PART I – FINANCIAL INFORMATION [Item 1. Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited consolidated financial statements of SmartFinancial, Inc. for the specified periods [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets%20at%20June%2030%2C%202022%20and%20December%2031%2C%202021) This section details the company's financial position, including assets, liabilities, and shareholders' equity at specific reporting dates | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total assets | $4,788,113 | $4,611,579 | | Total liabilities | $4,367,686 | $4,182,149 | | Total shareholders' equity | $420,427 | $429,430 | | Cash and due from banks | $64,189 | $110,333 | | Total cash and cash equivalents | $654,945 | $1,045,077 | | Loans and leases, net | $2,972,136 | $2,674,045 | | Total deposits | $4,281,632 | $4,021,938 | - Total assets increased by **$176.5 million** from December 31, 2021, to June 30, 2022, reaching **$4.788 billion**. Total liabilities also increased by **$185.5 million** to **$4.368 billion**, while total shareholders' equity slightly decreased by **$9 million** to **$420.4 million**[10](index=10&type=chunk) - Cash and cash equivalents saw a significant decrease from **$1.045 billion** at December 31, 2021, to **$654.9 million** at June 30, 2022. Conversely, loans and leases, net, increased by **$298.1 million**, and total deposits increased by **$259.7 million** over the same period[10](index=10&type=chunk) [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202022%20and%202021) This section presents the company's revenues, expenses, and net income for the three and six months ended June 30, 2022 and 2021 | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $36,309 | $29,852 | $69,224 | $59,144 | | Total interest expense | $3,247 | $2,955 | $6,044 | $5,987 | | Net interest income | $33,062 | $26,897 | $63,180 | $53,157 | | Provision for loan and lease losses | $1,250 | $(5) | $2,256 | $62 | | Total noninterest income | $7,229 | $5,143 | $14,340 | $10,835 | | Total noninterest expense | $25,926 | $20,797 | $51,643 | $40,262 | | Net income | $10,215 | $8,778 | $18,475 | $18,534 | | Basic EPS | $0.61 | $0.59 | $1.11 | $1.24 | | Diluted EPS | $0.61 | $0.58 | $1.10 | $1.23 | - Net income for the three months ended June 30, 2022, increased by **$1.437 million** (**16.4%**) to **$10.215 million** compared to the same period in 2021. However, net income for the six months ended June 30, 2022, slightly decreased by **$59 thousand** to **$18.475 million** compared to **$18.534 million** in 2021[13](index=13&type=chunk) - Diluted EPS for the three months ended June 30, 2022, increased to **$0.61** from **$0.58** in 2021, while for the six months ended June 30, 2022, it decreased to **$1.10** from **$1.23** in 2021[13](index=13&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=8&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202022%20and%202021) This section outlines the company's comprehensive income or loss, including net income and other comprehensive income (loss) components | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $10,215 | $8,778 | $18,475 | $18,534 | | Unrealized gains (losses) on securities available-for-sale, net of tax | $(8,430) | $1,153 | $(25,020) | $(917) | | Unrealized gains (losses) on fair value municipal security hedge instruments, net of tax | $(662) | $102 | $(1,071) | $1,072 | | Total other comprehensive income (loss) | $(9,092) | $1,255 | $(26,091) | $155 | | Comprehensive income (loss) | $1,123 | $10,033 | $(7,616) | $18,689 | - Comprehensive income (loss) significantly decreased, reporting a loss of **$(7.616) million** for the six months ended June 30, 2022, compared to a gain of **$18.689 million** in the prior year. This was primarily driven by substantial unrealized losses on available-for-sale securities, net of tax, totaling **$(25.020) million** for the six-month period[15](index=15&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202022%20and%202021) This section details changes in shareholders' equity over the reporting periods, including net income and dividends | Metric (in thousands) | Balance, December 31, 2021 | Net Income (6 months) | Other Comprehensive (Loss) (6 months) | Common Stock Issued (6 months) | Common Stock Dividend (6 months) | Balance, June 30, 2022 | | :---------------------- | :------------------------- | :-------------------- | :------------------------------------ | :----------------------------- | :------------------------------- | :--------------------- | | Common Stock Amount | $16,803 | — | — | $95 | — | $16,898 | | Additional Paid-in Capital | $292,937 | — | — | $878 | — | $293,815 | | Retained Earnings | $118,247 | $18,475 | — | — | $(2,360) | $134,362 | | Accumulated Other Comprehensive Income (Loss) | $1,443 | — | $(26,091) | — | — | $(24,648) | | Total Shareholders' Equity | $429,430 | $18,475 | $(26,091) | $973 | $(2,360) | $420,427 | - Total shareholders' equity decreased from **$429.430 million** at December 31, 2021, to **$420.427 million** at June 30, 2022. This decline was primarily due to a significant accumulated other comprehensive loss of **$(26.091) million**, partially offset by net income of **$18.475 million** and common stock issuance[17](index=17&type=chunk) - Common stock dividends paid for the six months ended June 30, 2022, totaled **$2.360 million**, at **$0.14 per share**, an increase from **$1.813 million** (**$0.12 per share**) in the same period of 2021[17](index=17&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202022%20and%202021) This section presents cash flows from operating, investing, and financing activities for the six months ended June 30, 2022 and 2021 | Metric (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $28,407 | $31,181 | | Net cash used in investing activities | $(601,406) | $(168,603) | | Net cash provided by financing activities | $182,867 | $329,218 | | Net change in cash and cash equivalents | $(390,132) | $191,796 | | Cash and cash equivalents, end of period | $654,945 | $673,515 | - The company experienced a significant net change in cash and cash equivalents, with a decrease of **$(390.132) million** for the six months ended June 30, 2022, compared to an increase of **$191.796 million** in the prior year. This was primarily driven by a substantial increase in net cash used in investing activities, which rose from **$(168.603) million** in 2021 to **$(601.406) million** in 2022[20](index=20&type=chunk) - Net cash provided by financing activities decreased from **$329.218 million** in 2021 to **$182.867 million** in 2022, mainly due to repayment of borrowings and lower net increase in deposits[20](index=20&type=chunk) [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and 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 describes the company's business, accounting policies, and recent accounting pronouncements - SmartFinancial, Inc. is a bank holding company operating SmartBank, providing financial services in East and Middle Tennessee, Alabama, and the Florida Panhandle. Primary products include demand, savings, money market, and time deposits, as well as commercial, residential, and consumer loans[21](index=21&type=chunk) - The company's interim consolidated financial statements are unaudited and conform to U.S. GAAP. Key estimates include allowance for loan and lease losses, valuation of foreclosed assets, deferred taxes, and fair value of financial instruments and acquired assets/liabilities[22](index=22&type=chunk)[23](index=23&type=chunk) - The company adopted ASU 2020-04 for Reference Rate Reform (LIBOR transition) and ceased new LIBOR loans by December 31, 2021. It is assessing the impact of ASU 2016-13 (CECL model), ASU 2022-01 (Derivatives and Hedging), ASU 2022-02 (Troubled Debt Restructurings), and ASU 2022-03 (Fair Value Measurement of Equity Securities), with CECL adoption required after December 15, 2022[24](index=24&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk)[34](index=34&type=chunk) [Note 2. Business Combinations](index=15&type=section&id=Note%202.