EX-99.1 2 a2017q3earningsrelease-ex9.htm EXHIBIT 99.1
Exhibit 99.1
3Q 2017
SmartFinancial Increases Net Income Available to Common Shareholders 26 percent compared to prior year
KNOXVILLE, TN - October 30, 2017 - SmartFinancial, Inc. ("SmartFinancial"; NASDAQ: SMBK), announced today net income of $1.7 million in its third quarter of 2017, compared to $1.6 million a year ago. Net income available to common shareholders totaled $1.7 million for third quarter of 2017 compared to $1.3 million during the third quarter of 2016.
Billy Carroll, President & CEO, stated: "In the third quarter net income was up five percent from a year ago. Compared to last year we grew net interest income over one million dollars by growing gross loans nine percent year over year and by increasing asset yields and our net interest margin. During the last quarter we added revenue producers in several markets and operations personnel to support them and the pending acquisition of Capstone Bancshares in Alabama. Those additions resulted in an increase in salaries and benefits that, along with over three hundred thousand dollars in merger and conversion costs during the current quarter, temporarily elevated our efficiency ratio. We anticipate additional merger related costs for the next two quarters with the integration of Capstone Bancshares after which time efficiencies will improve. Our team has done a great job of balancing the merger planning while growing the core bank.”
SmartFinancial's Chairman, Miller Welborn, concluded: "We are looking forward to completing the acquisition of Capstone Bancshares. Our resulting company will have assets of approximately $1.6 billion. The company's larger scale will lead to increased efficiencies and should result in a higher return on assets by the second quarter of 2018. Just as exciting as completing this acquisition are the future opportunities available for the company. We believe by expanding our geographic footprint we are positioning the company as a 'partner of choice' among other community banks in the Southeast. "
Performance Highlights

• | Net income available to common shareholders of $1.7 million for the quarter, up from $1.3 million a year ago.

• | Net interest margin, taxable equivalent, increased to 4.17 percent, the highest in the past five quarters.

• | Increased average interest-earning assets to average interest-bearing liabilities to 128 percent.

Third Quarter 2017 compared to Third Quarter 2016
Net income available to common shareholders totaled $1.7 million in the third quarter of 2017, or $0.20 per diluted share, compared to $1.3 million, or $0.22 per diluted share, in the third quarter of 2016. Net operating earnings available to common shareholders, which excludes securities gains, foreclosed assets gains and losses, and merger and conversion costs, totaled $1.8 million in the third quarter of 2017 compared to $1.3 million in the third quarter of 2016.
Net interest income to average assets of 3.81 percent for the quarter increased from 3.77 percent in the third quarter of 2016 as the average earning asset balances and yields increased compared to the prior year. Net interest income totaled $10.9 million in the third quarter of 2017 compared to $9.7 million in the third quarter of 2016. Net interest income was positively impacted compared to the prior year due to increases in loan balances and increases in the yields of the loan and securities portfolios. Net interest margin, taxable equivalent, increased from 4.03 percent in the third quarter of 2016 to 4.17 percent in the third quarter of 2017 as a result a higher percentage of average interest-earning assets to average interest-bearing liabilities and increases in the yield on earning assets.
Provision for loan losses was $30 thousand in the third quarter of 2017, compared to $261 thousand in the third quarter of 2016. The decrease in provision for loan losses was due to improvements in the credit profile of the loan portfolio as well as slower loan growth during the period. Annualized net charge-offs (recoveries) was (0.02) percent of average loans in the third quarter of 2017. The ALLL was $5.4 million, or 0.62 percent of total loans as of September 30, 2017, compared to $5.0 million, or 0.62 percent

of total loans, as of September 30, 2016. In addition to the allowance there were $8.2 million additional discounts on $166.5 million of purchased loans.
Nonperforming loans as a percentage of total loans was 0.15 percent as of September 30, 2017, which was down from 0.17 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 0.37 percent as of September 30, 2017, compared to 0.38 percent as of September 30, 2016.
Noninterest income to average assets of 0.43 percent for the quarter was down from 0.47 percent in the third quarter of 2016. Noninterest income totaled $1.2 million in the third quarter of 2017, compared to $1.2 million in the third quarter of 2016. Year over year the largest changes in noninterest income were a $157 thousand decrease in gains on the sale of foreclosed assets, a $125 thousand increase in securities gains, and a $113 thousand increase in other income.
