EX-99.1 2 a2017123118q4earningsrelea.htm EXHIBIT 99.1
Exhibit 99.1
4 Q 2018
SmartFinancial Reports $0.47 Earnings per Diluted Share for the Fourth Quarter of 2018
Net operating earnings per diluted common share (non-GAAP) was $0.43 for the fourth quarter of 2018
Performance Highlights

• | Net income available to common shareholders totaled $6.4 million in the quarter and ROAA increased to 1.17 percent.

• | Net operating earnings available to common shareholders (non-GAAP) totaled $5.9 million in the quarter and net operating ROAA (non-GAAP) increased to 1.07 percent.

• | Noninterest expense to average assets of 2.84 percent, a decrease of 0.51 percentage points from a year ago.

• | Loan growth, excluding loans acquired from Foothills, at 10 percent annualized.

• | A 26.8 percent increase in total revenue, to $23.1 million in the the fourth quarter of 2018, compared with total revenue of $16.9 million in the fourth quarter of 2017.

• | Asset quality was outstanding with nonperforming assets to total assets of just 0.24 percent.

KNOXVILLE, TN - January 23, 2018 - SmartFinancial, Inc. ("SmartFinancial"; NASDAQ: SMBK), announced today net income available to common shareholders of $6.4 million in its fourth quarter of 2018 ,or $0.47 per diluted share, compared to $38 thousand, or $0.00 per diluted share a year ago, which included $2.4 million of tax charges related to changes in tax law. On November 1, 2018, SmartFinancial completed the acquisition of Foothills Bancorp, Inc. and Foothills Bank & Trust and this quarter includes two months of the results of the acquired companies. This quarter also included $1.3 million in pre-tax merger related expenses and $1.6 million in tax benefit related adjustments from director options that were previously exercised.
Billy Carroll stated, "We are extremely proud of our accomplishments in the fourth quarter and for the year. 2018 was our company's busiest yet. We converted two banks and closed on a third, but just as important was our continued strong organic growth that is building a great core bank. In addition, the announcement of our merger with Entegra Financial Corp. positions our company to take a transformative step in 2019. We are very excited about what the future holds."
SmartFinancial Chairman, Miller Welborn, concluded, "I've been very pleased with what our team has accomplished this year and the fourth quarter showed our continued positive trends on our financial performance. Closing the Foothills Bank deal during the quarter was a great addition to our Knoxville, TN market area, as well as the new talent we added to the team during the year, both of which will yield great upside in 2019. "
Fourth Quarter 2018 compared to Third Quarter 2018
Net income available to common shareholders totaled $6.4 million in the fourth quarter of 2018, or $0.47 per diluted share, compared to $4.3 million, or $0.34 per diluted share, in the third quarter of 2018. Net operating earnings available to common shareholders (Non-GAAP), which excludes securities gains, merger expenses, and tax benefit related adjustments, totaled $5.9 million in the fourth quarter of 2018, or $0.43 per diluted share, compared to $5.0 million, or $0.39 per diluted share, in the previous quarter.
Net interest income to average assets of 3.90 percent for the quarter increased from 3.70 percent in the third quarter of 2018. Net interest income totaled $21.4 million in the fourth quarter of 2018 compared to $18.9 million in the third quarter of 2018. Net interest income was positively impacted during the quarter by increases in earning asset balances and higher earning asset yields. Net interest margin, taxable equivalent, increased from 4.11 percent in the third quarter of 2018 to 4.29 percent in the fourth quarter of 2018 primarily due to higher average loan balances, higher loan yields (including purchased loan accounting adjustments), and higher security yields, which was partially offset by increases in funding costs.

