United States Securities and Exchange Commission

Washington, D.C. 20549


☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

2021



☐	TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ~~__________to~~

__________ to __________

Commission File Number: 001-37661

~~001-37661~~


~~Tennessee~~		~~62-1173944~~
Tennessee		62-1173944
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5401 Kingston Pike, Suite 600 Knoxville, Tennessee		37919
(Address of principal executive offices)		(Zip Code)

~~865~~-~~437-5700~~		~~Not Applicable~~
865-437-5700		Not Applicable
(Registrant’s telephone number, including area code)		(Former name, former address and former fiscal
		year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of Exchange on which Registered
Common Stock, par value $1.00	SMBK	The Nasdaq Stock Market

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or and emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check market if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

As of May ~~8, 2020~~05, 2021, there were ~~15,216,932~~15,104,661 shares of common stock, $1.00 par value per share, issued and outstanding.

PART I –FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except for share data)

(Unaudited) March 31,
2020 December 31,
2019
ASSETS:
Cash and due from banks $ 38,802 $ 33,205
Interest-bearing deposits with banks 194,454 127,329
Federal funds sold 75,833 23,437
Total cash and cash equivalents 309,089 183,971
Securities available-for-sale, at fair value 201,002 178,348
Other investments 14,113 12,913
Loans held for sale 6,045 5,856
Loans 2,139,247 1,897,392
Less: Allowance for loan losses (13,431) (10,243)
Loans, net 2,125,816 1,887,149
Premises and equipment, net 73,801 59,433
Other real estate owned 5,894 1,757
Goodwill and core deposit intangible, net 86,503 77,193
Bank owned life insurance 30,671 24,949
Other assets 20,781 17,554
Total assets $ 2,873,715 $ 2,449,123
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand $ 431,781 $ 364,155
Interest-bearing demand 444,141 380,234
Money market and savings 730,392 623,284
Time deposits 735,616 679,541
Total deposits 2,341,930 2,047,214
Securities sold under agreement to repurchase 6,164 6,184
Federal Home Loan Bank advances and other borrowings 125,439 25,439
Subordinated debt 39,283 39,261
Other liabilities 24,699 18,278
Total liabilities 2,537,515 2,136,376
Shareholders' equity:
Preferred stock, $1 par value; 2,000,000 shares authorized; NaN shares issued and outstanding — —
Common stock, $1 par value; 40,000,000 shares authorized; 15,221,990 and 14,008,233 shares issued and outstanding, respectively 15,222 14,008
Additional paid-in capital 254,356 232,732
Retained earnings 67,869 65,839
Accumulated other comprehensive income (loss) (1,247) 168
Total shareholders' equity 336,200 312,747
Total liabilities and shareholders' equity $ 2,873,715 $ 2,449,123


	(Unaudited)
	March 31,		December 31,
	2021		2020*
ASSETS:
Cash and due from banks	$	46,594	$	50,460
Interest-bearing deposits with banks		442,793		364,846
Federal funds sold		67,314		66,413
Total cash and cash equivalents		556,701		481,719
Securities available-for-sale, at fair value		250,937		215,634
Other investments		14,728		14,794
Loans held for sale		7,870		11,721
Loans		2,487,129		2,382,243
Less: Allowance for loan losses		(18,370)		(18,346)
Loans, net		2,468,759		2,363,897
Premises and equipment, net		72,697		72,682
Other real estate owned		3,946		4,619
Goodwill and core deposit intangible, net		86,350		86,471
Bank owned life insurance		71,586		31,215
Other assets		23,629		22,197
Total assets	$	3,557,203	$	3,304,949

LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand	$	777,968	$	685,957
Interest-bearing demand		683,887		649,129
Money market and savings		1,073,941		919,631
Time deposits		512,417		550,498
Total deposits		3,048,213		2,805,215
Borrowings		82,642		81,199
Subordinated debt		39,367		39,346
Other liabilities		22,923		22,021
Total liabilities		3,193,145		2,947,781
Shareholders' equity:
Preferred stock, $1 par value; 2,000,000 shares authorized; No shares issued and outstanding		0		0
Common stock, $1 par value; 40,000,000 shares authorized; 15,104,536 and 15,107,214 shares issued and outstanding, respectively		15,105		15,107
Additional paid-in capital		251,836		252,693
Retained earnings		96,034		87,185
Accumulated other comprehensive income		1,083		2,183
Total shareholders' equity		364,058		357,168
Total liabilities and shareholders' equity	$	3,557,203	$	3,304,949

* Derived from audited financial statements.

The accompanying notes are an integral part of the financial statements.