%20Business%20Combinations) This note details the company's acquisitions, including the financial impact of goodwill and intangible assets - On September 1, 2021, SmartFinancial acquired Sevier County Bancshares, Inc. (SCB) for **$9.6 million** in cash and **1,692,168 shares** of common stock. This acquisition resulted in **$17.2 million** in goodwill and **$1.6 million** in core deposit intangible assets[35](index=35&type=chunk)[36](index=36&type=chunk) - On May 3, 2021, the Company acquired Fountain Leasing, LLC (now Fountain Equipment Finance, LLC) for **$14.0 million** in cash and repaid **$45.8 million** of its indebtedness. This acquisition generated **$2.4 million** in goodwill and a **$2.7 million** intangible asset for customer relationships[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) [Note 3. Earnings Per Share](index=17&type=section&id=Note%203.%20Earnings%20Per%20Share) This note provides a breakdown of basic and diluted earnings per share calculations for the reporting periods | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income available to common shareholders (in thousands) | $10,215 | $8,778 | $18,475 | $18,534 | | Basic earnings per share | $0.61 | $0.59 | $1.11 | $1.24 | | Diluted earnings per common share | $0.61 | $0.58 | $1.10 | $1.23 | - Basic and diluted EPS for the three months ended June 30, 2022, increased to **$0.61** from **$0.59** and **$0.58**, respectively, in 2021. For the six months ended June 30, 2022, basic EPS decreased to **$1.11** from **$1.24**, and diluted EPS decreased to **$1.10** from **$1.23** in 2021[48](index=48&type=chunk) [Note 4. Securities](index=18&type=section&id=Note%204.%20Securities) This note details the company's investment securities portfolio, including available-for-sale and held-to-maturity classifications | Security Type | June 30, 2022 Fair Value (in thousands) | December 31, 2021 Fair Value (in thousands) | | :------------------------------ | :------------------------------------ | :------------------------------------ | | Securities available-for-sale | $524,864 | $482,453 | | Securities held-to-maturity | $267,678 | $76,946 | - The fair value of available-for-sale securities increased by **$42.411 million** to **$524.864 million** at June 30, 2022, from **$482.453 million** at December 31, 2021. Held-to-maturity securities saw a substantial increase in fair value to **$267.678 million** from **$76.946 million** over the same period[49](index=49&type=chunk)[51](index=51&type=chunk) - During Q1 2022, the Company transferred **$162.4 million** of available-for-sale securities to the held-to-maturity category, resulting in a **$2.0 million** unrealized holding loss retained in accumulated other comprehensive income[52](index=52&type=chunk) - At June 30, 2022, the Company had gross unrealized losses of **$(31.818) million** on available-for-sale securities and **$(20.685) million** on held-to-maturity securities, primarily due to changes in interest rates, which management considers temporary impairment[49](index=49&type=chunk)[60](index=60&type=chunk) [Note 5. Loans and Leases and Allowance for Loan and Lease Losses](index=22&type=section&id=Note%205.%20Loans%20and%20Leases%20and%20Allowance%20for%20Loan%20and%20Lease%20Losses) This note provides detailed information on the loan and lease portfolio, including categories, allowance for losses, and credit quality | Loan Category (in thousands) | June 30, 2022 | December 31, 2021 | | :--------------------------- | :------------ | :---------------- | | Total loans and leases | $2,994,074 | $2,693,397 | | Allowance for loan and lease losses | $(21,938) | $(19,352) | | Loans and leases, net | $2,972,136 | $2,674,045 | | Commercial real estate | $1,534,588 | $1,384,156 | | Consumer real estate | $533,582 | $477,272 | | Construction and land development | $364,368 | $278,386 | | Commercial and industrial | $483,588 | $488,024 | | Leases | $63,264 | $53,708 | | Consumer and other | $14,684 | $11,851 | - Total loans and leases increased by **$300.677 million** to **$2.994 billion** at June 30, 2022, from **$2.693 billion** at December 31, 2021. The allowance for loan and lease losses increased to **$21.938 million** from **$19.352 million** over the same period[63](index=63&type=chunk) - The provision for loan and lease losses for the six months ended June 30, 2022, was **$2.256 million**, a significant increase from **$62 thousand** in the same period of 2021. The allowance for loan and lease losses as a percentage of total loans and leases was **0.73%** at June 30, 2022, up from **0.72%** at December 31, 2021[83](index=83&type=chunk)[84](index=84&type=chunk) - Nonperforming loans and leases as a percentage of total gross loans and leases was **0.11%** at June 30, 2022, a slight decrease from **0.12%** at December 31, 2021[205](index=205&type=chunk)[206](index=206&type=chunk) - The Company had **$678 thousand** in Troubled Debt Restructurings (TDRs) at June 30, 2022, none of which were on nonaccrual, an increase from **$206 thousand** at December 31, 2021. Three loans totaling **$568 thousand** were modified as TDRs during the six months ended June 30, 2022[103](index=103&type=chunk)[104](index=104&type=chunk) [Note 6. Goodwill and Intangible Assets](index=37&type=section&id=Note%206.%20Goodwill%20and%20Intangible%20Assets) This note outlines the company's goodwill and other intangible assets, including changes due to acquisitions and amortization | Metric (in thousands) | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Goodwill | $91,565 | $91,565 | | Other intangible assets, net | $13,017 | $14,287 | - Goodwill remained constant at **$91.565 million** from December 31, 2021, to June 30, 2022. Other intangible assets, net, decreased by **$1.270 million** to **$13.017 million**, primarily due to amortization[110](index=110&type=chunk) - Amortization expense for other intangible assets was **$1.3 million** for the six months ended June 30, 2022, up from **$886 thousand** in the same period of 2021[110](index=110&type=chunk) [Note 7. Borrowings, Line of Credit and Subordinated Debt](index=39&type=section&id=Note%207.%20Borrowings%2C%20Line%20of%20Credit%20and%20Subordinated%20Debt) This note details the company's various borrowing arrangements, including short-term borrowings, lines of credit, and subordinated debt | Borrowing Type (in thousands) | June 30, 2022 | December 31, 2021 | | :---------------------------- | :------------ | :---------------- | | Total borrowings | $12,549 | $87,585 | | Subordinated debt | $41,973 | $41,930 | - Total borrowings significantly decreased to **$12.5 million** at June 30, 2022, from **$87.6 million** at December 31, 2021, primarily due to the FHLB calling two advances totaling **$75 million**[111](index=111&type=chunk) - The Company has a **$25.0 million** revolving line of credit with ServisFirst Bank, with **$7.5 million** outstanding and **$17.5 million** available at June 30, 2022[114](index=114&type=chunk) - Subordinated debt remained stable at approximately **$42.0 million**, including **$40 million** of **5.625%** fixed-to-floating rate notes issued in 2018 and **$2.5 million** acquired from SCB in 2021[115](index=115&type=chunk)[118](index=118&type=chunk) [Note 8. Employee Benefit Plans](index=41&type=section&id=Note%208.