Provision for loan losses was $1.3 million in the fourth quarter of 2018, compared to $302 thousand in the third quarter of 2018. The increase in provision for loan losses was primarily due to increases in net loan growth. Annualized net charge-offs in the fourth quarter of 2018 remained at a very low level, just 0.04 percent of average loans compared to 0.06 percent in the third quarter of 2018.
The allowance for loan losses, was $8.3 million, or 0.46 percent of total loans, as of December 31, 2018, compared to $7.2 million, or 0.45 percent of total loans, as of September 30, 2018. There were $21.5 million net purchase discounts on $640.2 million of acquired loans as of December 31, 2018, compared to $19.5 million net purchase discounts on $558.0 million of acquired loans as of September 30, 2018.
Nonperforming loans as a percentage of total loans was 0.16 percent as of December 31, 2018, which remained unchanged from 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 0.24 percent as of December 31, 2018, compared to 0.33 percent as of September 30, 2018.
Noninterest income to average assets of 0.31 percent for the quarter decreased slightly from 0.36 percent in the third quarter of 2018. Noninterest income totaled $1.7 million in the fourth quarter of 2018, compared to $1.8 million in the third quarter of 2018. The decrease in noninterest income was primarily due to lower gains on the sale of loans and other assets.
Noninterest expense to average assets of 2.84 percent for the quarter decreased from 2.90 percent in the third quarter of 2018. Noninterest expense totaled $15.7 million in the fourth quarter of 2018, which included $1.3 million in merger related charges, compared to $14.8 million in third quarter of 2018, which had $838 thousand in merger charges.
Income tax benefit was $0.3 million in the fourth quarter of 2018, which included $1.6 million in tax benefit related adjustments. Income tax expense in the third quarter of 2018 was $1.3 million. Excluding the tax benefit the company's effective tax rate was 26.0 percent in the fourth quarter of 2018 compared to 23.2 percent in the third quarter of 2018.
Fourth Quarter 2018 compared to Fourth Quarter 2017
Net income available to common shareholders totaled $6.4 million in the fourth quarter of 2018, or $0.47 per diluted share, compared to $38 thousand, or $0.00 per diluted share, in the fourth quarter of 2017. Net operating earnings available to common shareholders (Non-GAAP), which excludes securities gains, merger expenses, tax benefit related adjustments, and revaluation of deferred tax assets due to change in tax law, totaled $5.9 million in the fourth quarter of 2018 compared to $3.7 million in the fourth quarter of 2017.
Net interest income to average assets of 3.90 percent for the quarter decreased from 4.09 percent in the fourth quarter of 2017. Net interest income totaled $21.4 million in the fourth quarter of 2018 compared to $15.3 million in the fourth quarter of 2017. Net interest margin, taxable equivalent, decreased from 4.63 percent in the fourth quarter of 2017 to 4.29 percent in the fourth quarter of 2018 primarily due to higher cost of interest-bearing liabilities.
Provision for loan losses was $1.3 million in the fourth quarter of 2018, compared to $442 thousand in the fourth quarter of 2017. The increase in provision was primarily due to increases in originated loan balances. Annualized net charge-offs in the fourth quarter of 2018 remained at a very low level, just 0.04 percent of average loans compared to net recoveries of 0.01 percent in the fourth quarter of 2017.
Nonperforming loans as a percentage of total loans was 0.16 percent as of December 31, 2018, which increased slightly from 0.13 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 0.24 percent as of December 31, 2018, compared to 0.29 percent as of December 31, 2017.
Noninterest income to average assets of 0.31 percent for the quarter decreased from 0.42 percent in the fourth quarter of 2017. Noninterest income totaled $1.7 million in the fourth quarter of 2018, compared to $1.6 million in the fourth quarter of 2017.
Noninterest expense to average assets of 2.84 percent for the quarter decreased from 3.35 percent in the fourth quarter of 2017. Noninterest expense totaled $15.7 million in the fourth quarter of 2018, which included $1.3 million in merger related charges, compared to $12.6 million in the fourth quarter of 2017, which had $1.7 million in merger charges. The primary drivers of the increase in expense compared to the prior year were as a result of the Capstone, TN Bancshares, and Foothills mergers which materially increased salaries and employee benefits, occupancy expense, amortization of intangibles, and other noninterest expense.

Income tax benefit was $0.3 million in the fourth quarter of 2018, which included $1.6 million in tax benefit related adjustments. Income tax expense in the fourth quarter of 2017 was $3.9 million which included a $2.4 million revaluation of deferred tax assets due to change in tax law.
Conference Call Information
SmartFinancial plans to issue its earnings release for the fourth quarter of 2018 on Wednesday, January 23, 2019, and will host a conference call on Thursday, January 24, 2019 at 10:00 a.m. ET. To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 6152900. A replay of the conference call will be available through January 24, 2020, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10127945.
Conference call materials (earnings release & conference call presentation will be published on the company’s webpage located at http://www.smartfinancialinc.com/CorporateProfile, by 9:00 am ET the morning of the conference call.
About SmartFinancial, Inc.
SmartFinancial, Inc., headquartered in Knoxville, Tennessee, is the bank holding company for SmartBank, a full-service commercial bank founded in 2007 and domiciled in Pigeon Forge, Tennessee. SmartFinancial’s common stock is traded on the Nasdaq Capital Market under the ticker symbol SMBK. SmartBank has 29 branch offices across Tennessee, Alabama, and the Florida Panhandle. Recruiting the best people, delivering exceptional client service, strategic branching and acquisitions, and a disciplined approach to lending have all contributed to SmartFinancial’s and 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, 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 the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” and “estimate,” and similar expressions, are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking, including statements about the benefits to SmartFinancial of its previously announced merger with Entegra Financial Corp. (“Entegra”), SmartFinancial’s future financial and operating results, and SmartFinancial’s plans, objectives, and intentions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of SmartFinancial to differ materially from any results, performance, or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, among others, (1) the risk that the cost savings and any revenue synergies from the proposed merger with Entegra may not be realized or take longer than anticipated to be realized, (2) the risk that the cost savings and any revenue synergies from recently completed mergers may not be realized or may take longer than anticipated to realize, (3) disruption from the proposed merger with Entegra, or recently completed mergers, with customer, supplier, or employee relationships, (4) the occurrence of any event, change, or other circumstances that could give rise to the termination of the agreement and plan of merger among SmartFinancial, CT Merger Sub, Inc., and Entegra providing for the proposed merger with Entegra, (5) the failure to obtain necessary shareholder or regulatory approvals for the merger with Entegra, (6) the possibility that the amount of the costs, fees, expenses, and charges related to the merger with Entegra may be greater than anticipated, including as a result of unexpected or unknown factors, events, or liabilities, (7) the failure of the conditions to the merger with Entegra to be satisfied, (8) the risk of successful integration of the two companies’ businesses, including the risk that the integration of Entegra’s operations with those of SmartFinancial will be materially delayed or will be more costly or difficult than expected, (9) the risk of expansion into new geographic or product markets, (10) reputational risk and the reaction of SmartFinancial’s and Entegra’s customers to the merger, (11) the risk of potential litigation or regulatory action related to the merger with Entegra, (12) the dilution caused by SmartFinancial’s issuance of additional shares of its common stock in the merger with Entegra, and (13) general competitive, economic, political, and market conditions. 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 filed with the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website at http://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.
IMPORTANT INFORMATION FOR SHAREHOLDERS AND INVESTORS
This press release shall not constitute an offer to sell, the solicitation of an offer to sell, or the solicitation of an offer to buy any securities or the solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. In connection with SmartFinancial’s proposed merger with Entegra, SmartFinancial will file a registration statement on Form S-4 with the SEC, which will contain the joint proxy statement of SmartFinancial and Entegra and a prospectus of SmartFinancial. Shareholders are encouraged to read the registration statement, including the joint proxy statement/prospectus that will be part of the registration statement, because it will contain important information about the proposed transaction, SmartFinancial, and Entegra. After the registration statement is filed with the SEC, the joint proxy statement/prospectus and other relevant documents will be mailed to SmartFinancial and Entegra shareholders and will be available for free on the SEC’s website (www.sec.gov). The joint proxy statement/prospectus will also be made available for free by contacting Ron Gorczynski, SmartFinancial’s Chief Administrative Officer, at (865) 437-5724 or David Bright, the Chief Financial Officer and Treasurer of Entegra, at (828) 524-7000. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
PARTICIPANTS IN THE SOLICITATION
SmartFinancial, Entegra, and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from SmartFinancial and Entegra shareholders in connection with the previously announced proposed merger of SmartFinancial and Entegra under the rules of the SEC. Information about the directors and executive officers of SmartFinancial may be found in the definitive proxy statement for SmartFinancial’s 2018 annual meeting of shareholders, filed with the SEC by SmartFinancial on April 2, 2018, and other documents subsequently filed by SmartFinancial with the SEC. Information about the directors and executive officers of Entegra may be found in the definitive proxy statement for Entegra’s 2018 annual meeting of shareholders, filed by Entegra with the SEC on April 2, 2018. Additional information regarding the interests of these participants will also be included in the joint proxy statement/prospectus regarding the proposed transaction when it becomes available. Free copies of these documents maybe obtained as described in the paragraph above.