SMARTFINANCIAL, INC. AND SUBSIDIARY

(Dollars in thousands, except share and per share data)

Three Months Ended
March 31,
2020 2019
Interest income:
Loans, including fees $ 26,434 $ 24,975
Securities available-for-sale:
Taxable 679 971
Tax-exempt 283 424
Federal funds sold and other earning assets 602 573
Total interest income 27,998 26,943
Interest expense:
Deposits 4,754 5,251
Securities sold under agreements to repurchase 5 8
Federal Home Loan Bank advances and other borrowings 84 103
Subordinated debt 584 584
Total interest expense 5,427 5,946
Net interest income 22,571 20,997
Provision for loan losses 3,200 797
Net interest income after provision for loan losses 19,371 20,200
Noninterest income:
Service charges on deposit accounts 770 654
Mortgage banking 584 282
Investment services 437 169
Insurance commissions 269 —
Interchange and debit card transaction fees 276 175
Other 482 418
Total noninterest income 2,818 1,698
Noninterest expense:
Salaries and employee benefits 10,006 8,398
Occupancy and equipment 1,911 1,640
FDIC insurance 180 179
Other real estate and loan related expense 545 490
Advertising and marketing 198 295
Data processing 538 615
Professional services 711 662
Amortization of intangibles 362 344
Software as service contracts 470 567
Merger related and restructuring expenses 2,096 923
Other 1,776 1,466
Total noninterest expense 18,793 15,579
Income before income tax expense 3,396 6,319
Income tax expense 664 1,588
Net income $ 2,732 $ 4,731
Earnings per common share:
Basic $ 0.19 $ 0.34
Diluted $ 0.19 $ 0.34
Weighted average common shares outstanding:
Basic 14,395,103 13,942,016
Diluted 14,479,671 14,018,163


		Three Months Ended
	March 31,
	2021		2020
Interest income:
Loans, including fees	$	28,018	$	26,434
Securities available-for-sale:
Taxable		724		679
Tax-exempt		259		283
Federal funds sold and other earning assets		291		602
Total interest income		29,292		27,998
Interest expense:
Deposits		2,331		4,754
Borrowings		117		89
Subordinated debt		584		584
Total interest expense		3,032		5,427
Net interest income		26,260		22,571
Provision for loan losses		67		3,200
Net interest income after provision for loan losses		26,193		19,371
Noninterest income:
Service charges on deposit accounts		1,009		770
Mortgage banking		1,139		584
Investment services		531		437
Insurance commissions		1,466		269
Interchange and debit card transaction fees, net		839		276
Other		707		482
Total noninterest income		5,691		2,818
Noninterest expense:
Salaries and employee benefits		10,869		10,006
Occupancy and equipment		2,341		1,911
FDIC insurance		371		180
Other real estate and loan related expense		602		545
Advertising and marketing		190		198
Data processing and technology		1,379		1,008
Professional services		641		711
Amortization of intangibles		444		362
Merger related and restructuring expenses		103		2,096
Other		2,524		1,776
Total noninterest expense		19,464		18,793
Income before income tax expense		12,420		3,396
Income tax expense		2,664		664
Net income	$	9,756	$	2,732
Earnings per common share:
Basic	$	0.65	$	0.19
Diluted	$	0.65	$	0.19
Weighted average common shares outstanding:
Basic		15,011,573		14,395,103
Diluted		15,111,947		14,479,671

The accompanying notes are an integral part of the financial statements.

SMARTFINANCIAL, INC. AND SUBSIDIARY

(Dollars in thousands)

Three Months Ended
March 31,
2020 2019
Net income $ 2,732 $ 4,731
Other comprehensive income:
Unrealized holding gains and hedge effects on securities available-for-sale arising during the period 1,095 2,851
Tax effect (244) (748)
Unrealized gains on securities available-for-sale arising during the period, net of tax 851 2,103
Unrealized gains (losses) on fair value municipal security hedges (3,072) 309
Tax effect 806 (81)
Unrealized gains (losses) on fair value municipal security hedge instruments arising during the period, net of tax (2,266) 228
Total other comprehensive income (loss) (1,415) 2,331
Comprehensive income $ 1,317 $ 7,062


	Three Months Ended
	March 31,
		2021		2020
Net income	$	9,756	$	2,732
Other comprehensive income:
Unrealized holding gains (losses) and hedge effects on securities available-for-sale arising during the period		(2,808)		1,095
Tax effect		738		(244)
Unrealized gains (losses) on securities available-for-sale arising during the period, net of tax		(2,070)		851
Unrealized gains (losses) on fair value municipal security hedges		1,313		(3,072)
Tax effect		(343)		806
Unrealized gains (losses) on fair value municipal security hedge instruments arising during the period, net of tax		970		(2,266)

Total other comprehensive (loss)		(1,100)		(1,415)
Comprehensive income	$	8,656	$	1,317

The accompanying notes are an integral part of the financial statements.

