EX-99.1 2 a063019earningsexhibit991.htm EXHIBIT 99.1
Exhibit 99.1
2Q 2019
SmartFinancial Announces Earnings with Second Quarter 2019 Net Income of $9.1 million
Performance Highlights for Second Quarter of 2019

• | Return on average assets of 1.56 percent and net operating return on average assets (Non-GAAP) of 0.96%

• | Asset quality was outstanding with nonperforming assets of 0.17%

• | Recorded $6.4 million merger termination fee

• | Noninterest income to average assets of 1.44%, excluding merger termination fee, amounted to 0.35%

• | Noninterest-bearing demand deposit growth of 34.28% annualized

• | Completed departmental restructuring initiatives

KNOXVILLE, TN - July 24, 2019 - SmartFinancial, Inc. ("SmartFinancial"; NASDAQ: SMBK), today announced net income of $9.1 million for the second quarter of 2019, compared to $3.9 million for the second quarter of 2018. Diluted net income per share was $0.65 for the second quarter of 2019, compared to $0.32 during the second quarter of 2018. Net operating earnings (Non-GAAP), which excludes securities gains, merger termination fee and merger related and restructuring expenses, totaled $5.6 million in the second quarter of 2019 compared to $4.8 million in the second quarter of 2018.
Billy Carroll, President & CEO, stated: "This was a very solid quarter for our company. We took advantage of a very positive earnings event, restructured our finance team and centralized our deposit operations, while showing strong core deposit growth and nice core earnings. We are positioned well to continue building on our strong foundation."
SmartFinancial's Chairman, Miller Welborn, concluded: "I am very proud of where the bank is at the halfway mark of 2019. We are on track and executing our strategic plan. Our team has truly gelled and we are very excited about what the second half of the year holds as we continue to build value for our stakeholders."
Second Quarter 2019 compared to First Quarter 2019
Net income increased $4.4 million to $9.1 million for the second quarter of 2019, compared to $4.7 million for the first quarter of 2019 primarily due to a $6.4 million fee received in connection with the merger termination with Entegra Financial Corp. Diluted net income per share was $0.65 for the second quarter of 2019, compared to $0.34 during the first quarter of 2019. Net operating earnings (Non-GAAP) totaled $5.6 million in the second quarter of 2019 compared to $5.5 million in the previous quarter.
Net interest income for the second quarter of 2019 was $20.8 million, a decrease from $21.0 million for the first quarter of 2019. The tax equivalent net interest margin was 3.94% for the second quarter of 2019 compared to 4.10% for the first quarter of 2019. The tax equivalent average yield on interest-earning assets was 5.17% for the second quarter of 2019, a decrease from 5.25% for the first quarter of 2019, while the yield on interest-bearing liabilities increased to 1.54% for the second quarter of 2019 from 1.45% for the first quarter of 2019.
The yield on average loans was 5.53% for the second quarter of 2019 compared to 5.62% for the first quarter of 2019. The decrease in yield on average loans was due to lower discount accretion on acquired loans (30 basis points in the second quarter versus 42 basis points in the first quarter). For the second quarter of 2019, the yield on average loans, excluding accretion, increased 3 basis points to 5.23% from the first quarter of 2019. The cost of average interest-bearing deposits increased to 1.42% for the second quarter of 2019 from 1.32% for the first quarter of 2019. The increase was driven primarily from the continued competition for deposits.
Provision for loan losses was $393 thousand in the second quarter of 2019, compared to $797 thousand in the first quarter of 2019. The decrease in provision was primarily due to the larger provision recorded in the prior quarter from higher organic loan growth.