SmartFinancial, Inc. and Subsidiaries |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |
(In thousands, except per share data) |  |  |  |
|  | As of and for the three months ended
|  | December 31, 2018 |  | September 30, 2018 |  | June 30, 2018 |  | March 31, 2018 |  | December 31, 2017
Selected Performance Ratios (Annualized) |  |  |  |  |  |  |  |  |  |
Return on average assets |  | 1.17 | % |  | 0.85 | % |  | 0.81 | % |  | 0.80 | % |  | 0.01 | %
Net operating return on average assets (Non-GAAP) |  | 1.07 | % |  | 0.98 | % |  | 1.00 | % |  | 0.89 | % |  | 0.99 | %
Return on average shareholder equity |  | 9.44 | % |  | 6.86 | % |  | 6.76 | % |  | 6.25 | % |  | 0.08 | %
Return on average tangible common equity (Non-GAAP) |  | 13.09 | % |  | 9.44 | % |  | 8.96 | % |  | 8.10 | % |  | 0.10 | %
Net operating return on average shareholder equity (Non-GAAP) |  | 8.65 | % |  | 7.88 | % |  | 8.33 | % |  | 6.97 | % |  | 7.98 | %
Net operating return on average tangible common equity (Non-GAAP) |  | 12.00 | % |  | 10.84 | % |  | 11.04 | % |  | 9.04 | % |  | 9.94 | %
Net interest income / average assets |  | 3.90 | % |  | 3.70 | % |  | 4.03 | % |  | 3.93 | % |  | 4.09 | %
Yield on earning assets |  | 5.34 | % |  | 5.02 | % |  | 5.34 | % |  | 5.02 | % |  | 5.20 | %
Yield on earning assets, TE |  | 5.36 | % |  | 5.03 | % |  | 5.34 | % |  | 5.03 | % |  | 5.20 | %
Cost of interest-bearing liabilities |  | 1.33 | % |  | 1.15 | % |  | 1.00 | % |  | 0.82 | % |  | 0.70 | %
Net interest margin |  | 4.28 | % |  | 4.11 | % |  | 4.53 | % |  | 4.36 | % |  | 4.62 | %
Net interest margin, TE |  | 4.29 | % |  | 4.11 | % |  | 4.54 | % |  | 4.36 | % |  | 4.63 | %
Noninterest income / average assets |  | 0.31 | % |  | 0.36 | % |  | 0.33 | % |  | 0.34 | % |  | 0.42 | %
Noninterest expense / average assets |  | 2.84 | % |  | 2.90 | % |  | 3.15 | % |  | 3.09 | % |  | 3.35 | %
Efficiency ratio |  | 67.71 | % |  | 71.34 | % |  | 72.34 | % |  | 72.39 | % |  | 74.26 | %
Operating efficiency ratio (Non-GAAP) |  | 62.00 | % |  | 67.17 | % |  | 64.82 | % |  | 69.12 | % |  | 60.64 | %
Pre-tax pre-provision income / average assets |  | 1.36 | % |  | 1.23 | % |  | 1.21 | % |  | 1.18 | % |  | 1.16 | %
Per Common Share |  |  |  |  |  |  |  |  |  |
Net income, basic |  | $ | 0.48 |  |  | $ | 0.34 |  |  | $ | 0.32 |  |  | $ | 0.30 |  |  | $ | — |
Net income, diluted |  | 0.47 |  |  | 0.34 |  |  | 0.32 |  |  | 0.30 |  |  | — |
Net operating earnings, basic (Non-GAAP) |  | 0.44 |  |  | 0.39 |  |  | 0.40 |  |  | 0.34 |  |  | 0.35 |
Net operating earnings, diluted (Non-GAAP) |  | 0.43 |  |  | 0.39 |  |  | 0.39 |  |  | 0.34 |  |  | 0.34 |
Book value |  | 20.31 |  |  | 19.74 |  |  | 19.48 |  |  | 18.60 |  |  | 18.46 |
Tangible book value (Non-GAAP) |  | 14.64 |  |  | 14.38 |  |  | 14.09 |  |  | 14.09 |  |  | 13.90 |
Common shares outstanding |  | 13,934 |  |  | 12,750 |  |  | 12,705 |  |  | 11,234 |  |  | 11,153 |
SmartFinancial, Inc. and Subsidiaries |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |
(In thousands, except per share data) |  |  |  |
|  | As of and for the three months ended
|  | December 31, 2018 |  | September 30, 2018 |  | June 30, 2018 |  | March 31, 2018 |  | December 31, 2017
Composition of Loans |  |  |  |  |  |  |  |  |  |
Real estate commercial |  |  |  |  |  |  |  |  |  |
