EX-99.1 2 a093018earningsexhibit991.htm EXHIBIT 99.1
Exhibit 99.1
3 Q 2018
SmartFinancial Announces Record Earnings with Third Quarter 2018 Net Income of $4.3 million
Net operating earnings (Non-GAAP) of $5.0 million for the quarter
Performance Highlights

• | Return on average assets of 0.85 percent and net operating return on average assets (non-GAAP) of 0.98 percent.

• | Yield on earning assets, taxable equivalent, of 5.03 percent, an increase of 0.33 percentage points from a year ago.

• | Noninterest expense to average assets of 2.90 percent, a decrease of 0.44 percentage points from a year ago.

• | Completed subordinated debt offering of $40 million during the quarter.

KNOXVILLE, TN - October 23, 2018 - SmartFinancial, Inc. ("SmartFinancial"; NASDAQ: SMBK), today announced net income of $4.3 million for the third quarter of 2018, compared to $1.7 million a year ago. Diluted net income per share was $0.34 for the third quarter of 2018, compared to $0.20 during the third quarter of 2017. Net operating earnings (Non-GAAP), which excludes securities gains and merger expenses, totaled $5.0 million in the third quarter of 2018 compared to $1.8 million in the third quarter of 2017.
Billy Carroll, President & CEO, stated: "I am pleased to report a very solid quarter with record earnings for SmartFinancial. As we execute on our growth strategy, we continue to make strides on building a very solid foundation for our company. We had another successful conversion, as we integrated and rebranded the middle Tennessee and northern Alabama offices of Tennessee Bancshares , Inc. while planning for our upcoming acquisition of east Tennessee-based Foothills Bancorp, Inc. Also highlighting this quarter was our successful $40 million subordinated debt raise that positions the company for our next phase of growth."
SmartFinancial's Chairman, Miller Welborn, concluded: “I am excited about our continued growth and accomplishments this quarter. Also, being assigned an investment grade BBB senior unsecured debt rating and BBB- subordinated debt rating from the Kroll Bond Rating Agency during the quarter is an accolade we are extremely proud to obtain. We also have all necessary approvals for the acquisition of Foothills Bancorp, Inc. and anticipate a closing of November 1.”
Third Quarter 2018 compared to Second Quarter 2018
Net income was $4.3 million for the third quarter of 2018, compared to $3.9 million in the prior quarter. Diluted net income per share was $0.34 for the third quarter of 2018, compared to $0.32 during the second quarter of 2018. Net operating earnings (non-GAAP), which is net income excluding securities gains and merger expenses, totaled $5.0 million in the third quarter of 2018 compared to $4.8 million in the previous quarter.
Net interest income to average assets of 3.70 percent for the quarter decreased from 4.03 percent in the second quarter of 2018, primarily due to lower accretion on acquired loans. Net interest income totaled $18.9 million in the third quarter of 2018, compared to $19.5 million in the second quarter of 2018. Net interest margin, taxable equivalent, decreased from 4.54 percent in the second quarter of 2018 to 4.11 percent in the third quarter of 2018 as a result of lower accretion income on acquired loans and higher deposit costs.
Provision for loan losses was $302 thousand in the third quarter of 2018, compared to $617 thousand in the second quarter of 2018. The decrease in provision for loan losses was due to slower growth of the organic loan portfolio during the period. The allowance for loan losses and leases ("ALLL") was $7.2 million, or 0.45 percent of total loans as of September 30, 2018, compared to $7.1 million, or 0.45 percent of total loans, as of June 30, 2018.

Nonperforming loans as a percentage of total loans was 0.16 percent as of September 30, 2018, which was an increase from 0.11 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 0.27 percent as of September 30, 2018, compared to 0.25 percent as of June 30, 2018.
Noninterest income to average assets of 0.36 percent for the period increased slightly from 0.33 percent in the second quarter of 2018. Noninterest income totaled $1.9 million in the third quarter of 2018, compared to $1.6 million in the second quarter of 2018, primarily due to higher gains on sale of loans and other assets.
Noninterest expense to average assets of 2.90 percent for the quarter decreased from 3.15 percent in the second quarter of 2018. Noninterest expense totaled $14.8 million in the third quarter of 2018, a decrease of $0.5 million from the second quarter of 2018, primarily due to lower merger expenses. Income tax expense was $1.3 million in the third quarter of 2018 compared to $1.3 million in the second quarter of 2018. The company's effective tax rate decreased to 23.2 percent in the third quarter of 2018 compared to 24.8 percent in the second quarter of 2018, due to lower nondeductible merger expenses and an increase in exercised options with associated tax benefits.
Third Quarter 2018 compared to Third Quarter 2017
Net income totaled $4.3 million in the third quarter of 2018, or $0.34 per diluted share, compared to $1.7 million, or $0.20 per diluted share, in the third quarter of 2017. Net operating earnings (non-GAAP), which excludes securities gains and merger expenses, totaled $5.0 million in the third quarter of 2018 compared to $1.8 million in the third quarter of 2017.
