[PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section covers the company's unaudited consolidated financial statements, management's analysis, market risk, and internal controls [Item 1. Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) The unaudited consolidated financial statements for Q1 2023 reflect increased assets and net income, alongside the significant impact of CECL adoption [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$4.77 billion** by March 31, 2023, driven by deposit growth, with modest increases in loans and equity Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $4,769,805 | $4,637,498 | | Loans and leases, net | $3,249,508 | $3,230,293 | | Total Deposits | $4,229,546 | $4,077,100 | | Total Liabilities | $4,326,406 | $4,205,046 | | Total Shareholders' Equity | $443,399 | $432,452 | [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) Net income for Q1 2023 rose to **$11.5 million**, a **39.2%** increase, primarily due to higher net interest income and diluted EPS growth Income Statement Summary (in thousands, except per share data) | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Net Interest Income | $35,982 | $30,118 | | Provision for Credit Losses | $550 | $1,006 | | Noninterest Income | $6,925 | $7,111 | | Noninterest Expense | $27,529 | $25,718 | | Net Income | $11,500 | $8,259 | | Diluted EPS | $0.68 | $0.49 | [Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Comprehensive income for Q1 2023 reached **$18.2 million**, a significant turnaround from a prior-year loss, driven by net income and unrealized gains Comprehensive Income (Loss) (in thousands) | Component | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Net Income | $11,500 | $8,259 | | Other Comprehensive Income (Loss) | $6,704 | $(16,999) | | **Comprehensive Income (Loss)** | **$18,204** | **$(8,740)** | [Consolidated Statement of Changes in Shareholders' Equity](index=8&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Shareholders'%20Equity) Shareholders' equity increased to **$443.4 million**, influenced by CECL adoption, net income, and comprehensive income, partially offset by dividends - Effective January 1, 2023, the company adopted ASU 2016-13 (CECL), resulting in a cumulative-effect adjustment that decreased retained earnings by **$6.6 million**, net of tax[16](index=16&type=chunk) - Common stock dividends of **$0.08 per share**, totaling **$1.35 million**, were paid during the first quarter of 2023[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash increased by **$40.5 million** in Q1 2023, driven by financing activities and deposit growth, despite significant investing outflows Cash Flow Summary (in thousands) | Activity | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $11,354 | $10,694 | | Net Cash from Investing Activities | $(96,834) | $(409,562) | | Net Cash from Financing Activities | $125,990 | $117,759 | | **Net Change in Cash** | **$40,510** | **$(281,109)** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, including CECL adoption which increased the allowance for credit losses, and confirm the company exceeds regulatory capital requirements - The company adopted ASU 2016-13 (CECL) on January 1, 2023, using the modified retrospective method, resulting in a **$6.6 million** decrease to retained earnings, net of tax, an **$8.7 million** increase in the allowance for credit losses (ACL), and a **$3.0 million** increase in the liability for unfunded commitments[24](index=24&type=chunk)[41](index=41&type=chunk) Impact of ASU 2016-13 Adoption (in thousands) | Item | Dec 31, 2022 Balance (in thousands) | Adoption Impact (in thousands) | Jan 1, 2023 Balance (in thousands) | | :--- | :--- | :--- | :--- | | Total allowance for credit losses | $23,334 | $8,655 | $31,989 | | Unfunded lending commitments liability | $0 | $3,029 | $3,029 | - The company's allowance for credit losses (ACL) as a percentage of total loans increased from **0.72%** at December 31, 2022, to **0.98%** at March 31, 2023, primarily due to the CECL adoption[81](index=81&type=chunk) - At March 31, 2023, the company and SmartBank exceeded all minimum regulatory capital requirements to be considered "well capitalized"[162](index=162&type=chunk)[166](index=166&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong Q1 2023 performance, highlighting increased net income, deposit growth despite industry volatility, and the impact of CECL on credit losses - Despite negative industry developments and high-profile bank failures in Q1 2023, the company's total deposits increased by **3.7%** (**$152.4 million**) from year-end 2022[177](index=177&type=chunk)[179](index=179&type=chunk) - Uninsured/uncollateralized deposits were **$1.4 billion**, representing **32.9%** of total deposits at March 31, 2023, a stable percentage compared to **32.8%** at December 31, 2022[177](index=177&type=chunk) - Net interest margin (tax equivalent) increased to **3.31%** for Q1 2023, up from **2.91%** in Q1 2022, benefiting from rising interest rates[182](index=182&type=chunk)[183](index=183&type=chunk) - The allowance for credit losses to total loans increased to **0.98%** at March 31, 2023, from **0.72%** at December 31, 2022, primarily due to the adoption of CECL, which added **$8.7 million** to the allowance[197](index=197&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=57&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages interest rate risk using earnings simulation, showing sensitivity to rate changes, and maintains strong liquidity with significant available borrowing capacity Estimated % Change in Net Interest Income Over 12 Months (as of March 31, 2023) | Instantaneous Rate Change | % Change in NII | | :--- | :--- | | +200 bps | (3.87)% | | +100 bps | (1.88)% | | -100 bps | 1.93% | | -200 bps | 2.98% | - The company has significant available liquidity, including **$211.0 million** in securities maturing in the next 12 months and **$781.3 million** in unused borrowing capacity from various sources[225](index=225&type=chunk) [Item 4. Controls and Procedures](index=57&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective[228](index=228&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[229](index=229&type=chunk) [PART II – OTHER INFORMATION](index=58&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and other miscellaneous disclosures [Item 1. Legal Proceedings](index=58&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine legal actions, with management expecting no material adverse impact on financial condition or operations - Management does not anticipate that pending or threatened legal proceedings will have a material adverse impact on the Company's financial condition[231](index=231&type=chunk) [Item 1A. Risk Factors](index=58&type=section&id=Item%201A.%20Risk%20Factors) A new material risk factor highlights the adverse impacts of recent banking industry developments on customer confidence, competition, and regulatory scrutiny - A new risk factor was added regarding recent negative developments in the banking industry, such as bank failures and market volatility[233](index=233&type=chunk)[234](index=234&type=chunk) - Potential impacts include negative effects on customer confidence, increased competition and cost for deposits, potential losses on securities if sold, and increased regulatory scrutiny[234](index=234&type=chunk)[235](index=235&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=58&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No common stock was repurchased in Q1 2023, with **$4.5 million** remaining under the authorized stock repurchase plan - The company did not repurchase any of its common stock during the three months ended March 31, 2023[241](index=241&type=chunk) - As of March 31, 2023, approximately **$4.5 million** remained available for repurchase under the company's authorized stock repurchase plan[239](index=239&type=chunk)[241](index=241&type=chunk) [Item 3. Defaults Upon Senior Securities](index=59&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported for the period - There were no defaults upon senior securities[242](index=242&type=chunk) [Item 4. Mine Safety Disclosures](index=59&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not Applicable[243](index=243&type=chunk) [Item 5. Other Information](index=59&type=section&id=Item%205.%20Other%20Information) No other material information is reported under this item - There is no other information to report for this item[244](index=244&type=chunk) [Item 6. Exhibits](index=60&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including agreements, corporate documents, officer certifications, and XBRL data - Exhibits filed include amendments to loan agreements, CEO/CFO certifications (31.1, 31.2, 32.1, 32.2), and Interactive Data Files (101)[248](index=248&type=chunk)

SmartFinancial, Inc. (NYSE:SMBK) Q1 2023 Earnings Conference Call April 25, 2023 10:00 AM ET Company Participants Nate Strall - Director, Corporate Strategy Miller Welborn - Chairman Billy Carroll - President and CEO Ron Gorczynski - Chief Financial Officer Rhett Jordan - Chief Credit Officer Conference Call Participants Will Jones - KBW Graham Dick - Piper Sander Thomas Wendler - Stephens Kevin Fitzsimmons - D.A. Davidson Steve Moss - Raymond James Brett Rabatin - Hovde Group Feddie Strickland - Janney Mon ...

