SmartFinancial Reports Record $0.30 Earnings per Common Share for the First Quarter 2018

Performance Highlights

• Record high net income of $3.4 million for the quarter, up 108 percent from a year ago.
• ROAA of 0.80 percent, a new record, for the quarter and net operating ROAA of 0.91 percent.
• Organic loan growth of $51 million, over 15 percent annualized during the quarter. 
• Transaction accounts are over 37 percent of total deposits, a new high point for the company.
• Efficiency ratio decreased to 72.66 percent, a new record and down by more than 3 percentage points from a year ago.
• Net interest margin, taxable equivalent, of 4.38 percent which is up 0.31 percent from a year ago.
• Asset quality was outstanding with nonperforming assets to total assets decreasing to just 0.26 percent.

KNOXVILLE, Tenn., April 24, 2018 (GLOBE NEWSWIRE) -- SmartFinancial, Inc. ("SmartFinancial") (NASDAQ:SMBK), announced today net income of $3.4 million in its first quarter of 2018, compared to $1.6 million a year ago.  Diluted net income per common share was $0.30 for first quarter of 2018, compared to $0.19 during the first quarter of 2017.

Billy Carroll, President & CEO, stated:  "We had a great first quarter with a new record high return on average assets and earnings per share.  We achieved these milestones by growing loans at over a 15 percent pace while simultaneously maintaining a very strong net margin.  Demand deposits increased significantly, and while a large portion was conversion related reclassifications, organic demand deposit growth for the quarter was over $25 million.  As an organization we continue to improve on our efficiencies as we capture further economies of scale, even with over half a million in merger related costs.  Our team has done a great job of integrating Capstone, planning for the Tennessee Bancshares acquisition, and growing the core bank."

SmartFinancial's Chairman, Miller Welborn, concluded:  "We are looking forward to completing the acquisition of Tennessee Bancshares in the second quarter.  Our resulting company will have assets approaching $2.0 billion by quarter end, setting us up for the next stage of growth.  The opportunities before the company and in turn for our shareholders have never been greater.  We are well on our way in creating one of the Southeast’s next great community banking franchises."

First Quarter 2018 compared to Fourth Quarter 2017

Net income available to common shareholders totaled $3.4 million in the first quarter of 2018, or $0.30 per diluted share, compared to $38 thousand, or $0.00 per diluted share, in the fourth quarter of 2017, which was negatively impacted by the revaluation and write down of deferred tax assets due to the Tax Cuts and Jobs Act which resulted in a lower federal tax rate for corporations.  Net operating earnings available to common shareholders (Non-GAAP), which excludes securities gains, foreclosed assets gains and losses, and merger and conversion costs, totaled $3.9 million in the first  quarter of 2018 compared to $3.7 million in the previous quarter.

Net interest income to average assets of 3.93 percent for the quarter was down 4.09 percent from the fourth quarter of 2017. Net interest income totaled $16.8 million in the first quarter of 2018 compared to $15.3 million in the fourth quarter of 2017.  Net interest income was negatively impacted approximately $368 thousand due to the two less days in the current period.  Net interest margin, taxable equivalent, decreased from 4.51 percent in the fourth quarter of 2017 to 4.38 percent in the first quarter of 2018 primarily as a result of less income from purchase accounting adjustments on acquired loans and increases on the cost of interest-bearing liabilities.

Provision for loan losses was $689 thousand in the first quarter of 2018, compared to $442 thousand in the fourth quarter of 2017.  The increase in provision for loan losses was due to higher loan growth during the period.  The allowance for loan losses and leases  ("ALLL") was $6.5 million, or 0.47 percent of total loans as of March 31, 2018, compared to $5.9 million, or 0.44 percent of total loans, as of December 31, 2017.

Nonperforming loans as a percentage of total loans was 0.14 percent as of March 31, 2018, 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 0.26 percent as of March 31, 2018, compared to 0.29 percent as of December 31, 2017.  In addition to the allowance there were $16.3 million additional discounts on $492.9 million of purchased loans as of March 31, 2018 compared to $17.9 million on $513.5 million of purchased loans as of December 31, 2017.

Noninterest income to average assets of 0.38 percent for the period was down from 0.42 percent in the fourth quarter of 2017.  Noninterest income totaled $1.6 million in the first quarter of 2018, compared to $1.6 million in the fourth quarter of 2017.  The slight increase in noninterest income was primarily due to higher service charges on deposit accounts.