owner occupied |  | $ | 372,030 |  |  | $ | 364,164 |  |  | $ | 360,294 |  |  | $ | 288,666 |  |  | $ | 281,297 |
non-owner occupied |  | 487,551 |  |  | 400,275 |  |  | 385,536 |  |  | 375,028 |  |  | 361,691 |
Real estate commercial, total |  | 859,581 |  |  | 764,439 |  |  | 745,830 |  |  | 663,694 |  |  | 642,988 |
Commercial & industrial |  | 307,886 |  |  | 289,732 |  |  | 279,341 |  |  | 256,333 |  |  | 238,087 |
Real estate construction & development |  | 187,868 |  |  | 166,089 |  |  | 179,361 |  |  | 142,702 |  |  | 135,409 |
Real estate residential |  | 408,164 |  |  | 351,948 |  |  | 355,755 |  |  | 299,148 |  |  | 293,457 |
Other loans |  | 13,728 |  |  | 12,986 |  |  | 15,148 |  |  | 12,380 |  |  | 13,317 |
Total loans |  | $ | 1,777,227 |  |  | $ | 1,585,194 |  |  | $ | 1,575,434 |  |  | $ | 1,374,257 |  |  | $ | 1,323,258 |
Asset Quality and Additional Loan Data |  |  |  |  |  |  |  |  |  |
Nonperforming loans |  | $ | 2,856 |  |  | $ | 2,604 |  |  | $ | 1,730 |  |  | $ | 1,931 |  |  | $ | 1,764 |
Foreclosed assets |  | 2,495 |  |  | 4,230 |  |  | 3,524 |  |  | 2,665 |  |  | 3,254 |
Total nonperforming assets |  | $ | 5,351 |  |  | $ | 6,834 |  |  | $ | 5,254 |  |  | $ | 4,595 |  |  | $ | 5,018 |
Restructured loans not included in nonperforming loans |  | $ | 116 |  |  | $ | 369 |  |  | $ | 660 |  |  | $ | 40 |  |  | $ | 41 |
Net charge-offs (recoveries) to average loans (annualized) |  | 0.04 | % |  | 0.06 | % |  | 0.02 | % |  | 0.02 | % |  | (0.01 | )%
Allowance for loan losses to loans |  | 0.46 | % |  | 0.45 | % |  | 0.45 | % |  | 0.47 | % |  | 0.44 | %
Nonperforming loans to total loans, gross |  | 0.16 | % |  | 0.16 | % |  | 0.11 | % |  | 0.14 | % |  | 0.13 | %
Nonperforming assets to total assets |  | 0.24 | % |  | 0.33 | % |  | 0.25 | % |  | 0.26 | % |  | 0.29 | %
Acquisition accounting discounts on acquired loans |  | $ | 21,528 |  |  | $ | 19,500 |  |  | $ | 20,748 |  |  | $ | 16,323 |  |  | $ | 17,862 |
Accretion income on acquired loans |  | 2,755 |  |  | 1,208 |  |  | 2,583 |  |  | 1,274 |  |  | 2,411 |
Capital Ratios |  |  |  |  |  |  |  |  |  |
Equity to Assets |  | 12.44 | % |  | 12.27 | % |  | 12.00 | % |  | 11.87 | % |  | 11.96 | %
Tangible equity to tangible assets (Non-GAAP) |  | 9.29 | % |  | 9.25 | % |  | 8.98 | % |  | 9.26 | % |  | 9.28 | %
Tangible common equity to tangible assets (Non-GAAP) |  | 9.29 | % |  | 9.25 | % |  | 8.98 | % |  | 9.26 | % |  | 9.28 | %
SmartFinancial, Inc.: |  | Estimated 1 |  |  | Estimated 1 |  |  |  |  |  |  |
Tier 1 leverage |  | 9.47 | % |  | 9.26 | % |  | 9.82 | % |  | 9.59 | % |  | 10.48 | %
Common equity Tier 1 |  | 10.66 | % |  | 10.70 | % |  | 10.83 | % |  | 10.84 | % |  | 10.59 | %
Tier 1 capital |  | 10.66 | % |  | 10.70 | % |  | 10.83 | % |  | 10.84 | % |  | 10.59 | %
Total capital |  | 13.10 | % |  | 13.34 | % |  | 11.25 | % |  | 11.27 | % |  | 10.98 | %
SmartBank: |  | Estimated 2 |  |  |  |  |  |  |  |  |
Tier 1 leverage |  | 10.23 | % |  | 10.55 | % |  | 10.43 | % |  | 10.17 | % |  | 11.26 | %
Common equity Tier 1 |  | 11.52 | % |  | 11.99 | % |  | 11.41 | % |  | 11.12 | % |  | 10.90 | %
Tier 1 risk-based capital |  | 11.52 | % |  | 11.99 | % |  | 11.41 | % |  | 11.12 | % |  | 10.90 | %
Total risk-based capital |  | 11.95 | % |  | 12.40 | % |  | 11.83 | % |  | 11.56 | % |  | 11.30 | %