%20Employee%20Benefit%20Plans) This note describes the company's employee benefit plans, including 401(k) contributions and stock-based compensation - The Company's 401(k) plan contributions for the six months ended June 30, 2022, were **$847 thousand**, an increase from **$638 thousand** in the same period of 2021[119](index=119&type=chunk) - As of June 30, 2022, **48,267 stock options** were outstanding with a weighted average exercise price of **$11.33**. No stock option-based compensation expense was recognized as all options are fully vested[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk) - Unvested restricted stock awards totaled **160,836 shares** at June 30, 2022, with **$1.5 million** in unrecognized compensation cost expected to be recognized over a weighted average period of **1.96 years**[127](index=127&type=chunk) - SARs compensation expense was a credit of **$(43) thousand** for the six months ended June 30, 2022, due to fair value adjustments, compared to an expense of **$113 thousand** in the prior year[128](index=128&type=chunk) [Note 9. Commitments and Contingent Liabilities](index=44&type=section&id=Note%209.%20Commitments%20and%20Contingent%20Liabilities) This note outlines the company's off-balance sheet commitments and potential liabilities from legal proceedings | Commitment Type (in thousands) | June 30, 2022 | December 31, 2021 | | :----------------------------- | :------------ | :---------------- | | Commitments to extend credit | $747,309 | $669,770 | | Standby letters of credit | $17,474 | $17,868 | - Commitments to extend credit increased by **$77.539 million** to **$747.309 million** at June 30, 2022, from **$669.770 million** at December 31, 2021. Standby letters of credit remained stable[130](index=130&type=chunk) - The Company is involved in various legal proceedings in the normal course of business, but management does not anticipate a material adverse impact on its financial position or results of operations[133](index=133&type=chunk) [Note 10. Fair Value Disclosures](index=46&type=section&id=Note%2010.%20Fair%20Value%20Disclosures) This note provides information on financial instruments measured at fair value, categorized by input observability levels - The Company categorizes financial instruments measured at fair value into a three-level hierarchy based on input observability: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[136](index=136&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk) | Asset/Liability (in thousands) | June 30, 2022 Fair Value (Level 2) | December 31, 2021 Fair Value (Level 2) | | :----------------------------- | :--------------------------------- | :----------------------------------- | | Securities available-for-sale | $524,864 | $482,453 | | Interest rate swaps (assets) | $5,021 | $1,326 | | Derivative financial instruments (liabilities) | $5,077 | $4,893 | - Collateral dependent loans and other real estate owned are measured at fair value on a nonrecurring basis and are classified as Level 3 assets, with fair values determined by appraisals and management discounts[145](index=145&type=chunk)[146](index=146&type=chunk) [Note 11. Derivatives Financial Instruments](index=52&type=section&id=Note%2011.%20Derivatives%20Financial%20Instruments) This note details the company's use of derivative financial instruments, primarily interest rate swaps, for hedging and risk management - The Company uses interest rate swaps as fair value hedges to mitigate interest rate risk on fixed-rate tax-exempt callable securities, converting fixed rates to LIBOR-based variable rates. For the six months ended June 30, 2022, the effects of fair value hedge relationships resulted in a **$(3.511) million gain** on hedged items and an offsetting **$(3.511) million loss** on derivative instruments[151](index=151&type=chunk)[152](index=152&type=chunk) | Derivative Type (in thousands) | June 30, 2022 Notional Amount | June 30, 2022 Estimated Fair Value | | :----------------------------- | :---------------------------- | :--------------------------------- | | Non-hedged interest rate swap agreements (assets) | $146,639 | $5,021 | | Non-hedged interest rate swap agreements (liabilities) | $146,639 | $(5,021) | - The Company initiated a non-hedged loan hedging program in Q2 2021, involving back-to-back interest rate swaps with customers and dealer banks. These swaps are recorded at fair value, with changes recognized in other noninterest income[153](index=153&type=chunk) [Note 12. Leases](index=54&type=section&id=Note%2012.%20Leases) This note describes the company's operating lease arrangements, including right-of-use assets and lease liabilities | Lease Metric (in thousands) | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Operating lease right-of-use assets | $9,145 | $9,812 | | Operating lease liabilities | $9,252 | $9,881 | - The Company's leases are primarily for real estate (branches and office space) and are classified as operating leases, recognized on the balance sheet as right-of-use (ROU) assets and corresponding lease liabilities[156](index=156&type=chunk) - As of June 30, 2022, the weighted average remaining lease term was **9.66 years**, and the weighted average discount rate was **2.12%**. Total operating lease costs for the six months ended June 30, 2022, were **$817 thousand**, up from **$494 thousand** in 2021[159](index=159&type=chunk)[160](index=160&type=chunk) [Note 13. Regulatory Matters](index=57&type=section&id=Note%2013.%20Regulatory%20Matters) This note provides information on the company's compliance with regulatory capital requirements and dividend policies - As of June 30, 2022, both SmartFinancial and SmartBank exceeded minimum regulatory capital requirements and the 'well capitalized' classification thresholds under Basel III rules[161](index=161&type=chunk) | Capital Ratio | SmartFinancial (June 30, 2022) | SmartBank (June 30, 2022) | | :------------------------------------ | :----------------------------- | :------------------------ | | Total Capital (to Risk Weighted Assets) | 11.80% | 11.72% | | Tier 1 Capital (to Risk Weighted Assets) | 9.95% | 11.08% | | Common Equity Tier 1 Capital (to Risk Weighted Assets) | 9.95% | 11.08% | | Tier 1 Capital (to Average Assets) | 7.48% | 8.33% | - The Company paid a quarterly common stock dividend of **$0.07 per share** since Q1 2022. Dividend payments are subject to the discretion of the board and regulatory restrictions[163](index=163&type=chunk) [Note 14. Other Comprehensive Income (Loss)](index=59&type=section&id=Note%2014.%20Other%20Comprehensive%20Income%20%28Loss%29) This note details the components of other comprehensive income (loss) and their impact on accumulated comprehensive income | Component (in thousands) | Beginning Balance (Dec 31, 2021) | Net Other Comprehensive Income (Loss) during period (6 months) | Ending Balance (June 30, 2022) | | :----------------------- | :------------------------------- | :----------------------------------------------------------- | :----------------------------- | | Securities Available-for-Sale | $25 | $(23,551) | $(23,526) | | Securities Transferred to Held-to-Maturity | $665 | $(1,469) | $(804) | | Fair Value Municipal Security Hedges | $753 | $(1,071) | $(318) | | Total Accumulated Other Comprehensive Income (Loss) | $1,443 | $(26,091) | $(24,648) | - Accumulated other comprehensive income (loss) shifted from a positive balance of **$1.443 million** at December 31, 2021, to a loss of **$(24.648) million** at June 30, 2022. This significant change was primarily driven by net other comprehensive loss of **$(26.091) million** during the six-month period, largely from unrealized losses on available-for-sale