus will be mailed to shareholders of both SmartFinancial and Capstone. Shareholders of SmartFinancial and Capstone are urged to read the joint proxy statement/prospectus and other documents filed with the SEC carefully and in their entirety because they contain important information. Shareholders may obtain free copies of the registration statement and the joint proxy statement/prospectus and other documents filed with the SEC by SmartFinancial through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by SmartFinancial are also available free of charge on SmartFinancial’s website at www.smartfinancialinc.com or by contacting SmartFinancial’s Investor Relations Department at (423) 385-3009.
SmartFinancial, Capstone, their directors and executive officers, and other members of management and employees may be considered participants in the solicitation of proxies in connection with the proposed transaction. Information about the directors and executive officers of SmartFinancial is set forth in SmartFinancial’s proxy statement for its 2017 annual shareholders meeting. Other information regarding the participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, are contained in the joint proxy statement/prospectus and other relevant materials filed with the SEC.

SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |
(In thousands except per share data) |  |  |  |
|  | As of and for the three months ending
|  | June 30, 2017 |  | March 31, 2017 |  | December 31, 2016 |  | September 30, 2016 |  | June 30, 2016
Selected Performance Ratios (Annualized) |  |  |  |  |  |  |  |  |  |
Return on average assets |  | 0.61 | % |  | 0.64 | % |  | 0.64 | % |  | 0.63 | % |  | 0.48 | %
Net operating return on average assets (Non-GAAP) |  | 0.61 | % |  | 0.44 | % |  | 0.54 | % |  | 0.44 | % |  | 0.26 | %
Return on average shareholder equity |  | 4.95 | % |  | 5.18 | % |  | 6.24 | % |  | 6.19 | % |  | 4.64 | %
Net operating return on average shareholder equity (Non-GAAP) |  | 4.91 | % |  | 3.55 | % |  | 5.32 | % |  | 4.35 | % |  | 2.47 | %
Net interest income / average assets |  | 3.81 | % |  | 3.81 | % |  | 3.80 | % |  | 3.77 | % |  | 3.88 | %
Yield on earning assets, TE (Non-GAAP) |  | 4.66 | % |  | 4.54 | % |  | 4.51 | % |  | 4.50 | % |  | 4.62 | %
Cost of interest-bearing liabilities |  | 0.65 | % |  | 0.60 | % |  | 0.58 | % |  | 0.57 | % |  | 0.56 | %
Net interest margin, TE (Non-GAAP) |  | 4.15 | % |  | 4.07 | % |  | 4.06 | % |  | 4.04 | % |  | 4.16 | %
Noninterest income / average assets |  | 0.47 | % |  | 0.36 | % |  | 0.37 | % |  | 0.47 | % |  | 0.39 | %
Noninterest expense / average assets |  | 3.29 | % |  | 3.16 | % |  | 3.09 | % |  | 3.14 | % |  | 3.42 | %
Efficiency ratio |  | 76.77 | % |  | 75.79 | % |  | 74.29 | % |  | 74.06 | % |  | 80.13 | %
Operating efficiency ratio (Non-GAAP) |  | 78.98 | % |  | 81.34 | % |  | 78.98 | % |  | 80.31 | % |  | 85.49 | %
Pre-tax pre-provision income / average assets |  | 0.96 | % |  | 1.09 | % |  | 1.08 | % |  | 1.09 | % |  | 0.85 | %
Per Common Share |  |  |  |  |  |  |  |  |  |
Net income, basic |  | $ | 0.20 |  |  | $ | 0.19 |  |  | $ | 0.23 |  |  | $ | 0.23 |  |  | $ | 0.16 |