The allowance for loan losses was $9.1 million, or 0.50% of total loans, as of June 30, 2019, compared to $8.7 million, or 0.47% of total loans, as of March 31, 2019.
Nonperforming loans as a percentage of total loans was 0.12% as of June 30, 2019, consistent with the 0.12% reported in the first quarter of 2019. Total nonperforming assets (which include nonaccrual loans, loans past due 90 days or more and still accruing, and other real estate owned) as a percentage of total assets was 0.17% as of June 30, 2019, compared to 0.18% as of March 31, 2019.
Noninterest income increased by $6.7 million to $8.4 million for the second quarter of 2019 compared to $1.7 million for the first quarter of 2019 primarily due to the $6.4 million merger termination fee, and to a lesser extent, increases in mortgage banking of $110 thousand and wealth revenue of $86 thousand. Noninterest income to average assets (excluding the $6.4 million merger termination fee) of .35% for the second quarter of 2019 increased from .30% in the first quarter of 2019.
Noninterest expense increased by $1.2 million to $16.8 million for the second quarter of 2019 compared to $15.6 million for the first quarter of 2019 including merger related and restructuring expenses of $1.8 million for the second quarter of 2019 compared to $923 thousand for the first quarter of 2019. Operating noninterest expense (excludes merger related and restructuring expenses) increased by $357 thousand to $15.0 million for the second quarter of 2019 compared to $14.6 million for the first quarter of 2019. This increase was primarily due to increases in personnel expense. Operating noninterest expense to average assets of 2.57% for the second quarter of 2019 decreased from 2.60% in the first quarter of 2019.
Income tax expense was $2.9 million in the second quarter of 2019 compared to $1.6 million in the first quarter of 2019. The overall effective tax rate was 24.1% for the second quarter of 2019 compared to 25.1% in the first quarter of 2019. The first quarter of 2019 included non-deductible merger related expenses which were subsequently deductible in the second quarter stemming from the acquisition termination.
Second Quarter 2019 compared to Second Quarter 2018
Net income increased by $5.2 million to $9.1 million for the second quarter of 2019 compared to $3.9 million for the second quarter of 2018 primarily due to $6.4 million fee received for the merger termination of Entegra Financial Corp and the operating effects of the Tennessee Bancshares, Inc. and Foothills Bancorp, Inc. acquisitions which were completed in the second and fourth quarters of 2018, respectively. Diluted net income per share was $0.65 for the second quarter of 2019, compared to $0.32 for the second quarter of 2018. Net operating earnings (Non-GAAP) totaled $5.6 million in the second quarter of 2019 compared to $4.8 million for the second quarter of 2018.
Net interest income for the second quarter of 2019 was $20.8 million, an increase from $19.5 million for the second quarter of 2018. The tax equivalent net interest margin was 3.94% for the second quarter of 2019 compared to 4.57% for the second quarter of 2018. The tax equivalent average yield on interest-earning assets was 5.17% for the second quarter of 2019 decreasing from 5.37% for the second quarter of 2018, while the yield on interest bearing liabilities increased to 1.54% for the second quarter of 2019 from 1.00% for the second quarter of 2018.
The yield on average loans was 5.53% for the second quarter of 2019 compared to 5.79% for the second quarter of 2018. The decrease in yield on average loans was primarily due to lower discount accretion on acquired loans (30 basis points in the second quarter of 2019 versus 68 basis points in the second quarter of 2018), offset by increases in yield of average loans of 12 basis points. For the second quarters of 2019 and 2018, the yield on average loans, excluding accretion, was 5.23% and 5.11%, respectively. The cost of average interest-bearing deposits increased to 1.42% for the second quarter of 2019 from 0.96% for the second quarter of 2018. This increase was due to increases in deposit rates from federal rate increases and increased competition.
Provision for loan losses was $393 thousand in the second quarter of 2019, compared to $617 thousand in the second quarter of 2018. The decrease in provision was primarily due to slower organic loan growth experienced during the second quarter of 2019 when compared to the second quarter of 2018. The allowance for loan losses was $9.1 million, or 0.50% of total loans, as of June 30, 2019, compared to $7.1 million, or 0.45% of total loans, as of June 30, 2018.
Nonperforming loans as a percentage of total loans was 0.12% as of June 30, 2019, a decrease from 0.14% in the prior year quarter. Total nonperforming assets (which include nonaccrual loans, loans past due 90 days or more and still accruing, and other real estate owned) as a percentage of total assets was 0.17% as of June 30, 2019, compared to 0.28% as of June 30, 2018.
Noninterest income increased by $6.8 million to $8.4 million for the second quarter of 2019 compared to $1.6 million for the second quarter of 2018 primarily due to the $6.4 million merger termination fee and to a lesser extent, increases in deposit services charges of $150 thousand, increases in mortgage banking of $71 thousand and wealth revenue of $112 thousand. Noninterest