securities[167](index=167&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=60&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the reporting periods [Economic Conditions](index=64&type=section&id=Economic%20Conditions) This section discusses the prevailing economic environment and its potential impact on the company's operations and markets - Despite inflation and recessionary concerns, the Company's markets show a solid and positive economic outlook, with activity near pre-pandemic levels[176](index=176&type=chunk) - The single-family housing market is slowing due to rising interest rates and building costs, but a housing shortage persists in several Tennessee markets[176](index=176&type=chunk) - Worker shortages in restaurant, hospitality, and retail, along with supply chain disruptions and inflation, are impacting economic growth and could negatively affect consumer and commercial borrowers[176](index=176&type=chunk) [Critical Accounting Estimates](index=64&type=section&id=Critical%20Accounting%20Estimates) This section outlines the significant accounting estimates and judgments used in preparing the company's financial statements - The Company's financial statements are prepared under U.S. GAAP, requiring estimates and judgments, particularly for the allowance for loan and lease losses, valuation of foreclosed assets, deferred taxes, and fair value of financial instruments[177](index=177&type=chunk) - No significant changes have been made to the Company's application of critical accounting policies since December 31, 2021[177](index=177&type=chunk) [Executive Summary](index=64&type=section&id=Executive%20Summary) This section provides a high-level overview of the company's financial performance and key highlights for the reporting periods | Metric | Q2 2022 (in millions) | Q2 2021 (in millions) | 6 Months 2022 (in millions) | 6 Months 2021 (in millions) | | :-------------------------- | :-------------------- | :-------------------- | :-------------------------- | :-------------------------- | | Net income | $10.2 | $8.8 | $18.5 | $18.5 | | Diluted EPS | $0.61 | $0.58 | $1.10 | $1.23 | | Annualized return on average assets | 0.87% | 0.98% | 0.80% | 1.08% | - Net income for Q2 2022 increased to **$10.2 million** (**$0.61 diluted EPS**) from **$8.8 million** (**$0.58 diluted EPS**) in Q2 2021. For the first six months, net income remained **$18.5 million**, but diluted EPS decreased to **$1.10** from **$1.23**[178](index=178&type=chunk) - Net organic loans and leases grew strongly year-to-date 2022, increasing by **$298.1 million** from December 31, 2021[178](index=178&type=chunk) [Selected Financial Information](index=65&type=section&id=Selected%20Financial%20Information) This section presents a summary of key financial metrics and their changes over the reporting periods | Metric (in thousands) | Q2 2022 | Q2 2021 | Change (QoQ) | 6 Months 2022 | 6 Months 2021 | Change (YoY) | | :---------------------- | :------ | :------ | :----------- | :------------ | :------------ | :----------- | | Net interest income | $33,062 | $26,897 | $6,165 | $63,180 | $53,157 | $10,023 | | Provision for loan and lease losses | $1,250 | $(5) | $1,255 | $2,256 | $62 | $2,194 | | Noninterest income | $7,229 | $5,143 | $2,086 | $14,340 | $10,835 | $3,505 | | Noninterest expense | $25,926 | $20,797 | $5,129 | $51,643 | $40,262 | $11,381 | | Net income | $10,215 | $8,778 | $1,437 | $18,475 | $18,534 | $(59) | | Loans and leases, net | $2,972,136 | $2,674,045 | $298,091 | | | | | Deposits | $4,281,632 | $4,021,938 | $259,694 | | | | - Net interest income increased significantly by **$6.165 million** (QoQ) and **$10.023 million** (YoY). Provision for loan and lease losses also increased substantially[179](index=179&type=chunk) - Noninterest income grew by **$2.086 million** (QoQ) and **$3.505 million** (YoY), while noninterest expense increased by **$5.129 million** (QoQ) and **$11.381 million** (YoY)[179](index=179&type=chunk) [Analysis of Results of Operations](index=65&type=section&id=Analysis%20of%20Results%20of%20Operations) This section provides a detailed comparison of the company's financial performance between current and prior periods [Second quarter of 2022 compared to 2021](index=65&type=section&id=Second%20quarter%20of%202022%20compared%20to%202021) This section analyzes the company's financial performance for the second quarter of 2022 compared to the same period in 2021 - Net income for Q2 2022 increased by **$1.4 million** to **$10.2 million** (**$0.61 diluted EPS**) from **$8.8 million** (**$0.58 diluted EPS**) in Q2 2021[180](index=180&type=chunk) - The increase in net income was driven by a **$4.9 million** increase in net interest income after provision for loan and lease losses and a **$2.1 million** increase in noninterest income, partially offset by a **$5.1 million** rise in noninterest expense[180](index=180&type=chunk) - The tax equivalent net interest margin decreased to **3.08%** in Q2 2022 from **3.29%** in Q2 2021[180](index=180&type=chunk) [First six months of 2022 compared to 2021](index=65&type=section&id=First%20six%20months%20of%202022%20compared%20to%202021) This section analyzes the company's financial performance for the first six months of 2022 compared to the same period in 2021 - Net income remained flat at **$18.5 million** for both the first six months of 2022 and 2021, but diluted EPS decreased to **$1.10** from **$1.23**[181](index=181&type=chunk) - Changes in net income components included a **$7.8 million** increase in net interest income after provision for loan and lease losses and a **$3.5 million** increase in noninterest income, offset by an **$11.4 million** increase in noninterest expense[181](index=181&type=chunk) - The tax equivalent net interest margin decreased to **3.00%** for the first six months of 2022 from **3.38%** in 2021[182](index=182&type=chunk) [Net Interest Income and Yield Analysis](index=67&type=section&id=Net%20Interest%20Income%20and%20Yield%20Analysis) This section examines the components of net interest income and the factors influencing interest rates and yields [Second quarter of 2022 compared to 2021](index=67&type=section&id=Second%20quarter%20of%202022%20compared%20to%202021) This section analyzes net interest income and yield for the second quarter of 2022 compared to the same period in 2021 - Net interest income, taxable equivalent, increased by **$6.2 million** to **$33.2 million** in Q2 2022, up from **$27.0 million** in Q2 2021[184](index=184&type=chunk) - Average interest-earning assets increased by **$1.021 billion** to **$4.321 billion**, driven by organic loan and lease growth, acquisitions (Fountain, SCB), and increased securities and liquidity[184](index=184&type=chunk) - The tax equivalent net interest margin decreased to **3.08%** in Q2 2022 from **3.29%** in Q2 2021, primarily due to reduced PPP fees, loan discount accretion, and lower-yielding excess liquidity[184](index=184&type=chunk) | Metric | Q2 2022 Average Balance (in thousands) | Q2 2022 Yield/Rate | Q2 2021 Average Balance (in thousands) | Q2 2021 Yield/Rate | | :------------------------------------ | :----------------------------------- | :----------------- | :----------------------------------- | :----------------- | | Loans and leases, including fees | $2,869,687 | 4.40% | $2,508,388 | 4.52% | | Total interest-earning assets | $4,320,517 | 3.39% | $3,299,059 | 3.65% | | Total interest-bearing deposits | $3,060,552 | 0.33% | $2,308,801 | 0.39% | | Tax equivalent net interest margin | | 3.08% | | 3.29% | [First six months of 2022 compared to 2021](index=69&type=section&id=First%20six%20months%20of%202022%20compared%20to%202021) This section analyzes net interest income and yield for the