Net income, diluted |  | 0.20 |  |  | 0.19 |  |  | 0.22 |  |  | 0.22 |  |  | 0.15 |
Net operating earnings, basic (Non-GAAP) |  | 0.20 |  |  | 0.15 |  |  | 0.24 |  |  | 0.19 |  |  | 0.11 |
Net operating earnings, diluted (Non-GAAP) |  | 0.20 |  |  | 0.15 |  |  | 0.23 |  |  | 0.19 |  |  | 0.10 |
Book value as of |  | 16.39 |  |  | 16.14 |  |  | 15.81 |  |  | 15.83 |  |  | 15.64 |
Tangible book value (Non-GAAP) as of |  | 15.48 |  |  | 15.34 |  |  | 14.69 |  |  | 14.70 |  |  | 14.48 |
Common shares outstanding as of |  | 8,219 |  |  | 8,211 |  |  | 5,896 |  |  | 5,885 |  |  | 5,824 |
Composition Of Loans |  |  |  |  |  |  |  |  |  |
Commercial & financial |  | $ | 105,129 |  |  | $ | 90,649 |  |  | $ | 85,696 |  |  | $ | 83,534 |  |  | $ | 87,253 |
Real estate construction & Development |  | 101,151 |  |  | 115,675 |  |  | 117,748 |  |  | 128,733 |  |  | 115,385 |
Real estate commercial |  | 445,176 |  |  | 407,933 |  |  | 414,860 |  |  | 394,346 |  |  | 389,368 |
owner occupied |  | 211,469 |  |  | 197,032 |  |  | 199,645 |  |  | 191,697 |  |  | 199,716 |
non-owner occupied |  | 233,707 |  |  | 210,901 |  |  | 215,215 |  |  | 202,649 |  |  | 189,652 |
Real estate residential |  | 206,667 |  |  | 186,344 |  |  | 187,557 |  |  | 183,528 |  |  | 174,013 |
Other loans |  | 7,298 |  |  | 6,938 |  |  | 7,515 |  |  | 7,001 |  |  | 7,377 |
Total loans |  | $ | 865,421 |  |  | $ | 807,539 |  |  | $ | 813,376 |  |  | $ | 797,142 |  |  | $ | 773,396 |
SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |
(In thousands except per share data) |  |  |  |
|  | As of and for the three months ending
|  | June 30, 2017 |  | March 31, 2017 |  | December 31, 2016 |  | September 30, 2016 |  | June 30, 2016
Asset Quality Data and Ratios |  |  |  |  |  |  |  |  |  |
Nonperforming loans |  | $ | 1,147 |  |  | $ | 1,445 |  |  | $ | 2,142 |  |  | $ | 1,370 |  |  | $ | 2,226 |
Foreclosed assets |  | 2,369 |  |  | 2,371 |  |  | 2,386 |  |  | 2,536 |  |  | 4,936 |
Total nonperforming assets |  | $ | 3,516 |  |  | $ | 3,816 |  |  | $ | 4,528 |  |  | $ | 3,906 |  |  | $ | 7,162 |
Restructured loans not included in nonperforming loans |  | $ | — |  |  | $ | 301 |  |  | $ | 608 |  |  | $ | 3,388 |  |  | $ | 3,639 |
Net charge-offs to average loans (annualized) |  | (0.04 | )% |  | (0.02 | )% |  | 0.02 | % |  | 0.01 | % |  | 0.01 | %
Allowance for loan losses to loans |  | 0.64 | % |  | 0.64 | % |  | 0.63 | % |  | 0.62 | % |  | 0.61 | %
Nonperforming loans to total loans, gross |  | 0.13 | % |  | 0.18 | % |  | 0.26 | % |  | 0.17 | % |  | 0.29 | %
Nonperforming assets to total assets |  | 0.31 | % |  | 0.36 | % |  | 0.43 | % |  | 0.38 | % |  | 0.69 | %
Capital Ratios |  |  |  |  |  |  |  |  |  |
Tangible equity to tangible assets |  | 11.18 | % |  | 12.06 | % |  | 9.34 | % |  | 9.53 | % |  | 9.37 | %
Tangible common equity to tangible assets |  | 11.18 | % |  | 12.06 | % |  | 8.20 | % |  | 8.36 | % |  | 8.20 | %
SmartFinancial, Inc.: |  | Estimated |  |  |  |  |  |  |  |  |
Tier 1 leverage |  | 11.54 | % |  | 12.37 | % |  | 9.71 | % |  | 9.77 | % |  | 9.66 | %
