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KNOXVILLE, TN – April 27, 2016 – SmartFinancial, Inc. (“SmartFinancial”; NASDAQ: SMBK), announced today net income of $1.3 million in its first quarter, compared to $1.2 million in the prior quarter.  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.”.  This quarter completes a second full quarter’s results from the combined company; in addition, SmartBank and Cornerstone Community Bank completed their merger at the end of February.

Billy Carroll, President & CEO stated: “We are pleased with these results as our newly combined company continues to build momentum and realize greater efficiencies.  It’s powerful to move past internally focused merger work and set the stage for growth. Our organic loan and deposit growth kept good pace during the first quarter, even with a number of our team members involved in the bank integration.  We’re on plan and expect continued merger efficiencies in the coming months.  We’ll remain focused on fundamentals and strengthening our foundation to support organic growth and increased earnings.”

Carroll also noted, “We secured a talented mortgage team in 2015 which has allowed us to expand our mortgage capabilities franchise-wide.  We are beginning to close loans with these new products, using this new channel.  We have significant opportunity to serve more clients with even better solutions across our entire footprint while driving greater margins in residential lending.  To leverage these capabilities, we continue to identify and recruit revenue producers for residential and other areas of the bank in every market we serve.”

SmartFinancial’s Chairman Miller Welborn concluded: “This board could not be more enthusiastic about the brand, the vision and the talent of this team.  We have a strong story to tell and have every confidence that we’ll achieve the ‘sweet spot’ for community banking which will include 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 $1.1 million or $0.20 per share during the first quarter of 2016.
  • Annualized return on average assets equaled 0.54 percent in the first quarter of 2016, up from 0.47 percent in the fourth quarter of 2015.
  • Annualized net loan growth was approximately 6.4 percent in the first quarter of 2016, with the growth coming from increases in owner occupied commercial real estate, residential real estate, and construction and development loans.
  • Gain on sale of assets increased to $222 thousand as results from the mortgage unit accelerated even in spite of what is a normally weak quarter due to seasonality.
  • Maintained outstanding asset quality with just 0.82 percent of nonperforming assets to total assets.

1Q 2016 compared to 4Q 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 $780 thousand in the first quarter of 2016 compared to $584 thousand in the fourth quarter of 2015.  Net income available to common shareholders totaled $1.1 million in the first quarter of 2016, or $0.19 per diluted share, compared to $1.2 million, or $0.19 per diluted share, in the fourth quarter of 2015.

Net interest income to average assets of 3.67 percent for the quarter was down from 3.79 percent in the fourth quarter of 2015.  Net interest income totaled $9.1 million in the first quarter of 2016 compared to $9.5 million in the fourth quarter of 2015. Net interest income was negatively impacted during the quarter primarily by a reduction in purchased loan accounting adjustments. One fewer day and slightly lower yields on loan balances had a marginal impact. Net interest margin, taxable equivalent, decreased from 4.10 percent in the fourth quarter of 2015 to 4.00 percent in the first quarter of 2016 due to lower yields for the reasons mentioned above.

Provision for loan losses was $138 thousand in the first quarter of 2016 compared to $567 thousand in the fourth quarter of 2015.  The decrease in provision for loan losses was primarily due to a reduction in historical loss rates used in the Company’s ALLL model due to improvement in charge-off levels.  Annualized net charge-offs were (0.02) percent of average loans in the first quarter of 2016 compared to 0.02 percent of average loans in the fourth quarter of 2015.

The ALLL was $4.5 million, or 0.61 percent of total loans as of March 31, 2016 compared to $4.4 million, or 0.60 percent of total loans, as of December 31, 2015. Adjusted ALLL, which includes the ALLL as well as net acquisition accounting fair value adjustments for acquired loans, was 2.11 percent of total loans as of March 31, 2016, which was down from 2.18 percent as of December 31, 2015. The reduction in adjusted ALLL resulted from continued accretion of fair value discounts.

Nonperforming loans as a percentage of total loans was 0.43 percent as of March 31, 2016, which was up slightly from 0.38 percent as of December 31, 2015. 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 0.82 percent as of March 31, 2016 compared to 0.79 percent as of December 31, 2015.

Non-interest income to average assets of 0.43 percent for the quarter was down from 0.46 percent in the fourth quarter of 2015. Non-interest income totaled $1.1 million in the first quarter of 2016, compared to $1.2 million in the fourth quarter of 2015. Merger related reclassification drove a $101 decline in service charges and fees and a $72 thousand increase in other non-interest income. Gain on securities totaled $83 thousand.  Gain on sale of loans and other assets which includes both SBA and mortgage loan income was $222 thousand, compared to $86 thousand in the fourth quarter of 2015. Gains on the sale of foreclosed assets were $58 thousand for the quarter.

Non-interest expense to average assets of 3.19 percent for the quarter was down slightly from 3.20 percent in the fourth quarter of 2015.  Non-interest expense totaled $8.0 million in the first quarter of 2016, which was down $100 thousand from the fourth quarter of 2015. Salaries and employee benefits increased by $287 thousand in the first quarter mainly due to additions to the mortgage staff and annual performance based salary increases.  Occupancy expense of $990 thousand was up $80 thousand from the previous quarter.  Data processing and professional expenses fell a combined $473 thousand compared to the fourth quarter primarily due to a reduction in merger related costs.  Marketing expenses of $173 thousand were up from $100 thousand in the fourth quarter primarily due to rebranding initiatives related to merger integration.

Income tax expense was $764 thousand in the first quarter of 2016 compared to $901 thousand in the fourth quarter of 2015. The Company’s effective tax rate was 36.2 percent in the first quarter of 2015 compared to 43.2 percent in the fourth quarter of 2015. The fourth quarter 2015 effective tax rate was negatively impacted by merger costs which were non-deductible.

1Q 2016 compared to 1Q 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 $780 thousand in the first quarter of 2016 compared to $41 thousand in the first quarter of 2015.   Net income available to common shareholders totaled $1.1 million in the first quarter of 2016, or $0.19 per diluted share, compared to $308 thousand, or $0.09 per diluted share, in the first 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 1Q 2016 are not comparable to results reported for 1Q 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: 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 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.