first six months of 2022 compared to the same period in 2021 - Net interest income, taxable equivalent, increased by **$10.0 million** to **$63.5 million** for the first six months of 2022, up from **$53.5 million** in 2021[189](index=189&type=chunk) - Average interest-earning assets increased by **$1.081 billion** to **$4.272 billion**, driven by loan and lease growth, acquisitions, and increased securities and liquidity[189](index=189&type=chunk) - The tax equivalent net interest margin decreased to **3.00%** for the first six months of 2022 from **3.38%** in 2021, mainly due to reduced PPP fees and loan discount accretion[189](index=189&type=chunk) | Metric | 6 Months 2022 Average Balance (in thousands) | 6 Months 2022 Yield/Cost | 6 Months 2021 Average Balance (in thousands) | 6 Months 2021 Yield/Cost | | :------------------------------------ | :----------------------------------- | :--------------------- | :----------------------------------- | :--------------------- | | Loans and leases, including fees | $2,797,348 | 4.40% | $2,468,665 | 4.59% | | Total interest-earning assets | $4,271,743 | 3.28% | $3,190,581 | 3.76% | | Total interest-bearing deposits | $3,033,541 | 0.30% | $2,230,421 | 0.41% | | Tax equivalent net interest margin | | 3.00% | | 3.38% | [Noninterest Income](index=70&type=section&id=Noninterest%20Income) This section details the various sources of noninterest income and their changes over the reporting periods [Second quarter of 2022 compared to 2021](index=71&type=section&id=Second%20quarter%20of%202022%20compared%20to%202021) This section analyzes noninterest income for the second quarter of 2022 compared to the same period in 2021 - Noninterest income increased by **$2.1 million** (**40.6%**) to **$7.229 million** in Q2 2022 compared to Q2 2021[193](index=193&type=chunk) - Service charges on deposit accounts increased due to the SCB acquisition, deposit growth, and transaction volume - Mortgage banking income decreased due to lower secondary market activity - Investment services income increased following the addition of a new wealth management team - Interchange and debit card transaction fees, net, increased due to higher volume, deposit growth, and the SCB acquisition - Other noninterest income increased, primarily from new fee income from the Fountain acquisition and SWAP fee income from the capital markets program [First six months of 2022 compared to 2021](index=71&type=section&id=First%20six%20months%20of%202022%20compared%20to%202021) This section analyzes noninterest income for the first six months of 2022 compared to the same period in 2021 - Noninterest income increased by **$3.5 million** (**32.3%**) to **$14.340 million** for the first six months of 2022 compared to the same period in 2021[193](index=193&type=chunk) - Service charges on deposit accounts increased due to the SCB acquisition, deposit growth, and transaction volume - Mortgage banking income decreased due to lower secondary market activity - Investment services income increased following the addition of a new wealth management team - Insurance commissions decreased, primarily from commissions on life insurance policies in Q1 2021 - Interchange and debit card transaction fees, net, increased due to higher volume, deposit growth, and the SCB acquisition - Other noninterest income increased, primarily from SWAP fee income from the capital markets program and new fee income from the Fountain acquisition [Noninterest Expense](index=71&type=section&id=Noninterest%20Expense) This section details the various categories of noninterest expense and their changes over the reporting periods [Second quarter of 2022 compared to 2021](index=72&type=section&id=Second%20quarter%20of%202022%20compared%20to%202021) This section analyzes noninterest expense for the second quarter of 2022 compared to the same period in 2021 - Noninterest expense increased by **$5.1 million** (**24.7%**) to **$25.926 million** in Q2 2022 compared to Q2 2021[195](index=195&type=chunk) - Salaries and employee benefits increased due to the Fountain acquisition and overall franchise growth - Occupancy and equipment expenses rose due to infrastructure and facilities expansion - FDIC insurance increased related to asset growth from the SCB acquisition, deposit growth, and loan production - Data processing and technology costs increased due to ongoing infrastructure efforts - Other expenses increased, primarily related to training, education initiatives, and swap fees[200](index=200&type=chunk) [First six months of 2022 compared to 2021](index=72&type=section&id=First%20six%20months%20of%202022%20compared%20to%202021) This section analyzes noninterest expense for the first six months of 2022 compared to the same period in 2021 - Noninterest expense increased by **$11.4 million** (**28.3%**) to **$51.643 million** for the first six months of 2022 compared to the same period in 2021[195](index=195&type=chunk) - Salaries and employee benefits increased due to the Fountain acquisition and overall franchise growth - Occupancy and equipment expenses rose due to infrastructure and facilities expansion - FDIC insurance increased related to asset growth from the SCB acquisition, deposit growth, and loan production - Data processing and technology costs increased primarily from continued infrastructure build[200](index=200&type=chunk) [Taxes](index=72&type=section&id=Taxes) This section discusses the company's income tax expense and effective tax rates for the reporting periods [Second quarter of 2022 compared to 2021](index=72&type=section&id=Second%20quarter%20of%202022%20compared%20to%202021) This section analyzes income tax expense and effective tax rates for the second quarter of 2022 compared to the same period in 2021 - Income tax expense for Q2 2022 was **$2.9 million**, up from **$2.5 million** in Q2 2021. The effective tax rate was approximately **22.1%** in Q2 2022, compared to **22.0%** in Q2 2021[196](index=196&type=chunk) [First six months of 2022 compared to 2021](index=72&type=section&id=First%20six%20months%20of%202022%20compared%20to%202021) This section analyzes income tax expense and effective tax rates for the first six months of 2022 compared to the same period in 2021 - Income tax expense totaled **$5.1 million** for both the first six months of 2022 and 2021. The effective tax rate was approximately **21.8%** for the first six months of 2022, compared to **21.7%** for the same period in 2021[197](index=197&type=chunk) [Loan and Lease Portfolio](index=72&type=section&id=Loan%20and%20Lease%20Portfolio) This section provides a comprehensive overview of the company's loan and lease portfolio, including its composition and credit quality - Total net loans and leases outstanding increased to **$2.97 billion** at June 30, 2022, from **$2.67 billion** at December 31, 2021, with real estate-secured loans being the principal component[198](index=198&type=chunk) [Organic Loans and Leases](index=72&type=section&id=Organic%20Loans%20and%20Leases) This section details the growth and composition of the company's organically originated loan and lease portfolio - Organic net loans and leases increased by **$380.7 million** (**17.1%**) to **$2.62 billion** at June 30, 2022, from **$2.24 billion** at December 31, 2021[199](index=199&type=chunk) [Acquired Loans and Leases](index=74&type=section&id=Acquired%20Loans%20and%20Leases) This section discusses the characteristics and performance of loans and leases acquired through business combinations - Net purchased non-credit impaired loans and leases decreased by **$76.3 million** from December 31, 2021, to **$332.3 million** at June 30, 2022[202](index=202&type=chunk) - Net purchased