Noninterest expense to average assets of 3.13 percent for the quarter was down from 3.35 percent in the fourth quarter of 2017.  Noninterest expense totaled $13.4 million in the first quarter of 2018, which was up $843 thousand from the fourth quarter of 2017, primarily due to three months of salaries and employee benefits for associates in Alabama compared to two months in the prior quarter.  Income tax expense was $940 thousand in the first quarter of 2018 compared to $3.9 million in the fourth quarter of 2017, which was elevated by the revaluation and write down of deferred tax assets due to the Tax Cuts and Jobs Act which resulted in a lower federal tax rate for corporations.  The company's effective tax rate decreased to 21.6 percent in the first quarter of 2018 compared to 99.0 percent in the fourth quarter of 2017. 

First Quarter 2018 compared to First Quarter 2017

Net income available to common shareholders totaled $3.4 million in the first quarter of 2018, or $0.30 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 (Non-GAAP), which excludes securities gains, foreclosed assets gains and losses, and merger and conversion costs, totaled $3.9 million in the first quarter of 2018 compared to $1.5 million in the first quarter of 2017.

Net interest income to average assets of 3.93 percent for the quarter increased from 3.81 percent in the first quarter of 2017 as the average earning asset balances and yields increased compared to the prior year.  Net interest income totaled $16.8 million in the first quarter of 2018 compared to $9.8 million in the first quarter of 2017.  Net interest income was positively impacted compared to the prior year due to increases in loan and securities balances and increases in the yields of the loan and securities portfolios.  Net interest margin, taxable equivalent, increased from 4.07 percent in the first quarter of 2017 to 4.38 percent in the first quarter of 2018 as a result of increases in the yield on earning assets.

Provision for loan losses was $689 thousand in the first quarter of 2018, compared to $12 thousand in the first quarter of 2017. The increase in provision for loan losses was due to faster loan growth during the period. The ALLL was $6.5 million, or 0.47 percent of total loans as of March 31, 2018, 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 0.14 percent as of March 31, 2018, which was down from 0.18 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 0.26 percent as of March 31, 2018, compared to 0.36 percent as of March 31, 2017.

Noninterest income to average assets of 0.38 percent for the quarter was down from 0.36 percent in the first quarter of 2017. Noninterest income totaled $1.6 million in the first quarter of 2018, compared to $0.9 million in the first quarter of 2017.  

Noninterest expense to average assets of 3.13 percent for the quarter was down from 3.16 percent in the first quarter of 2017.  Noninterest expense totaled $13.4 million in the first quarter of 2018, compared to $8.2 million in the first quarter of 2017.  The Company's effective tax rate was 21.6 percent in the first quarter of 2018 compared to 37.0 percent in the first quarter of 2017.

Conference Call Information
SmartFinancial plans to issue its earnings release for the first quarter of 2018 on Tuesday, April 24, 2018, and will host a conference call on Wednesday, April 25, at 10:00 a.m. ET.  To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number 6173081.  A replay of the conference call will be available through April 25, 2019, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number 10119695.  Conference call materials (earnings release and conference call presentation) will be published on the company’s webpage located at http://www.smartfinancialinc.com/CorporateProfile at 9:00 am ET 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 22 branches, four loan production offices, spanning East Tennessee, Tuscaloosa and Southwest Alabama, and Florida Panhandle.  Recruiting the best people, delivering exceptional client service, strategic branching and a disciplined approach to lending have contributed to SmartBank’s success. More information about SmartFinancial can be found on its website: www.smartfinancialinc.com.

Source
SmartFinancial, Inc.

Non-GAAP Financial Matters
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 several 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, effect of the December, 2017 tax law change on deferred tax assets, 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.

Forward Looking Statements
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 Tennessee Bancshares, Inc. (the “Tennessee Bancshares merger”) and/or the recently completed merger with Capstone Bancshares, Inc. (the “Capstone merger”) may not be fully realized or may take longer than anticipated to be realized; the disruption from either the Tennessee Bancshares merger or the Capstone merger with customers, suppliers or employees or other business partners’ relationships; the risk of successful integration of our business with that of Tennessee Bancshares or Capstone; the amount of costs, fees, expenses, and charges related to Tennessee Bancshares merger; risks of expansion into new geographic or product markets, like the proposed expansion into the Nashville, TN MSA associated with the proposed Tennessee Bancshares 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 report 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.

¹ Current period capital ratios are estimated as of the date of this earnings release.

¹ Taxable equivalent