Noninterest expense to average assets of 3.33 percent for the quarter was up from 3.13 percent in the third quarter of 2016. Noninterest expense totaled $9.5 million in the third quarter of 2017, which was up from $8.0 million in the third quarter of 2016. The increase in noninterest expense compared to the prior year was primarily due to $723 thousand higher salaries and employee benefits and $303 thousand merger and conversion costs. Income tax expense was $882 thousand in the third quarter of 2017 compared to $947 thousand in the third quarter of 2016. The company's effective tax rate dropped to 34.4 percent in the third quarter of 2017 compared to 37.0 percent in the third quarter of 2016.
Third Quarter 2017 compared to Second Quarter 2017
Net income available to common shareholders totaled $1.7 million in the third quarter of 2017, or $0.20 per diluted share, compared to $1.6 million, or $0.20 per diluted share, in the second quarter of 2017. Net operating earnings available to common shareholders, which excludes securities gains, foreclosed assets gains and losses, and merger and conversion costs, totaled $1.8 million in the third quarter of 2017 compared to $1.9 million in the previous quarter.
Net interest income to average assets of 3.81 percent for the quarter was unchanged from the second quarter of 2017. Net interest income totaled $10.9 million in the third quarter of 2017 compared to $10.2 million in the second quarter of 2017. Net interest income was positively impacted by approximately $123 thousand due to the one extra day in the current period. Net interest margin, taxable equivalent, increased from 4.15 percent in the second quarter of 2017 to 4.17 percent in the third quarter of 2017 as a result a higher percentage of average interest-earning assets to average interest-bearing liabilities and increases of the yield on earning assets.
Provision for loan losses was $30 thousand in the third quarter of 2017, compared to $298 thousand in the second quarter of 2017. The decrease in provision for loan losses was due to slower loan growth during the period. The ALLL was $5.4 million, or 0.62 percent of total loans as of September 30, 2017, compared to $5.5 million, or 0.64 percent of total loans, as of June 30, 2017.
Nonperforming loans as a percentage of total loans was 0.15 percent as of September 30, 2017, which was up slightly from 0.13 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 0.37 percent as of September 30, 2017, compared to 0.31 percent as of June 30, 2017.
Noninterest income to average assets of 0.43 percent for the period was down from 0.47 percent in the second quarter of 2017. Noninterest income totaled $1.2 million in the third quarter of 2017, compared to $1.3 million in the second quarter of 2017. The decrease in non-interest income was primarily due to smaller gains from lower sales volumes of SBA and mortgage loans.
Noninterest expense to average assets of 3.33 percent for the quarter was up from 3.29 percent in the second quarter of 2017. Noninterest expense totaled $9.5 million in the third quarter of 2017, which was up $718 thousand from the second quarter of 2017, primarily due to higher salaries and employee benefits. Income tax expense was $882 thousand in the third quarter of 2017 compared to $726 thousand in the second quarter of 2017. The company's effective tax rate increased to 34.4 percent in the third quarter of 2017 compared to 30.6 percent in the second quarter of 2017.

Conference Call Information