credit impaired (PCI) loans and leases decreased by **$6.3 million** to **$34.9 million** at June 30, 2022, primarily due to maturities, paydowns, and payoffs[202](index=202&type=chunk) [Loan and Lease Portfolio Maturities](index=74&type=section&id=Loan%20and%20Lease%20Portfolio%20Maturities) This section presents the maturity distribution of the company's loan and lease portfolio | Maturity Period | Total Loans and Leases (in thousands) | | :---------------- | :------------------------------------ | | One Year or Less | $375,445 | | One through Five Years | $1,373,643 | | Five through Fifteen Years | $1,099,279 | | Over Fifteen Years | $145,707 | | Total | $2,994,074 | - At June 30, 2022, the largest portion of loans and leases, **$1.374 billion**, matures within one to five years, followed by **$1.099 billion** maturing in five to fifteen years[204](index=204&type=chunk) - For loans maturing over one year, **$1.674 billion** are fixed-rate and **$944.776 million** are floating-rate[204](index=204&type=chunk) [Nonaccrual, Past Due, and Restructured Loans and Leases](index=75&type=section&id=Nonaccrual%2C%20Past%20Due%2C%20and%20Restructured%20Loans%20and%20Leases) This section provides details on the credit quality of the loan portfolio, including nonperforming and past due assets - Nonperforming loans and leases as a percentage of total gross loans and leases was **0.11%** at June 30, 2022, a slight decrease from **0.12%** at December 31, 2021[205](index=205&type=chunk)[206](index=206&type=chunk) | Past Due Category | June 30, 2022 Amount (in thousands) | December 31, 2021 Amount (in thousands) | | :---------------- | :---------------------------------- | :------------------------------------ | | 30-89 Days Past Due and Accruing | $1,600 | $2,931 | | 90 Days or More Past Due and Accruing | $0 | $64 | | Nonaccrual Loans | $3,413 | $3,124 | - The total amount of accruing loans 30-89 days past due decreased to **$1.6 million** at June 30, 2022, from **$2.931 million** at December 31, 2021. Nonaccrual loans increased to **$3.413 million** from **$3.124 million** over the same period[206](index=206&type=chunk) [Allocation of the Allowance for Loan and Lease Losses](index=76&type=section&id=Allocation%20of%20the%20Allowance%20for%20Loan%20and%20Lease%20Losses) This section details how the allowance for loan and lease losses is allocated across different loan categories - The allowance for loan and lease losses was **$21.9 million** at June 30, 2022, and **$19.4 million** at December 31, 2021, deemed adequate by management. The allowance as a percentage of total loans and leases was **0.73%** and **0.72%**, respectively[207](index=207&type=chunk) | Loan Category | June 30, 2022 Allowance Allocated (in thousands) | Ratio of Allowance Allocated to Loans in Each Category | | :--------------------------- | :--------------------------------------------- | :----------------------------------------------------- | | Commercial real estate | $10,600 | 0.69% | | Consumer real estate | $3,835 | 0.72% | | Construction and land development | $2,904 | 0.80% | | Commercial and industrial | $3,659 | 0.76% | | Leases | $807 | 1.28% | | Consumer and other | $133 | 0.91% | - Specific valuation allowances for impaired, non-PCI loans and leases were **$395 thousand** at June 30, 2022, down from **$561 thousand** at December 31, 2021[211](index=211&type=chunk) [Analysis of the Allowance for Loan and Lease Losses](index=79&type=section&id=Analysis%20of%20the%20Allowance%20for%20Loan%20and%20Lease%20Losses) This section analyzes the changes in the allowance for loan and lease losses, including provisions and charge-offs | Loan Category | Provision for Credit Losses (6 Months Ended June 30, 2022, in thousands) | Net (charge-offs) Recoveries (6 Months Ended June 30, 2022, in thousands) | | :--------------------------- | :------------------------------------------------------------------- | :------------------------------------------------------------------------ | | Commercial real estate | $816 | $3 | | Consumer real estate | $(140) | $521 | | Construction and land development | $1,022 | $0 | | Commercial and industrial | $(77) | $(45) | | Leases | $422 | $55 | | Consumer and other | $213 | $(204) | | Total | $2,256 | $330 | - The total provision for credit losses for the six months ended June 30, 2022, was **$2.256 million**, with net recoveries of **$330 thousand**. This compares to a provision of **$62 thousand** and net charge-offs of **$(98) thousand** in the same period of 2021[213](index=213&type=chunk) [Securities Portfolio](index=79&type=section&id=Securities%20Portfolio) This section describes the composition and performance of the company's investment securities portfolio - The investment portfolio increased from **$559.4 million** at December 31, 2021, to **$813.2 million** at June 30, 2022, as the Bank strategically deployed cash into higher-yielding U.S. Treasuries[214](index=214&type=chunk)[215](index=215&type=chunk) - The investment to asset ratio increased from **12.1%** at December 31, 2021, to **17.0%** at June 30, 2022[215](index=215&type=chunk) | Security Type | Total Amount (in thousands) | Weighted Average Yield (1) | | :---------------------------- | :-------------------------- | :------------------------- | | Available-for-sale: | | | | U.S. Treasury | $238,546 | 1.27% | | State and political subdivisions | $53,575 | 3.71% | | Mortgage-backed securities | $235,060 | 1.70% | | Held-to-maturity: | | | | U.S. Treasury | $150,413 | 1.47% | | State and political subdivisions | $54,166 | 2.14% | | Mortgage-backed securities | $32,649 | 2.13% | [Deposits](index=81&type=section&id=Deposits) This section provides an overview of the company's deposit base, including types, growth, and cost - Total deposits increased by **$259.7 million** to **$4.28 billion** at June 30, 2022, from December 31, 2021, primarily due to organic deposit growth[222](index=222&type=chunk) | Deposit Type | 6 Months Ended June 30, 2022 Average Balance (in thousands) | 6 Months Ended June 30, 2022 Average Rate | | :-------------------------- | :---------------------------------------------------- | :-------------------------------------- | | Noninterest-bearing demand | $1,070,703 | —% | | Interest-bearing demand | $945,450 | 0.25% | | Money market and savings | $1,541,678 | 0.26% | | Time deposits | $546,413 | 0.50% | | Total average deposits | $4,104,244 | 0.22% | - The average cost of interest-bearing deposits decreased to **0.30%** for the six months ended June 30, 2022, from **0.41%** in 2021, mainly due to maturing and repricing of time deposits at lower rates[221](index=221&type=chunk) - Brokered deposits represented approximately **0.98%** of total deposits at June 30, 2022[218](index=218&type=chunk) [Borrowings](index=83&type=section&id=Borrowings) This section details the company's borrowing activities, including short-term and long-term debt - Total borrowings decreased to **$12.5 million** at June 30, 2022, from **$87.6 million** at December 31, 2021, consisting of **$7.5 million** in short-term borrowings and **$5.0 million** in securities sold under repurchase agreements[225](index=225&type=chunk) - Long-term debt, entirely subordinated debt, remained stable at approximately **$42.0 million**[225](index=225&type=chunk) [Capital Resources](index=83&type=section&id=Capital%20Resources) This section discusses the company's capital adequacy and strategies for maintaining sufficient capital - At June 30, 2022, the Company's and the Bank's capital ratios exceeded regulatory minimums and the 'well capitalized' classification, indicating strong capital adequacy[226](index=226&type=chunk) - The Company believes it has various