SmartFinancial Reports Second Quarter Results

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SmartFinancial, Inc. ("SmartFinancial"; NASDAQ: SMBK), announced today net income of $1.2 million in its second quarter, compared to $0.1 million a year ago.

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We are pleased with the results of our first full quarter as with a single merged bank.

SmartFinancial, Inc. ("SmartFinancial"; NASDAQ: SMBK), announced today net income of $1.2 million in its second quarter, compared to $0.1 million a year ago. In the third quarter 2015, SmartFinancial successfully completed the merger of two holding companies, legacy SmartFinancial, Inc. and Cornerstone Bancshares, Inc., and carried forward the name "SmartFinancial, Inc." In the first quarter of 2016 SmartFinancial completed the merger of Cornerstone Community Bank into SmartBank. This quarter completes the third full quarter’s results from the combined company and the first full quarter's results of the merged bank.

Billy Carroll, President & CEO stated: "We are pleased with the results of our first full quarter as with a single merged bank. Our organic loan growth increased over 17 percent annualized this quarter and at the same time we were able to increase yields of the loan portfolio. Core deposit growth kept a good pace, and as a result we were able to further reduce external borrowings. We are starting to realize merger efficiencies as salary and employee benefit costs decreased slightly quarter to quarter, and we expect further efficiencies in the coming months. We’ll remain focused on fundamentals and strengthening our foundation to support organic growth and increased earnings.”

SmartFinancial's Chairman Miller Welborn concluded: "It is exciting to see the synergies of the merged bank materialize with accelerated loan growth and core deposit growth, which will add long term value to the franchise. We are executing on our goals of being a best place to work, a great place to bank and especially rewarding for our shareholders. "

Performance Highlights

-Net income available to common shareholders totaled $0.9 million or $0.16 per share during the second quarter of 2016.
-Annualized return on average assets equaled 0.48 percent in the second quarter of 2016, compared to 0.54 percent in the previous quarter.
-Annualized net loan growth was approximately 17.5 percent in the second quarter of 2016, with the growth primarily in commercial and residential real estate loans.
-Asset quality was outstanding with just 0.69 percent of nonperforming assets to total assets.
-Core funding increased as transaction account balances grew $18.5 million since the end of 2015, while FHLB and other borrowings were reduced by $24.4 million.
-Mortgage business continued to increase scale with non-interest income increasing over 45 percent quarter to quarter, while loans held for sale increased from $1.6 million at the end of the first quarter to $3.3 million at the end of the second quarter.

Second Quarter 2016 compared to First Quarter 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 $634 thousand in the second quarter of 2016 compared to $780 thousand in the previous quarter. Net income available to common shareholders totaled $0.9 million in the second quarter of 2016, or $0.15 per diluted share, compared to $1.1 million, or $0.19 per diluted share, in the first quarter of 2016.

Net interest income to average assets of 3.87 percent for the quarter increased from 3.67 percent in the first quarter of 2016. Net interest income totaled $9.6 million in the second quarter of 2016 compared to $9.1 million in the first quarter of 2016. Net interest income was positively impacted during the quarter by a mix of higher loan fees, higher yields on newly originated loans, and an increase in purchased loan accounting adjustments. Net interest margin, taxable equivalent, increased from 3.96 percent in the first quarter of 2016 to 4.16 percent in the second quarter of 2016 as a result of higher yields on newly originated loans and increases in purchased loan accounting adjustments.

Provision for loan losses was $218 thousand in the second quarter of 2016, compared to $138 thousand in the second quarter of 2016 . The increase in provision for loan losses was primarily due to the growth of the loan portfolio during the quarter. Annualized net charge-offs were 0.01 percent of average loans in the second quarter of 2016 compared to (0.02) percent of average loans in the first quarter of 2016 .

The ALLL was $4.7 million, or 0.61 percent of total loans as of June 30, 2016, compared to $4.5 million, or 0.61 percent of total loans, as of March 31, 2016. Adjusted ALLL, which includes the ALLL as well as net acquisition accounting fair value adjustments for acquired loans, was 2.00 percent of total loans as of June 30, 2016, which was down from 2.11 percent as of March 31, 2016. The reduction in adjusted ALLL resulted from continued accretion of fair value discounts.

Nonperforming loans as a percentage of total loans was 0.29 percent as of June 30, 2016, which was down from 0.43 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 0.69 percent as of June 30, 2016, compared to 0.82 percent as of March 31, 2016.

Non-interest income to average assets of 0.39 percent for the quarter was down from 0.43 percent in the first quarter of 2016. Non-interest income totaled $1.0 million in the second quarter of 2016, compared to $1.1 million in the first quarter of 2016. The reduction in non-interest income was due to lower service charges and fees, an absence of gains on sale of foreclosed assets, and and lower sales of SBA loans generated for sale. The reduction was slightly offset by a gain on securities of $98 thousand for the quarter and higher mortgage loan income.

Non-interest expense to average assets of 3.41 percent for the quarter was up from 3.19 percent in the first quarter of 2016. Non-interest expense totaled $8.5 million in the second quarter of 2016, which was up $520 thousand from the first quarter of 2016 primarily due to merger related data processing costs, higher repair costs at one branch, and increases in legal expenses. Occupancy expense of $1.1 million was up $119 thousand from the previous quarter due to the final costs of a repair project at one branch. Data processing expenses increased $241 thousand compared to the first quarter primarily due to the final merger related data processing costs. Marketing expenses of $184 thousand were up from $173 thousand in the first quarter primarily due to rebranding initiatives related to merger integration.

Income tax expense was $691 thousand in the second quarter of 2016 compared to $764 thousand in the first quarter of 2016. The company's effective tax rate was 36.7 percent in the second quarter of 2016 compared to 36.2 percent in the first quarter of 2016.

Second Quarter 2016 compared to Second Quarter 2015

Net operating earnings available to common shareholders, which excludes purchased loans accounting adjustments, securities gains, merger and conversion costs, and foreclosed assets gains and losses, totaled $634 thousand in the second quarter of 2016 compared to $192 thousand in the second quarter of 2015. Net income available to common shareholders totaled $0.9 million in the second quarter of 2016, or $0.15 per diluted share, compared to $35 thousand, or $0.01 per diluted share, in the second quarter of 2015. The company's operations and financial performance were significantly impacted in nearly every respect by the merger of SmartFinancial, Inc. and Cornerstone Bancshares, Inc. on August 31, 2015. Therefore, financial results in 2Q 2016 are not comparable to results reported for 2Q 2015.

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 twelve branches, two loan production offices, 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 all given rise to SmartBank’s success. More information about SmartFinancial can be found on its website: http://www.smartbank.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: 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; (iii) adjusted allowance for loan losses to loans; and (iv) 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
President & CEO
865.868.0613

Frank Hughes
Executive Vice President
Investor Relations
423.385.3009

Media Contact
Kelley Fowler
First Vice President, Public Relations & Marketing
SmartBank
865.868.0611
kfowler(at)smartbank(dot)net

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Mediha Barucic-Howell
SmartBank
+1 615-292-8642
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