SmartFinancial will host a conference call on Tuesday, October 31, at 10:00 a.m. ET. To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number: 6556809. A replay of the conference call will be available through November 7, 2017, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number: 10113897. 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 merger with Capstone may not be fully realized or may take longer than anticipated to be realized; the disruption from the 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 merger; the amount of costs, fees, expenses, and charges related to the merger; 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, OREO gain and losses, merger and conversion expenses, and the income tax effect of adjustments. The operating efficiency ratio excludes securities gains and losses , adjustment for OREO gains and losses, and merger and conversion costs from the efficiency ratio. 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

SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |
(In thousands except per share data) |  |  |  |
|  | As of and for the three months ending
|  | September 30, 2017 |  | June 30, 2017 |  | March 31, 2017 |  | December 31, 2016 |  | September 30, 2016
Selected Performance Ratios (Annualized) |  |  |  |  |  |  |  |  |  |
Return on average assets |  | 0.59 | % |  | 0.61 | % |  | 0.64 | % |  | 0.64 | % |  | 0.63 | %
Net operating return on average assets (Non-GAAP) |  | 0.63 | % |  | 0.61 | % |  | 0.44 | % |  | 0.54 | % |  | 0.44 | %
Return on average shareholder equity |  | 4.91 | % |  | 4.95 | % |  | 5.18 | % |  | 6.24 | % |  | 6.19 | %
Net operating return on average shareholder equity (Non-GAAP) |  | 5.25 | % |  | 4.91 | % |  | 3.55 | % |  | 5.32 | % |  | 4.35 | %
Net interest income / average assets |  | 3.81 | % |  | 3.81 | % |  | 3.81 | % |  | 3.80 | % |  | 3.77 | %
Yield on earning assets, TE (Non-GAAP) |  | 4.70 | % |  | 4.66 | % |  | 4.54 | % |  | 4.51 | % |  | 4.48 | %
Cost of interest-bearing liabilities |  | 0.68 | % |  | 0.65 | % |  | 0.60 | % |  | 0.58 | % |  | 0.57 | %
Net interest margin, TE (Non-GAAP) |  | 4.17 | % |  | 4.15 | % |  | 4.07 | % |  | 4.06 | % |  | 4.03 | %
Noninterest income / average assets |  | 0.43 | % |  | 0.47 | % |  | 0.36 | % |  | 0.37 | % |  | 0.47 | %
Noninterest expense / average assets |  | 3.33 | % |  | 3.29 | % |  | 3.16 | % |  | 3.09 | % |  | 3.13 | %
Efficiency ratio |  | 78.62 | % |  | 76.77 | % |  | 75.79 | % |  | 74.29 | % |  | 74.06 | %
Operating efficiency ratio (Non-GAAP) |  | 76.46 | % |  | 78.98 | % |  | 81.34 | % |  | 78.98 | % |  | 80.31 | %
Pre-tax pre-provision income / average assets |  | 0.97 | % |  | 0.96 | % |  | 1.09 | % |  | 1.08 | % |  | 1.09 | %
Per Common Share |  |  |  |  |  |  |  |  |  |
Net income, basic |  | $ | 0.20 |  |  | $ | 0.20 |  |  | $ | 0.19 |  |  | $ | 0.23 |  |  | $ | 0.23 |
Net income, diluted |  | 0.20 |  |  | 0.20 |  |  | 0.19 |  |  | 0.22 |  |  | 0.22 |
Net operating earnings, basic (Non-GAAP) |  | 0.22 |  |  | 0.20 |  |  | 0.15 |  |  | 0.24 |  |  | 0.19 |
Net operating earnings, diluted (Non-GAAP) |  | 0.22 |  |  | 0.20 |  |  | 0.15 |  |  | 0.23 |  |  | 0.19 |
Book value as of |  | 16.57 |  |  | 16.39 |  |  | 16.14 |  |  | 15.81 |  |  | 15.83 |
Tangible book value (Non-GAAP) as of |  | 15.67 |  |  | 15.48 |  |  | 15.34 |  |  | 14.69 |  |  | 14.70 |
Common shares outstanding as of |  | 8,243 |  |  | 8,219 |  |  | 8,211 |  |  | 5,896 |  |  | 5,885 |
Composition Of Loans |  |  |  |  |  |  |  |  |  |
Commercial & financial |  | $ | 119,782 |  |  | $ | 105,129 |  |  | $ | 90,649 |  |  | $ | 85,696 |  |  | $ | 83,534 |