capital-raising techniques available to support the Bank's capital needs if necessary[226](index=226&type=chunk) [Liquidity and Off-Balance Sheet Arrangements](index=85&type=section&id=Liquidity%20and%20Off-Balance%20Sheet%20Arrangements) This section outlines the company's liquidity position and significant off-balance sheet commitments - At June 30, 2022, the Company had **$747.3 million** in pre-approved but unused lines of credit and **$17.5 million** in standby letters of credit[227](index=227&type=chunk) - The Company anticipates adequate liquidity to meet obligations, supported by asset maturities, core deposit growth, and unused borrowing capacity of **$425.3 million** from the Federal Reserve, FHLB, correspondent banks, and a line of credit[227](index=227&type=chunk)[236](index=236&type=chunk) [Market Risk and Liquidity Risk Management](index=85&type=section&id=Market%20Risk%20and%20Liquidity%20Risk%20Management) This section describes the company's strategies and models for managing interest rate and liquidity risks - The Bank's Asset Liability Management Committee (ALCO) oversees market risk, establishing measures and limits for interest rate risk and its impact on net interest income and capital[228](index=228&type=chunk) - The Company uses an earnings simulation model and an economic value of equity model to manage interest rate sensitivity, aiming to limit the variance of net interest income and changes in economic value of equity from interest rate fluctuations[229](index=229&type=chunk)[230](index=230&type=chunk)[232](index=232&type=chunk) [Interest Rate Sensitivity](index=85&type=section&id=Interest%20Rate%20Sensitivity) This section explains how the company assesses and manages its exposure to changes in market interest rates - Interest rate sensitivity refers to the responsiveness of interest-earning assets and interest-bearing liabilities to changes in market interest rates, which the ALCO measures and evaluates[229](index=229&type=chunk) [Earnings Simulation Model](index=85&type=section&id=Earnings%20Simulation%20Model) This section describes the model used to forecast the impact of interest rate changes on net interest income - The earnings simulation model forecasts the effects of various interest rate scenarios on projected net interest income over 12-24 months, with guidelines to limit the variance of net interest income in instantaneous changes to interest rates[230](index=230&type=chunk) | Instantaneous, Parallel Change in Prevailing Interest Rates | Estimated % Change in Net Interest Income Over 12 Months (June 30, 2022) | | :-------------------------------------------------------- | :----------------------------------------------------------------------- | | 100 basis points increase | 4.41% | | 200 basis points increase | 8.70% | | 100 basis points decrease | (5.94)% | [Economic Value of Equity](index=87&type=section&id=Economic%20Value%20of%20Equity) This section explains the model used to measure the impact of interest rate fluctuations on the economic value of equity - The economic value of equity model measures how the estimated economic values of assets, liabilities, and off-balance sheet items change due to interest rate fluctuations[232](index=232&type=chunk) | Instantaneous, Parallel Change in Prevailing Interest Rates | Current Estimated Instantaneous Rate Change (June 30, 2022) | | :-------------------------------------------------------- | :---------------------------------------------------------- | | 100 basis points increase | 1.81% | | 200 basis points increase | 2.72% | | 100 basis points decrease | (4.64)% | [Liquidity Risk Management](index=87&type=section&id=Liquidity%20Risk%20Management) This section details the company's approach to ensuring sufficient cash flows to meet its financial obligations - Liquidity risk management ensures sufficient cash flows for loan demand, deposit withdrawals, and other needs, utilizing asset maturities, core deposit growth, and borrowing capacity[233](index=233&type=chunk) - Changes in interest rates affect liquidity; the Company prices deposits in response to market rates to avoid deposit loss. ALCO continuously monitors liquidity needs[234](index=234&type=chunk)[235](index=235&type=chunk) - The Company has **$628 thousand** in investments maturing within **12 months**, anticipates **$32.9 million** in mortgage-backed security principal payments, and has **$425.3 million** in unused borrowing capacity[236](index=236&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=88&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section incorporates by reference the detailed discussion on market and liquidity risk management from Item 2 - The disclosures regarding market risk and liquidity risk management are incorporated by reference from Item 2 of this report[238](index=238&type=chunk) [Item 4. Controls and Procedures](index=88&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the effectiveness of the company's disclosure controls and internal control over financial reporting - As of June 30, 2022, SmartFinancial's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective[239](index=239&type=chunk) - There were no material changes in SmartFinancial's internal control over financial reporting during the fiscal quarter ended June 30, 2022[240](index=240&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=89&type=section&id=Item%201.%20Legal%20Proceedings) This section addresses legal actions involving SmartFinancial, Inc. and SmartBank, with no material adverse impact anticipated - SmartFinancial and SmartBank are periodically involved in legal actions in the ordinary course of business[242](index=242&type=chunk) - Management does not anticipate that the aggregate ultimate liability from pending or threatened litigation will be material to the Company's consolidated financial position or results of operations[242](index=242&type=chunk) [Item 1A. Risk Factors](index=89&type=section&id=Item%201A.%20Risk%20Factors) This section refers to risk factors from the annual report, noting no material changes but potential heightened risks from COVID-19 - Readers should consider risk factors discussed in the Company's Form 10-K for the year ended December 31, 2021[243](index=243&type=chunk) - No material changes to the risk factors have occurred since the last Form 10-K, but risks may be heightened by continued disruption and uncertainty from COVID-19[243](index=243&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=89&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section updates on the company's stock repurchase plan, detailing repurchases and remaining authorization - The Company has an authorized stock repurchase plan of up to **$10.0 million**[244](index=244&type=chunk) - As of June 30, 2022, **$5.5 million** of the authorized amount has been purchased, leaving an additional **$4.5 million** available for repurchase[244](index=244&type=chunk) - There was no stock repurchase activity during the three months ended June 30, 2022[246](index=246&type=chunk) [Item 3. Defaults Upon Senior Securities](index=89&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[247](index=247&type=chunk) [Item 4. Mine Safety Disclosures](index=91&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable to the Company[248](index=248&type=chunk) [Item 5. Other Information](index=91&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report - No other information is reported in this section[249](index=249&type=chunk) [Item 6. Exhibits](index=92&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including charters, bylaws, and certifications | Exhibit No. | Description | Location | | :------------ | :------------------------------------------------------------------------ | :-------------------------------------------- | | 3.1 | Second Amended and Restated Charter of SmartFinancial, Inc. | Incorporated by reference to Exhibit 3.3 to Form 8-K filed September 2, 2015 | | 3.2 | Second Amended and Restated Bylaws of SmartFinancial, Inc. | Incorporated by reference to Exhibit 3.1 to Form 8-K filed October 26, 2015 | | 31.1 | Certification pursuant to Rule 13a -14(a)/15d-14(a) | Filed herewith. | | 31.2 | Certification pursuant to Rule 13a -14(a)/15d-14(a) | Filed herewith. | | 32.1 | Certification pursuant to 18 USC Section 1350 - Sarbanes-Oxley Act of 2002 | Furnished herewith. | | 32.2 | Certification pursuant to 18 USC Section 1350 - Sarbanes-Oxley Act of 2002 | Furnished herewith. | | 101 | Interactive Data Files (formatted as Inline XBRL) | Filed herewith. | | 104 | Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101) | Filed herewith | - Certain schedules and similar attachments have been omitted but will be furnished to the SEC upon request[251](index=251&type=chunk)