Net interest income to average assets of 3.70 percent for the quarter decreased from 3.81 percent in the third quarter of 2017. Net interest income totaled $18.9 million in the third quarter of 2018, compared to $10.9 million in the third 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, decreased from 4.17 percent in the third quarter of 2017 to 4.11 percent in the third quarter of 2018 as a result of increases on the cost of deposits.
Provision for loan losses was $302 thousand in the third quarter of 2018, compared to $30 thousand in the third quarter of 2017. The increase in provision for loan losses was due to faster growth of the organic loan portfolio during the period. The ALLL was $7.2 million, or 0.45 percent of total loans as of September 30, 2018, compared to $5.4 million, or 0.62 percent of total loans, as of September 30, 2017.
Nonperforming loans as a percentage of total loans was 0.16 percent as of September 30, 2018, an increase from 0.15 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 0.27 percent as of September 30, 2018, compared to 0.37 percent as of September 30, 2017.
Noninterest income to average assets of 0.36 percent for the quarter decreased from 0.43 percent in the third quarter of 2017. Noninterest income totaled $1.9 million in the third quarter of 2018, compared to $1.2 million in the third quarter of 2017.
Noninterest expense to average assets of 2.90 percent for the quarter decreased from 3.34 percent in the third quarter of 2017. Noninterest expense totaled $14.8 million in the third quarter of 2018, compared to $9.6 million in the third quarter of 2017. The increases in noninterest expense over the prior year in salaries and employee benefits and occupancy expense were primarily due to the acquisitions of Capstone Bancshares, Inc. in the fourth quarter of 2017 and Tennessee Bancshares, Inc. in the second quarter of 2018. The company's effective tax rate was 23.2 percent in the third quarter of 2018 compared to 34.4 percent in the third quarter of 2017, primarily due to the decrease in the federal tax rate for 2018.
Conference Call Information
SmartFinancial plans to issue its earnings release for the third quarter of 2018 on Tuesday, October 23, 2018, and will host a conference call on Wednesday, October 24, 2018 at 10:00 a.m. ET. To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 2373912. A replay of the conference call will be available through October 24, 2019, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10125644. Conference call materials (earnings release & conference call presentation will be published on the company’s webpage located at http://www.smartfinancialinc.com/CorporateProfile ), 9:00 am EDT 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 25 branches across Tennessee, Alabama, and the 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.
Investor Contacts
Billy Carroll Ron Gorczynski
President & CEO Executive Vice President, Chief Administrative Officer
(865) 868-0613 billy.carroll@smartbank.com (865) 437-5724 ron.gorczynski@smartbank.com
Media Contact
Kelley Fowler
Senior Vice President, Public Relations & Marketing
(865) 868-0611 kelley.fowler@smartbank.com
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; (iii) tangible common equity; and (iv) net operating return on average assets, 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 related expenses, and the 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 and merger related expenses from the efficiency ratio. Tangible common equity excludes goodwill and other intangible assets. Net operating return on average assets is annualized net operating income divided by GAAP total average 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
Certain of the statements made in this press release may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements, including statements regarding the intent, belief, or current expectations of SmartFinancial’s management regarding the company’s strategic direction, prospects, or future results or the benefits of the proposed merger with Foothills Bancorp, Inc. (the “Foothills merger”), are subject to numerous risks and uncertainties. Such risks and uncertainties include, among others, (1) the risk that the cost savings and revenue synergies anticipated in connection with the Foothills merger may not be realized or may take longer than anticipated to be realized, (2) disruption from the Foothills merger with customers, suppliers, or employee or other business relationships, (3) the occurrence of any event, change, or other circumstances that could give rise to the termination of the merger agreement with Foothills Bancorp, (4) the risk of successful integration of our business with that of Foothills Bancorp, (5) the amount of costs, fees, expenses, and charges related to the Foothills merger, (6) our ability to successfully integrate the businesses acquired as part of previous mergers with that of SmartBank, (7) reputational risk and the reaction of our customers and Foothills Bancorp’s customers to the Foothills merger, (8) the failure of the conditions to closing of the Foothills merger to be satisfied, (9) the risk that the integration of our merger partner's business into our operations will be materially delayed or will be more costly or difficult than expected, (10) the possibility that the Foothills merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events, (11) the dilution caused by SmartFinancial’s issuance of additional shares of its common stock in the Foothills merger, (12) changes in management’s plans for the future, (13) prevailing economic and political conditions, particularly in our market areas, (14) credit risk associated with our lending activities, (15) changes in interest rates, loan demand, real estate values, and competition, (16) changes in accounting principles, policies, or guidelines, (17) changes in applicable laws, rules, or regulations, and (18) other competitive, economic, political, and market factors affecting our business, operations, pricing, products, and services. Certain additional factors which could affect the forward-looking statements can be found in SmartFinancial’s annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, in each case filed with or furnished to the SEC and available on the SEC’s website (www.sec.gov). SmartFinancial disclaims any obligation to update or revise any forward-looking statements contained in this press release, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise.