SMARTFINANCIAL, INC. AND SUBSIDIARY

2020

(Dollars in thousands, except for share data)

Common Stock
Shares Amount Additional Paid-in Capital Retained
Earnings Accumulated Other Comprehensive (Loss) Income Total
Balance, December 31, 2018 13,933,504 $ 13,934 $ 231,852 $ 39,991 $ (2,765) $ 283,011
Net income — — — 4,731 — 4,731
Other comprehensive income — — — — 2,331 2,331
Common stock issued pursuant to:
Stock awards 3,298 3 61 — — 65
Exercise of stock options 14,788 15 184 — — 199
Stock compensation expense — — 143 — — 143
Balance, March 31, 2019 13,951,590 $ 13,952 $ 232,241 $ 44,722 $ (434) $ 290,481


								Accumulated
								Other
	Common Stock			Additional		Retained		Comprehensive
	Shares	Amount		Paid-in Capital		Earnings		(Loss) Income		Total
Balance, December 31, 2019	14,008,233	$	14,008	$	232,732	$	65,839	$	168	$	312,747
Net income	—		—		—		2,732		—		2,732
Other comprehensive loss	—		—		—		—		(1,415)		(1,415)
Common stock issued pursuant to:
Exercise of stock options	14,858		15		158		—		—		173
Restricted stock	31,900		32		(32)						—
Shareholders' of Progressive Financial Group, Inc.	1,292,578		1,293		23,254						24,547
Stock compensation expense	—		—		110		—		—		110
Common stock dividend ($0.05 per share)	—		—		—		(702)				(702)
Repurchases of common stock	(125,579)		(126)		(1,866)		—		—		(1,992)
Balance, March 31, 2020	15,221,990	$	15,222	$	254,356	$	67,869	$	(1,247)	$	336,200

Balance, December 31, 2020	15,107,214	$	15,107	$	252,693	$	87,185	$	2,183	$	357,168
Net income	—		—		—		9,756		—		9,756
Other comprehensive loss	—		—		—		—		(1,100)		(1,100)
Common stock issued pursuant to:
Exercise of stock options	15,965		16		131		—		—		147
Restricted stock	40,967		41		(41)		—		—		—
Stock compensation expense	—		—		201		—		—		201
Common stock dividend ($0.06 per share)	—		—		—		(907)		—		(907)
Repurchases of common stock	(59,610)		(59)		(1,148)		—		—		(1,207)
Balance, March 31, 2021	15,104,536	$	15,105	$	251,836	$	96,034	$	1,083	$	364,058

Balance, December 31, 2019 14,008,233 $ 14,008 $ 232,732 $ 65,839 $ 168 $ 312,747
Net income — — — 2,732 — 2,732
Other comprehensive loss — — — — (1,415) (1,415)
Common stock issued pursuant to:
Exercise of stock options 14,858 15 158 — — 173
Restricted stock, net of forfeitures 31,900 32 (32) — — —
Shareholders of Progressive Financial Group, Inc. 1,292,578 1,293 23,254 — — 24,547
Stock compensation expense — — 110 — — 110
Common stock dividend ($0.05 per share) — — — (702) — (702)
Purchase of common stock (125,579) (126) (1,866) — — (1,992)
Balance, March 31, 2020 15,221,990 $ 15,222 $ 254,356 $ 67,869 $ (1,247) $ 336,200

The accompanying notes are an integral part of the financial statements.

SMARTFINANCIAL, INC. AND SUBSIDIARY

(Dollars in thousands)

Three Months Ended March 31,
2020 2019
Cash flows from operating activities:
Net income $ 2,732 $ 4,731
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,634 1,156
Accretion of fair value purchase accounting adjustments, net (1,841) (1,717)
Provision for loan losses 3,200 797
Stock compensation expense 110 143
Deferred income tax expense 90 1,039
Increase in cash surrender value of bank owned life insurance (162) (158)
Loss on disposal of fixed assets — 7
Net losses from sale of other real estate owned 14 26
Net gains from sale of loans (576) (282)
Origination of loans held for sale (15,195) (16,805)
Proceeds from sales of loans held for sale 15,582 16,061
Net change in:
Accrued interest receivable 35 (1,093)
Accrued interest payable 784 748
Other assets 685 (1,660)
Other liabilities 2,010 4,702
Net cash provided by operating activities 9,102 7,695
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale 2,115 —
Proceeds from maturities and calls of securities available-for-sale 3,250 5,000
Proceeds from paydowns of securities available-for-sale 3,816 3,173
Purchases of securities available-for-sale (3,377) (1,054)
Purchases of other investments (507) (899)
Net increase in loans (52,721) (61,011)
Purchases of premises and equipment (2,429) (1,296)
Proceeds from sale of other real estate owned 120 458
Net cash and cash equivalents received from business combination 46,132 —
Net cash used in investing activities (3,601) (55,629)
Cash flows from financing activities:
Net increase in deposits 22,158 72,166
Net decrease in securities sold under agreements to repurchase (20) (4,686)
Proceeds from Federal Home Loan Bank advances and other borrowings 100,000 50,094
Repayment of Federal Home Loan Bank advances and other borrowings — (52,732)
Cash dividends paid (702) —
Issuance of common stock 173 264
Purchase of common stock (1,992) —
Net cash provided by financing activities 119,617 65,106
Net change in cash and cash equivalents 125,118 17,172
Cash and cash equivalents, beginning of period 183,971 115,822
Cash and cash equivalents, end of period $ 309,089 $ 132,994
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 4,643 $ 5,198
Cash paid during the period for income taxes — —
Noncash investing and financing activities:
Acquisition of real estate through foreclosure 676 55
Change in goodwill due to acquisitions 8,302 —
Initial recognition of operating lease right-of-use assets 222 2,344
Initial recognition of operating lease liabilities 222 2,344