income to average assets (excluding the $6.4 million termination fee) of 0.35% for the second quarter of 2019 increased from 0.33% in the second quarter of 2018.
Noninterest expense increased by $1.5 million to $16.8 million for the second quarter of 2019 compared to $15.3 million for the second quarter of 2018 and included $1.8 million in merger related and restructuring expenses for the second quarter of 2019 compared to $1.1 million for the second quarter of 2018. Operating noninterest expense (excludes merger related and restructuring expenses) increased by $864 thousand to $15.0 million for the second quarter of 2019 compared to $14.1 million for the second quarter of 2018. This increase was primarily due to increases in personnel expense, as the second quarter of 2019 included the full effects of acquisitions completed during the prior reporting periods. Operating noninterest expense to average assets of 2.57% for the second quarter of 2019 decreased from 2.95% in the second quarter of 2018.
Income tax expense was $2.9 million in the second quarter of 2019 compared to $1.3 million in the second quarter of 2018. The overall effective tax rate was 24.1% for the second quarter of 2019 compared 24.8% for the second quarter of 2018.
Certain captions and amounts in the prior periods presented were reclassified to conform to the current presentation. Such reclassifications had no effect on net income or shareholders' equity.
Conference Call Information
SmartFinancial will to issue its earnings release for the second quarter of 2019 on Wednesday, July 24, 2019, and will host a conference call on Thursday, July 25, 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, 8611763. A replay of the conference call will be available through July 25, 2020, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10133629. Conference call materials (earnings release & 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 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 29 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 Financial 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 presentation 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, (ii) net operating return on average assets, (iii) net operating return on average shareholder equity, (iv) return on average tangible common equity, (v) net operating return on average tangible common equity, (vi) operating efficiency ratio; (vii) tangible common equity; and (viii) average tangible common equity in its analysis of the company's performance. Net operating earnings excludes the following from net income: securities gains and losses, merger termination fee, merger related and restructuring expenses, the effect of the December, 2017 tax law change on deferred tax assets, tax benefit from director options previously exercised, and the income tax effect of adjustments. Net operating return on average equity is the annualized net operating earnings divided by average assets. Net operating return on average equity is the annualized net operating earnings divided by average equity. Return on average tangible common equity is the annualized net income divided by average tangible common equity. Net operating return on average tangible common equity is the annualized net operating earnings divided by average tangible common equity (Non-GAAP). The operating efficiency ratio includes an adjustment for taxable equivalent yields and excludes securities gains and losses and merger related and restructuring expenses from the efficiency ratio. Tangible common equity and average tangible common equity excludes 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 news release may contain statements that are based on management’s current estimates or expectations of future events or future results, and that may be deemed to constitute forward-looking statements as defined under U.S. federal securities laws. These statements are not historical in nature and can generally be identified by such words as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “may,” “estimate,” and similar expressions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results of SmartFinancial to differ materially from future results expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, among others, (1) the risk of litigation related to the termination of our agreement and plan of merger with Entegra Financial Corp. (the “Entegra Merger Agreement”) or the abandonment of the transactions that were contemplated by the Entegra Merger Agreement; (2) reputational risk resulting from the termination of the Entegra Merger Agreement; (3) potential changes to, or the risk that we may not be able to execute on, our business strategy as a result of the termination of the Entegra Merger Agreement; (4) the risk that cost savings and revenue synergies from recently completed acquisitions may not be realized or may take longer than anticipated to realize, (5) disruption from recently completed acquisitions with customer, supplier, employee, or other business relationships, (6) our ability to successfully integrate the businesses acquired as part of previous acquisitions with the business of SmartBank, (7) changes in management’s plans for the future, (8) prevailing, or changes in, economic or political conditions, particularly in our market areas, (9) credit risk associated with our lending activities, (10) changes in interest rates, loan demand, real estate values, or competition, (11) changes in accounting principles, policies, or guidelines, (12) changes in applicable laws, rules, or regulations, and (13) other general competitive, economic, political, and market factors, including those affecting our business, operations, pricing, products, or services. These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found in SmartFinancial’s most recent 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 Securities and Exchange Commission (the “SEC”) and available on the SEC’s website (www.sec.gov). Undue reliance should not be placed on forward-looking statements. SmartFinancial disclaims any obligation to update or revise any forward-looking statements contained in this 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 share and per share data) |  |  |  |
|  | As of and for The Three Months Ended