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, 2018 |  | June 30, 2018 |  | March 31, 2018 |  | December 31, 2017 |  | September 30, 2017
Selected Performance Ratios (Annualized) |  |  |  |  |  |  |  |  |  |
Return on average assets |  | 0.85 | % |  | 0.81 | % |  | 0.80 | % |  | 0.01 | % |  | 0.59 | %
Net operating return on average assets (Non-GAAP) |  | 0.98 | % |  | 1.00 | % |  | 0.89 | % |  | 0.99 | % |  | 0.63 | %
Return on average shareholder equity |  | 6.86 | % |  | 6.76 | % |  | 6.25 | % |  | 0.08 | % |  | 4.91 | %
Return on average tangible common equity (Non-GAAP) |  | 9.44 | % |  | 8.96 | % |  | 8.10 | % |  | 0.10 | % |  | 5.20 | %
Net operating return on average shareholder equity (Non-GAAP) |  | 7.88 | % |  | 8.33 | % |  | 6.97 | % |  | 7.98 | % |  | 5.30 | %
Net operating return on average tangible common equity (Non-GAAP) |  | 10.84 | % |  | 11.04 | % |  | 9.04 | % |  | 9.94 | % |  | 5.61 | %
Net interest income / average assets |  | 3.70 | % |  | 4.03 | % |  | 3.93 | % |  | 4.09 | % |  | 3.81 | %
Yield on earning assets |  | 5.02 | % |  | 5.34 | % |  | 5.02 | % |  | 5.04 | % |  | 4.69 | %
Yield on earning assets, TE |  | 5.03 | % |  | 5.34 | % |  | 5.03 | % |  | 5.05 | % |  | 4.70 | %
Cost of interest-bearing liabilities |  | 1.15 | % |  | 1.00 | % |  | 0.82 | % |  | 0.70 | % |  | 0.68 | %
Net interest margin |  | 4.11 | % |  | 4.53 | % |  | 4.36 | % |  | 4.49 | % |  | 4.16 | %
Net interest margin, TE |  | 4.11 | % |  | 4.54 | % |  | 4.36 | % |  | 4.49 | % |  | 4.17 | %
Noninterest income / average assets |  | 0.36 | % |  | 0.33 | % |  | 0.34 | % |  | 0.42 | % |  | 0.43 | %
Noninterest expense / average assets |  | 2.90 | % |  | 3.15 | % |  | 3.09 | % |  | 3.35 | % |  | 3.34 | %
Efficiency ratio |  | 71.37 | % |  | 72.34 | % |  | 72.39 | % |  | 74.26 | % |  | 78.67 | %
Operating efficiency ratio (Non-GAAP) |  | 67.21 | % |  | 64.82 | % |  | 69.12 | % |  | 60.64 | % |  | 76.72 | %
Pre-tax pre-provision income / average assets |  | 1.23 | % |  | 1.21 | % |  | 1.18 | % |  | 1.16 | % |  | 0.90 | %
Per Common Share |  |  |  |  |  |  |  |  |  |
Net income, basic |  | $ | 0.34 |  |  | $ | 0.32 |  |  | $ | 0.30 |  |  | $ | — |  |  | $ | 0.20 |
Net income, diluted |  | 0.34 |  |  | 0.32 |  |  | 0.30 |  |  | — |  |  | 0.20 |
Net operating earnings, basic (Non-GAAP) |  | 0.39 |  |  | 0.40 |  |  | 0.34 |  |  | 0.35 |  |  | 0.22 |
Net operating earnings, diluted (Non-GAAP) |  | 0.39 |  |  | 0.39 |  |  | 0.34 |  |  | 0.34 |  |  | 0.22 |
Book value |  | 19.74 |  |  | 19.48 |  |  | 18.60 |  |  | 18.46 |  |  | 16.57 |
Tangible book value (Non-GAAP) |  | 14.38 |  |  | 14.09 |  |  | 14.09 |  |  | 13.90 |  |  | 15.67 |
Common shares outstanding |  | 12,750 |  |  | 12,705 |  |  | 11,234 |  |  | 11,153 |  |  | 8,243 |
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, 2018 |  | June 30, 2018 |  | March 31, 2018 |  | December 31, 2017 |  | September 30, 2017
Composition of Loans |  |  |  |  |  |  |  |  |  |
Real estate commercial |  |  |  |  |  |  |  |  |  |
owner occupied |  | $ | 364,164 |  |  | $ | 360,294 |  |  | $ | 288,666 |  |  | $ | 281,297 |  |  | $ | 210,489 |
non-owner occupied |  | 400,275 |  |  | 385,536 |  |  | 375,028 |  |  | 361,691 |  |  | 237,131 |
Real estate commercial, total |  | 764,439 |  |  | 745,830 |  |  | 663,694 |  |  | 642,988 |  |  | 447,620 |
Commercial & industrial |  | 289,732 |  |  | 279,341 |  |  | 256,333 |  |  | 238,087 |  |  | 119,782 |
Real estate construction & development |  | 166,089 |  |  | 179,361 |  |  | 142,702 |  |  | 135,409 |  |  | 98,212 |