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net income	$	9,756	$	2,732
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,499		1,634
Accretion of fair value purchase accounting adjustments, net		(1,636)		(1,841)
Provision for loan losses		67		3,200
Stock compensation expense		201		110
Deferred income tax expense		446		90
Increase in cash surrender value of bank owned life insurance		(370)		(162)
Net losses from sale of other real estate owned		151		14
Net gains from mortgage banking		(1,139)		(576)
Origination of loans held for sale		(35,229)		(15,195)
Proceeds from sales of loans held for sale		40,219		15,582
Net change in:
Accrued interest receivable		(86)		35
Accrued interest payable		367		784
Other assets		(1,234)		685
Other liabilities		3,078		2,010
Net cash provided by operating activities		16,090		9,102
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale		—		2,115
Proceeds from maturities and calls of securities available-for-sale		9,097		3,250
Proceeds from paydowns of securities available-for-sale		7,144		3,816
Proceeds from sales of other investments		147		—
Purchases of securities available-for-sale		(55,757)		(3,377)
Purchases of other investments		(80)		(507)
Purchases of bank owned life insurance		(40,000)		—
Net increase in loans		(103,308)		(52,721)
Purchases of premises and equipment		(1,009)		(2,429)
Proceeds from sale of other real estate owned		98		120
Net cash and cash equivalents received from business combination		—		46,132
Net cash used in investing activities		(183,668)		(3,601)
Cash flows from financing activities:
Net increase in deposits		243,084		22,158
Net increase (decrease) in securities sold under agreements to repurchase		1,447		(20)
Proceeds from borrowings		—		100,000
Repayment borrowings		(4)		—
Cash dividends paid		(907)		(702)
Issuance of common stock		147		173
Repurchase of common stock		(1,207)		(1,992)
Net cash provided by financing activities		242,560		119,617
Net change in cash and cash equivalents		74,982		125,118
Cash and cash equivalents, beginning of period		481,719		183,971
Cash and cash equivalents, end of period	$	556,701	$	309,089
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	2,665	$	4,643
Noncash investing and financing activities:
Acquisition of real estate through foreclosure		14		676
Change in goodwill due to acquisitions		324		8,302

The accompanying notes are an integral part of the financial statements.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Presentation of Financial Information

Nature of Business:

Basis of Presentation and Accounting Estimates:

2020.

Recently Issued and Adopted Accounting Pronouncements:

In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes.” This ASU simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of ~~January 1, 2020, the Company adopted ASU 2019-01,~~ ~~Leases: Codification Improvements~~ ~~(“ASU 2019-01”).ASU 2019-01provides clarification to increase transparency and comparability among organizations by recognizing lease assets and~~deferred tax liabilities ~~on the balance sheet and disclosing essential information about leasing transactions. Specifically, ASU 2019-01 (i) allows the fair value~~for outside basis differences. The new guidance also simplifies aspects of the ~~underlying asset reported by lessors~~accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. Finally, it clarifies that single-member limited liability companies and similar disregarded entities that are not ~~manufacturers or dealers~~subject to ~~continue~~income tax are not required to ~~be its cost~~recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so. ASU 2019-12 is effective for interim and not fair value as measured under the fair value definition, (ii) allows for the cash flows received for sales-type and direct financing leases to continue to be presented as results from investing, and (iii) clarifies that entities do not have to disclose the effect of the lease standard on adoption year interim amounts. The adoption ofannual reporting periods beginning after December 15, 2020. ASU ~~2019-01~~2019-12 did not have a material impact on the Company’s ~~consolidated financial statements.~~

Consolidated Financial Statements.

Recently Issued Not Yet Effective Accounting Pronouncements:

In October 2019, the Financial Accounting Standards Board approved a delay for the implementation of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). The Board decided that ~~CECL~~the Current Expected Credit Loss (“CECL”) model will be effective for larger Public Business Entities ("PBEs") that are SEC filers, excluding Smaller Reporting Companies ("SRCs") as currently defined by the SEC, for fiscal years beginning after December 15, 2019, and interim

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

periods within those fiscal years. For calendar-year-end companies, this will be January 1, 2020. The determination of whether an entity is an SRC will be based on an entity’s most recent assessment in accordance with SEC regulations and the Company meets the regulations as aan SRC. For all other entities, the Board decided that CECL will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all entities, early adoption will continue to be permitted; that is, early adoption is allowed for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (that is, effective January 1, 2019, for calendar-year-end companies). The Company does not plan to adopt this standard early and being that the Company is an SRC, adoption is required for fiscal years beginning after December 15, 2022.

