SMARTFINANCIAL INC. - FORM 8-K - EX-99.1 - EXHIBIT 99.1

Attached files

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8-K - 8-K SMARTFINANCIAL INC. EARNINGS RELEASE 2Q2017 - SMARTFINANCIAL INC.	a2017q2earningsreleasecover.htm
EX-99.2 - EXHIBIT 99.2 - SMARTFINANCIAL INC.	earningscallslides2q17fi.htm

Exhibit 99.1

2Q 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 adjustments¹	(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 adjustments²	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 adjustments¹	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 loans³	$	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

¹Consists 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

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