Real estate residential |  | 351,948 |  |  | 355,755 |  |  | 299,148 |  |  | 293,457 |  |  | 199,704 |
Other loans |  | 12,986 |  |  | 15,148 |  |  | 12,380 |  |  | 13,317 |  |  | 6,361 |
Total loans |  | $ | 1,585,194 |  |  | $ | 1,575,435 |  |  | $ | 1,374,257 |  |  | $ | 1,323,258 |  |  | $ | 871,679 |
Asset Quality and Additional Loan Data |  |  |  |  |  |  |  |  |  |
Nonperforming loans |  | $ | 2,604 |  |  | $ | 1,730 |  |  | $ | 1,931 |  |  | $ | 1,764 |  |  | $ | 1,264 |
Foreclosed assets |  | 2,941 |  |  | 3,524 |  |  | 2,665 |  |  | 3,254 |  |  | 2,888 |
Total nonperforming assets |  | $ | 5,545 |  |  | $ | 5,254 |  |  | $ | 4,596 |  |  | $ | 5,018 |  |  | $ | 4,152 |
Restructured loans not included in nonperforming loans |  | $ | 369 |  |  | $ | 660 |  |  | $ | 40 |  |  | $ | 41 |  |  | $ | 42 |
Net charge-offs (recoveries) to average loans (annualized) |  | 0.06 | % |  | 0.02 | % |  | 0.02 | % |  | (0.01 | )% |  | (0.02 | )%
Allowance for loan losses to loans |  | 0.45 | % |  | 0.45 | % |  | 0.47 | % |  | 0.44 | % |  | 0.62 | %
Nonperforming loans to total loans, gross |  | 0.16 | % |  | 0.11 | % |  | 0.14 | % |  | 0.13 | % |  | 0.15 | %
Nonperforming assets to total assets |  | 0.27 | % |  | 0.25 | % |  | 0.26 | % |  | 0.29 | % |  | 0.37 | %
Acquisition accounting discounts to loans |  | 19,500 |  |  | 20,748 |  |  | 16,323 |  |  | 17,862 |  |  | 8,167 |
Accretion income on acquired loans |  | 1,208 |  |  | 2,583 |  |  | 1,274 |  |  | 2,411 |  |  | 888 |
Capital Ratios |  |  |  |  |  |  |  |  |  |
Equity to Assets |  | 12.27 | % |  | 12.00 | % |  | 11.87 | % |  | 11.96 | % |  | 12.03 | %
Tangible equity to tangible assets (Non-GAAP) |  | 9.25 | % |  | 8.98 | % |  | 9.26 | % |  | 9.28 | % |  | 11.45 | %
Tangible common equity to tangible assets (Non-GAAP) |  | 9.25 | % |  | 8.98 | % |  | 9.26 | % |  | 9.28 | % |  | 11.45 | %
SmartFinancial, Inc.: |  | Estimated 1 |  |  |  |  |  |  |  |  |
Tier 1 leverage |  | 9.26 | % |  | 9.82 | % |  | 9.59 | % |  | 10.48 | % |  | 11.46 | %
Common equity Tier 1 |  | 10.70 | % |  | 10.83 | % |  | 10.84 | % |  | 10.59 | % |  | 13.37 | %
Tier 1 capital |  | 10.70 | % |  | 10.83 | % |  | 10.84 | % |  | 10.59 | % |  | 13.37 | %
Total capital |  | 13.34 | % |  | 11.25 | % |  | 11.27 | % |  | 10.98 | % |  | 13.93 | %
SmartBank: |  | Estimated 1 |  |  |  |  |  |  |  |  |
Tier 1 leverage |  | 10.08 | % |  | 10.43 | % |  | 10.17 | % |  | 11.26 | % |  | 10.57 | %
Common equity Tier 1 |  | 11.65 | % |  | 11.41 | % |  | 11.12 | % |  | 10.90 | % |  | 12.30 | %
Tier 1 risk-based capital |  | 11.65 | % |  | 11.41 | % |  | 11.12 | % |  | 10.90 | % |  | 12.30 | %
Total risk-based capital |  | 12.06 | % |  | 11.83 | % |  | 11.56 | % |  | 11.30 | % |  | 12.86 | %

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

SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |
(In thousands) |  |  |  |
BALANCE SHEET |  |  |  |  |  |  |  |  |  |
|  | Ending Balances
|  | September 30, 2018 |  | June 30, 2018 |  | March 31, 2018 |  | December 31, 2017 |  | September 30, 2017
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash & cash equivalents |  | $ | 130,104 |  |  | $ | 170,235 |  |  | $ | 96,710 |  |  | $ | 113,027 |  |  | $ | 84,098 |
Securities available for sale |  | 173,039 |  |  | 156,577 |  |  | 156,210 |  |  | 151,945 |  |  | 115,535 |
Other investments |  | 10,735 |  |  | 8,273 |  |  | 7,808 |  |  | 6,431 |  |  | 6,081 |
Total loans |  | 1,585,194 |  |  | 1,575,435 |  |  | 1,374,257 |  |  | 1,323,258 |  |  | 871,679 |