Construction &Development Exposure By Type1 Closely Monitored with No Concentration Concerns 1-4 Family (NOO) 28% Resi/Comm Land Dev. 12% Resi/Comm Land 16% Multifamily 8% CRE (OO) 12% CRE (NOO) 16% $883 Million - 27% of Total Loans $389 Million - 12% of Total Loans 1) 1-4 Family (OO) includes owner-occupied primary and secondary residence construction loans; 1-4 Family (NOO) includes speculative and investment property residential construction loans; Resi/Comm Land Dev. includes primary, secondary, investm ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from __________ to __________ Commission File Number: 001-37661 (Exact name of registrant as specified in its charter) Tennessee 62-1173944 (State or other jurisdict ...

SmartFinancial, Inc. (NYSE:SMBK) Q4 2022 Earnings Conference Call January 24, 2023 10:00 AM ET Company Participants Miller Welborn - Chairman William Carroll Jr. - President and Chief Executive Officer Ronald Gorczynski - Vice President and Chief Financial Officer Rhett Jordan - Chief Credit Officer Nate Strall - Director of Corporate Strategy Conference Call Participants Brett Rabatin - Hovde Group Thomas Wendler - Stephens Inc. Graham Dick - Piper Sandler Feddie Strickland - Janney Montgomery Scott LLC Ca ...

1) Non-GAAP financial measure - for a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 2) AOCI: Accumulated Other Comprehensive Income 3) CAGR: Compound Annualized Growth Rate 3 QUARTERLY HIGHLIGHTS: 1) Non-GAAP financial measure - for a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 2) QoQ: Quarter-over-Quarter 3) "Loans" for purposes of this presentation includes all SmartFinanci ...

[PART I – FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section provides SmartFinancial's unaudited consolidated financial statements and management's discussion and analysis for the periods ended September 30, 2022 [Item 1. Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements of SmartFinancial, Inc. and its subsidiary for the periods ended September 30, 2022, and December 31, 2021, including balance sheets, income statements, comprehensive income, changes in shareholders' equity, and cash flows, along with detailed notes explaining accounting policies, business combinations, and other financial disclosures [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section presents SmartFinancial's financial position, detailing assets, liabilities, and shareholders' equity as of September 30, 2022, and December 31, 2021 Consolidated Balance Sheet Highlights (Dollars in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | |:---------------------------------|-------------:|-------------:|-------:|---------:| | Total assets | $4,796,911 | $4,611,579 | $185,332 | 4.02% | | Total liabilities | $4,382,200 | $4,182,149 | $200,051 | 4.78% | | Total shareholders' equity | $414,711 | $429,430 | $(14,719) | -3.43% | | Cash and due from banks | $46,351 | $110,333 | $(63,982) | -58.00% | | Total cash and cash equivalents | $543,029 | $1,045,077 | $(502,048) | -48.04% | | Loans and leases, net | $3,076,347 | $2,674,045 | $402,302 | 15.04% | | Total deposits | $4,280,409 | $4,021,938 | $258,471 | 6.43% | | Borrowings | $18,423 | $87,585 | $(69,162) | -78.97% | - Total assets increased by **$185.3 million** (4.02%) from December 31, 2021, to September 30, 2022, primarily driven by a significant increase in net loans and leases[10](index=10&type=chunk) - Total liabilities grew by **$200.1 million** (4.78%), mainly due to an increase in total deposits, while borrowings saw a substantial decrease[10](index=10&type=chunk) - Shareholders' equity decreased by **$14.7 million** (-3.43%), largely influenced by a negative accumulated other comprehensive income (loss)[10](index=10&type=chunk) [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) This section outlines SmartFinancial's revenues, expenses, and net income for the three and nine months ended September 30, 2022, and 2021 Consolidated Statements of Income Highlights (Dollars in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | |:---------------------------------|-----------------------------:|-----------------------------:|-------------:|-----------------------------:|-----------------------------:|-------------:| | Total interest income | $42,297 | $33,311 | $8,986 | $111,521 | $92,455 | $19,066 | | Total interest expense | $5,589 | $2,929 | $2,660 | $11,632 | $8,916 | $2,716 | | Net interest income | $36,708 | $30,382 | $6,326 | $99,889 | $83,539 | $16,350 | | Provision for loan and lease losses | $974 | $1,149 | $(175) | $3,230 | $1,211 | $2,019 | | Total noninterest income | $6,250 | $6,309 | $(59) | $20,590 | $17,143 | $3,447 | | Total noninterest expense | $27,230 | $23,309 | $3,921 | $78,874 | $63,570 | $15,304 | | Net income | $11,543 | $9,600 | $1,943 | $30,018 | $28,134 | $1,884 | | Basic EPS | $0.69 | $0.62 | $0.07 | $1.79 | $1.85 | $(0.06) | | Diluted EPS | $0.68 | $0.61 | $0.07 | $1.78 | $1.84 | $(0.06) | - Net interest income increased by **$6.3 million** (20.8%) for the three months ended September 30, 2022, and by **$16.4 million** (19.6%) for the nine months ended September 30, 2022, compared to the respective prior-year periods, driven by higher interest income[13](index=13&type=chunk) - Net income for the third quarter of 2022 rose to **$11.5 million** (**$0.68 diluted EPS**) from **$9.6 million** (**$0.61 diluted EPS**) in the prior year, an increase of **20.2%**[13](index=13&type=chunk) - For the nine months ended September 30, 2022, net income increased to **$30.0 million** (**$1.78 diluted EPS**) from **$28.1 million** (**$1.84 diluted EPS**) in the prior year, a **6.7% increase**, despite a slight decrease in diluted EPS due to higher weighted average shares outstanding[13](index=13&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=8&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section details SmartFinancial's comprehensive income (loss), including net income and other comprehensive income (loss) components, for the specified periods Consolidated Statements of Comprehensive Income (Loss) Highlights (Dollars in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:-------------------------------------------------------------------------------------------------|-----------------------------:|-----------------------------:|-----------------------------:|-----------------------------:| | Net income | $11,543 | $9,600 | $30,018 | $28,134 | | Unrealized holding gains (losses) on securities available-for-sale, net of tax | $(14,911) | $177 | $(39,931) | $(740) | | Unrealized gains (losses) on fair value municipal security hedge instruments, net of tax | $69 | $44 | $(1,002) | $1,116 | | Unrealized gains (losses) on cash flow hedge instruments, net of tax | $(1,317) | $— | $(1,317) | $— | | Total other comprehensive income (loss) | $(16,159) | $221 | $(42,250) | $376 | | Comprehensive income (loss) | $(4,616) | $9,821 | $(12,232) | $28,510 | - Total other comprehensive income (loss) significantly declined, moving from a gain of **$221 thousand** in Q3 2021 to a loss of **$16.2 million** in Q3 2022, primarily due to unrealized losses on available-for-sale securities[15](index=15&type=chunk) - For the nine months ended September 30, 2022, the company reported a comprehensive loss of **$12.2 million**, a substantial decrease from the **$28.5 million** comprehensive income in the same period of 2021, mainly driven by large unrealized losses on securities and cash flow hedges[15](index=15&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) This section presents the changes in SmartFinancial's shareholders' equity, including net income, other comprehensive loss, and dividends, for the nine months ended September 30, 2022 Consolidated Statements of Changes in Shareholders' Equity Highlights (Dollars in thousands, except share data) | Metric | Balance Dec 31, 2021 | Net Income (9M 2022) | Other Comprehensive (Loss) (9M 2022) | Stock