Common equity Tier 1 |  | 13.43 | % |  | 14.40 | % |  | 9.98 | % |  | 10.04 | % |  | 10.53 | %
Tier 1 capital |  | 13.43 | % |  | 14.40 | % |  | 11.35 | % |  | 11.42 | % |  | 12.04 | %
Total capital |  | 14.10 | % |  | 15.12 | % |  | 11.93 | % |  | 12.00 | % |  | 12.60 | %
SmartBank: |  | Estimated |  |  |  |  |  |  |  |  |
Tier 1 leverage |  | 11.41 | % |  | 12.24 | % |  | 9.71 | % |  | 9.63 | % |  | 9.7 | %
Common equity Tier 1 |  | 13.29 | % |  | 14.25 | % |  | 11.30 | % |  | 11.26 | % |  | 11.31 | %
Tier 1 capital |  | 13.29 | % |  | 14.25 | % |  | 11.30 | % |  | 11.26 | % |  | 11.31 | %
Total capital |  | 13.97 | % |  | 14.98 | % |  | 11.88 | % |  | 11.83 | % |  | 11.87 | %

SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |
(In thousands) |  |  |  |
BALANCE SHEET |  |  |  |  |  |  |  |  |  |
|  | Ending Balances
|  | June 30, 2017 |  | March 31, 2017 |  | December 31, 2016 |  | September 30, 2016 |  | June 30, 2016
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash & cash equivalents |  | $ | 82,835 |  |  | $ | 55,548 |  |  | $ | 68,748 |  |  | $ | 58,587 |  |  | $ | 71,737 |
Securities available for sale |  | 132,762 |  |  | 137,133 |  |  | 129,422 |  |  | 138,628 |  |  | 142,875 |
Other investments |  | 6,081 |  |  | 5,628 |  |  | 5,628 |  |  | 4,451 |  |  | 4,451 |
Total loans |  | 865,421 |  |  | 807,539 |  |  | 813,376 |  |  | 797,143 |  |  | 773,396 |
Allowance for loan losses |  | (5,498 | ) |  | (5,152 | ) |  | (5,105 | ) |  | (4,964 | ) |  | (4,720 | )
Loans, net |  | 859,923 |  |  | 802,387 |  |  | 808,271 |  |  | 792,178 |  |  | 768,676 |
Premises and equipment |  | 33,764 |  |  | 30,802 |  |  | 30,536 |  |  | 27,863 |  |  | 25,844 |
Foreclosed assets |  | 2,369 |  |  | 2,371 |  |  | 2,386 |  |  | 2,536 |  |  | 4,936 |
Goodwill and other intangibles |  | 7,492 |  |  | 6,583 |  |  | 6,636 |  |  | 6,675 |  |  | 6,755 |
Other assets |  | 20,209 |  |  | 10,634 |  |  | 10,830 |  |  | 9,808 |  |  | 9,524 |
Total assets |  | $ | 1,145,435 |  |  | $ | 1,051,086 |  |  | $ | 1,062,456 |  |  | $ | 1,040,726 |  |  | $ | 1,034,798 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Noninterest demand |  | $ | 183,324 |  |  | $ | 160,673 |  |  | $ | 153,483 |  |  | $ | 145,509 |  |  | $ | 145,864 |
Interest-bearing demand |  | 156,150 |  |  | 167,433 |  |  | 162,702 |  |  | 152,216 |  |  | 153,166 |
Money market and savings |  | 324,014 |  |  | 274,993 |  |  | 274,605 |  |  | 271,259 |  |  | 258,281 |
Time deposits |  | 318,147 |  |  | 286,600 |  |  | 316,275 |  |  | 291,858 |  |  | 331,438 |
Total deposits |  | 981,635 |  |  | 889,699 |  |  | 907,065 |  |  | 860,842 |  |  | 888,749 |
Repurchase agreements |  | 22,946 |  |  | 23,153 |  |  | 26,622 |  |  | 24,202 |  |  | 26,883 |
FHLB & other borrowings |  | — |  |  | 60 |  |  | 18,505 |  |  | 43,048 |  |  | 10,091 |
Other liabilities |  | 6,120 |  |  | 5,622 |  |  | 5,024 |  |  | 7,463 |  |  | 6,011 |
Total liabilities |  | 1,010,701 |  |  | 918,535 |  |  | 957,216 |  |  | 935,556 |  |  | 931,734 |
Shareholders' Equity |  |  |  |  |  |  |  |  |  |
Preferred stock |  | — |  |  | — |  |  | 12 |  |  | 12 |  |  | 12 |