Allowance for loan losses |  | (7,156 | ) |  | (7,074 | ) |  | (6,477 | ) |  | (5,860 | ) |  | (5,393 | )
Loans, net |  | 1,578,038 |  |  | 1,568,361 |  |  | 1,367,780 |  |  | 1,317,398 |  |  | 866,286 |
Premises and equipment |  | 52,427 |  |  | 52,203 |  |  | 44,202 |  |  | 43,000 |  |  | 33,778 |
Foreclosed assets |  | 2,941 |  |  | 3,524 |  |  | 2,665 |  |  | 3,254 |  |  | 2,888 |
Goodwill and other intangibles |  | 68,254 |  |  | 68,449 |  |  | 50,660 |  |  | 50,837 |  |  | 7,414 |
Cash surrender value of life insurance |  | 22,088 |  |  | 21,944 |  |  | 21,797 |  |  | 21,647 |  |  | 11,484 |
Other assets |  | 13,320 |  |  | 12,666 |  |  | 12,593 |  |  | 13,232 |  |  | 8,258 |
Total assets |  | $ | 2,050,946 |  |  | $ | 2,062,232 |  |  | $ | 1,760,425 |  |  | $ | 1,720,771 |  |  | $ | 1,135,822 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Noninterest demand |  | $ | 301,197 |  |  | $ | 301,318 |  |  | $ | 276,249 |  |  | $ | 220,520 |  |  | $ | 185,386 |
Interest-bearing demand |  | 267,146 |  |  | 246,942 |  |  | 278,965 |  |  | 231,644 |  |  | 156,953 |
Money market and savings |  | 570,172 |  |  | 632,518 |  |  | 491,243 |  |  | 543,645 |  |  | 306,358 |
Time deposits |  | 568,796 |  |  | 535,879 |  |  | 453,276 |  |  | 442,774 |  |  | 311,490 |
Total deposits |  | 1,707,311 |  |  | 1,716,657 |  |  | 1,499,733 |  |  | 1,438,583 |  |  | 960,187 |
Repurchase agreements |  | 16,787 |  |  | 18,635 |  |  | 15,968 |  |  | 24,055 |  |  | 26,542 |
FHLB & other borrowings |  | 25,324 |  |  | 72,040 |  |  | 30,000 |  |  | 43,600 |  |  | 6,000 |
Subordinated debt |  | 39,158 |  |  | — |  |  | — |  |  | — |  |  | — |
Other liabilities |  | 10,724 |  |  | 7,413 |  |  | 5,775 |  |  | 8,681 |  |  | 6,505 |
Total liabilities |  | 1,799,304 |  |  | 1,814,745 |  |  | 1,551,476 |  |  | 1,514,919 |  |  | 999,234 |
Shareholders' Equity |  |  |  |  |  |  |  |  |  |
Common stock |  | 12,750 |  |  | 12,705 |  |  | 11,234 |  |  | 11,152 |  |  | 8,243 |
Additional paid-in capital |  | 208,999 |  |  | 208,513 |  |  | 174,981 |  |  | 174,009 |  |  | 107,065 |
Retained earnings |  | 33,559 |  |  | 29,235 |  |  | 25,303 |  |  | 21,889 |  |  | 21,654 |
Accumulated other comprehensive loss |  | (3,666 | ) |  | (2,966 | ) |  | (2,569 | ) |  | (1,198 | ) |  | (374 | )
Total shareholders' equity |  | 251,642 |  |  | 247,487 |  |  | 208,949 |  |  | 205,852 |  |  | 136,588 |
Total liabilities & shareholders' equity |  | $ | 2,050,946 |  |  | $ | 2,062,232 |  |  | $ | 1,760,425 |  |  | $ | 1,720,771 |  |  | $ | 1,135,822 |

SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |
(In thousands, except per share data) |  |  |  |
INCOME STATEMENT |  |  |  |  |  |  |  |  |  |
|  | Three months ending
|  | September 30, 2018 |  | June 30, 2018 |  | March 31, 2018 |  | December 31, 2017 |  | September 30, 2017
Interest Income |  |  |  |  |  |  |  |  |  |
Loans, including fees |  | $ | 21,572 |  |  | $ | 21,652 |  |  | $ | 18,228 |  |  | $ | 16,357 |  |  | $ | 11,491 |
Investment securities and interest bearing due froms |  | 1,326 |  |  | 1,198 |  |  | 1,049 |  |  | 770 |  |  | 740 |
Other interest income |  | 170 |  |  | 144 |  |  | 101 |  |  | 117 |  |  | 86 |
Total interest income |  | 23,068 |  |  | 22,993 |  |  | 19,378 |  |  | 17,244 |  |  | 12,317 |
Interest Expense |  |  |  |  |  |  |  |  |  |
Deposits |  | 3,968 |  |  | 3,238 |  |  | 2,401 |  |  | 1,806 |  |  | 1,373 |
Repurchase agreements |  | 12 |  |  | 11 |  |  | 13 |  |  | 15 |  |  | 15 |
Subordinated debt |  | 19 |  |  | — |  |  | — |  |  | — |  |  | — |