Options Exercised (9M 2022) | Restricted Stock, net (9M 2022) | Shares Withheld for Taxes (9M 2022) | Stock Compensation Expense (9M 2022) | Common Stock Dividend (9M 2022) | Balance Sep 30, 2022 | |:---------------------------------|---------------------:|---------------------:|-------------------------------------:|-----------------------------------:|---------------------------------------:|---------------------------------------:|-----------------------------------------:|---------------------------------------:|---------------------:| | Common Stock (Shares) | 16,802,990 | — | — | 32,003 | 60,515 | (7,953) | — | — | 16,887,555 | | Common Stock (Amount) | $16,803 | — | — | $32 | $61 | $(8) | — | — | $16,888 | | Additional Paid-in Capital | $292,937 | — | — | $238 | $(61) | $(198) | $991 | — | $293,907 | | Retained Earnings | $118,247 | $30,018 | — | — | — | — | — | $(3,542) | $144,723 | | Accumulated Other Comprehensive Income (Loss) | $1,443 | — | $(42,250) | — | — | — | — | — | $(40,807) | | Total Shareholders' Equity | $429,430 | $30,018 | $(42,250) | $270 | — | $(206) | $991 | $(3,542) | $414,711 | - Total shareholders' equity decreased from **$429.4 million** at December 31, 2021, to **$414.7 million** at September 30, 2022, primarily due to a significant accumulated other comprehensive loss of **$42.3 million**, partially offset by net income of **$30.0 million**[17](index=17&type=chunk) - Retained earnings increased by **$26.5 million** during the nine months ended September 30, 2022, reflecting net income less common stock dividends paid[17](index=17&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes SmartFinancial's cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2022, and 2021 Consolidated Statements of Cash Flows Highlights (Nine Months Ended September 30, Dollars in thousands) | Cash Flow Activity | 2022 | 2021 | |:---------------------------------|-------------:|-------------:| | Net cash provided by operating activities | $41,581 | $45,551 | | Net cash (used in) provided by investing activities | $(729,861) | $2,460 | | Net cash provided by financing activities | $186,232 | $561,430 | | Net change in cash and cash equivalents | $(502,048) | $609,441 | | Cash and cash equivalents, end of period | $543,029 | $1,091,160 | - Net cash used in investing activities significantly increased to **$729.9 million** for the nine months ended September 30, 2022, compared to a net cash provided of **$2.5 million** in the prior year, primarily due to increased purchases of available-for-sale securities and a net increase in loans and leases[19](index=19&type=chunk) - Net cash provided by financing activities decreased to **$186.2 million** in 2022 from **$561.4 million** in 2021, mainly due to a lower net increase in deposits and higher repayment of borrowings[19](index=19&type=chunk) - The company experienced a net decrease in cash and cash equivalents of **$502.0 million** for the nine months ended September 30, 2022, resulting in an ending balance of **$543.0 million**[19](index=19&type=chunk) [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations of SmartFinancial's accounting policies, significant transactions, and financial disclosures supporting the consolidated financial statements [Note 1. Presentation of Financial Information](index=11&type=section&id=Note%201.%20Presentation%20of%20Financial%20Information) This note outlines SmartFinancial's business as a bank holding company providing financial services through SmartBank, adhering to GAAP. It highlights key accounting estimates, the non-audited nature of interim statements, and the adoption of ASU 2020-04 (LIBOR reform) with no material impact, while preparing for the upcoming CECL model adoption in January 2023, which is expected to increase the allowance for loan losses - SmartFinancial, Inc. is a bank holding company operating SmartBank, offering financial services to individuals and corporate customers across East and Middle Tennessee, Alabama, and the Florida Panhandle[20](index=20&type=chunk) - The company implemented ASU 2020-04 (Reference Rate Reform) to transition from LIBOR, ceasing new LIBOR loans by December 31, 2021, and expects no material impact on financial statements[23](index=23&type=chunk) - SmartFinancial will adopt the CECL model (ASU 2016-13) for fiscal years beginning after December 15, 2022 (January 2023), and anticipates a likely increase in the allowance for loan losses upon adoption[27](index=27&type=chunk)[28](index=28&type=chunk)[30](index=30&type=chunk) [Note 2. Business Combinations](index=15&type=section&id=Note%202.%20Business%20Combinations) This note details three business combinations: the acquisition of Sunbelt Group, LLC in September 2022 for $6.5 million, resulting in $4.6 million goodwill; the acquisition of Sevier County Bancshares, Inc. in September 2021 for $51.8 million, generating $17.2 million goodwill; and the acquisition of Fountain Leasing, LLC in May 2021 for $59.8 million, which resulted in $2.4 million goodwill - On September 1, 2022, Rains Agency Inc. (a SmartFinancial subsidiary) acquired Sunbelt Group, LLC for **$6.5 million**, recognizing **$4.6 million** in goodwill and **$1.9 million** in customer relationship intangibles[35](index=35&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) - On September 1, 2021, SmartFinancial acquired Sevier County Bancshares, Inc. for **$51.8 million** (cash and stock), resulting in **$17.2 million** goodwill and a **$1.6 million** core deposit intangible[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk) - On May 3, 2021, SmartFinancial acquired Fountain Leasing, LLC for **$59.8 million** cash, recognizing **$2.4 million** goodwill and a **$2.7 million** customer relationship intangible[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) [Note 3. Earnings Per Share](index=19&type=section&id=Note%203.%20Earnings%20Per%20Share) This note provides the computation for basic and diluted earnings per common share, detailing net income available to common shareholders and weighted-average common shares outstanding, including incremental shares from stock options and restricted stock Earnings Per Share Computation (Dollars in thousands, except share and per share data) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---------------------------------|-----------------------------:|-----------------------------:|-----------------------------:|-----------------------------:| | Net income available to common shareholders | $11,543 | $9,600 | $30,018 | $28,134 | | Average common shares outstanding – basic | 16,749,255 | 15,557,528 | 16,734,298 | 15,192,919 | | Basic earnings per share | $0.69 | $0.62 | $1.79 | $1.85 | | Incremental shares from assumed conversions | 122,767 | 133,598 | 133,672 | 119,836 | | Average common shares outstanding - diluted | 16,872,022 | 15,691,126 | 16,867,970 | 15,312,755 | | Diluted earnings per common share | $0.68 | $0.61 | $1.78 | $1.84 | - Diluted EPS increased to **$0.68** for the three months ended September 30, 2022, from **$0.61** in the prior year, reflecting higher net income[54](index=54&type=chunk) - For the nine months ended September 30, 2022, diluted EPS decreased slightly to **$1.78** from **$1.84** in the prior year, despite higher net income, due to an increase in weighted average diluted shares outstanding[54](index=54&type=chunk) [Note 4. Securities](index=20&type=section&id=Note%204.