Common stock |  | 8,219 |  |  | 8,211 |  |  | 5,896 |  |  | 5,885 |  |  | 5,824 |
Additional paid-in capital |  | 106,794 |  |  | 106,703 |  |  | 83,463 |  |  | 83,330 |  |  | 82,800 |
Retained earnings |  | 19,968 |  |  | 18,320 |  |  | 16,871 |  |  | 15,494 |  |  | 14,153 |
Accumulated other comprehensive loss |  | (247 | ) |  | (683 | ) |  | (1,002 | ) |  | 449 |  |  | 275 |
Total shareholders' equity |  | 134,734 |  |  | 132,551 |  |  | 105,240 |  |  | 105,170 |  |  | 103,064 |
Total liabilities & shareholders' equity |  | $ | 1,145,435 |  |  | $ | 1,051,086 |  |  | $ | 1,062,456 |  |  | $ | 1,040,726 |  |  | $ | 1,034,798 |

SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |
(In thousands) |  |  |  |
INCOME STATEMENT |  |  |  |  |  |  |  |  |  |
|  | Three months ending
|  | June 30, 2017 |  | March 31, 2017 |  | December 31, 2016 |  | September 30, 2016 |  | June 30, 2016
Interest Income |  |  |  |  |  |  |  |  |  |
Loans, including fees |  | $ | 10,747 |  |  | $ | 10,216 |  |  | $ | 10,324 |  |  | $ | 10,111 |  |  | $ | 9,954 |
Investment securities and interest bearing due froms |  | 692 |  |  | 661 |  |  | 570 |  |  | 602 |  |  | 665 |
Other interest income |  | 78 |  |  | 73 |  |  | 83 |  |  | 51 |  |  | 50 |
Total interest income |  | 11,517 |  |  | 10,949 |  |  | 10,977 |  |  | 10,763 |  |  | 10,669 |
Interest Expense |  |  |  |  |  |  |  |  |  |
Deposits |  | 1,241 |  |  | 1,098 |  |  | 1,066 |  |  | 1,065 |  |  | 1,013 |
Repurchase agreements |  | 16 |  |  | 16 |  |  | 17 |  |  | 17 |  |  | 15 |
FHLB and other borrowings |  | 12 |  |  | 15 |  |  | 37 |  |  | 17 |  |  | 29 |
Total interest expense |  | 1,269 |  |  | 1,129 |  |  | 1,121 |  |  | 1,099 |  |  | 1,057 |
Net interest income |  | 10,248 |  |  | 9,820 |  |  | 9,856 |  |  | 9,665 |  |  | 9,612 |
Provision for loan losses |  | 298 |  |  | 12 |  |  | 171 |  |  | 261 |  |  | 218 |
Net interest income after provision for loan losses |  | 9,950 |  |  | 9,808 |  |  | 9,685 |  |  | 9,404 |  |  | 9,394 |
Noninterest income |  |  |  |  |  |  |  |  |  |
Service charges on deposit accounts |  | 291 |  |  | 265 |  |  | 277 |  |  | 296 |  |  | 259 |
Gain on securities |  | — |  |  | — |  |  | — |  |  | 18 |  |  | 98 |
Gain on sale of loans and other assets |  | 405 |  |  | 275 |  |  | 242 |  |  | 287 |  |  | 197 |
Gain (loss) on sale of foreclosed assets |  | 1 |  |  | (16 | ) |  | 6 |  |  | 130 |  |  | (4 | )
Other non-interest income |  | 556 |  |  | 402 |  |  | 422 |  |  | 472 |  |  | 410 |
Total noninterest income |  | 1,253 |  |  | 927 |  |  | 948 |  |  | 1,204 |  |  | 961 |
Noninterest expense |  |  |  |  |  |  |  |  |  |
Salaries and employee benefits |  | 4,758 |  |  | 4,647 |  |  | 4,422 |  |  | 4,312 |  |  | 4,486 |
Occupancy expense |  | 963 |  |  | 978 |  |  | 875 |  |  | 965 |  |  | 1,137 |
FDIC premiums |  | 61 |  |  | 153 |  |  | 166 |  |  | 153 |  |  | 151 |
Foreclosed asset expense |  | 12 |  |  | — |  |  | 37 |  |  | 79 |  |  | 64 |
Marketing |  | 129 |  |  | 164 |  |  | 79 |  |  | 179 |  |  | 184 |
Data Processing |  | 475 |  |  | 340 |  |  | 541 |  |  | 457 |  |  | 555 |