|  | June 30, 2019 |  | March 31, 2019 |  | December 31, 2018 |  | September 30, 2018 |  | June 30, 2018
Selected Performance Ratios (Annualized) |  |  |  |  |  |  |  |  |  |
Return on average assets |  | 1.56 | % |  | 0.84 | % |  | 1.17 | % |  | 0.85 | % |  | 0.82 | %
Return on average shareholder equity |  | 12.34 | % |  | 6.71 | % |  | 9.44 | % |  | 6.86 | % |  | 6.76 | %
Return on average tangible common equity (Non-GAAP)¹ |  | 16.78 | % |  | 9.26 | % |  | 13.09 | % |  | 9.45 | % |  | 8.96 | %
Noninterest income / average assets |  | 1.44 | % |  | 0.30 | % |  | 0.31 | % |  | 0.36 | % |  | 0.33 | %
Noninterest expense / average assets |  | 2.88 | % |  | 2.77 | % |  | 2.84 | % |  | 2.90 | % |  | 3.15 | %
Efficiency ratio |  | 57.53 | % |  | 68.65 | % |  | 67.71 | % |  | 71.33 | % |  | 72.34 | %
Net operating return on average assets (Non-GAAP)¹ |  | 0.96 | % |  | 0.98 | % |  | 1.07 | % |  | 0.98 | % |  | 1.00 | %
Net operating return on average shareholder equity (Non-GAAP)¹ |  | 7.58 | % |  | 7.81 | % |  | 8.65 | % |  | 7.88 | % |  | 8.33 | %
Net operating return on average tangible common equity (Non-GAAP)¹ |  | 10.31 | % |  | 10.79 | % |  | 12.00 | % |  | 10.84 | % |  | 11.04 | %
Operating efficiency ratio (Non-GAAP)¹ |  | 65.56 | % |  | 64.25 | % |  | 61.72 | % |  | 67.17 | % |  | 66.92 | %
Yield on loans |  | 5.53 | % |  | 5.62 | % |  | 5.81 | % |  | 5.43 | % |  | 5.79 | %
Yield on earning assets, FTE |  | 5.17 | % |  | 5.25 | % |  | 5.36 | % |  | 5.03 | % |  | 5.37 | %
Cost of interest-bearing deposits |  | 1.42 | % |  | 1.32 | % |  | 1.21 | % |  | 1.11 | % |  | 0.96 | %
Cost of total deposits |  | 1.18 | % |  | 1.10 | % |  | 1.00 | % |  | 0.91 | % |  | 0.79 | %
Cost of interest-bearing liabilities |  | 1.54 | % |  | 1.45 | % |  | 1.33 | % |  | 1.15 | % |  | 1.00 | %
Net interest margin, FTE |  | 3.94 | % |  | 4.10 | % |  | 4.28 | % |  | 4.11 | % |  | 4.57 | %
Per Common Share |  |  |  |  |  |  |  |  |  |
Net income, basic |  | $ | 0.65 |  |  | $ | 0.34 |  |  | $ | 0.48 |  |  | $ | 0.34 |  |  | $ | 0.32 |
Net income, diluted |  | 0.65 |  |  | 0.34 |  |  | 0.47 |  |  | 0.34 |  |  | 0.32 |
Net operating earnings, basic (Non-GAAP)¹ |  | 0.40 |  |  | 0.40 |  |  | 0.44 |  |  | 0.39 |  |  | 0.40 |
Net operating earnings, diluted (Non-GAAP)¹ |  | 0.40 |  |  | 0.39 |  |  | 0.43 |  |  | 0.39 |  |  | 0.39 |
Book value |  | 21.47 |  |  | 20.82 |  |  | 20.31 |  |  | 19.74 |  |  | 19.48 |
Tangible book value (Non-GAAP)¹ |  | 15.86 |  |  | 15.18 |  |  | 14.64 |  |  | 14.38 |  |  | 14.09 |
Common shares outstanding |  | 13,953 |  |  | 13,952 |  |  | 13,934 |  |  | 12,750 |  |  | 12,705 |
¹See reconciliation of Non-GAAP measures |  |  |  |  |  |  |  |  |  |
SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |
(In thousands) |  |  |  |
|  | As of and for The Three Months Ended
|  | June 30, 2019 |  | March 31, 2019 |  | December 31, 2018 |  | September 30, 2018 |  | June 30, 2018
Composition of Loans |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |
owner occupied |  | $ | 415,502 |  |  | $ | 416,152 |  |  | $ | 372,030 |  |  | $ | 364,164 |  |  | $ | 360,294 |
non-owner occupied |  | 464,160 |  |  | 472,790 |  |  | 487,997 |  |  | 401,922 |  |  | 385,570 |
Commercial real estate, total |  | 879,662 |  |  | 888,942 |  |  | 860,027 |  |  | 766,086 |  |  | 745,864 |
Commercial & industrial |  | 334,258 |  |  | 341,471 |  |  | 308,254 |  |  | 289,784 |  |  | 279,771 |
Construction & land development |  | 204,731 |  |  | 187,009 |  |  | 187,895 |  |  | 165,906 |  |  | 179,431 |
Consumer real estate |  | 406,357 |  |  | 410,981 |  |  | 407,254 |  |  | 350,422 |  |  | 355,876 |
Consumer and other |  | 11,981 |  |  | 12,166 |  |  | 13,809 |  |  | 12,996 |  |  | 14,493 |
Total loans |  | $ | 1,836,989 |  |  | $ | 1,840,569 |  |  | $ | 1,777,239 |  |  | $ | 1,585,194 |  |  | $ | 1,575,435 |
Asset Quality and Additional Loan Data |  |  |  |  |  |  |  |  |  |
Nonperforming loans |  | $ | 2,148 |  |  | $ | 2,282 |  |  | $ | 3,280 |  |  | $ | 2,686 |  |  | $ | 2,205 |
Other real estate owned |  | 1,814 |  |  | 2,066 |  |  | 2,495 |  |  | 4,230 |  |  | 3,524 |
Total nonperforming assets |  | $ | 3,962 |  |  | $ | 4,348 |  |  | $ | 5,775 |  |  | $ | 6,916 |  |  | $ | 5,729 |
Restructured loans not included in nonperforming loans |  | $ | 62 |  |  | $ | 62 |  |  | $ | 116 |  |  | $ | 693 |  |  | $ | 660 |
Net charge-offs (recoveries) to average loans (annualized) |  | 0.00 | % |  | 0.08 | % |  | 0.04 | % |  | 0.06 | % |  | 0.02 | %
Allowance for loan losses to loans |  | 0.50 | % |  | 0.47 | % |  | 0.47 | % |  | 0.45 | % |  | 0.45 | %
Nonperforming loans to total loans, gross |  | 0.12 | % |  | 0.12 | % |  | 0.18 | % |  | 0.17 | % |  | 0.14 | %
Nonperforming assets to total assets |  | 0.17 | % |  | 0.18 | % |  | 0.25 | % |  | 0.34 | % |  | 0.28 | %
Acquisition accounting discounts on loans |  | 18,571 |  |  | 19,954 |  |  | 21,528 |  |  | 19,500 |  |  | 20,748 |
Accretion income on acquired loans |  | 1,374 |  |  | 1,881 |  |  | 2,755 |  |  | 1,208 |  |  | 2,583 |
Capital Ratios |  |  |  |  |  |  |  |  |  |
Equity to Assets |  | 12.53 | % |  | 12.34 | % |  | 12.44 | % |  | 12.27 | % |  | 12.00 | %
Tangible equity to tangible assets (Non-GAAP) |  | 9.57 | % |  | 9.31 | % |  | 9.29 | % |  | 9.25 | % |  | 8.98 | %
Tangible common equity to tangible assets (Non-GAAP) |  | 9.57 | % |  | 9.31 | % |  | 9.29 | % |  | 9.25 | % |  | 8.98 | %
SmartFinancial, Inc.: |  | Estimated1 |  |  |  |  |  |  |  |  |
Tier 1 leverage |  | 9.92 | % |  | 9.29 | % |  | 9.47 | % |  | 9.26 | % |  | 9.82 | %
Common equity Tier 1 |  | 11.21 | % |  | 10.61 | % |  | 10.81 | % |  | 10.88 | % |  | 10.83 | %
Tier 1 capital |  | 11.21 | % |  | 10.61 | % |  | 10.81 | % |  | 10.88 | % |  | 10.83 | %
Total capital |  | 13.62 | % |  | 13.01 | % |  | 13.29 | % |  | 13.57 | % |  | 11.25 | %
SmartBank: |  | Estimated1 |  |  |  |  |  |  |  |  |
Tier 1 leverage |  | 10.92 | % |  | 10.96 | % |  | 11.17 | % |  | 10.55 | % |  | 10.43 | %
Common equity Tier 1 |  | 12.34 | % |  | 12.18 | % |  | 12.31 | % |  | 11.99 | % |  | 11.41 | %
Tier 1 risk-based capital |  | 12.34 | % |  | 12.18 | % |  | 12.31 | % |  | 11.99 | % |  | 11.41 | %
Total risk-based capital |  | 12.80 | % |  | 12.62 | % |  | 12.74 | % |  | 12.40 | % |  | 11.83 | %