%20Securities) This note details the company's securities portfolio, including available-for-sale (AFS) and held-to-maturity (HTM) categories. It highlights significant unrealized losses in both portfolios at September 30, 2022, primarily due to interest rate changes, and the transfer of $162.4 million AFS securities to HTM in Q1 2022. The company concluded these impairments are temporary and expects full recovery of amortized cost Securities Portfolio Summary (September 30, 2022, Dollars in thousands) | Category | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |:---------------------------------|---------------:|-----------------------:|------------------------:|-----------:| | **Available-for-sale:** | | | | | | U.S. Treasury | $242,018 | $— | $(20,242) | $221,776 | | Mortgage-backed securities (GSEs) | $241,531 | $1 | $(28,176) | $213,356 | | Total Available-for-sale | $571,588 | $4 | $(51,869) | $519,723 | | **Held-to-maturity:** | | | | | | U.S. Treasury | $150,353 | $— | $(6,095) | $144,258 | | Mortgage-backed securities (GSEs) | $31,978 | $— | $(4,968) | $27,010 | | Total Held-to-maturity | $287,104 | $— | $(30,128) | $256,976 | - At September 30, 2022, available-for-sale securities had gross unrealized losses of **$51.9 million**, and held-to-maturity securities had gross unrealized losses of **$30.1 million**, primarily due to changes in interest rates[55](index=55&type=chunk) - During Q1 2022, the Company transferred **$162.4 million** of available-for-sale securities to the held-to-maturity category, retaining a **$2.0 million** unrealized holding loss in AOCI[58](index=58&type=chunk) - Management concluded that all unrealized losses at September 30, 2022, were temporary, not indicative of credit deterioration, and expects to recover the entire amortized cost[66](index=66&type=chunk) [Note 5. Loans and Leases and Allowance for Loan and Lease Losses](index=24&type=section&id=Note%205.%20Loans%20and%20Leases%20and%20Allowance%20for%20Loan%20and%20Lease%20Losses) This note details the loan and lease portfolio, segmented by risk characteristics, and the allowance for loan and lease losses (ALLL). Total loans and leases increased to $3.1 billion at September 30, 2022. The ALLL increased to $22.8 million, representing 0.73% of total loans and leases, deemed adequate by management. Nonperforming loans and troubled debt restructurings remained low, while purchased credit impaired (PCI) loans decreased Loans and Leases Portfolio (Dollars in thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Change | |:---------------------------------|-------------:|-------------:|-------:| | Commercial real estate | $1,537,051 | $1,384,156 | $152,895 | | Consumer real estate | $562,408 | $477,272 | $85,136 | | Construction and land development | $405,007 | $278,386 | $126,621 | | Commercial and industrial | $514,280 | $488,024 | $26,256 | | Leases | $64,798 | $53,708 | $11,090 | | Consumer and other | $15,572 | $11,851 | $3,721 | | Total loans and leases | $3,099,116 | $2,693,397 | $405,719 | | Allowance for loan and lease losses | $(22,769) | $(19,352) | $(3,417) | | Loans and leases, net | $3,076,347 | $2,674,045 | $402,302 | Allowance for Loan and Lease Losses (ALLL) (Dollars in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | |:---------------------------------|-------------:|-------------:| | ALLL | $22,769 | $19,352 | | ALLL as % of total loans and leases | 0.73% | 0.72% | | Provision for loan and lease losses (3M) | $974 | $1,149 | | Provision for loan and lease losses (9M) | $3,230 | $1,211 | | Total impaired loans and leases | $4,195 | $4,861 | | Nonaccrual loans and leases | $3,379 | $3,124 | | Troubled Debt Restructurings (TDRs) | $108 | $206 | - The provision for loan and lease losses for the nine months ended September 30, 2022, increased to **$3.2 million** from **$1.2 million** in the prior year, reflecting increased loan growth[89](index=89&type=chunk) - Nonperforming loans and leases as a percentage of total gross loans and leases remained low at **0.11%** as of September 30, 2022, compared to **0.12%** at December 31, 2021[216](index=216&type=chunk) [Note 6. Goodwill and Intangible Assets](index=39&type=section&id=Note%206.%20Goodwill%20and%20Intangible%20Assets) This note details the company's goodwill and other intangible assets. Goodwill increased to $96.1 million at September 30, 2022, primarily due to the Sunbelt acquisition. Other intangible assets, including core deposit, customer relationships, and tradename, totaled $14.3 million net, with an aggregate amortization expense of $1.9 million for the nine months ended September 30, 2022 Goodwill and Other Intangible Assets (Dollars in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | |:---------------------------------|-------------:|-------------:| | Goodwill, end of period | $96,145 | $91,565 | | Other intangible assets, gross | $23,203 | $21,255 | | Accumulated amortization | $(8,888) | $(6,968) | | Other intangible assets, net | $14,315 | $14,287 | | Aggregate amortization expense (9M) | $1,919 | $1,597 | - Goodwill increased by **$4.6 million** during the nine months ended September 30, 2022, primarily from the acquisition of Sunbelt[116](index=116&type=chunk) - The estimated aggregate amortization expense for other intangible assets for the remainder of 2022 is **$688 thousand**, with **$2.6 million** projected for 2023[116](index=116&type=chunk) [Note 7. Borrowings, Line of Credit and Subordinated Debt](index=41&type=section&id=Note%207.%20Borrowings,%20Line%20of%20Credit%20and%20Subordinated%20Debt) This note details the company's borrowings, which significantly decreased to $18.4 million at September 30, 2022, from $87.6 million at December 31, 2021, mainly due to FHLB advances being called. It also covers a $25 million revolving line of credit with $12.5 million outstanding, and $40 million in 5.625% fixed-to-floating rate subordinated notes, plus an additional $2.5 million in subordinated notes acquired from SCB Borrowings Summary (Dollars in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | |:---------------------------------|-------------:|-------------:| | Total borrowings | $18,423 | $87,585 | | Securities sold under customer repurchase agreements | $5,923 | $5,085 | | FHLB borrowings | $— | $75,000 | | Other borrowings (line of credit) | $12,500 | $7,500 | | Subordinated debt | $41,994 | $41,930 | - Total borrowings decreased by **$69.2 million**, or **79%**, from December 31, 2021, to September 30, 2022, primarily due to the FHLB calling two advances totaling **$75 million**[117](index=117&type=chunk) - The company has **$40 million** in **5.625%** fixed-to-floating rate subordinated notes, maturing after October 2, 2023, and an additional **$2.5 million** in **6.75%** subordinated notes acquired from SCB[121](index=121&type=chunk)[122](index=122&type=chunk)[124](index=124&type=chunk) [Note 8. Employee Benefit Plans](index=43&type=section&id=Note%208.%20Employee%20Benefit%20Plans) This note details the company's employee benefit plans, including a 401(k) plan with matching contributions, and equity incentive plans. It provides activity summaries for stock options, restricted stock awards, and Stock Appreciation Rights (SARs), along with associated compensation expenses. The 401(k) contributions increased, and restricted stock compensation expense rose, while SARs compensation expense showed a credit due to fair value adjustments Employee Benefit Plan Contributions and Expenses (Dollars in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---------------------------------|-----------------------------:|-----------------------------:|-----------------------------:|-----------------------------:| | 401(k) Plan Contribution | $419 | $287 | $1,266 | $925 | | Restricted Stock Compensation Expense | $281 | $163 | $991 | $525 | | SARs Compensation Expense | $31 | $49 | $(12) | $162 | - The Company's 401(k) contributions increased to **$1.27 million** for the nine months ended September 30, 2022, from **$925 thousand** in the prior year[125](index=125&type=chunk) - Unrecognized compensation cost for non-vested restricted stock awards was **$1.2 million** as of September 30, 2022, expected to be recognized over a weighted average period of **2.08 years**[133](index=133&type=chunk) - SARs compensation expense for the nine months ended September 30, 2022, was a credit of **$12 thousand**, due to fair value evaluation adjustments[135](index=135&type=chunk) [Note 9. Commitments and Contingent Liabilities](index=46&type=section&id=Note%209.