Real estate construction & Development |  | 98,212 |  |  | 101,151 |  |  | 115,675 |  |  | 117,748 |  |  | 128,733 |
Real estate commercial |  | 447,620 |  |  | 445,176 |  |  | 407,933 |  |  | 414,860 |  |  | 394,346 |
owner occupied |  | 210,489 |  |  | 211,469 |  |  | 197,032 |  |  | 199,645 |  |  | 191,697 |
non-owner occupied |  | 237,131 |  |  | 233,707 |  |  | 210,901 |  |  | 215,215 |  |  | 202,649 |
Real estate residential |  | 199,704 |  |  | 206,667 |  |  | 186,344 |  |  | 187,557 |  |  | 183,528 |
Other loans |  | 6,361 |  |  | 7,298 |  |  | 6,938 |  |  | 7,515 |  |  | 7,001 |
Total loans |  | $ | 871,679 |  |  | $ | 865,421 |  |  | $ | 807,539 |  |  | $ | 813,376 |  |  | $ | 797,142 |
SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |
(In thousands except per share data) |  |  |  |
|  | As of and for the three months ending
|  | September 30, 2017 |  | June 30, 2017 |  | March 31, 2017 |  | December 31, 2016 |  | September 30, 2016
Asset Quality Data and Ratios |  |  |  |  |  |  |  |  |  |
Nonperforming loans |  | $ | 1,264 |  |  | $ | 1,147 |  |  | $ | 1,445 |  |  | $ | 2,142 |  |  | $ | 1,370 |
Foreclosed assets |  | 2,888 |  |  | 2,369 |  |  | 2,371 |  |  | 2,386 |  |  | 2,536 |
Total nonperforming assets |  | $ | 4,152 |  |  | $ | 3,516 |  |  | $ | 3,816 |  |  | $ | 4,528 |  |  | $ | 3,906 |
Restructured loans not included in nonperforming loans |  | $ | 42 |  |  | $ | — |  |  | $ | 301 |  |  | $ | 608 |  |  | $ | 3,388 |
Net charge-offs to average loans (annualized) |  | (0.02 | )% |  | (0.04 | )% |  | (0.02 | )% |  | 0.02 | % |  | 0.01 | %
Allowance for loan losses to loans |  | 0.62 | % |  | 0.64 | % |  | 0.64 | % |  | 0.63 | % |  | 0.62 | %
Nonperforming loans to total loans, gross |  | 0.15 | % |  | 0.13 | % |  | 0.18 | % |  | 0.26 | % |  | 0.17 | %
Nonperforming assets to total assets |  | 0.37 | % |  | 0.31 | % |  | 0.36 | % |  | 0.43 | % |  | 0.38 | %
Capital Ratios |  |  |  |  |  |  |  |  |  |
Tangible equity to tangible assets |  | 11.45 | % |  | 11.18 | % |  | 12.06 | % |  | 9.34 | % |  | 9.53 | %
Tangible common equity to tangible assets |  | 11.45 | % |  | 11.18 | % |  | 12.06 | % |  | 8.20 | % |  | 8.36 | %
SmartFinancial, Inc.: |  | Estimated |  |  |  |  |  |  |  |  |
Tier 1 leverage |  | 12.18 | % |  | 11.54 | % |  | 12.37 | % |  | 9.71 | % |  | 9.77 | %
Common equity Tier 1 |  | 13.74 | % |  | 13.43 | % |  | 14.40 | % |  | 9.98 | % |  | 10.04 | %
Tier 1 capital |  | 13.74 | % |  | 13.43 | % |  | 14.40 | % |  | 11.35 | % |  | 11.42 | %
Total capital |  | 14.32 | % |  | 14.10 | % |  | 15.12 | % |  | 11.93 | % |  | 12.00 | %
SmartBank: |  | Estimated |  |  |  |  |  |  |  |  |
Tier 1 leverage |  | 11.23 | % |  | 10.98 | % |  | 11.17 | % |  | 9.71 | % |  | 9.63 | %
Common equity Tier 1 |  | 12.60 | % |  | 12.32 | % |  | 13.13 | % |  | 11.30 | % |  | 11.26 | %
Tier 1 capital |  | 12.60 | % |  | 12.32 | % |  | 13.13 | % |  | 11.30 | % |  | 11.26 | %
Total capital |  | 13.19 | % |  | 12.89 | % |  | 13.71 | % |  | 11.88 | % |  | 11.83 | %

SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |
(In thousands) |  |  |  |
BALANCE SHEET |  |  |  |  |  |  |  |  |  |
|  | Ending Balances
|  | September 30, 2017 |  | June 30, 2017 |  | March 31, 2017 |  | December 31, 2016 |  | September 30, 2016
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash & cash equivalents |  | $ | 84,098 |  |  | $ | 82,835 |  |  | $ | 55,548 |  |  | $ | 68,748 |  |  | $ | 58,587 |
Securities available for sale |  | 115,535 |  |  | 132,762 |  |  | 137,133 |  |  | 129,422 |  |  | 138,628 |