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
|  | June 30, 2019 |  | March 31, 2019 |  | December 31, 2018 |  | September 30, 2018 |  | June 30, 2018
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 199,534 |  |  | $ | 132,994 |  |  | $ | 115,822 |  |  | $ | 130,104 |  |  | $ | 170,235 |
Securities available-for-sale, at fair value |  | 174,114 |  |  | 198,273 |  |  | 201,688 |  |  | 173,039 |  |  | 156,577 |
Other investments |  | 12,905 |  |  | 12,398 |  |  | 11,499 |  |  | 10,736 |  |  | 8,273 |
Loans held for sale |  | 4,087 |  |  | 2,103 |  |  | 1,979 |  |  | 4,038 |  |  | 4,948 |
Loans |  | 1,832,902 |  |  | 1,838,466 |  |  | 1,775,260 |  |  | 1,581,155 |  |  | 1,570,487 |
Less: Allowance for loan losses |  | (9,097 | ) |  | (8,704 | ) |  | (8,275 | ) |  | (7,156 | ) |  | (7,074 | )
Loans, net |  | 1,823,805 |  |  | 1,829,762 |  |  | 1,766,985 |  |  | 1,573,999 |  |  | 1,563,413 |
Premises and equipment, net |  | 56,589 |  |  | 56,583 |  |  | 56,012 |  |  | 51,138 |  |  | 52,203 |
Other real estate owned |  | 1,814 |  |  | 2,066 |  |  | 2,495 |  |  | 4,230 |  |  | 3,524 |
Goodwill and core deposit intangibles, net |  | 78,348 |  |  | 78,690 |  |  | 79,034 |  |  | 68,254 |  |  | 68,449 |
Bank owned life insurance |  | 24,695 |  |  | 24,540 |  |  | 24,381 |  |  | 22,088 |  |  | 21,944 |
Other assets |  | 15,366 |  |  | 16,572 |  |  | 14,514 |  |  | 13,320 |  |  | 12,666 |
Total assets |  | $ | 2,391,257 |  |  | $ | 2,353,981 |  |  | $ | 2,274,409 |  |  | $ | 2,050,946 |  |  | $ | 2,062,232 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |
Noninterest-bearing demand |  | $ | 357,220 |  |  | $ | 329,095 |  |  | $ | 319,861 |  |  | $ | 301,197 |  |  | $ | 301,318 |
Interest-bearing demand |  | 333,705 |  |  | 331,629 |  |  | 311,482 |  |  | 267,146 |  |  | 246,942 |
Money market and savings |  | 648,132 |  |  | 698,431 |  |  | 641,945 |  |  | 570,172 |  |  | 632,518 |
Time deposits |  | 673,243 |  |  | 635,175 |  |  | 648,675 |  |  | 568,796 |  |  | 535,879 |
Total deposits |  | 2,012,300 |  |  | 1,994,330 |  |  | 1,921,964 |  |  | 1,707,311 |  |  | 1,716,658 |
Securities sold under agreements to repurchase |  | 8,219 |  |  | 7,070 |  |  | 11,756 |  |  | 16,786 |  |  | 18,635 |
FHLB & other borrowings |  | 15,460 |  |  | 8,605 |  |  | 11,243 |  |  | 25,324 |  |  | 72,040 |
Subordinated debt |  | 39,219 |  |  | 39,198 |  |  | 39,177 |  |  | 39,158 |  |  | — |
Other liabilities |  | 16,447 |  |  | 14,297 |  |  | 7,258 |  |  | 10,724 |  |  | 7,413 |
Total liabilities |  | 2,091,645 |  |  | 2,063,500 |  |  | 1,991,398 |  |  | 1,799,304 |  |  | 1,814,745 |
Shareholders' Equity |  |  |  |  |  |  |  |  |  |
Common stock |  | 13,953 |  |  | 13,952 |  |  | 13,934 |  |  | 12,750 |  |  | 12,705 |
Additional paid-in capital |  | 232,386 |  |  | 232,241 |  |  | 231,852 |  |  | 208,999 |  |  | 208,513 |
Retained earnings |  | 53,843 |  |  | 44,722 |  |  | 39,991 |  |  | 33,559 |  |  | 29,235 |
Accumulated other comprehensive loss |  | (571 | ) |  | (434 | ) |  | (2,765 | ) |  | (3,666 | ) |  | (2,966 | )
Total shareholders' equity |  | 299,611 |  |  | 290,481 |  |  | 283,011 |  |  | 251,642 |  |  | 247,487 |
Total liabilities & shareholders' equity |  | $ | 2,391,257 |  |  | $ | 2,353,981 |  |  | $ | 2,274,409 |  |  | $ | 2,050,946 |  |  | $ | 2,062,232 |

SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |
(In thousands, except per share data) |  |  |  |
INCOME STATEMENT |  |  |  |  |  |  |  |  |  |
|  | Three Months Ended
|  | June 30, 2019 |  | March 31, 2019 |  | December 31, 2018 |  | September 30, 2018 |  | June 30, 2018
Interest income |  |  |  |  |  |  |  |  |  |
Loans, including fees |  | $ | 25,278 |  |  | $ | 24,975 |  |  | $ | 25,018 |  |  | $ | 21,572 |  |  | $ | 21,652 |
Securities available-for-sale: |  |  |  |  |  |  |  |  |  |
Taxable |  | 871 |  |  | 971 |  |  | 900 |  |  | 839 |  |  | 897 |
Tax-exempt |  | 411 |  |  | 424 |  |  | 347 |  |  | 129 |  |  | 76 |
Federal funds sold and other earning assets |  | 743 |  |  | 573 |  |  | 506 |  |  | 527 |  |  | 367 |
Total interest income |  | 27,303 |  |  | 26,943 |  |  | 26,771 |  |  | 23,068 |  |  | 22,993 |
Interest expense |  |  |  |  |  |  |  |  |  |
Deposits |  | 5,788 |  |  | 5,251 |  |  | 4,680 |  |  | 3,969 |  |  | 3,238 |
Securities sold under agreements to repurchase |  | 6 |  |  | 8 |  |  | 9 |  |  | 11 |  |  | 11 |
FHLB advances and other borrowings |  | 117 |  |  | 103 |  |  | 51 |  |  | 209 |  |  | 207 |
Subordinated debt |  | 590 |  |  | 584 |  |  | 584 |  |  | 19 |  |  | — |
Total interest expense |  | 6,501 |  |  | 5,945 |  |  | 5,324 |  |  | 4,208 |  |  | 3,455 |
Net interest income |  | 20,802 |  |  | 20,997 |  |  | 21,447 |  |  | 18,860 |  |  | 19,538 |
Provision for loan losses |  | 393 |  |  | 797 |  |  | 1,329 |  |  | 302 |  |  | 617 |
Net interest income after provision for loan losses |  | 20,409 |  |  | 20,200 |  |  | 20,117 |  |  | 18,558 |  |  | 18,921 |
Noninterest income |  |  |  |  |  |  |  |  |  |
Service charges on deposit accounts |  | 707 |  |  | 654 |  |  | 663 |  |  | 624 |  |  | 557 |
Gain (loss) on sale of securities, net |  | 33 |  |  | — |  |  | 2 |  |  | — |  |  | (1 | )
Mortgage banking |  | 392 |  |  | 282 |  |  | 251 |  |  | 493 |  |  | 322 |
Interchange and debit card transaction fees |  | 143 |  |  | 175 |  |  | 162 |  |  | 144 |  |  | 121 |
Other |  | 7,140 |  |  | 587 |  |  | 601 |  |  | 570 |  |  | 579 |
Total noninterest income |  | 8,415 |  |  | 1,698 |  |  | 1,680 |  |  | 1,831 |  |  | 1,577 |
Noninterest expense |  |  |  |  |  |  |  |  |  |
Salaries and employee benefits |  | 8,984 |  |  | 8,398 |  |  | 7,871 |  |  | 7,934 |  |  | 7,649 |
Occupancy and equipment |  | 1,658 |  |  | 1,640 |  |  | 1,610 |  |  | 1,638 |  |  | 1,522 |
FDIC insurance |  | 180 |  |  | 179 |  |  | 209 |  |  | 158 |  |  | 317 |
Other real estate and loan related expense |  | 242 |  |  | 490 |  |  | 738 |  |  | 578 |  |  | 926 |
Advertising and marketing |  | 259 |  |  | 295 |  |  | 246 |  |  | 228 |  |  | 215 |
Data processing |  | 577 |  |  | 615 |  |  | 372 |  |  | 407 |  |  | 600 |
Professional services |  | 489 |  |  | 662 |  |  | 707 |  |  | 727 |  |  | 587 |
Amortization of intangibles |  | 342 |  |  | 344 |  |  | 312 |  |  | 248 |  |  | 229 |
Software as service contracts |  | 568 |  |  | 567 |  |  | 577 |  |  | 507 |  |  | 492 |
Merger related and restructuring expenses |  | 1,796 |  |  | 923 |  |  | 1,322 |  |  | 838 |  |  | 1,123 |
Other |  | 1,714 |  |  | 1,467 |  |  | 1,696 |  |  | 1,496 |  |  | 1,613 |
Total noninterest expense |  | 16,808 |  |  | 15,579 |  |  | 15,661 |  |  | 14,759 |  |  | 15,272 |
Income before income taxes |  | 12,016 |  |  | 6,319 |  |  | 6,137 |  |  | 5,630 |  |  | 5,226 |
Income tax expense |  | 2,895 |  |  | 1,588 |  |  | (307 | ) |  | 1,305 |  |  | 1,295 |
Net income |  | $ | 9,121 |  |  | $ | 4,731 |  |  | $ | 6,444 |  |  | $ | 4,325 |  |  | $ | 3,932 |
Earnings Per Common Share |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.65 |  |  | $ | 0.34 |  |  | $ | 0.48 |  |  | $ | 0.34 |  |  | $ | 0.32 |
Diluted |  | 0.65 |  |  | 0.34 |  |  | 0.47 |  |  | 0.34 |  |  | 0.32 |
Weighted average common shares outstanding |  |  |  |  |  |  |  |  |  |
Basic |  | 13,952 |  |  | 13,942 |  |  | 13,535 |  |  | 12,719 |  |  | 12,201 |
Diluted |  | 14,047 |  |  | 14,018 |  |  | 13,617 |  |  | 12,818 |  |  | 12,320 |