FHLB and other borrowings |  | 209 |  |  | 207 |  |  | 153 |  |  | 81 |  |  | 5 |
Total interest expense |  | 4,208 |  |  | 3,455 |  |  | 2,567 |  |  | 1,902 |  |  | 1,393 |
Net interest income |  | 18,860 |  |  | 19,538 |  |  | 16,811 |  |  | 15,342 |  |  | 10,924 |
Provision for loan losses |  | 302 |  |  | 617 |  |  | 689 |  |  | 442 |  |  | 30 |
Net interest income after provision for loan losses |  | 18,558 |  |  | 18,921 |  |  | 16,122 |  |  | 14,900 |  |  | 10,894 |
Noninterest income |  |  |  |  |  |  |  |  |  |
Service charges on deposit accounts |  | 623 |  |  | 557 |  |  | 578 |  |  | 524 |  |  | 294 |
(Loss) gain on securities |  | — |  |  | (1 | ) |  | — |  |  | — |  |  | 144 |
Gain on sale of loans and other assets |  | 519 |  |  | 327 |  |  | 325 |  |  | 366 |  |  | 224 |
Interchange and debit card transaction fees |  | 144 |  |  | 121 |  |  | 146 |  |  | 304 |  |  | 233 |
Other noninterest income |  | 570 |  |  | 579 |  |  | 406 |  |  | 386 |  |  | 352 |
Total noninterest income |  | 1,856 |  |  | 1,583 |  |  | 1,455 |  |  | 1,580 |  |  | 1,247 |
Noninterest expense |  |  |  |  |  |  |  |  |  |
Salaries and employee benefits |  | 7,934 |  |  | 7,649 |  |  | 7,176 |  |  | 6,272 |  |  | 5,035 |
Occupancy expense |  | 1,638 |  |  | 1,522 |  |  | 1,533 |  |  | 1,217 |  |  | 1,114 |
FDIC premiums |  | 158 |  |  | 317 |  |  | 102 |  |  | 150 |  |  | 102 |
Foreclosed asset expense |  | 105 |  |  | 245 |  |  | 189 |  |  | 59 |  |  | 47 |
Marketing |  | 228 |  |  | 215 |  |  | 185 |  |  | 167 |  |  | 177 |
Data processing |  | 407 |  |  | 600 |  |  | 526 |  |  | 583 |  |  | 483 |
Professional expenses |  | 922 |  |  | 918 |  |  | 898 |  |  | 602 |  |  | 472 |
Amortization of other intangibles |  | 248 |  |  | 229 |  |  | 188 |  |  | 155 |  |  | 78 |
Service contracts |  | 507 |  |  | 492 |  |  | 479 |  |  | 426 |  |  | 363 |
Merger expense |  | 838 |  |  | 1,123 |  |  | 498 |  |  | 1,694 |  |  | 303 |
Other noninterest expense |  | 1,800 |  |  | 1,968 |  |  | 1,448 |  |  | 1,242 |  |  | 1,400 |
Total noninterest expense |  | 14,785 |  |  | 15,278 |  |  | 13,222 |  |  | 12,567 |  |  | 9,574 |
Earnings before income taxes |  | 5,629 |  |  | 5,226 |  |  | 4,355 |  |  | 3,913 |  |  | 2,567 |
Income tax expense |  | 1,305 |  |  | 1,295 |  |  | 940 |  |  | 3,875 |  |  | 882 |
Net income |  | $ | 4,324 |  |  | $ | 3,931 |  |  | $ | 3,415 |  |  | $ | 38 |  |  | $ | 1,685 |
NET INCOME PER COMMON SHARE |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.34 |  |  | $ | 0.32 |  |  | $ | 0.30 |  |  | $ | — |  |  | $ | 0.20 |
Diluted |  | 0.34 |  |  | 0.32 |  |  | 0.30 |  |  | — |  |  | 0.20 |
Weighted average common shares outstanding |  |  |  |  |  |  |  |  |  |
Basic |  | 12,719 |  |  | 12,201 |  |  | 11,211 |  |  | 10,552 |  |  | 8,235 |
Diluted |  | 12,817 |  |  | 12,320 |  |  | 11,324 |  |  | 10,709 |  |  | 8,333 |

SmartFinancial, Inc. and Subsidiary |  |  |  |  |  |  |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |
YIELD ANALYSIS |  |  |  |  |  |  |  |  |  |  |  |
|  | Three Months Ended September 30, 2018 |  | Three Months Ended June 30, 2018 |  | Three Months Ended September 30, 2017
|  | Average |  |  |  | Yield/ |  | Average |  |  |  | Yield/ |  | Average |  |  |  | Yield/
|  | Balance |  | Interest 1 |  | Cost 1 |  | Balance |  | Interest 1 |  | Cost1 |  | Balance |  | Interest 1 |  | Cost 1
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans |  | $ | 1,577,222 |  |  | $ | 21,573 |  |  | 5.43 | % |  | $ | 1,508,351 |  |  | $ | 21,654 |  |  | 5.76 | % |  | $ | 868,357 |  |  | $ | 11,496 |  |  | 5.25 | %