%20Commitments%20and%20Contingent%20Liabilities) This note outlines the company's off-balance sheet commitments, including $885.9 million in commitments to extend credit and $16.1 million in standby letters of credit as of September 30, 2022. It also addresses legal proceedings, stating that management does not anticipate any material adverse impact on the company's financial position Off-Balance Sheet Commitments (Dollars in thousands) | Commitment Type | Sep 30, 2022 | Dec 31, 2021 | |:---------------------------------|-------------:|-------------:| | Commitments to extend credit | $885,945 | $669,770 | | Standby letters of credit | $16,111 | $17,868 | - Commitments to extend credit increased by **$216.2 million** from December 31, 2021, to September 30, 2022[137](index=137&type=chunk) - Management does not anticipate that the aggregate ultimate liability from pending or threatened legal proceedings will be material to the Company's consolidated financial position[140](index=140&type=chunk) [Note 10. Fair Value Disclosures](index=48&type=section&id=Note%2010.%20Fair%20Value%20Disclosures) This note details the company's fair value measurements, categorized into a three-level hierarchy based on input observability. It presents recurring fair value measurements for available-for-sale securities and derivative instruments (primarily Level 2), and nonrecurring measurements for collateral-dependent loans and other real estate owned (Level 3), which are valued using appraisals with significant unobservable inputs Recurring Fair Value Measurements (September 30, 2022, Dollars in thousands) | Asset/Liability | Fair Value | Level 1 | Level 2 | Level 3 | |:---------------------------------|-------------:|--------:|--------:|--------:| | Securities available-for-sale | $519,723 | $— | $519,723 | $— | | Derivative financial instruments and interest rate swap agreements (Assets) | $12,433 | $— | $12,433 | $— | | Derivative financial instruments and interest rate swap agreements (Liabilities) | $12,457 | $— | $12,457 | $— | Nonrecurring Fair Value Measurements (September 30, 2022, Dollars in thousands) | Asset | Fair Value | Valuation Technique | Significant Unobservable Input | Weighted Average of Input | |:---------------------------------|-------------:|:--------------------|:-------------------------------|:--------------------------| | Collateral dependent loans | $1,691 | Appraisal | Appraisal discounts | 25% | | Other real estate owned | $27 | Appraisal | Appraisal discounts | 10% | - The majority of securities available-for-sale and derivative financial instruments are classified as **Level 2**, indicating valuation based on observable inputs other than quoted prices[150](index=150&type=chunk) - Collateral dependent loans and other real estate owned are measured at fair value on a non-recurring basis and are classified as **Level 3**, relying on independent appraisals and management's subjective discounts[152](index=152&type=chunk)[153](index=153&type=chunk) [Note 11. Derivatives Financial Instruments](index=55&type=section&id=Note%2011.%20Derivatives%20Financial%20Instruments) This note details the company's derivative activities, including fair value hedges for fixed-rate tax-exempt securities, cash flow hedges for variable-rate commercial loans, and non-hedged 'back-to-back' interest rate swaps for customer loans. Fair value hedges aim to mitigate interest rate risk, cash flow hedges reduce variability in future cash flows, and non-hedged swaps provide fixed rates to customers while maintaining variable-rate loans for the company. Collateral requirements for derivatives totaled $6.7 million at September 30, 2022 - The Company uses interest rate swaps designated as fair value hedges to mitigate interest rate risk on fixed-rate tax-exempt callable securities, converting fixed rates to LIBOR-based variable rates[158](index=158&type=chunk) - During Q3 2022, the Company entered into **$100 million** notional amount interest rate collars as cash flow hedges to manage variability in its commercial loan portfolio's interest rates[160](index=160&type=chunk) - The Company operates a non-hedged loan hedging program using 'back-to-back' interest rate swaps, allowing customers fixed rates while the Company holds variable-rate loans, with a notional amount of **$151.0 million** at September 30, 2022[162](index=162&type=chunk)[163](index=163&type=chunk) - Collateral totaling **$6.7 million** was pledged to derivative counterparties at September 30, 2022, to comply with collateral requirements[165](index=165&type=chunk) [Note 12. Leases](index=59&type=section&id=Note%2012.%20Leases) This note outlines the company's operating lease arrangements, primarily for real estate. As of September 30, 2022, operating lease right-of-use (ROU) assets were $8.9 million and corresponding lease liabilities were $9.0 million. The weighted average remaining lease term was 9.48 years, with a weighted average discount rate of 2.16%. Total operating lease costs for the nine months ended September 30, 2022, were $1.3 million Operating Lease Information (Dollars in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | |:---------------------------------|-------------:|-------------:| | Operating lease right-of-use assets | $8,889 | $9,812 | | Operating lease liabilities | $9,015 | $9,881 | | Weighted average remaining lease term | 9.48 years | N/A | | Weighted average discount rate | 2.16% | N/A | | Total lease costs (9M) | $1,296 | $830 | - The company's operating lease ROU assets and liabilities decreased from December 31, 2021, to September 30, 2022[168](index=168&type=chunk) - Future minimum lease payments for operating leases total **$10.1 million**, with **$391 thousand** due in the remainder of 2022[170](index=170&type=chunk) [Note 13. Regulatory Matters](index=61&type=section&id=Note%2013.%20Regulatory%20Matters) This note details the company's and SmartBank's regulatory capital requirements under Basel III, including the capital conservation buffer. As of September 30, 2022, both the Company and the Bank exceeded all minimum regulatory capital requirements and were classified as 'well capitalized.' It also outlines regulatory restrictions on dividend payments Regulatory Capital Levels (September 30, 2022, Dollars in thousands) | Capital Ratio | SmartFinancial Actual Ratio | SmartFinancial Minimum for Adequacy | SmartBank Actual Ratio | SmartBank Minimum for Adequacy | SmartBank Minimum for Well Capitalized | |:---------------------------------|-----------------------------:|-------------------------------------:|-----------------------------:|-------------------------------------:|----------------------------------------:| | Total Capital (to RWA) | 11.44% | 8.00% | 11.41% | 8.00% | 10.00% | | Tier 1 Capital (to RWA) | 9.65% | 6.00% | 10.78% | 6.00% | 8.00% | | Common Equity Tier 1 Capital (to RWA) | 9.65% | 4.50% | 10.78% | 4.50% | 6.50% | | Tier 1 Capital (to Average Assets) | 7.40% | 4.00% | 8.27% | 4.00% | 5.00% | - As of September 30, 2022, both SmartFinancial and SmartBank exceeded all minimum regulatory capital requirements and the thresholds for the **'well capitalized'** regulatory classification[171](index=171&type=chunk) - The Bank did not pay a dividend to the Company during the three and nine months ended September 30, 2022, while the Company paid a quarterly common stock dividend of **$0.07 per share** since Q1 2022[175](index=175&type=chunk) [Note 14. Other Comprehensive Income (Loss)](index=65&type=section&id=Note%2014.