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

In ~~December 2019,~~March 2020, the FASB issued ASU ~~2019-12,~~ ~~Income Taxes~~2020-04, Reference Rate Reform (Topic ~~740)~~848): ~~Simplifying the Accounting for Income Taxes. The amendments in this update simplify various aspects~~Facilitation of the ~~current~~Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional guidance to ~~promote consistent application of~~ease the ~~standard among reporting entities by moving~~potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain ~~exceptions~~criteria, that reference London Interbank Offered Rate (“LIBOR”). It is intended to help stakeholders during the ~~general principles. The amendments are effective for fiscal years beginning after December 15, 2020, with early adoption permitted.~~global market-wide reference rate transition period. The Company ~~does not~~is implementing a transition plan to ~~adopt this standard early~~identify and ~~adoption should not have a material~~modify its loans and other financial instruments, including certain indebtedness, with attributes that are either directly or indirectly influenced by LIBOR. The Company is assessing ASU 2020-04 and its impact on the ~~Company's consolidated~~transition away from LIBOR for its loan and other financial ~~statements.~~

instruments.

Operating, Accounting and Reporting Considerations related to COVID-19:

The COVID-19 pandemic has negatively impacted the global economy. In response to this crisis, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by Congress and signed into law on March ~~2020, various regulatory agencies,~~27, 2020. The CARES Act provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the economy by supporting individuals and businesses through loans, grants, tax changes, and other types of relief. Some of the provisions applicable to the Company include, but are not limited to:

●

Accounting for Loan Modifications – Section 4013 of the CARES Act provides that a financial institution may elect to suspend (1) the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR, and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. See Note 5 Loans and Allowance for Loan Losses for more information.

●

Paycheck Protection Program - The CARES Act established the Paycheck Protection Program (“PPP”), an expansion of the Small Business Administration’s (“SBA”) 7(a) loan program and the Economic Injury Disaster Loan Program (“EIDL”), administered directly by the SBA. On December 27, 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law. The CAA provides several amendments to the PPP, including additional funding for first and second draws of PPP loans up to March 31, 2021. On March 30, 2021, the PPP Extension Act of 2021 was signed into law, which extends the program to May 31, 2021. The Company is a participant in the PPP. See Note 5 Loans and Allowance for Loan Losses for more information.

Also in response to the COVID-19 pandemic, the Board of Governors of the Federal Reserve System ~~and~~(“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), the ~~agencies”~~National Credit Union Administration (“NCUA”), the Office of the Comptroller of the Currency (“OCC”), and the Consumer Financial Protection Bureau (“CFPB”), in consultation with the state financial regulators (collectively, the “agencies”) issued ana joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to:

●

Accounting for Loan Modifications - Loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with FASB staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment. See Note 5 Loans and Allowance for Loan Losses for more information.

●

Past Due Reporting - With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral.

●

Nonaccrual Status and Charge-offs - During short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as classified.

The Company began offering short-term loan modifications to assist borrowers during the COVID-19 national emergency. The Company offered deferral options of: 1) three months deferral of payment and ~~reporting~~then three months of interest only, 2) three months of interest only, 3) three months deferral of payment, 4) six months of interest only. These modifications generally meet the criteria of both Section 4013 of the CARES Act and the joint interagency statement, and therefore, the Company does not account for ~~financial institutions working with customers affected by~~such loan modifications as TDRs. On August 3, 2020, the Federal Financial Institutions Examination Council on behalf of its members (collectively “the FFIEC members”) issued a joint statement on additional loan accommodations related to COVID-19. The ~~interagency~~joint statement ~~was effective immediately and impacted accounting~~clarifies that for loan modifications. Under Accounting Standards Codification 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” (“ASC 310-40”), a restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasonsmodifications in which Section 4013 is being applied, subsequent modifications could also be eligible under Section 4013. To be eligible, each loan modification must be (1) related to the ~~debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term modifications made~~COVID event; (2) executed on a ~~good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are~~loan that was not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are lessmore than 30 days past due ~~on their contractual payments at~~as of December 31, 2019; and (3) executed between March 1, 2020, and the ~~time a modification program is implemented. As~~earlier of ~~March~~(A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020. The December 31, 2020 deadline was subsequently extended to January 1, 2022, by the ~~Bank had provided modifications to approximately $70.1 million in loans, per the guidance stated above. This interagency guidance could have a material impact on~~CAA. All of the Company’s ~~financial statements; however, this impact cannot be quantified at this time.~~

loan modifications granted under Section 4013 of the CARES Act are in compliance with the aforementioned FFIEC requirements. Accordingly, the Company does not account for such loan modifications as TDRs.