Investment securities and interest bearing due froms |  | 232,041 |  |  | 1,361 |  |  | 2.33 | % |  | 211,587 |  |  | 1,218 |  |  | 2.31 | % |  | 142,467 |  |  | 757 |  |  | 2.11 | %
Federal funds and other |  | 13,033 |  |  | 170 |  |  | 5.17 | % |  | 9,616 |  |  | 144 |  |  | 6.01 | % |  | 31,864 |  |  | 86 |  |  | 1.07 | %
Total interest-earning assets |  | 1,822,296 |  |  | 23,104 |  |  | 5.03 | % |  | 1,729,554 |  |  | 23,016 |  |  | 5.34 | % |  | 1,042,305 |  |  | 12,339 |  |  | 4.70 | %
Non-interest-earning assets |  | 198,215 |  |  |  |  |  |  |  |  | 194,517 |  |  |  |  |  |  | 96,147 |  |  |  |  |  |  |
Total assets |  | $ | 2,020,511 |  |  |  |  |  |  |  |  | $ | 1,924,071 |  |  |  |  |  |  | $ | 1,138,452 |  |  |  |  |  |  |
Liabilities and Stockholders’ Equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing demand deposits |  | $ | 239,220 |  |  | $ | 283 |  |  | 0.47 | % |  | $ | 244,208 |  |  | $ | 265 |  |  | 0.44 | % |  | $ | 153,838 |  |  | $ | 118 |  |  | 0.30 | %
Money market and savings deposits |  | 615,334 |  |  | 1,595 |  |  | 1.03 | % |  | 597,353 |  |  | 1,418 |  |  | 0.95 | % |  | 329,933 |  |  | 519 |  |  | 0.62 | %
Time deposits |  | 564,945 |  |  | 2,090 |  |  | 1.47 | % |  | 510,445 |  |  | 1,555 |  |  | 1.22 | % |  | 311,668 |  |  | 736 |  |  | 0.94 | %
Total interest-bearing deposits |  | 1,419,499 |  |  | 3,968 |  |  | 1.11 | % |  | 1,352,006 |  |  | 3,238 |  |  | 0.96 | % |  | 795,439 |  |  | 1,373 |  |  | 0.68 | %
Securities sold under agreement to repurchase |  | 17,694 |  |  | 12 |  |  | 0.27 | % |  | 15,643 |  |  | 11 |  |  | 0.28 | % |  | 20,589 |  |  | 15 |  |  | 0.29 | %
Federal Home Loan Bank advances, sub debt and other borrowings |  | 17,719 |  |  | 228 |  |  | 5.11 | % |  | 22,780 |  |  | 207 |  |  | 3.64 | % |  | 381 |  |  | 5 |  |  | 5.21 | %
Total interest-bearing liabilities |  | 1,454,912 |  |  | 4,208 |  |  | 1.15 | % |  | 1,390,429 |  |  | 3,455 |  |  | 1.00 | % |  | 816,409 |  |  | 1,393 |  |  | 0.68 | %
Noninterest-bearing deposits |  | 307,007 |  |  |  |  |  |  |  |  | 283,413 |  |  |  |  |  |  | 179,968 |  |  |  |  |  |  |
Other liabilities |  | 8,529 |  |  |  |  |  |  |  |  | 16,944 |  |  |  |  |  |  | 5,978 |  |  |  |  |  |  |
Total liabilities |  | 1,770,448 |  |  |  |  |  |  |  |  | 1,690,786 |  |  |  |  |  |  | 1,002,355 |  |  |  |  |  |  |
Shareholders’ equity |  | 250,063 |  |  |  |  |  |  |  |  | 233,285 |  |  |  |  |  |  | 136,097 |  |  |  |  |  |  |
Total liabilities and stockholders’ equity |  | $ | 2,020,511 |  |  |  |  |  |  |  |  | $ | 1,924,071 |  |  |  |  |  |  | $ | 1,138,452 |  |  |  |  |  |  |
Net interest income, taxable equivalent |  |  |  |  | $ | 18,896 |  |  |  |  |  |  |  | $ | 19,561 |  |  |  |  |  |  |  | $ | 10,946 |  |  |  |
Interest rate spread |  |  |  |  |  |  |  | 3.88 | % |  |  |  |  |  | 4.34 | % |  |  |  |  |  |  |  | 4.02 | %
Tax equivalent net interest margin |  |  |  |  |  |  |  | 4.11 | % |  |  |  |  |  | 4.54 | % |  |  |  |  |  |  |  | 4.17 | %
Percentage of average interest-earning assets to average interest-bearing liabilities |  |  |  |  |  |  |  | 125.25 | % |  |  |  |  |  | 124.39 | % |  |  |  |  |  |  |  | 127.67 | %
Percentage of average equity to average assets |  |  |  |  |  |  |  | 12.38 | % |  |  |  |  |  | 12.12 | % |  |  |  |  |  |  |  | 11.95 | %

1 Taxable equivalent

SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |
(In thousands) |  |  |  |
NON-GAAP RECONCILIATIONS |  | Three months ending
|  | September 30, 2018 |  | June 30, 2018 |  | March 31, 2018 |  | December 31, 2017 |  | September 30, 2017