%20Other%20Comprehensive%20Income%20(Loss)) This note details the changes in accumulated other comprehensive income (loss) (AOCI), net of tax. AOCI shifted from a positive balance of $1.4 million at December 31, 2021, to a significant loss of $40.8 million at September 30, 2022, primarily driven by unrealized losses on available-for-sale securities and cash flow hedges Changes in Accumulated Other Comprehensive Income (Loss) (Dollars in thousands) | Component | Balance Dec 31, 2021 | Other Comprehensive Income (Loss) (9M 2022) | Reclassification (9M 2022) | Balance Sep 30, 2022 | |:---------------------------------|---------------------:|---------------------------------------------:|---------------------------:|---------------------:| | Securities Available-for-Sale | $25 | $(38,493) | $— | $(38,468) | | Securities Transferred to Held-to-Maturity | $665 | $(1,490) | $52 | $(773) | | Fair Value Municipal Security Hedges | $753 | $(1,002) | $— | $(249) | | Cash Flow Hedges | $— | $(1,317) | $— | $(1,317) | | Total Accumulated Other Comprehensive Income (Loss) | $1,443 | $(42,302) | $52 | $(40,807) | - The accumulated other comprehensive income (loss) experienced a significant negative change of **$42.3 million** during the nine months ended September 30, 2022, primarily due to unrealized losses on available-for-sale securities[178](index=178&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=66&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on SmartFinancial's financial condition and results of operations, highlighting key performance indicators, economic conditions, and detailed analysis of net interest income, noninterest income, noninterest expense, taxes, loan and lease portfolio, securities, deposits, borrowings, capital resources, liquidity, and market risk management for the three and nine months ended September 30, 2022, compared to 2021 [Overview and Forward-Looking Statements](index=66&type=section&id=Overview%20and%20Forward-Looking%20Statements) This section provides an overview of SmartFinancial's business model, strategic focus, and management's perspective on current economic conditions and future outlook - SmartFinancial, Inc. is a bank holding company that owns and manages SmartBank, providing diverse financial services to individuals and corporate clients in Tennessee, Alabama, and Florida Panhandle[179](index=179&type=chunk) - The company focuses on commercial real estate, secured and unsecured commercial loans to small and medium-sized businesses, and consumer loans, funded primarily by deposits[180](index=180&type=chunk) - Economic conditions in the company's markets show a solid and positive outlook, despite headwinds from inflation and recessionary concerns, with housing shortages persisting in several Tennessee markets[186](index=186&type=chunk) [Executive Summary and Financial Highlights](index=70&type=section&id=Executive%20Summary%20and%20Financial%20Highlights) This section presents a high-level overview of SmartFinancial's key financial performance metrics and significant achievements for the reported periods Executive Summary Financial Highlights (Dollars in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---------------------------------|-----------------------------:|-----------------------------:|-----------------------------:|-----------------------------:| | Net income | $11,543 | $9,600 | $30,018 | $28,134 | | Diluted EPS | $0.68 | $0.61 | $1.78 | $1.84 | | Annualized return on average assets | 0.95% | 0.97% | 0.85% | 1.04% | | Annualized return on average shareholders' equity | 10.77% | 9.70% | 9.46% | 10.05% | | Net loans and leases increase (YTD) | N/A | N/A | $517,200 | N/A | - Net income for Q3 2022 increased by **$1.9 million** to **$11.5 million**, or **$0.68 per diluted common share**, compared to Q3 2021[188](index=188&type=chunk) - Net organic loans and leases showed strong year-to-date growth in 2022, increasing by **$517.2 million** from December 31, 2021[188](index=188&type=chunk) [Analysis of Results of Operations](index=72&type=section&id=Analysis%20of%20Results%20of%20Operations) This section provides a detailed review of SmartFinancial's financial performance, focusing on net income drivers, interest margin, and expense trends Key Financial Performance Metrics (Dollars in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | |:---------------------------------|-----------------------------:|-----------------------------:|-------------:|-----------------------------:|-----------------------------:|-------------:| | Net income | $11,543 | $9,600 | $1,943 | $30,018 | $28,134 | $1,884 | | Diluted income per common share | $0.68 | $0.61 | $0.07 | $1.78 | $1.84 | $(0.06) | | Tax equivalent net interest margin | 3.29% | 3.35% | (0.06)% | 3.10% | 3.37% | (0.27)% | | Noninterest income to average assets | 0.52% | 0.64% | (0.12)% | 0.59% | 0.63% | (0.04)% | | Noninterest expense to average assets | 2.25% | 2.35% | (0.10)% | 2.24% | 2.34% | (0.10)% | - The increase in net income for Q3 2022 was driven by a **$6.5 million** increase in net interest income after provision for loan and lease losses, partially offset by higher noninterest and income tax expenses[191](index=191&type=chunk) - The tax equivalent net interest margin decreased to **3.29%** in Q3 2022 from **3.35%** in Q3 2021, and to **3.10%** for the first nine months of 2022 from **3.37%** in the prior year[191](index=191&type=chunk)[192](index=192&type=chunk) [Net Interest Income and Yield Analysis](index=74&type=section&id=Net%20Interest%20Income%20and%20Yield%20Analysis) This section analyzes SmartFinancial's net interest income, interest-earning assets, and interest-bearing liabilities, along with their respective yields and costs Net Interest Income and Yield Analysis (Dollars in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | |:---------------------------------|-----------------------------:|-----------------------------:|-------------:|-----------------------------:|-----------------------------:|-------------:| | Net interest income, taxable equivalent | $36,879 | $30,529 | $6,350 | $100,393 | $83,984 | $16,409 | | Average interest-earning assets | $4,446,520 | $3,613,956 | $832,564 | $4,330,642 | $3,332,786 | $997,856 | | Yield on earning assets | 3.79% | 3.67% | 0.12% | 3.46% | 3.73% | (0.27)% | | Cost of average interest-bearing deposits | 0.62% | 0.34% | 0.28% | 0.41% | 0.39% | 0.02% | - Net interest income, taxable equivalent, increased by **$6.35 million** (**20.8%**) in Q3 2022 and **$16.41 million** (**19.5%**) for the first nine months of 2022, primarily due to increased balances in loans, leases, and securities[195](index=195&type=chunk)[199](index=199&type=chunk) - Average interest-earning assets grew by **$832.6 million** in Q3 2022 and **$997.9 million** for the first nine months of 2022, driven by organic loan growth and acquisitions[195](index=195&type=chunk)[199](index=199&type=chunk) - The cost of average interest-bearing deposits increased to **0.62%** in Q3 2022 from **0.34%** in Q3 2021, and to **0.41%** for the first nine months of 2022 from **0.39%** in the prior year, mainly due to Federal Reserve rate increases[195](index=195&type=chunk)[200](index=200&type=chunk) [Noninterest Income](index=77&type=section&id=Noninterest%20Income) This section details SmartFinancial's noninterest income sources, including service charges, mortgage banking, and investment services, for the reported periods Noninterest Income Summary (Dollars in thousands) | Category | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | |:---------------------------------|-----------------------------:|-----------------------------:|-------------:|-----------------------------:|-----------------------------:|-------------:| | Service charges on deposit accounts | $1,611 | $1,220 | $391 | $4,376 | $3,278 | $1,098 | | Mortgage banking | $170 | $994 | $(824) | $1,475 | $3,238 | $(1,763) | | Investment services | $1,051 | $448 | $603 | $3,186 | $1,546 | $1,640 | | Interchange and debit card transaction fees, net | $1,356 | $1,078 | $278 | $4,107 | $2,839 | $1,268 | | Total noninterest income | $6,250 | $6,309 | $(59) | $20,590 | $17,143 | $3,447 | - Total noninterest income decreased by **$59 thousand** (**0.9%**) in Q3 2022 but increased by **$3.4 million** (**20.1%**) for