Professional expenses |  | 473 |  |  | 570 |  |  | 558 |  |  | 558 |  |  | 551 |
Amortization of other intangibles |  | 61 |  |  | 53 |  |  | 39 |  |  | 80 |  |  | 93 |
Service contracts |  | 313 |  |  | 296 |  |  | 281 |  |  | 272 |  |  | 316 |
Other noninterest expense |  | 1,584 |  |  | 944 |  |  | 1,028 |  |  | 994 |  |  | 936 |
Total noninterest expense |  | 8,829 |  |  | 8,145 |  |  | 8,026 |  |  | 8,050 |  |  | 8,472 |
Earnings before income taxes |  | 2,374 |  |  | 2,590 |  |  | 2,607 |  |  | 2,558 |  |  | 1,883 |
Income tax expense |  | 726 |  |  | 946 |  |  | 960 |  |  | 947 |  |  | 691 |
Net income (loss) |  | 1,648 |  |  | 1,644 |  |  | 1,647 |  |  | 1,611 |  |  | 1,192 |
Dividends on preferred stock |  | — |  |  | 195 |  |  | 270 |  |  | 270 |  |  | 270 |
Net income available to common shareholders |  | $ | 1,648 |  |  | $ | 1,449 |  |  | $ | 1,377 |  |  | $ | 1,341 |  |  | $ | 922 |
NET INCOME PER COMMON SHARE |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.20 |  |  | $ | 0.19 |  |  | $ | 0.23 |  |  | $ | 0.23 |  |  | $ | 0.16 |
Diluted |  | 0.20 |  |  | 0.19 |  |  | 0.22 |  |  | 0.22 |  |  | 0.15 |
Weighted average common shares outstanding |  |  |  |  |  |  |  |  |  |
Basic |  | 8,217 |  |  | 7,525 |  |  | 5,891 |  |  | 5,835 |  |  | 5,820 |
Diluted |  | 8,326 |  |  | 7,631 |  |  | 6,206 |  |  | 6,096 |  |  | 6,132 |

SmartFinancial, Inc. and Subsidiary |  |  |  |  |  |  |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |
YIELD ANALYSIS |  |  |  |  |  |  |  |  |  |  |  |
|  | Three Months Ended June 30, 2017 |  | Three Months Ended March 31, 2017 |  | Three Months Ended June 30, 2016
|  | Average |  |  |  | Yield/ |  | Average |  |  |  | Yield/ |  | Average |  |  |  | Yield/
|  | Balance |  | Interest * |  | Cost* |  | Balance |  | Interest * |  | Cost* |  | Balance |  | Interest * |  | Cost*
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans |  | $ | 834,665 |  |  | $ | 10,752 |  |  | 5.17 | % |  | $ | 811,522 |  |  | $ | 10,220 |  |  | 5.11 | % |  | $ | 751,425 |  |  | $ | 9,960 |  |  | 5.32 | %
Investment securities and interest bearing due froms |  | 138,965 |  |  | 707 |  |  | 2.04 | % |  | 161,392 |  |  | 677 |  |  | 1.70 | % |  | 171,526 |  |  | 678 |  |  | 1.59 | %
Federal funds and other |  | 18,503 |  |  | 78 |  |  | 1.69 | % |  | 6,621 |  |  | 73 |  |  | 4.47 | % |  | 5,719 |  |  | 50 |  |  | 3.51 | %
Total interest-earning assets |  | 992,133 |  |  | 11,537 |  |  | 4.66 | % |  | 979,535 |  |  | 10,970 |  |  | 4.54 | % |  | 928,670 |  |  | 10,688 |  |  | 4.62 | %
Non-interest-earning assets |  | 85,553 |  |  |  |  |  |  |  |  | 66,208 |  |  |  |  |  |  |  |  | 66,530 |  |  |  |  |  |  |
Total assets |  | $ | 1,077,686 |  |  |  |  |  |  |  |  | $ | 1,045,743 |  |  |  |  |  |  |  |  | $ | 995,200 |  |  |  |  |  |  |
Liabilities and Stockholders’ Equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing demand deposits |  | $ | 156,387 |  |  | $ | 115 |  |  | 0.29 | % |  | $ | 159,255 |  |  | $ | 93 |  |  | 0.24 | % |  | $ | 153,881 |  |  | $ | 69 |  |  | 0.18 | %