Operating Earnings |  |  |  |  |  |  |  |  |  |
Net income (GAAP) |  | $ | 4,324 |  |  | $ | 3,931 |  |  | $ | 3,415 |  |  | $ | 38 |  |  | $ | 1,685 |
Securities (gains) losses |  | — |  |  | 1 |  |  | — |  |  | — |  |  | (144 | )
Merger expenses |  | 838 |  |  | 1,123 |  |  | 498 |  |  | 1,694 |  |  | 303 |
Revaluation of deferred tax assets due to change in tax law |  | — |  |  | — |  |  | — |  |  | 2,440 |  |  | — |
Income tax effect of adjustments |  | (196 | ) |  | (211 | ) |  | (103 | ) |  | (506 | ) |  | (25 | )
Net operating earnings (Non-GAAP) |  | $ | 4,966 |  |  | $ | 4,844 |  |  | $ | 3,810 |  |  | $ | 3,666 |  |  | $ | 1,819 |
Net operating earnings per common share (Non-GAAP): |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.39 |  |  | $ | 0.40 |  |  | $ | 0.34 |  |  | $ | 0.35 |  |  | $ | 0.22 |
Diluted |  | 0.39 |  |  | 0.39 |  |  | 0.34 |  |  | 0.34 |  |  | 0.22 |
Non-GAAP Return Ratios |  |  |  |  |  |  |  |  |  |
Net operating return on average assets (Non-GAAP)1 |  | 0.98 | % |  | 1.00 | % |  | 0.89 | % |  | 0.99 | % |  | 0.63 | %
Return on average tangible common equity (Non-GAAP)2 |  | 9.44 | % |  | 8.96 | % |  | 8.10 | % |  | 0.10 | % |  | 5.20 | %
Net operating return on average shareholder equity (Non-GAAP)3 |  | 7.88 | % |  | 8.33 | % |  | 6.97 | % |  | 7.98 | % |  | 5.30 | %
Net operating return on average tangible common equity (Non-GAAP)4 |  | 10.84 | % |  | 11.04 | % |  | 9.04 | % |  | 9.94 | % |  | 5.61 | %
Operating Efficiency Ratio |  |  |  |  |  |  |  |  |  |
Efficiency ratio (GAAP) |  | 71.37 | % |  | 72.34 | % |  | 72.39 | % |  | 74.26 | % |  | 78.67 | %
Adjustment for taxable equivalent yields |  | (0.17 | )% |  | (0.15 | )% |  | (0.09 | )% |  | (0.13 | )% |  | (0.23 | )%
Adjustment for securities gains (losses) |  | — | % |  | (0.01 | )% |  | — | % |  | — | % |  | 1.54 | %
Adjustment for merger related costs |  | (3.99 | )% |  | (7.35 | )% |  | (3.76 | )% |  | (13.48 | )% |  | (3.26 | )%
Operating efficiency ratio (Non-GAAP) |  | 67.21 | % |  | 64.82 | % |  | 69.12 | % |  | 60.64 | % |  | 76.72 | %
Tangible Common Equity |  |  |  |  |  |  |  |  |  |
Shareholders' equity (GAAP) |  | $ | 251,642 |  |  | $ | 247,487 |  |  | $ | 208,949 |  |  | $ | 205,852 |  |  | $ | 136,588 |
Less goodwill and other intangible assets |  | 68,254 |  |  | 68,449 |  |  | 50,660 |  |  | 50,837 |  |  | 7,414 |
Tangible common equity (Non-GAAP) |  | $ | 183,388 |  |  | $ | 179,037 |  |  | $ | 158,289 |  |  | $ | 155,015 |  |  | $ | 129,174 |
Average Tangible Common Equity |  |  |  |  |  |  |  |  |  |
Average shareholders' equity (GAAP) |  | $ | 250,063 |  |  | $ | 233,285 |  |  | $ | 221,711 |  |  | $ | 184,295 |  |  | $ | 136,097 |
Less average goodwill and other intangible assets |  | 68,389 |  |  | 57,251 |  |  | 50,780 |  |  | 36,267 |  |  | 7,465 |
Average tangible common equity (Non-GAAP) |  | $ | 181,674 |  |  | $ | 176,034 |  |  | $ | 170,931 |  |  | $ | 148,028 |  |  | $ | 128,631 |

1 Net operating return on average assets (non-GAAP) is the annualized net operating earnings (non-GAAP) divided by average assets.
2 Return on average tangible common equity (non-GAAP) is the annualized net income divided by average tangible common equity (non-GAAP).
3 Net operating return on average equity (non-GAAP) is the annualized net operating earnings (non-GAAP) divided by average equity.
4 Net operating return on average tangible common equity (non-GAAP) is the annualized net operating earnings (non-GAAP) divided by average tangible common equity (non-GAAP).