the first nine months of 2022[203](index=203&type=chunk) - Mortgage banking income significantly decreased by **$824 thousand** in Q3 2022 and **$1.76 million** for the nine months, due to increased secondary market interest rates and lower volume[204](index=204&type=chunk) - Investment services income increased by **$603 thousand** in Q3 2022 and **$1.64 million** for the nine months, attributed to the addition of a new wealth management team[204](index=204&type=chunk) [Noninterest Expense](index=78&type=section&id=Noninterest%20Expense) This section examines SmartFinancial's noninterest expenses, such as salaries, occupancy, and data processing, and their impact on overall profitability Noninterest Expense Summary (Dollars in thousands) | Category | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | |:---------------------------------|-----------------------------:|-----------------------------:|-------------:|-----------------------------:|-----------------------------:|-------------:| | Salaries and employee benefits | $16,317 | $13,594 | $2,723 | $47,036 | $36,666 | $10,370 | | Occupancy and equipment | $3,167 | $2,536 | $631 | $9,020 | $7,170 | $1,850 | | FDIC insurance | $705 | $525 | $180 | $2,022 | $1,266 | $756 | | Data processing and technology | $1,872 | $1,753 | $119 | $5,185 | $4,642 | $543 | | Total noninterest expense | $27,230 | $23,309 | $3,921 | $78,874 | $63,570 | $15,304 | - Total noninterest expense increased by **$3.9 million** (**16.8%**) in Q3 2022 and **$15.3 million** (**24.1%**) for the first nine months of 2022[205](index=205&type=chunk) - Salaries and employee benefits increased by **$10.4 million** for the nine months ended September 30, 2022, due to overall franchise growth and talent acquisition in new markets[210](index=210&type=chunk) - FDIC insurance expense increased by **$756 thousand** for the nine months, related to asset growth from the SCB acquisition, deposit growth, and loan origination[210](index=210&type=chunk) [Taxes](index=79&type=section&id=Taxes) This section provides an overview of SmartFinancial's income tax expense and effective tax rates for the reported periods, including any relevant legislative impacts Income Tax Expense and Effective Tax Rate (Dollars in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | |:---------------------------------|-----------------------------:|-----------------------------:|-----------------------------:|-----------------------------:| | Income tax expense | $3,211 | $2,633 | $8,357 | $7,767 | | Effective tax rate | 21.8% | 22.0% | 21.8% | 21.6% | - Income tax expense for Q3 2022 was **$3.2 million**, with an effective tax rate of **21.8%**, compared to **$2.6 million** and **22.0%** in Q3 2021[206](index=206&type=chunk) - The company does not expect the provisions of the Inflation Reduction Act (IRA), effective in 2023, to have a material impact on its consolidated financial statements in the near future[208](index=208&type=chunk) [Loan and Lease Portfolio](index=79&type=section&id=Loan%20and%20Lease%20Portfolio) This section details the composition, growth, and credit quality of SmartFinancial's loan and lease portfolio, including nonperforming assets and allowance levels Loan and Lease Portfolio Composition (Dollars in thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Change | |:---------------------------------|-------------:|-------------:|-------:| | Total net loans and leases | $3,076,347 | $2,674,045 | $402,302 | | Organic net loans and leases | $2,741,475 | $2,224,291 | $517,184 | | Net purchased non-credit impaired loans and leases | $304,638 | $408,586 | $(103,948) | | Net purchased credit impaired (PCI) loans and leases | $30,234 | $41,168 | $(10,934) | | Nonperforming loans and leases as % of total gross loans | 0.11% | 0.12% | (0.01)% | | Allowance for loan and lease losses | $22,769 | $19,352 | $3,417 | | ALLL as % of total loans and leases | 0.73% | 0.72% | 0.01% | - Total net loans and leases outstanding increased by **$402.3 million** to **$3.08 billion** at September 30, 2022, from **$2.67 billion** at December 31, 2021[209](index=209&type=chunk) - Organic net loans and leases increased by **$517.2 million**, or **23.3%**, from December 31, 2021, to **$2.74 billion** at September 30, 2022[212](index=212&type=chunk) - Net purchased non-credit impaired loans and leases decreased by **$103.9 million**, and PCI loans and leases decreased by **$10.9 million**, primarily due to maturities, paydowns, and payoffs[213](index=213&type=chunk) [Securities Portfolio](index=86&type=section&id=Securities%20Portfolio) This section describes SmartFinancial's securities portfolio, including available-for-sale and held-to-maturity categories, and its strategic deployment of cash Securities Portfolio Summary (Dollars in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | |:---------------------------------|-------------:|-------------:|-------:| | Total securities portfolio | $806,827 | $559,422 | $247,405 | | Securities to asset ratio | 16.8% | 12.1% | 4.7% | | Available-for-sale securities | $519,723 | $482,453 | $37,270 | | Held-to-maturity securities | $287,104 | $76,969 | $210,135 | - The securities portfolio increased by **$247.4 million** to **$806.8 million** at September 30, 2022, from **$559.4 million** at December 31, 2021, as a result of strategically deploying excess cash into U.S. Treasuries for cash flow and liquidity[226](index=226&type=chunk) - The securities to asset ratio increased from **12.1%** at December 31, 2021, to **16.8%** at September 30, 2022[226](index=226&type=chunk) [Deposits](index=86&type=section&id=Deposits) This section analyzes SmartFinancial's deposit base, including total deposits, average cost of interest-bearing deposits, and the proportion of brokered deposits Deposits Summary (Dollars in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | |:---------------------------------|-------------:|-------------:|-------:| | Total deposits | $4,280,409 | $4,021,938 | $258,471 | | Average cost of interest-bearing deposits (3M) | 0.62% | 0.34% | 0.28% | | Average cost of interest-bearing deposits (9M) | 0.41% | 0.39% | 0.02% | | Brokered deposits as % of total deposits | 0.98% | N/A | N/A | - Total deposits increased by **$258.5 million** to **$4.28 billion** as of September 30, 2022, primarily driven by organic deposit growth[233](index=233&type=chunk) - The average cost of interest-bearing deposits increased to **0.62%** for the three months ended September 30, 2022, and to **0.41%** for the nine months, mainly due to Federal Reserve rate increases[232](index=232&type=chunk) - Brokered deposits represented approximately **0.98%** of total deposits at September 30, 2022[229](index=229&type=chunk) [Borrowings](index=88&type=section&id=Borrowings) This section details SmartFinancial's borrowing activities, including short-term and long-term debt, and changes in borrowing levels Borrowings Summary (Dollars in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | |:---------------------------------|-------------:|-------------:|-------:| | Total borrowings | $18,423 | $87,585 | $(69,162) | | Short-term borrowings | $12,500 | $7,500 | $5,000 | | Securities sold under repurchase agreements | $5,923 | $5,085 | $838 | | Long-term debt (subordinated debt) | $42,000 | $41,900 | $100 | - Total borrowings decreased significantly to **$18.4 million** at September 30, 2022, from **$87.6 million** at December 31, 2021, primarily due to FHLB advances being called[236](index=236&type=chunk) - Long-term debt, consisting entirely of subordinated debt, remained stable at approximately **$42.0 million**[236](index=236&type=chunk) [Capital Resources](index=88&type=section&id=Capital%20Resources) This section discusses SmartFinancial's capital adequacy, regulatory capital ratios, and strategies for maintaining sufficient capital to support its operations - At September 30, 2022, the Company's and SmartBank's capital