Money market and savings deposits |  | 300,448 |  |  | 424 |  |  | 0.57 | % |  | 275,576 |  |  | 328 |  |  | 0.48 | % |  | 248,401 |  |  | 299 |  |  | 0.48 | %
Time deposits |  | 305,171 |  |  | 702 |  |  | 0.92 | % |  | 302,256 |  |  | 677 |  |  | 0.91 | % |  | 321,244 |  |  | 645 |  |  | 0.81 | %
Total interest-bearing deposits |  | 762,006 |  |  | 1,241 |  |  | 0.65 | % |  | 737,087 |  |  | 1,098 |  |  | 0.60 | % |  | 723,526 |  |  | 1,013 |  |  | 0.56 | %
Securities sold under agreement to repurchase |  | 19,903 |  |  | 16 |  |  | 0.32 | % |  | 18,682 |  |  | 16 |  |  | 0.35 | % |  | 19,742 |  |  | 15 |  |  | 0.30 | %
Federal Home Loan Bank advances and other borrowings |  | 3,482 |  |  | 11 |  |  | 1.27 | % |  | 7,446 |  |  | 15 |  |  | 0.82 | % |  | 11,287 |  |  | 29 |  |  | 1.03 | %
Total interest-bearing liabilities |  | 785,391 |  |  | 1,268 |  |  | 0.65 | % |  | 763,215 |  |  | 1,129 |  |  | 0.60 | % |  | 754,555 |  |  | 1,057 |  |  | 0.56 | %
Noninterest-bearing deposits |  | 157,965 |  |  |  |  |  |  |  |  | 149,305 |  |  |  |  |  |  |  |  | 132,765 |  |  |  |  |  |  |
Other liabilities |  | 659 |  |  |  |  |  |  |  |  | 4,580 |  |  |  |  |  |  |  |  | 5,261 |  |  |  |  |  |  |
Total liabilities |  | 944,015 |  |  |  |  |  |  |  |  | 917,100 |  |  |  |  |  |  |  |  | 891,431 |  |  |  |  |  |  |
Shareholders’ equity |  | 133,671 |  |  |  |  |  |  |  |  | 128,643 |  |  |  |  |  |  |  |  | 102,619 |  |  |  |  |  |  |
Total liabilities and stockholders’ equity |  | $ | 1,077,686 |  |  |  |  |  |  |  |  | $ | 1,045,743 |  |  |  |  |  |  |  |  | $ | 995,200 |  |  |  |  |  |  |
Net interest income, taxable equivalent |  |  |  |  | $ | 10,269 |  |  |  |  |  |  |  |  | $ | 9,841 |  |  |  |  |  |  |  |  | $ | 9,631 |  |  |  |
Interest rate spread |  |  |  |  |  |  |  | 4.01 | % |  |  |  |  |  |  |  | 3.94 | % |  |  |  |  |  |  |  | 4.06 | %
Tax equivalent net interest margin |  |  |  |  |  |  |  | 4.15 | % |  |  |  |  |  |  |  | 4.07 | % |  |  |  |  |  |  |  | 4.16 | %
Percentage of average interest-earning assets to average interest-bearing liabilities |  |  |  |  |  |  |  | 126.32 | % |  |  |  |  |  |  |  | 128.34 | % |  |  |  |  |  |  |  | 123.08 | %
Percentage of average equity to average assets |  |  |  |  |  |  |  | 12.40 | % |  |  |  |  |  |  |  | 12.30 | % |  |  |  |  |  |  |  | 10.32 | %
* Taxable equivalent basis |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |
(In thousands) |  |  |  |
NON-GAAP RECONCILIATIONS |  | Three months ending
|  | June 30, 2017 |  | March 31, 2017 |  | December 31, 2016 |  | September 30, 2016 |  | June 30, 2016
Net interest income, Taxable Equivalent |  |  |  |  |  |  |  |  |  |
Net interest income (GAAP) |  | $ | 10,248 |  |  | $ | 9,820 |  |  | $ | 9,856 |  |  | $ | 9,665 |  |  | $ | 9,613 |
Taxable equivalent adjustment |  | 21 |  |  | 21 |  |  | 22 |  |  | 14 |  |  | 18 |
Net interest income, Taxable Equivalent (Non-GAAP) |  | $ | 10,269 |  |  | $ | 9,841 |  |  | $ | 9,878 |  |  | $ | 9,679 |  |  | $ | 9,631 |
Operating Earnings |  |  |  |  |  |  |  |  |  |  |
Net income (loss) (GAAP) |  | $ | 1,648 |  |  | $ | 1,644 |  |  | $ | 1,647 |  |  | $ | 1,611 |  |  | $ | 1,192 |