Other investments |  | 6,081 |  |  | 6,081 |  |  | 5,628 |  |  | 5,628 |  |  | 4,451 |
Total loans |  | 871,679 |  |  | 865,421 |  |  | 807,539 |  |  | 813,376 |  |  | 797,143 |
Allowance for loan losses |  | (5,393 | ) |  | (5,498 | ) |  | (5,152 | ) |  | (5,105 | ) |  | (4,964 | )
Loans, net |  | 866,286 |  |  | 859,923 |  |  | 802,387 |  |  | 808,271 |  |  | 792,178 |
Premises and equipment |  | 33,778 |  |  | 33,765 |  |  | 30,802 |  |  | 30,536 |  |  | 27,863 |
Foreclosed assets |  | 2,888 |  |  | 2,369 |  |  | 2,371 |  |  | 2,386 |  |  | 2,536 |
Goodwill and other intangibles |  | 7,414 |  |  | 7,492 |  |  | 6,583 |  |  | 6,636 |  |  | 6,675 |
Other assets |  | 19,742 |  |  | 20,253 |  |  | 10,634 |  |  | 10,830 |  |  | 9,808 |
Total assets |  | $ | 1,135,822 |  |  | $ | 1,145,479 |  |  | $ | 1,051,086 |  |  | $ | 1,062,456 |  |  | $ | 1,040,726 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Noninterest demand |  | $ | 185,386 |  |  | $ | 183,324 |  |  | $ | 160,673 |  |  | $ | 153,483 |  |  | $ | 145,509 |
Interest-bearing demand |  | 156,953 |  |  | 156,150 |  |  | 167,433 |  |  | 162,702 |  |  | 152,216 |
Money market and savings |  | 306,357 |  |  | 324,014 |  |  | 274,993 |  |  | 274,605 |  |  | 271,259 |
Time deposits |  | 311,490 |  |  | 318,147 |  |  | 286,600 |  |  | 316,275 |  |  | 291,858 |
Total deposits |  | 960,187 |  |  | 981,635 |  |  | 889,699 |  |  | 907,065 |  |  | 860,842 |
Repurchase agreements |  | 26,542 |  |  | 22,946 |  |  | 23,153 |  |  | 26,622 |  |  | 24,202 |
FHLB & other borrowings |  | 6,000 |  |  | — |  |  | 60 |  |  | 18,505 |  |  | 43,048 |
Other liabilities |  | 6,505 |  |  | 6,164 |  |  | 5,622 |  |  | 5,024 |  |  | 7,463 |
Total liabilities |  | 999,234 |  |  | 1,010,745 |  |  | 918,535 |  |  | 957,216 |  |  | 935,556 |
Shareholders' Equity |  |  |  |  |  |  |  |  |  |
Preferred stock |  | — |  |  | — |  |  | — |  |  | 12 |  |  | 12 |
Common stock |  | 8,243 |  |  | 8,219 |  |  | 8,211 |  |  | 5,896 |  |  | 5,885 |
Additional paid-in capital |  | 107,065 |  |  | 106,794 |  |  | 106,703 |  |  | 83,463 |  |  | 83,330 |
Retained earnings |  | 21,654 |  |  | 19,968 |  |  | 18,320 |  |  | 16,871 |  |  | 15,494 |
Accumulated other comprehensive loss |  | (374 | ) |  | (248 | ) |  | (683 | ) |  | (1,002 | ) |  | 449 |
Total shareholders' equity |  | 136,588 |  |  | 134,734 |  |  | 132,551 |  |  | 105,240 |  |  | 105,170 |
Total liabilities & shareholders' equity |  | $ | 1,135,822 |  |  | $ | 1,145,479 |  |  | $ | 1,051,086 |  |  | $ | 1,062,456 |  |  | $ | 1,040,726 |

SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |
(In thousands) |  |  |  |
INCOME STATEMENT |  |  |  |  |  |  |  |  |  |
|  | Three months ending
|  | September 30, 2017 |  | June 30, 2017 |  | March 31, 2017 |  | December 31, 2016 |  | September 30, 2016
Interest Income |  |  |  |  |  |  |  |  |  |
Loans, including fees |  | $ | 11,491 |  |  | $ | 10,747 |  |  | $ | 10,216 |  |  | $ | 10,324 |  |  | $ | 10,111 |
Investment securities and interest bearing due froms |  | 740 |  |  | 692 |  |  | 661 |  |  | 570 |  |  | 602 |
Other interest income |  | 86 |  |  | 78 |  |  | 73 |  |  | 83 |  |  | 51 |
Total interest income |  | 12,317 |  |  | 11,517 |  |  | 10,949 |  |  | 10,977 |  |  | 10,763 |
Interest Expense |  |  |  |  |  |  |  |  |  |
Deposits |  | 1,373 |  |  | 1,241 |  |  | 1,098 |  |  | 1,066 |  |  | 1,065 |
Repurchase agreements |  | 15 |  |  | 16 |  |  | 16 |  |  | 17 |  |  | 17 |
FHLB and other borrowings |  | 5 |  |  | 12 |  |  | 15 |  |  | 37 |  |  | 17 |