1 Effective 9/30/18 the company files the FRY-9SP which does not include capital ratios
2 Ratios will be finalized with the filing of the quarterly Call Report

SmartFinancial, Inc. and Subsidiaries |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |
(In thousands) |  |  |  |
BALANCE SHEET |  |  |  |  |  |  |  |  |  |
|  | Ending Balances
|  | December 31, 2018 |  | September 30, 2018 |  | June 30, 2018 |  | March 31, 2018 |  | December 31, 2017
Assets |  |  |  |  |  |  |  |  |  |
Cash & cash equivalents |  | $ | 115,822 |  |  | $ | 130,104 |  |  | $ | 170,235 |  |  | $ | 96,710 |  |  | $ | 113,027 |
Securities available for sale |  | 201,688 |  |  | 173,039 |  |  | 156,577 |  |  | 156,210 |  |  | 151,945 |
Other investments |  | 11,499 |  |  | 10,736 |  |  | 8,273 |  |  | 7,808 |  |  | 6,431 |
Total loans |  | 1,777,227 |  |  | 1,585,194 |  |  | 1,575,434 |  |  | 1,374,257 |  |  | 1,323,258 |
Allowance for loan losses |  | (8,263 | ) |  | (7,156 | ) |  | (7,074 | ) |  | (6,477 | ) |  | (5,860 | )
Loans, net |  | 1,768,964 |  |  | 1,578,038 |  |  | 1,568,361 |  |  | 1,367,780 |  |  | 1,317,398 |
Premises and equipment |  | 56,012 |  |  | 51,138 |  |  | 52,203 |  |  | 44,202 |  |  | 43,000 |
Foreclosed assets |  | 2,495 |  |  | 4,230 |  |  | 3,524 |  |  | 2,665 |  |  | 3,254 |
Goodwill and other intangibles |  | 79,034 |  |  | 68,254 |  |  | 68,449 |  |  | 50,660 |  |  | 50,837 |
Cash surrender value of life insurance |  | 24,381 |  |  | 22,088 |  |  | 21,944 |  |  | 21,797 |  |  | 21,647 |
Other assets |  | 14,514 |  |  | 13,320 |  |  | 12,666 |  |  | 12,593 |  |  | 13,232 |
Total assets |  | $ | 2,274,409 |  |  | $ | 2,050,946 |  |  | $ | 2,062,232 |  |  | $ | 1,760,425 |  |  | $ | 1,720,771 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Noninterest demand |  | $ | 319,861 |  |  | $ | 301,197 |  |  | $ | 301,318 |  |  | $ | 276,249 |  |  | $ | 220,520 |
Interest-bearing demand |  | 311,482 |  |  | 267,146 |  |  | 246,942 |  |  | 278,965 |  |  | 231,644 |
Money market and savings |  | 641,945 |  |  | 570,172 |  |  | 632,518 |  |  | 491,243 |  |  | 543,645 |
Time deposits |  | 648,676 |  |  | 568,796 |  |  | 535,879 |  |  | 453,276 |  |  | 442,774 |
Total deposits |  | 1,921,964 |  |  | 1,707,311 |  |  | 1,716,658 |  |  | 1,499,733 |  |  | 1,438,583 |
Repurchase agreements |  | 11,756 |  |  | 16,786 |  |  | 18,635 |  |  | 15,968 |  |  | 24,055 |
FHLB & other borrowings |  | 11,243 |  |  | 25,324 |  |  | 72,040 |  |  | 30,000 |  |  | 43,600 |
Subordinated debt |  | 39,177 |  |  | 39,158 |  |  | — |  |  | — |  |  | — |
Other liabilities |  | 7,258 |  |  | 10,724 |  |  | 7,413 |  |  | 5,775 |  |  | 8,681 |
Total liabilities |  | 1,991,398 |  |  | 1,799,304 |  |  | 1,814,745 |  |  | 1,551,476 |  |  | 1,514,919 |
Shareholders' Equity |  |  |  |  |  |  |  |  |  |
Common stock |  | 13,934 |  |  | 12,750 |  |  | 12,705 |  |  | 11,234 |  |  | 11,152 |
Additional paid-in capital |  | 231,851 |  |  | 208,999 |  |  | 208,513 |  |  | 174,981 |  |  | 174,009 |
Retained earnings |  | 39,991 |  |  | 33,559 |  |  | 29,235 |  |  | 25,303 |  |  | 21,889 |
Accumulated other comprehensive loss |  | (2,765 | ) |  | (3,666 | ) |  | (2,966 | ) |  | (2,569 | ) |  | (1,198 | )
Total shareholders' equity |  | 283,011 |  |  | 251,642 |  |  | 247,487 |  |  | 208,949 |  |  | 205,852 |
Total liabilities & shareholders' equity |  | $ | 2,274,409 |  |  | $ | 2,050,946 |  |  | $ | 2,062,232 |  |  | $ | 1,760,425 |  |  | $ | 1,720,771 |