Reclassifications:

Certain captions and amounts in the ~~2019~~2020 consolidated financial statements were reclassified to conform to the ~~2020~~2021 financial statement presentation. These reclassifications had no impact on net income or ~~shareholders'~~shareholders’ equity as previously reported.

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2. Business Combinations

~~Acquisition of~~

Progressive Financial Inc.

On March 1, 2020, the Company completed the merger of Progressive Financial Group, Inc., a Tennessee corporation ~~("PFG"~~(“PFG”), pursuant to an Agreement and Plan of Merger dated October 29, 2019 (the ~~"Merger Agreement"~~“Merger Agreement”).

In connection with the merger, the Company acquired $301 million of assets and assumed $272 million of liabilities. Pursuant to the Merger Agreement, each outstanding share of Progressive common stock was converted into and cancelled in exchange to the right to receive $474.82 in cash, and 62.3808 shares of SmartFinancial common stock. SmartFinancial issued 1,292,578 shares of SmartFinancial common stock and paid $9.8 million in cash as consideration for the Merger. The fair value of consideration paid exceeded the fair value of the identifiable assets and liabilities acquired and resulted in the establishment of goodwill in the amount of ~~$8.3~~$8.8 million, representing the intangible value of ~~Progressive's~~Progressive’s business and reputation within the markets it served. None of the goodwill recognized is expected to be deductible for income tax purposes. The Company is amortizing the related core deposit intangible of $1.4 million using the effective yield method over 120 months (10 years), which represents the expected useful life of the asset.

The ~~Company's operating results for~~Company also established two intangible assets related to the ~~period ended March 31, 2020, include the operating results~~insurance agency acquired as part of the ~~acquired business for the period subsequent to the merger date~~PFG acquisition; 1.) Customer relationships of ~~March 1, 2020.~~

$1.1 million, amortizing sum-of-the-years digits over 120 months (10 years), 2.) Tradename of $63 thousand, amortizing straight-line over 60 months (5 years).

The purchased assets and assumed liabilities were recorded at their acquisition date fair values ⁽¹⁾and are summarized in the table below (in thousands).


			Initial
	As recorded		Fair value		Subsequent		As recorded
	by PFG		adjustments		Adjustments		by the Company
Assets:
Cash & cash equivalents	$	55,971	$	—	$	—	$	55,971
Investment securities available-for-sale		27,054		203		—		27,257
Restricted investments		692		—		—		692
Loans		191,672		(3,691)		—		187,981
Allowance for loan losses		(2,832)		2,832		—		—
Premises and equipment, net		15,681		(2,919)		—		12,762
Bank owned life insurance		5,560		—		—		5,560
Deferred tax asset, net		—		813		193		1,006
Intangibles		—		1,370		1,127		2,497
Other real estate owned		3,695		(100)		(1,862)		1,733
Interest Receivable		1,061		(280)		—		781
Prepaids		375		(174)		—		201
Goodwill		231		(231)		—		—
Other assets		1,881		—		—		1,881
Total assets acquired	$	301,041	$	(2,177)	$	(542)	$	298,322

Liabilities:
Deposits	$	271,276	$	—		—	$	271,276
Time deposit premium		—		729		—		729
Payables and other liabilities		776		—		—		776
Total liabilities assumed		272,052		729		—		272,781
Excess of assets assumed over liabilities assumed	$	28,989
Aggregate fair value adjustments			$	(2,906)	$	(542)
Total identifiable net assets								25,541
Consideration transferred:
Cash								9,838
Common stock issued (1,292,578 shares)								24,547
Total fair value of consideration transferred								34,385

Goodwill							$	8,844

⁽¹⁾Fair values are preliminary and are subject to refinement for a period of one year after the closing date of an acquisition as information relative to the closing date fair value becomes available.

As recorded Fair value As recorded
by PFG
adjustments ⁽¹⁾
by the Company
Assets:
Cash & cash equivalents $ 55,971 $ — $ 55,971
Investment securities available-for-sale 27,054 203 27,257
Restricted investments 692 — 692
Loans 191,672 (3,691) 187,981
Allowance for loan losses (2,832) 2,832 —
Premises and equipment, net 15,681 (2,919) 12,762
Bank owned life insurance 5,560 — 5,560
Deferred tax asset, net — 813 813
Intangibles — 1,370 1,370
Other real estate owned 3,695 (100) 3,595
Interest Receivable 1,061 (280) 781
Prepaids 375 (174) 201
Goodwill 231 (231) —
Other assets 1,881 — 1,881
Total assets acquired $ 301,041 $ (2,177) $ 298,864
Liabilities:
  Deposits $ 271,276 $ — $ 271,276
  Time deposit premium — 729 729
  Payables and other liabilities 776 — 776
Total liabilities assumed 272,052 729 272,781
Excess of assets assumed over liabilities assumed $ 28,989
Aggregate fair value adjustments $ (2,906)
Total identifiable net assets 26,083
Consideration transferred:
  Cash 9,838
  Common stock issued (1,292,578 shares) 24,547
    Total fair value of consideration transferred 34,385
Goodwill $ 8,302
⁽¹⁾ Fair values are preliminary and are subject to refinement for a period of one year after the closing date of an acquisition as information relative to the closing date fair value becomes available.