SmartFinancial, Inc. and Subsidiary |  |  |  |  |  |  |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |
YIELD ANALYSIS |  |  |  |  |  |  |  |  |  |  |  |
|  | Three Months Ended
|  | June 30, 2019 |  | March 31, 2019 |  | June 30, 2018
|  | Average |  |  |  | Yield/ |  | Average |  |  |  | Yield/ |  | Average |  |  |  | Yield/
|  | Balance |  | Interest1 |  | Cost1 |  | Balance |  | Interest1 |  | Cost1 |  | Balance |  | Interest1 |  | Cost1
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans |  | $ | 1,832,639 |  |  | $ | 25,278 |  |  | 5.53 | % |  | $ | 1,802,014 |  |  | $ | 24,977 |  |  | 5.62 | % |  | $ | 1,501,008 |  |  | $ | 21,654 |  |  | 5.79 | %
Taxable securities |  | 136,859 |  |  | 871 |  |  | 2.55 | % |  | 147,346 |  |  | 971 |  |  | 2.67 | % |  | 149,169 |  |  | 898 |  |  | 2.41 | %
Tax-exempt securities |  | 56,475 |  |  | 527 |  |  | 3.75 | % |  | 53,492 |  |  | 537 |  |  | 4.07 | % |  | 11,698 |  |  | 96 |  |  | 3.29 | %
Federal funds sold and other earning assets |  | 102,253 |  |  | 743 |  |  | 2.91 | % |  | 86,688 |  |  | 573 |  |  | 2.68 | % |  | 56,287 |  |  | 368 |  |  | 2.62 | %
Total interest-earning assets |  | 2,128,226 |  |  | 27,419 |  |  | 5.17 | % |  | 2,089,540 |  |  | 27,058 |  |  | 5.25 | % |  | 1,718,162 |  |  | 23,016 |  |  | 5.37 | %
Noninterest-earning assets |  | 215,010 |  |  |  |  |  |  |  |  | 193,698 |  |  |  |  |  |  | 205,909 |  |  |  |  |  |  |
Total assets |  | $ | 2,343,236 |  |  |  |  |  |  |  |  | $ | 2,283,238 |  |  |  |  |  |  | $ | 1,924,071 |  |  |  |  |  |  |
Liabilities and Stockholders’ Equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing demand deposits |  | $ | 329,556 |  |  | $ | 464 |  |  | 0.57 | % |  | $ | 306,164 |  |  | $ | 474 |  |  | 0.63 | % |  | $ | 244,208 |  |  | $ | 265 |  |  | 0.44 | %
Money market and savings deposits |  | 673,502 |  |  | 2,272 |  |  | 1.35 | % |  | 665,018 |  |  | 1,978 |  |  | 1.21 | % |  | 597,353 |  |  | 1,418 |  |  | 0.95 | %
Time deposits |  | 629,480 |  |  | 3,052 |  |  | 1.94 | % |  | 637,767 |  |  | 2,799 |  |  | 1.78 | % |  | 510,445 |  |  | 1,555 |  |  | 1.22 | %
Total interest-bearing deposits |  | 1,632,538 |  |  | 5,788 |  |  | 1.42 | % |  | 1,608,949 |  |  | 5,251 |  |  | 1.32 | % |  | 1,352,006 |  |  | 3,238 |  |  | 0.96 | %
Securities sold under agreement to repurchase |  | 7,249 |  |  | 6 |  |  | 0.33 | % |  | 7,971 |  |  | 8 |  |  | 0.41 | % |  | 15,643 |  |  | 11 |  |  | 0.28 | %
Federal funds purchased and other borrowings |  | 16,436 |  |  | 117 |  |  | 2.87 | % |  | 10,217 |  |  | 103 |  |  | 4.09 | % |  | 22,780 |  |  | 206 |  |  | 3.63 | %
Subordinated debt |  | 39,205 |  |  | 590 |  |  | 6.03 | % |  | 39,184 |  |  | 584 |  |  | 6.04 | % |  | — |  |  | — |  |  |
Total interest-bearing liabilities |  | 1,695,428 |  |  | 6,501 |  |  | 1.54 | % |  | 1,666,321 |  |  | 5,946 |  |  | 1.45 | % |  | 1,390,429 |  |  | 3,455 |  |  | 1.00 | %
Noninterest-bearing deposits |  | 336,871 |  |  |  |  |  |  |  |  | 320,134 |  |  |  |  |  |  | 283,413 |  |  |  |  |  |  |
Other liabilities |  | 14,367 |  |  |  |  |  |  |  |  | 10,707 |  |  |  |  |  |  | 16,944 |  |  |  |  |  |  |
Total liabilities |  | 2,046,666 |  |  |  |  |  |  |  |  | 1,997,162 |  |  |  |  |  |  | 1,690,786 |  |  |  |  |  |  |
Stockholders’ equity |  | 296,570 |  |  |  |  |  |  |  |  | 286,076 |  |  |  |  |  |  | 233,285 |  |  |  |  |  |  |
Total liabilities and stockholders’ equity |  | $ | 2,343,236 |  |  |  |  |  |  |  |  | $ | 2,283,238 |  |  |  |  |  |  | $ | 1,924,071 |  |  |  |  |  |  |
Net interest income, taxable equivalent |  |  |  |  | $ | 20,918 |  |  |  |  |  |  |  | $ | 21,112 |  |  |  |  |  |  |  | $ | 19,561 |  |  |  |
Interest rate spread |  |  |  |  |  |  |  | 3.63 | % |  |  |  |  |  | 3.80 | % |  |  |  |  |  |  |  | 4.38 | %
Tax equivalent net interest margin |  |  |  |  |  |  |  | 3.94 | % |  |  |  |  |  | 4.10 | % |  |  |  |  |  |  |  | 4.57 | %
Percentage of average interest-earning assets to average interest-bearing liabilities |  |  |  |  |  |  |  | 125.53 | % |  |  |  |  |  | 125.40 | % |  |  |  |  |  |  |  | 123.53 | %
Percentage of average equity to average assets |  |  |  |  |  |  |  | 12.66 | % |  |  |  |  |  | 12.53 | % |  |  |  |  |  |  |  | 12.00 | %