SmartFinancial, Inc. and Subsidiaries |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |
(In thousands, except per share data) |  |  |  |
INCOME STATEMENT |  |  |  |  |  |  |  |  |  |
|  | Three months ended
|  | December 31, 2018 |  | September 30, 2018 |  | June 30, 2018 |  | March 31, 2018 |  | December 31, 2017
Interest Income |  |  |  |  |  |  |  |  |  |
Loans, including fees |  | $ | 25,017 |  |  | $ | 21,572 |  |  | $ | 21,652 |  |  | $ | 18,228 |  |  | $ | 16,357 |
Investment securities and interest bearing due froms |  | 1,574 |  |  | 1,326 |  |  | 1,198 |  |  | 1,049 |  |  | 770 |
Other interest income |  | 180 |  |  | 170 |  |  | 144 |  |  | 101 |  |  | 117 |
Total interest income |  | 26,771 |  |  | 23,068 |  |  | 22,993 |  |  | 19,378 |  |  | 17,244 |
Interest Expense |  |  |  |  |  |  |  |  |  |
Deposits |  | 4,680 |  |  | 3,969 |  |  | 3,238 |  |  | 2,401 |  |  | 1,806 |
Repurchase agreements |  | 9 |  |  | 11 |  |  | 11 |  |  | 13 |  |  | 15 |
FHLB and other borrowings |  | 51 |  |  | 209 |  |  | 207 |  |  | 153 |  |  | 81 |
Subordinated Debt |  | 584 |  |  | 19 |  |  | — |  |  | — |  |  | — |
Total interest expense |  | 5,324 |  |  | 4,208 |  |  | 3,455 |  |  | 2,567 |  |  | 1,902 |
Net interest income |  | 21,447 |  |  | 18,861 |  |  | 19,538 |  |  | 16,811 |  |  | 15,342 |
Provision for loan losses |  | 1,329 |  |  | 302 |  |  | 617 |  |  | 689 |  |  | 442 |
Net interest income after provision for loan losses |  | 20,118 |  |  | 18,559 |  |  | 18,921 |  |  | 16,122 |  |  | 14,899 |
Noninterest income |  |  |  |  |  |  |  |  |  |
Service charges on deposit accounts |  | 663 |  |  | 624 |  |  | 557 |  |  | 578 |  |  | 524 |
(Loss) gain on securities |  | 2 |  |  | — |  |  | (1 | ) |  | — |  |  | — |
Gain on sale of loans and other assets |  | 251 |  |  | 493 |  |  | 327 |  |  | 325 |  |  | 366 |
Interchange and debit card transaction fees |  | 162 |  |  | 144 |  |  | 121 |  |  | 146 |  |  | 304 |
Other noninterest income |  | 601 |  |  | 570 |  |  | 579 |  |  | 406 |  |  | 387 |
Total noninterest income |  | 1,679 |  |  | 1,831 |  |  | 1,583 |  |  | 1,455 |  |  | 1,581 |
Noninterest expense |  |  |  |  |  |  |  |  |  |
Salaries and employee benefits |  | 7,871 |  |  | 7,934 |  |  | 7,649 |  |  | 7,176 |  |  | 6,272 |
Occupancy expense |  | 1,610 |  |  | 1,638 |  |  | 1,522 |  |  | 1,533 |  |  | 1,217 |
FDIC premiums |  | 209 |  |  | 158 |  |  | 317 |  |  | 102 |  |  | 150 |
Foreclosed asset expense |  | 267 |  |  | 79 |  |  | 245 |  |  | 189 |  |  | 59 |
Marketing |  | 246 |  |  | 228 |  |  | 215 |  |  | 185 |  |  | 167 |
Data processing |  | 372 |  |  | 407 |  |  | 600 |  |  | 526 |  |  | 583 |
Professional expenses |  | 908 |  |  | 922 |  |  | 918 |  |  | 898 |  |  | 602 |
Amortization of other intangibles |  | 312 |  |  | 248 |  |  | 229 |  |  | 188 |  |  | 155 |
Service contracts |  | 577 |  |  | 507 |  |  | 492 |  |  | 479 |  |  | 426 |
Merger expense |  | 1,322 |  |  | 838 |  |  | 1,123 |  |  | 498 |  |  | 1,694 |
Other noninterest expense |  | 1,966 |  |  | 1,800 |  |  | 1,968 |  |  | 1,448 |  |  | 1,242 |
Total noninterest expense |  | 15,660 |  |  | 14,759 |  |  | 15,278 |  |  | 13,222 |  |  | 12,566 |
Earnings before income taxes |  | 6,137 |  |  | 5,631 |  |  | 5,226 |  |  | 4,355 |  |  | 3,913 |
Income tax expense (benefit) |  | (307 | ) |  | 1,305 |  |  | 1,295 |  |  | 940 |  |  | 3,875 |
Net income |  | $ | 6,444 |  |  | $ | 4,325 |  |  | $ | 3,931 |  |  | $ | 3,415 |  |  | $ | 38 |
NET INCOME PER COMMON SHARE |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.48 |  |  | $ | 0.34 |  |  | $ | 0.32 |  |  | $ | 0.30 |  |  | $ | — |
Diluted |  | 0.47 |  |  | 0.34 |  |  | 0.32 |  |  | 0.30 |  |  | — |
Weighted average common shares outstanding |  |  |  |  |  |  |  |  |  |
Basic |  | 13,535 |  |  | 12,719 |  |  | 12,201 |  |  | 11,211 |  |  | 10,552 |
Diluted |  | 13,617 |  |  | 12,818 |  |  | 12,320 |  |  | 11,324 |  |  | 10,709 |