ratios (Common Equity Tier 1, Tier 1, and Total Capital) exceeded all regulatory minimum capital requirements[237](index=237&type=chunk) - The company believes it has various capital-raising techniques available to support the capital needs of its bank subsidiary if necessary[237](index=237&type=chunk) [Liquidity and Off-Balance Sheet Arrangements](index=89&type=section&id=Liquidity%20and%20Off-Balance%20Sheet%20Arrangements) This section outlines SmartFinancial's liquidity position, off-balance sheet commitments, and strategies for managing cash flows and meeting financial obligations Off-Balance Sheet Commitments (Dollars in thousands) | Commitment Type | Sep 30, 2022 | |:---------------------------------|-------------:| | Pre-approved but unused lines of credit | $885,945 | | Standby letters of credit | $16,111 | - The company had **$885.9 million** in pre-approved but unused lines of credit and **$16.1 million** in standby letters of credit at September 30, 2022[238](index=238&type=chunk) - The company anticipates adequate liquidity to meet expected obligations, with **$443 thousand** in securities maturing within 12 months and **$548.5 million** in unused borrowing capacity[248](index=248&type=chunk) [Market Risk and Liquidity Risk Management](index=89&type=section&id=Market%20Risk%20and%20Liquidity%20Risk%20Management) This section describes SmartFinancial's approach to managing market risk, particularly interest rate risk, and its impact on net interest income and economic value of equity - The Asset Liability Management Committee (ALCO) oversees market risk management, setting risk measures and limits for interest rate risk and its impact on net interest income and capital[239](index=239&type=chunk) Estimated % Change in Net Interest Income Over 12 Months (September 30, 2022) | Interest Rate Change | Estimated % Change in Net Interest Income | |:---------------------------------|:------------------------------------------| | 100 basis points increase | 1.10% | | 200 basis points increase | 2.15% | | 100 basis points decrease | (1.61)% | Estimated Instantaneous Rate Change in Economic Value of Equity (September 30, 2022) | Interest Rate Change | Current Estimated Instantaneous Rate Change | |:---------------------------------|:------------------------------------------| | 100 basis points increase | 0.90% | | 200 basis points increase | 0.71% | | 100 basis points decrease | (2.49)% | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=92&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section incorporates by reference the market risk and liquidity risk management disclosures provided in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of this report - The quantitative and qualitative disclosures about market risk are incorporated by reference from the 'Market Risk and Liquidity Risk Management' section of the MD&A[250](index=250&type=chunk) [Item 4. Controls and Procedures](index=92&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2022, concluding they were effective. No material changes to internal control over financial reporting occurred during the quarter ended September 30, 2022 - SmartFinancial's disclosure controls and procedures were evaluated as effective as of June 30, 2022[251](index=251&type=chunk) - There were no material changes in SmartFinancial's internal control over financial reporting during the fiscal quarter ended September 30, 2022[252](index=252&type=chunk) [PART II – OTHER INFORMATION](index=93&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section provides additional disclosures on legal proceedings, risk factors, equity sales, defaults, and other miscellaneous information for SmartFinancial [Item 1. Legal Proceedings](index=93&type=section&id=Item%201.%20Legal%20Proceedings) SmartFinancial, Inc. and SmartBank are routinely involved in various legal actions. Management, in consultation with legal counsel, does not anticipate that the ultimate liability from these proceedings will have a material adverse impact on the company's financial condition or results of operations - Management does not expect the aggregate ultimate liability from pending or threatened legal proceedings to have a material adverse impact on the Company's financial condition, financial statements, or results of operations[255](index=255&type=chunk) [Item 1A. Risk Factors](index=93&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the detailed risk factors discussed in the company's Form 10-K for the year ended December 31, 2021, and states that there have been no material changes to these risk factors, while acknowledging potential heightened risks due to COVID-19 - Readers should carefully consider the risk factors discussed in the company's Form 10-K for the year ended December 31, 2021[256](index=256&type=chunk) - There have been no material changes from the risk factors described in the Form 10-K for the year ended December 31, 2021[256](index=256&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=93&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's stock repurchase plan, authorized for up to $10.0 million. As of September 30, 2022, the company had purchased $5.5 million, with an additional $4.5 million remaining authorization. No shares were repurchased during the three months ended September 30, 2022 - The company has a stock repurchase plan authorized for up to **$10.0 million** in shares of outstanding common stock[257](index=257&type=chunk) - As of September 30, 2022, **$5.5 million** of the authorized amount had been purchased, leaving **$4.5 million** available for additional repurchases[257](index=257&type=chunk) - No shares were repurchased under the plan during the three months ended September 30, 2022[259](index=259&type=chunk) [Item 3. Defaults Upon Senior Securities](index=93&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities for the period - There were no defaults upon senior securities[260](index=260&type=chunk) [Item 4. Mine Safety Disclosures](index=95&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable[263](index=263&type=chunk) [Item 5. Other Information](index=95&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this item - No other information was reported[264](index=264&type=chunk) [Item 6. Exhibits](index=96&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including the Asset Purchase Agreement, company charter and bylaws, certifications (Rule 13a-14(a)/15d-14(a) and Sarbanes-Oxley Act of 2002), and Interactive Data Files - Exhibits include the Asset Purchase Agreement for Sunbelt Group, LLC, company charter and bylaws, certifications pursuant to Rule 13a-14(a)/15d-14(a) and 18 USC Section 1350, and Interactive Data Files (Inline XBRL)[266](index=266&type=chunk)

SmartFinancial, Inc. (NYSE:SMBK) Q3 2022 Earnings Conference Call October 25, 2022 10:00 AM ET Company Participants Miller Welborn - Chairman Billy Carroll - President & Chief Executive Officer Rhett Jordan - Chief Credit Officer Ron Gorczynski - Chief Financial Officer Conference Call Participants Feddie Strickland - Janney Kevin Fitzsimmons - D.A. Davidson Catherine Mealor - KBW Stephen Scouten - Piper Sandler Operator [Abrupt start] We acquired this Chattanooga based insurance agency during the quarter a ...

| --- | --- | --- | --- | --- | |---------------------------------------------------------------------------------------|-------|-------|-------|-------| | | | | | | | | | | | | | INVESTOR CALL | | | | | | 3Q 2022 October 25, 2022, 10:00am ET Webcast: www.smartbank.com (Investor Relations) | | | | | | Audio Only: 1-833-927-1758 Access Code: 380946 | | | | | | Miller Welborn Chairman of the Board Billy Carroll President & CEO Ron Gorczynski CFO | | | | | | | | | | | 1 DISCLOSURES Forward-Looking Statements T ...

Table of Contents United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 001-37661 (Exact name of registrant as specified in its charter) Tennessee 62-1173944 (State or ...