Total interest expense |  | 1,393 |  |  | 1,268 |  |  | 1,129 |  |  | 1,121 |  |  | 1,099 |
Net interest income |  | 10,924 |  |  | 10,249 |  |  | 9,820 |  |  | 9,856 |  |  | 9,665 |
Provision for loan losses |  | 30 |  |  | 298 |  |  | 12 |  |  | 171 |  |  | 261 |
Net interest income after provision for loan losses |  | 10,894 |  |  | 9,951 |  |  | 9,808 |  |  | 9,685 |  |  | 9,404 |
Noninterest income |  |  |  |  |  |  |  |  |  |
Service charges on deposit accounts |  | 294 |  |  | 291 |  |  | 265 |  |  | 277 |  |  | 296 |
Gain on securities |  | 144 |  |  | — |  |  | — |  |  | — |  |  | 18 |
Gain on sale of loans and other assets |  | 224 |  |  | 405 |  |  | 275 |  |  | 242 |  |  | 287 |
Gain (loss) on sale of foreclosed assets |  | (27 | ) |  | 1 |  |  | (16 | ) |  | 6 |  |  | 130 |
Other non-interest income |  | 585 |  |  | 556 |  |  | 402 |  |  | 422 |  |  | 472 |
Total noninterest income |  | 1,220 |  |  | 1,253 |  |  | 927 |  |  | 948 |  |  | 1,204 |
Noninterest expense |  |  |  |  |  |  |  |  |  |
Salaries and employee benefits |  | 5,035 |  |  | 4,758 |  |  | 4,647 |  |  | 4,422 |  |  | 4,312 |
Occupancy expense |  | 1,114 |  |  | 963 |  |  | 978 |  |  | 875 |  |  | 965 |
FDIC premiums |  | 102 |  |  | 61 |  |  | 153 |  |  | 166 |  |  | 153 |
Foreclosed asset expense |  | 20 |  |  | 12 |  |  | — |  |  | 37 |  |  | 79 |
Marketing |  | 177 |  |  | 129 |  |  | 164 |  |  | 79 |  |  | 179 |
Data Processing |  | 483 |  |  | 475 |  |  | 340 |  |  | 541 |  |  | 457 |
Professional expenses |  | 472 |  |  | 473 |  |  | 570 |  |  | 558 |  |  | 558 |
Amortization of other intangibles |  | 78 |  |  | 61 |  |  | 53 |  |  | 39 |  |  | 80 |
Service contracts |  | 363 |  |  | 313 |  |  | 296 |  |  | 281 |  |  | 272 |
Other noninterest expense |  | 1,703 |  |  | 1,584 |  |  | 944 |  |  | 1,028 |  |  | 994 |
Total noninterest expense |  | 9,547 |  |  | 8,829 |  |  | 8,145 |  |  | 8,026 |  |  | 8,050 |
Earnings before income taxes |  | 2,567 |  |  | 2,375 |  |  | 2,590 |  |  | 2,607 |  |  | 2,558 |
Income tax expense |  | 882 |  |  | 726 |  |  | 946 |  |  | 960 |  |  | 947 |
Net income (loss) |  | 1,685 |  |  | 1,649 |  |  | 1,644 |  |  | 1,647 |  |  | 1,611 |
Dividends on preferred stock |  | — |  |  | — |  |  | 195 |  |  | 270 |  |  | 270 |
Net income available to common shareholders |  | $ | 1,685 |  |  | $ | 1,649 |  |  | $ | 1,449 |  |  | $ | 1,377 |  |  | $ | 1,341 |
NET INCOME PER COMMON SHARE |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.20 |  |  | $ | 0.20 |  |  | $ | 0.19 |  |  | $ | 0.23 |  |  | $ | 0.23 |
Diluted |  | 0.20 |  |  | 0.20 |  |  | 0.19 |  |  | 0.22 |  |  | 0.22 |
Weighted average common shares outstanding |  |  |  |  |  |  |  |  |  |
Basic |  | 8,235 |  |  | 8,217 |  |  | 7,525 |  |  | 5,891 |  |  | 5,835 |
Diluted |  | 8,333 |  |  | 8,326 |  |  | 7,631 |  |  | 6,206 |  |  | 6,096 |

SmartFinancial, Inc. and Subsidiary |  |  |  |  |  |  |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |
YIELD ANALYSIS |  |  |  |  |  |  |  |  |  |  |  |
|  | Three Months Ended September 30, 2017 |  | Three Months Ended June 30, 2017 |  | Three Months Ended September 30, 2016
|  | Average |  |  |  | Yield/ |  | Average |  |  |  | Yield/ |  | Average |  |  |  | Yield/
|  | Balance |  | Interest * |  | Cost* |  | Balance |  | Interest * |  | Cost* |  | Balance |  | Interest * |  | Cost*
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans |  | $ | 868,352 |  |  | $ | 11,496 |  |  | 5.25 | % |  | $ | 834,665 |  |  | $ | 10,752 |  |  | 5.17 | % |  | $ | 788,585 |  |  | $ | 10,112 |  |  | 5.09 | %