SmartFinancial, Inc. and Subsidiaries |  |  |  |  |  |  |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |
YIELD ANALYSIS |  |  |  |  |  |  |  |  |  |  |  |
|  | Three Months Ended December 31, 2018 |  | Three Months Ended September 30, 2018 |  | Three Months Ended December 31, 2017
|  | Average |  |  |  | Yield/ |  | Average |  |  |  | Yield/ |  | Average |  |  |  | Yield/
|  | Balance |  | Interest 1 |  | Cost 1 |  | Balance |  | Interest 1 |  | Cost 1 |  | Balance |  | Interest 1 |  | Cost 1
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans |  | $ | 1,708,916 |  |  | $ | 25,019 |  |  | 5.81 | % |  | $ | 1,577,222 |  |  | $ | 21,573 |  |  | 5.43 | % |  | $ | 1,159,161 |  |  | $ | 16,362 |  |  | 5.60 | %
Investment securities and interest bearing due froms |  | 214,310 |  |  | 1,666 |  |  | 3.08 | % |  | 232,041 |  |  | 1,361 |  |  | 2.33 | % |  | 131,215 |  |  | 781 |  |  | 2.36 | %
Federal funds and other |  | 67,036 |  |  | 180 |  |  | 1.07 | % |  | 13,033 |  |  | 170 |  |  | 5.17 | % |  | 25,905 |  |  | 117 |  |  | 1.79 | %
Total interest-earning assets |  | 1,990,262 |  |  | 26,865 |  |  | 5.36 | % |  | 1,822,296 |  |  | 23,104 |  |  | 5.03 | % |  | 1,316,281 |  |  | 17,260 |  |  | 5.20 | %
Non-interest-earning assets |  | 193,952 |  |  |  |  |  |  | 198,215 |  |  |  |  |  |  | 171,879 |  |  |  |  |
Total assets |  | $ | 2,184,214 |  |  |  |  |  |  | $ | 2,020,511 |  |  |  |  |  |  | $ | 1,488,160 |  |  |  |  |
Liabilities and Stockholders’ Equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing demand deposits |  | $ | 289,207 |  |  | $ | 562 |  |  | 0.77 | % |  | $ | 239,220 |  |  | $ | 283 |  |  | 0.47 | % |  | $ | 195,783 |  |  | $ | 213 |  |  | 0.43 | %
Money market and savings deposits |  | 624,231 |  |  | 1,696 |  |  | 1.08 | % |  | 615,334 |  |  | 1,595 |  |  | 1.03 | % |  | 462,674 |  |  | 488 |  |  | 0.42 | %
Time deposits |  | 616,296 |  |  | 2,422 |  |  | 1.56 | % |  | 564,945 |  |  | 2,091 |  |  | 1.47 | % |  | 398,142 |  |  | 1,105 |  |  | 1.10 | %
Total interest-bearing deposits |  | 1,529,734 |  |  | 4,680 |  |  | 1.21 | % |  | 1,419,499 |  |  | 3,969 |  |  | 1.11 | % |  | 1,056,599 |  |  | 1,806 |  |  | 0.68 | %
Securities sold under agreement to repurchase |  | 10,661 |  |  | 9 |  |  | 0.33 | % |  | 17,694 |  |  | 11 |  |  | 0.27 | % |  | 20,226 |  |  | 15 |  |  | 0.29 | %
Subordinated debt |  | 39,178 |  |  | 584 |  |  | 5.91 | % |  | 1,277 |  |  | 19 |  |  | 5.90 | % |  | — |  |  | — |  |  | — | %
Federal Home Loan Bank advances and other borrowings |  | 4,070 |  |  | 51 |  |  | 4.97 | % |  | 16,442 |  |  | 209 |  |  | 5.11 | % |  | 8,281 |  |  | 81 |  |  | 3.88 | %
Total interest-bearing liabilities |  | 1,583,643 |  |  | 5,324 |  |  | 1.33 | % |  | 1,454,912 |  |  | 4,208 |  |  | 1.15 | % |  | 1,085,106 |  |  | 1,902 |  |  | 0.70 | %
Noninterest-bearing deposits |  | 320,412 |  |  |  |  |  |  | 307,007 |  |  |  |  |  |  | 203,457 |  |  |  |  |
Other liabilities |  | 9,275 |  |  |  |  |  |  | 8,529 |  |  |  |  |  |  | 15,302 |  |  |  |  |
Total liabilities |  | 1,913,330 |  |  |  |  |  |  | 1,770,448 |  |  |  |  |  |  | 1,303,865 |  |  |  |  |
Shareholders’ equity |  | 270,884 |  |  |  |  |  |  | 250,063 |  |  |  |  |  |  | 184,295 |  |  |  |  |
Total liabilities and stockholders’ equity |  | $ | 2,184,214 |  |  |  |  |  |  | $ | 2,020,511 |  |  |  |  |  |  | $ | 1,488,160 |  |  |  |  |
Net interest income, taxable equivalent |  |  |  | $ | 21,541 |  |  |  |  |  |  | $ | 18,896 |  |  |  |  |  |  | $ | 15,358 |  |  |
Interest rate spread |  |  |  |  |  | 4.03 | % |  |  |  |  |  | 3.88 | % |  |  |  |  |  | 4.50 | %
Tax equivalent net interest margin |  |  |  |  |  | 4.29 | % |  |  |  |  |  | 4.11 | % |  |  |  |  |  | 4.63 | %
Percentage of average interest-earning assets to average interest-bearing liabilities |  |  |  |  |  | 125.68 | % |  |  |  |  |  | 125.25 | % |  |  |  |  |  | 121.3 | %
Percentage of average equity to average assets |  |  |  |  |  | 12.40 | % |  |  |  |  |  | 12.38 | % |  |  |  |  |  | 12.38 | %