1 Taxable equivalent

SmartFinancial, Inc. and Subsidiary |  |  |  |
Condensed Consolidated Financial Information (unaudited) |  |  |  |
(In thousands) |  |  |  |
NON-GAAP RECONCILIATIONS |  | Three Months Ended
|  | June 30, 2019 |  | March 31, 2019 |  | December 31, 2018 |  | September 30, 2018 |  | June 30, 2018
Operating Earnings |  |  |  |  |  |  |  |  |  |
Net income (GAAP) |  | $ | 9,121 |  |  | $ | 4,731 |  |  | $ | 6,444 |  |  | $ | 4,324 |  |  | $ | 3,931 |
Securities (gains) losses |  | (33 | ) |  | — |  |  | (2 | ) |  | — |  |  | 1 |
Merger termination fee |  | (6,400 | ) |  | — |  |  | — |  |  | — |  |  | — |
Merger related and restructuring expenses |  | 1,796 |  |  | 923 |  |  | 1,322 |  |  | 838 |  |  | 1,123 |
Revaluation of deferred tax assets due to change in tax law |  | — |  |  | — |  |  | (1,600 | ) |  | — |  |  | — |
Income tax effect of adjustments |  | 1,120 |  |  | (145 | ) |  | (256 | ) |  | (196 | ) |  | (211 | )
Net operating earnings (Non-GAAP) |  | $ | 5,603 |  |  | $ | 5,509 |  |  | $ | 5,908 |  |  | $ | 4,966 |  |  | $ | 4,844 |
Net operating earnings per common share (Non-GAAP): |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.40 |  |  | $ | 0.40 |  |  | $ | 0.44 |  |  | $ | 0.39 |  |  | $ | 0.40 |
Diluted |  | 0.40 |  |  | 0.39 |  |  | 0.43 |  |  | 0.39 |  |  | 0.39 |
Non-GAAP Return Ratios |  |  |  |  |  |  |  |  |  |
Net operating return on average assets (Non-GAAP)1 |  | 0.96 | % |  | 0.98 | % |  | 1.07 | % |  | 0.98 | % |  | 1.00 | %
Return on average tangible common equity (Non-GAAP)2 |  | 16.78 | % |  | 9.26 | % |  | 13.09 | % |  | 9.45 | % |  | 8.96 | %
Net operating return on average shareholder equity (Non-GAAP)3 |  | 7.58 | % |  | 7.81 | % |  | 8.65 | % |  | 7.88 | % |  | 8.33 | %
Net operating return on average tangible common equity (Non-GAAP)4 |  | 10.31 | % |  | 10.79 | % |  | 12.00 | % |  | 10.84 | % |  | 11.04 | %
Operating Efficiency Ratio |  |  |  |  |  |  |  |  |  |
Efficiency ratio (GAAP) |  | 57.53 | % |  | 68.65 | % |  | 67.71 | % |  | 71.34 | % |  | 72.31 | %
Adjustment for taxable equivalent yields |  | (0.50 | )% |  | (0.49 | )% |  | (0.45 | )% |  | (0.18 | )% |  | (0.11 | )%
Adjustment for securities gains (losses) |  | 0.14 | % |  | — | % |  | 0.01 | % |  | — | % |  | (0.01 | )%
Adjustment for merger related income and costs |  | 8.39 | % |  | (3.91 | )% |  | (5.55 | )% |  | (3.99 | )% |  | (5.28 | )%
Operating efficiency ratio (Non-GAAP) |  | 65.56 | % |  | 64.25 | % |  | 61.72 | % |  | 67.17 | % |  | 66.92 | %
Tangible Common Equity |  |  |  |  |  |  |  |  |  |
Shareholders' equity (GAAP) |  | $ | 299,611 |  |  | $ | 290,481 |  |  | $ | 283,011 |  |  | $ | 251,642 |  |  | $ | 247,487 |
Less goodwill and other intangible assets |  | 78,348 |  |  | 78,690 |  |  | 79,034 |  |  | 68,254 |  |  | 68,449 |
Tangible common equity (Non-GAAP) |  | $ | 221,264 |  |  | $ | 211,791 |  |  | $ | 203,977 |  |  | $ | 183,388 |  |  | $ | 179,036 |
Average Tangible Common Equity |  |  |  |  |  |  |  |  |  |
Average shareholders' equity (GAAP) |  | $ | 296,570 |  |  | $ | 286,076 |  |  | $ | 270,884 |  |  | $ | 250,063 |  |  | $ | 233,285 |
Less average goodwill and other intangible assets |  | 78,564 |  |  | 78,913 |  |  | 75,547 |  |  | 68,389 |  |  | 57,251 |
Average tangible common equity (Non-GAAP) |  | $ | 218,006 |  |  | $ | 207,163 |  |  | $ | 195,337 |  |  | $ | 181,674 |  |  | $ | 176,034 |

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).