Investment securities and interest bearing due froms |  | 142,089 |  |  | 757 |  |  | 2.11 | % |  | 138,965 |  |  | 707 |  |  | 2.04 | % |  | 159,683 |  |  | 615 |  |  | 1.53 | %
Federal funds and other |  | 31,864 |  |  | 86 |  |  | 1.07 | % |  | 18,503 |  |  | 78 |  |  | 1.69 | % |  | 5,442 |  |  | 51 |  |  | 3.72 | %
Total interest-earning assets |  | 1,042,305 |  |  | 12,339 |  |  | 4.70 | % |  | 992,133 |  |  | 11,537 |  |  | 4.66 | % |  | 953,710 |  |  | 10,778 |  |  | 4.48 | %
Non-interest-earning assets |  | 96,147 |  |  |  |  |  |  |  |  | 85,553 |  |  |  |  |  |  |  |  | 66,735 |  |  |  |  |  |  |
Total assets |  | $ | 1,138,452 |  |  |  |  |  |  |  |  | $ | 1,077,686 |  |  |  |  |  |  |  |  | $ | 1,020,445 |  |  |  |  |  |  |
Liabilities and Stockholders’ Equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing demand deposits |  | $ | 153,838 |  |  | $ | 118 |  |  | 0.30 | % |  | $ | 156,387 |  |  | $ | 115 |  |  | 0.29 | % |  | $ | 147,102 |  |  | $ | 73 |  |  | 0.20 | %
Money market and savings deposits |  | 329,933 |  |  | 519 |  |  | 0.62 | % |  | 300,448 |  |  | 424 |  |  | 0.57 | % |  | 268,307 |  |  | 283 |  |  | 0.42 | %
Time deposits |  | 311,668 |  |  | 736 |  |  | 0.94 | % |  | 305,171 |  |  | 702 |  |  | 0.92 | % |  | 312,889 |  |  | 709 |  |  | 0.90 | %
Total interest-bearing deposits |  | 795,439 |  |  | 1,373 |  |  | 0.68 | % |  | 762,006 |  |  | 1,241 |  |  | 0.65 | % |  | 728,298 |  |  | 1,065 |  |  | 0.58 | %
Securities sold under agreement to repurchase |  | 20,589 |  |  | 15 |  |  | 0.29 | % |  | 19,903 |  |  | 16 |  |  | 0.32 | % |  | 22,471 |  |  | 17 |  |  | 0.30 | %
Federal Home Loan Bank advances and other borrowings |  | 381 |  |  | 5 |  |  | 5.21 | % |  | 3,482 |  |  | 11 |  |  | 1.27 | % |  | 11,187 |  |  | 17 |  |  | 0.60 | %
Total interest-bearing liabilities |  | 816,409 |  |  | 1,393 |  |  | 0.68 | % |  | 785,391 |  |  | 1,268 |  |  | 0.65 | % |  | 761,956 |  |  | 1,099 |  |  | 0.57 | %
Noninterest-bearing deposits |  | 179,968 |  |  |  |  |  |  |  |  | 157,965 |  |  |  |  |  |  |  |  | 148,178 |  |  |  |  |  |  |
Other liabilities |  | 5,978 |  |  |  |  |  |  |  |  | 659 |  |  |  |  |  |  |  |  | 6,194 |  |  |  |  |  |  |
Total liabilities |  | 1,002,355 |  |  |  |  |  |  |  |  | 944,015 |  |  |  |  |  |  |  |  | 916,328 |  |  |  |  |  |  |
Shareholders’ equity |  | 136,097 |  |  |  |  |  |  |  |  | 133,671 |  |  |  |  |  |  |  |  | 104,117 |  |  |  |  |  |  |
Total liabilities and stockholders’ equity |  | $ | 1,138,452 |  |  |  |  |  |  |  |  | $ | 1,077,686 |  |  |  |  |  |  |  |  | $ | 1,020,445 |  |  |  |  |  |  |
Net interest income, taxable equivalent |  |  |  |  | $ | 10,946 |  |  |  |  |  |  |  |  | $ | 10,269 |  |  |  |  |  |  |  |  | $ | 9,679 |  |  |  |
Interest rate spread |  |  |  |  |  |  |  | 4.02 | % |  |  |  |  |  |  |  | 4.01 | % |  |  |  |  |  |  |  | 3.91 | %
Tax equivalent net interest margin |  |  |  |  |  |  |  | 4.17 | % |  |  |  |  |  |  |  | 4.15 | % |  |  |  |  |  |  |  | 4.03 | %
Percentage of average interest-earning assets to average interest-bearing liabilities |  |  |  |  |  |  |  | 127.67 | % |  |  |  |  |  |  |  | 126.32 | % |  |  |  |  |  |  |  | 125.17 | %
Percentage of average equity to average assets |  |  |  |  |  |  |  | 11.95 | % |  |  |  |  |  |  |  | 12.40 | % |  |  |  |  |  |  |  | 10.20 | %
* Taxable equivalent basis |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |
(In thousands) |  |  |  |
NON-GAAP RECONCILIATIONS |  | Three months ending
|  | September 30, 2017 |  | June 30, 2017 |  | March 31, 2017 |  | December 31, 2016 |  | September 30, 2016