1 Taxable equivalent basis

SmartFinancial, Inc. and Subsidiaries |  |  |  |
Reconciliation of Non-GAAP Financial Measures |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |
(In thousands, except for per share data) |  |  |  |
|  | Three months ended
|  | December 31, 2018 |  | September 30, 2018 |  | June 30, 2018 |  | March 31, 2018 |  | December 31, 2017
Operating Earnings |  |  |  |  |  |  |  |  |  |
Net income (GAAP) |  | $ | 6,444 |  |  | $ | 4,324 |  |  | $ | 3,931 |  |  | $ | 3,415 |  |  | $ | 38 |
Securities (gains) losses |  | (2 | ) |  | — |  |  | 1 |  |  | — |  |  | — |
Merger expenses |  | 1,322 |  |  | 838 |  |  | 1,123 |  |  | 498 |  |  | 1,694 |
Tax charge related to change in tax law and tax benefit from director options previously exercised |  | (1,600 | ) |  | — |  |  | — |  |  | — |  |  | 2,440 |
Income tax effect of adjustments |  | (256 | ) |  | (196 | ) |  | (211 | ) |  | (103 | ) |  | (506 | )
Net operating earnings (Non-GAAP) |  | $ | 5,908 |  |  | $ | 4,966 |  |  | $ | 4,845 |  |  | $ | 3,810 |  |  | $ | 3,666 |
Net operating earnings per common share (Non-GAAP): |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.44 |  |  | $ | 0.39 |  |  | $ | 0.40 |  |  | $ | 0.34 |  |  | $ | 0.35 |
Diluted |  | 0.43 |  |  | 0.39 |  |  | 0.39 |  |  | 0.34 |  |  | 0.34 |
Non-GAAP Return Ratios |  |  |  |  |  |  |  |  |  |
Net operating return on average assets (Non-GAAP)1 |  | 1.07 | % |  | 0.98 | % |  | 1.00 | % |  | 0.89 | % |  | 0.99 | %
Return on average tangible common equity (Non-GAAP)2 |  | 13.09 | % |  | 9.44 | % |  | 8.96 | % |  | 8.10 | % |  | 0.10 | %
Net operating return on average shareholder equity (Non-GAAP)3 |  | 8.65 | % |  | 7.88 | % |  | 8.33 | % |  | 6.97 | % |  | 7.98 | %
Net operating return on average tangible common equity (Non-GAAP)4 |  | 12.00 | % |  | 10.84 | % |  | 11.04 | % |  | 9.04 | % |  | 9.94 | %
Operating Efficiency Ratio |  |  |  |  |  |  |  |  |  |
Efficiency ratio (GAAP) |  | 67.71 | % |  | 71.34 | % |  | 72.31 | % |  | 72.39 | % |  | 74.22 | %
Adjustment for taxable equivalent yields |  | — | % |  | (0.18 | )% |  | (0.11 | )% |  | (0.06 | )% |  | (0.09 | )%
Adjustment for securities gains (losses) |  | 0.01 | % |  | — | % |  | (0.01 | )% |  | — | % |  | — | %
Adjustment for merger related costs |  | (5.72 | )% |  | (3.99 | )% |  | (5.28 | )% |  | (2.71 | )% |  | (9.97 | )%
Operating efficiency ratio (Non-GAAP) |  | 62.00 | % |  | 67.17 | % |  | 66.92 | % |  | 69.62 | % |  | 64.16 | %
Tangible Common Equity |  |  |  |  |  |  |  |  |  |
Shareholders' equity (GAAP) |  | $ | 283,011 |  |  | $ | 251,642 |  |  | $ | 247,487 |  |  | $ | 208,949 |  |  | $ | 205,852 |
Less goodwill and other intangible assets |  | 79,034 |  |  | 68,254 |  |  | 68,449 |  |  | 50,660 |  |  | 50,837 |
Tangible common equity (Non-GAAP) |  | $ | 203,977 |  |  | $ | 183,388 |  |  | $ | 179,036 |  |  | $ | 158,289 |  |  | $ | 155,015 |
Average Tangible Common Equity |  |  |  |  |  |  |  |  |  |
Average shareholders' equity (GAAP) |  | $ | 270,884 |  |  | $ | 250,063 |  |  | $ | 233,285 |  |  | $ | 221,711 |  |  | $ | 184,295 |
Less average goodwill and other intangible assets |  | 75,547 |  |  | 68,389 |  |  | 57,251 |  |  | 50,780 |  |  | 36,267 |
Average tangible common equity (Non-GAAP) |  | $ | 195,337 |  |  | $ | 181,674 |  |  | $ | 176,034 |  |  | $ | 170,931 |  |  | $ | 148,028 |

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 shareholder equity (non-GAAP) is the annualized net operating earnings (non-GAAP) divided by average shareholder 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).