Financial Data and Key Metrics Changes - The company reported operating earnings of $10.3 million, or $0.61 per share, with a 30% annualized growth in loans and a 9% annualized growth in deposits, including a 14% annualized growth in non-maturity deposits [8][10][11] - The efficiency ratio improved to 64%, and the non-performing asset (NPA) ratio remained stable at 11 basis points [9][10] - Operating revenue increased by over $3 million, representing an annualized quarter-over-quarter increase of almost 33% [22] Business Line Data and Key Metrics Changes - The loan portfolio grew by over $206 million, excluding a reduction of approximately $19 million in forgiven PPP loan balances, resulting in a total of just under $3 billion in loans and leases outstanding [12][17] - Noninterest income generated over $7.2 million, with strong performance in wealth and insurance platforms, while mortgage banking faced headwinds [26][90] - The Fountain Equipment Finance team saw over 40% growth year-to-date [11] Market Data and Key Metrics Changes - The company noted strong personal and business relocations into its market areas, contributing to above-average economic stability [15] - The loan portfolio mix remained consistent, with core deposits increasing while time deposit balances slightly decreased [14] Company Strategy and Development Direction - The company is focused on integrating new teams, executing organic growth strategies, and gaining operating leverage [7][33] - There is an emphasis on expanding in existing markets, particularly in Nashville and Birmingham, rather than entering new markets [108] - The integration of the nCino lending workflow is expected to enhance efficiency and support growth in the lending side of the business [34][95] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continuing loan growth despite potential recessionary pressures, citing strong market conditions and conservative credit underwriting [15][44] - The outlook for the second half of the year anticipates continued support for lift-out teams and a moderate pace of loan growth [33][135] - Management is optimistic about maintaining strong profitability and capital levels to support future growth [30][31] Other Important Information - The company’s tangible book value was reported at $18.69 per share, with a year-to-date annualized growth rate of over 10% [31] - The company is transitioning to CECL and is closely monitoring credit conditions as they evolve [120][121] Q&A Session Summary Question: What are the expectations for continued deposit growth? - Management indicated that while deposit growth may not match the pace of loan growth, they remain optimistic about continued growth in deposits as new clients are brought in [41] Question: Concerns about loan growth in a recessionary environment? - Management reassured that they are maintaining conservative underwriting practices and are confident in the quality of the businesses being brought onto their balance sheet [44] Question: Details on margin guidance and deposit betas? - Management provided insights on expected deposit betas for the upcoming quarters, estimating around 19%-20% for Q3 and closer to historical levels of 30% for Q4 [46] Question: Outlook for noninterest income and technology initiatives? - Management discussed expectations for noninterest income, highlighting strong performance in wealth management and the impact of technology initiatives like the nCino integration [90][95] Question: Balancing new hires with profitability goals? - Management confirmed they are not slowing down on hiring but are focused on integrating existing teams and ensuring the right fit culturally [127][131]

| --- | --- | --- | --- | --- | |--------------------------------------------------------------------------------------------------------------|-------|-------|-------|-------| | | | | | | | | | | | | | INVESTOR CALL | | | | | | 2Q 2022 July 26, 2022, 10:00am ET Webcast: www.smartbank.com (Investor Relations) Audio Only: 1-844-200-6205 | | | | | | Access Code: 357084 Miller Welborn Chairman of the Board Billy Carroll President & CEO Ron Gorczynski CFO | | | | | | | | | | | | | | | | | 1 DISCLOSURES Forward- ...

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 March 31, 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 o ...

Call Start: 10:00 January 1, 0000 10:52 AM ET SmartFinancial, Inc. (NYSE:SMBK) Q1 2022 Earnings Conference Call April 26, 2022, 10:00 AM ET Company Participants Billy Carroll – President and Chief Executive Officer Miller Welborn – Chairman Ron Gorczynski – Chief Financial Officer Rhett Jordan – Chief Credit Officer Conference Call Participants Brett Rabatin – Hovde Group Stephen Scouten – Piper Sandler Kevin Fitzsimmons – D.A. Davidson Matt Olney – Stephens Feddie Strickland – Janney Montgomery Scott Cath ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Securities registered pursuant to Section 12(b) of the Act: ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 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 ...

SmartFinancial, Inc. (NYSE:SMBK) Q4 2021 Earnings Conference Call January 25, 2022 10:00 AM ET Company Participants Miller Welborn - Chairman Billy Carroll - President and Chief Executive Officer Ron Gorczynski - Chief Financial Officer Rhett Jordan - Chief Credit Officer Nate Strall - Director of Corporate Strategy Conference Call Participants Graham Dick - Piper Sandler Brett Rabatin - Hovde Group Matt Olney - Stephens Feddie Strickland - Janney Montgomery Scott Kevin Fitzsimmons - D.A. Davidson Stuart Lo ...

1 INVESTOR CALL 3Q 2021 October 20, 2021, 10:00am ET Webcast: www.smartbank.com (Investor Relations) Audio Only: 1-844-200-6205 Access Code: 289025 Miller Welborn Chairman of the Board Billy Carroll President & CEO Ron Gorczynski CFO DISCLOSURES Forward-Looking Statements This presentation 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 the Private Secu ...

Table of Contents United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 ☐ TRANSITION REPORT PURSUANT 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 | | --- | ...

SmartFinancial, Inc. (NYSE:SMBK) Q3 2021 Earnings Conference Call October 20, 2021 10:00 AM ET Company Participants Miller Welborn - Chairman Billy Carroll - President and Chief Executive Officer Ron Gorczynski - Chief Financial Officer Rhett Jordan - Chief Credit Officer Conference Call Participants Ben Gerlinger - Hovde Group Stephen Scouten - Piper Sandler Thomas Wendler - Stephens Inc Catherine Mealor - KBW Feddie Strickland - Janney Montgomery Scott William Wallace - Raymond James Kevin Fitzsimmons - D ...