Net interest income, Taxable Equivalent |  |  |  |  |  |  |  |  |  |
Net interest income (GAAP) |  | $ | 10,924 |  |  | $ | 10,248 |  |  | $ | 9,820 |  |  | $ | 9,856 |  |  | $ | 9,665 |
Taxable equivalent adjustment |  | 22 |  |  | 21 |  |  | 21 |  |  | 22 |  |  | 14 |
Net interest income, Taxable Equivalent (Non-GAAP) |  | $ | 10,946 |  |  | $ | 10,269 |  |  | $ | 9,841 |  |  | $ | 9,878 |  |  | $ | 9,679 |
Operating Earnings1 |  |  |  |  |  |  |  |  |  |
Net income (loss) (GAAP) |  | $ | 1,685 |  |  | $ | 1,648 |  |  | $ | 1,644 |  |  | $ | 1,647 |  |  | $ | 1,611 |
Securities (gains) losses |  | (144 | ) |  | — |  |  | — |  |  | — |  |  | (18 | )
Foreclosed assets (gains) losses |  | 27 |  |  | — |  |  | 15 |  |  | (6 | ) |  | (130 | )
Merger and conversion costs |  | 303 |  |  | 420 |  |  | — |  |  | — |  |  | — |
Income tax effect of adjustments2 |  | (71 | ) |  | (161 | ) |  | (6 | ) |  | 2 |  |  | 57 |
Net operating earnings (Non-GAAP) |  | 1,800 |  |  | 1,907 |  |  | 1,653 |  |  | 1,643 |  |  | 1,520 |
Dividends on preferred stock |  | — |  |  | — |  |  | (195 | ) |  | (270 | ) |  | (270 | )
Net operating earnings available to common shareholders (Non-GAAP) |  | $ | 1,800 |  |  | $ | 1,907 |  |  | $ | 1,458 |  |  | $ | 1,373 |  |  | $ | 1,250 |
Net operating earnings per common share: |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.22 |  |  | $ | 0.23 |  |  | $ | 0.19 |  |  | $ | 0.23 |  |  | $ | 0.21 |
Diluted |  | 0.22 |  |  | 0.23 |  |  | 0.19 |  |  | 0.22 |  |  | 0.21 |
Operating Efficiency Ratio |  |  |  |  |  |  |  |  |  |
Efficiency ratio (GAAP) |  | 78.62 | % |  | 76.77 | % |  | 75.79 | % |  | 74.29 | % |  | 74.06 | %
Adjustment for taxable equivalent yields |  | (0.22 | )% |  | (0.22 | )% |  | (0.25 | )% |  | (0.26 | )% |  | (0.18 | )%
Adjustment for securities gains (losses) |  | 1.51 | % |  | — | % |  | — | % |  | — | % |  | 0.23 | %
Adjustment for OREO gains (losses) |  | (0.28 | )% |  | — | % |  | (0.18 | )% |  | 0.08 | % |  | 1.62 | %
Adjustment for merger & conversion costs |  | (3.17 | )% |  | (4.76 | )% |  | — | % |  | — | % |  | — | %
Operating efficiency ratio (Non-GAAP) |  | 76.46 | % |  | 71.79 | % |  | 75.36 | % |  | 74.11 | % |  | 75.73 | %
Loan Discount Data |  |  |  |  |  |  |  |  |  |
Allowance for loan losses (GAAP) |  | $ | 5,393 |  |  | $ | 5,498 |  |  | $ | 5,152 |  |  | $ | 5,105 |  |  | $ | 4,964 |
Net acquisition accounting fair value discounts to loans3 |  | $ | 8,167 |  |  | $ | 9,086 |  |  | $ | 9,831 |  |  | $ | 10,271 |  |  | $ | 10,742 |
Tangible Common Equity |  |  |  |  |  |  |  |  |  |
Shareholders' equity (GAAP) |  | $ | 136,588 |  |  | $ | 134,734 |  |  | $ | 132,551 |  |  | $ | 105,240 |  |  | $ | 105,170 |
Less preferred stock & preferred stock paid in capital |  | — |  |  | — |  |  | — |  |  | 12,000 |  |  | 12,000 |
Less goodwill and other intangible assets |  | 7,414 |  |  | 7,492 |  |  | 6,583 |  |  | 6,636 |  |  | 6,675 |
Tangible common equity (Non-GAAP) |  | $ | 129,174 |  |  | $ | 127,242 |  |  | $ | 125,968 |  |  | $ | 86,604 |  |  | $ | 86,495 |

1 Operating earnings includes the following income and expenses related to past mergers and acquisitions:

|  | September 30, 2017 |  | June 30, 2017 |  | March 31, 2017 |  | December 31, 2016 |  | September 30, 2016
Accretion above contractual loan income (ASC 310-20 & 310-30) |  | 888 |  |  | 696 |  |  | 540 |  |  | 430 |  |  | 450 |
Amortization of other intangibles |  | 78 |  |  | 61 |  |  | 53 |  |  | 39 |  |  | 80 |

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