Purchased loan accounting adjustments 1 |  | (696 | ) |  | (540 | ) |  | (430 | ) |  | (450 | ) |  | (597 | )
Securities (gains) losses |  | — |  |  | — |  |  | — |  |  | (18 | ) |  | (98 | )
Merger and conversion costs |  | 420 |  |  | — |  |  | — |  |  | — |  |  | 153 |
Foreclosed assets (gains) losses |  | — |  |  | 15 |  |  | (6 | ) |  | (130 | ) |  | 4 |
Income tax effect of adjustments 2 |  | 265 |  |  | 201 |  |  | 167 |  |  | 229 |  |  | 206 |
Net operating earnings (Non-GAAP) |  | 1,637 |  |  | 1,320 |  |  | 1,378 |  |  | 1,242 |  |  | 860 |
Dividends on preferred stock |  | — |  |  | (195 | ) |  | (270 | ) |  | (270 | ) |  | (270 | )
Net operating earnings available to common shareholders (Non-GAAP) |  | $ | 1,637 |  |  | $ | 1,125 |  |  | $ | 1,108 |  |  | $ | 972 |  |  | $ | 590 |
Net operating earnings per common share: |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.20 |  |  | $ | 0.15 |  |  | $ | 0.24 |  |  | $ | 0.19 |  |  | $ | 0.11 |
Diluted |  | 0.20 |  |  | 0.15 |  |  | 0.23 |  |  | 0.19 |  |  | 0.10 |
Operating Efficiency Ratio |  |  |  |  |  |  |  |  |  |
Efficiency ratio (GAAP) |  | 76.77 | % |  | 75.79 | % |  | 74.29 | % |  | 74.06 | % |  | 80.13 | %
Adjustment for amortization of intangibles |  | (0.69 | )% |  | (0.65 | )% |  | (0.49 | )% |  | (0.99 | )% |  | (1.10 | )%
Adjustment for taxable equivalent yields |  | (0.22 | )% |  | (0.25 | )% |  | (0.26 | )% |  | (0.18 | )% |  | (0.16 | )%
Adjustment for purchased loan accounting adjustments 1 |  | 7.88 | % |  | 6.63 | % |  | 5.36 | % |  | 5.59 | % |  | 7.05 | %
Adjustment for securities (gains) losses |  | — | % |  | — | % |  | — | % |  | 0.23 | % |  | 1.16 | %
Adjustment for merger and conversion costs |  | (4.76 | )% |  | — | % |  | — | % |  | — | % |  | (1.81 | )%
Adjustment for OREO (gains) losses |  | — | % |  | (0.18 | )% |  | 0.08 | % |  | 1.62 | % |  | (0.05 | )%
Operating efficiency ratio (Non-GAAP) |  | 78.98 | % |  | 81.34 | % |  | 78.98 | % |  | 80.33 | % |  | 85.22 | %
Loan Discount Data |  |  |  |  |  |  |  |  |  |
Allowance for loan losses (GAAP) |  | $ | 5,498 |  |  | $ | 5,152 |  |  | $ | 5,105 |  |  | $ | 4,964 |  |  | $ | 4,720 |
Net acquisition accounting fair value discounts to loans 3 |  | $ | 9,086 |  |  | $ | 9,831 |  |  | $ | 10,271 |  |  | $ | 10,742 |  |  | $ | 11,053 |
Tangible Common Equity |  |  |  |  |  |  |  |  |  |
Shareholders' equity (GAAP) |  | $ | 134,734 |  |  | $ | 132,551 |  |  | $ | 105,240 |  |  | $ | 105,170 |  |  | $ | 103,064 |
Less preferred stock & preferred stock paid in capital |  | — |  |  | — |  |  | 12,000 |  |  | 12,000 |  |  | 12,000 |
Less goodwill and other intangible assets |  | 7,492 |  |  | 6,583 |  |  | 6,636 |  |  | 6,675 |  |  | 6,754 |
Tangible common equity (Non-GAAP) |  | $ | 127,242 |  |  | $ | 125,968 |  |  | $ | 86,604 |  |  | $ | 86,495 |  |  | $ | 84,310 |

1 Consists of ASC 310-30 accretion above (below) contractual loan income and ASC 310-20 accretion
2 Assumes 38.29% effective rate, except for those expenses which are not deductible for tax purposes
3 Includes ASC 310-20 and ASC 310-30 discounts