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table presents additional information related to the purchased credit impaired loans (ASC 310-30) of the acquired loan portfolio at the acquisition date (in thousands):


	March 1, 2020
Accounted for pursuant to ASC 310-30:
Contractually required principal and interest	$	21,107
Non-accretable differences		4,706
Cash flows expected to be collected		16,401
Accretable yield		2,515
Fair value	$	13,886


	~~March 1, 2020~~
~~Accounted for pursuant to ASC 310-30:~~
~~Contractually required principal and interest~~	$	~~21,107~~
~~Non-accretable differences~~	~~4,706~~
~~Cash flows expected to be collected~~	~~16,401~~
~~Accretable yield~~	~~2,515~~
~~Fair value~~	$	~~13,886~~

The following table discloses the impact of the merger with PFG since the acquisition date through March 31, 2020. The table also presents certain pro forma information (net interest income and noninterest income ("Revenue") and net income) as if the PFG acquisition had occurred on January 1, 2019. The pro-forma financial information is not necessarily indicative of the results of operations had the acquisitions been effective as of these dates.

Merger-related cost from the PFG acquisition of $2.1 million have been excluded from the three months period of 2020 pro- forma information presented below and included in the three months period of 2019 pro-forma information below. The actual results and pro-forma information were as follows ~~(in thousands)~~:

Three Months Ended March 31,
Revenue Net Income
2020:
Actual PFG results included in statement of income since acquisition date $ 505 $ 117
Supplemental consolidation pro-forma as if PFG had been acquired January 1, 2019 28,050 4,013
2019:
Supplemental consolidation pro-forma as if PFG had been acquired January 1, 2019 $ 26,766 $ 3,513

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Note 3. Earnings Per Share

Basic earnings per common share is computed by dividing net income available to common ~~stockholders~~shareholders by the weighted-average number of common shares outstanding. Diluted earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding and dilutive common share equivalents using the treasury stock method. Dilutive common share equivalents include common shares issuable upon exercise of outstanding stock options and restricted stock. The effect from the stock options and restricted stock on incremental shares from the assumed conversions for net income per share-basic and net income per share-diluted are presented below. There were 0 antidilutive shares for the three month period ended March 31, 2021. There were 64 thousand antidilutive shares for the three month period ended March 31, ~~2020,~~2020.

The following is a summary of the basic and ~~none for the period ended March 31, 2019.~~

diluted earnings per share computation (dollars in thousands, except per share data):

Three Months Ended March 31,
2020 2019
Basic earnings per share computation:
Net income available to common stockholders $ 2,732 $ 4,731
Average common shares outstanding - basic 14,395,103 13,942,016
Basic earnings per share $ 0.19 $ 0.34
Diluted earnings per share computation:
Net income available to common stockholders $ 2,732 $ 4,731
Average common shares outstanding - basic 14,395,103 13,942,016
Incremental shares from assumed conversions:
Stock options and restricted stock 84,568 76,147
Average common shares outstanding - diluted 14,479,671 14,018,163
Diluted earnings per common share $ 0.19 $ 0.34


	Three Months Ended
	March 31,
	2021		2020
Basic earnings per share computation:
Net income available to common shareholders	$	9,756	$	2,732
Average common shares outstanding – basic		15,011,573		14,395,103
Basic earnings per share	$	0.65	$	0.19
Diluted earnings per share computation:
Net income available to common shareholders	$	9,756	$	2,732
Average common shares outstanding – basic		15,011,573		14,395,103
Incremental shares from assumed conversions:
Stock options and restricted stock		100,374		84,568
Average common shares outstanding - diluted		15,111,947		14,479,671
Diluted earnings per common share	$	0.65	$	0.19

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Note 4. Securities

The amortized cost, gross unrealized gains and losses and fair value of securities available-for-sale are summarized as follows (in thousands):


	March 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
U.S. Government-sponsored enterprises (GSEs)	$	73,905	$	41	$	(1,689)	$	72,257
Municipal securities		88,509		1,626		(6)		90,129
Other debt securities		26,019		154		(118)		26,055
Mortgage-backed securities (GSEs)		61,294		1,354		(152)		62,496
Total	$	249,727	$	3,175	$	(1,965)	$	250,937

Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
March 31, 2020:
U.S. Government-sponsored enterprises (GSEs) $ 17,012 $ 96 $ (63) $ 17,045
Municipal securities 82,599 970 (252) 83,317
Other debt securities 5,461 129 (128) 5,462
Mortgage-backed securities (GSEs) 94,306 1,482 (610) 95,178
$ 199,378 $ 2,677 $ (1,053) $ 201,002

December 31, 2019:
U.S. Government-sponsored enterprises (GSEs) $ 19,015 $ 41 $ (56) $ 19,000
Municipal securities 63,792 618 (19) 64,391
Other debt securities 3,481 22 (33) 3,470
Mortgage-backed securities (GSEs) 91,531 382 (426) 91,487
$ 177,819 $ 1,063 $ (534) $ 178,348

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
U.S. Government-sponsored enterprises (GSEs)	$	30,526	$	10	$	(6)	$	30,530
Municipal securities		89,644		2,345		—		91,989
Other debt securities		25,019		112		(13)		25,118
Mortgage-backed securities (GSEs)		66,425		1,754		(182)		67,997
Total	$	211,614	$	4,221	$	(201)	$	215,634

At March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, securities with a carrying value totaling approximately ~~$95.7~~$117.6 million and ~~$92.3~~$80.2 million, respectively, were pledged to secure public funds and securities sold under agreements to repurchase.

The Company has entered into various fair value hedging transactions to mitigate the impact of changing interest rates on the fair values of available for sale securities. See Note 11 - Derivatives for disclosure of the gains and losses recognized on derivative instruments and the cumulative fair value hedging adjustments to the carrying amount of the hedged securities.

~~For~~

Proceeds from sale of securities available for sale, gross gains and gross losses on sales and redemptions for the three months ended March 31, 2021 and 2020 ~~approximately $2.1 million available-for-sale securities~~ were sold and there were 0 gains or losses realized. For the three months ended March 31, 2019, there were 0 available-for-sale securities sold. For the three months ended March 31, 2020, there were approximately $3.3 million available-for-sale securities redeemed. For the three months ended March 31, 2019, there were approximately $5 million available-for-sale securities redeemed.

as follows (in thousands):


	Three Months Ended
	March 31,
	2021		2020
Proceeds from sales	$	-	$	2,115
Gross gains	$	-	$	-
Gross losses	$	-	$	-

Proceeds from maturities and calls	$	9,097	$	3,250

The amortized cost and estimated fair value of securities at March 31, ~~2020,~~2021, by contractual maturity for non-mortgage backed securities are shown below (in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	March 31, 2021
	Amortized		Fair
	Cost		Value
Due in one year or less	$	4,947	$	4,972
Due from one year to five years		4,569		4,596
Due from five years to ten years		56,988		56,896
Due after ten years		121,929		121,977
		188,433		188,441
Mortgage-backed securities		61,294		62,496
Total	$	249,727	$	250,937

Amortized
Cost Fair
Value
Due in one year or less $ 8,491 $ 8,440
Due from one year to five years 5,177 5,182
Due from five years to ten years 19,145 19,254
Due after ten years 72,258 72,947
105,071 105,823
Mortgage-backed securities 94,307 95,179
$ 199,378 $ 201,002

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following tables present the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities available-for-sale have been in a continuous unrealized loss position (in thousands):

Less than 12 Months 12 Months or Greater Total
Fair
Value Gross
Unrealized
Losses Fair
Value Gross
Unrealized
Losses Fair
Value Gross
Unrealized
Losses
March 31, 2020:
U.S. Government- sponsored enterprises (GSEs) $ 696 $ (63) $ — $ — $ 696 $ (63)
Municipal securities 16,370 (250) 527 (2) 16,897 (252)
Other debt securities 1,970 (10) 863 (118) 2,833 (128)
Mortgage-backed securities (GSEs) 29,967 (425) 7,125 (185) 37,092 (610)
$ 49,003 $ (748) $ 8,515 $ (305) $ 57,518 $ (1,053)

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~


	March 31, 2021
	Less than 12 Months					12 Months or Greater					Total
			Gross		Number			Gross		Number			Gross		Number
	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of
	Value		Losses		Securities	Value		Losses		Securities	Value		Losses		Securities
U.S. Government-sponsored enterprises (GSEs)	$	60,310	$	(1,687)	14	$	585	$	(2)	2	$	60,895	$	(1,689)	16
Municipal securities		1,125		(6)	2		—		—	—		1,125		(6)	2
Other debt securities		12,882		(118)	6		—		—	—		12,882		(118)	6
Mortgage-backed securities (GSEs)		2,095		(2)	2		11,745		(150)	6		13,840		(152)	8
Total	$	76,412	$	(1,813)	24	$	12,330	$	(152)	8	$	88,742	$	(1,965)	32

Less than 12 Months 12 Months or Greater Total
Fair
Value Gross
Unrealized
Losses Fair
Value Gross
Unrealized
Losses Fair
Value Gross
Unrealized
Losses
December 31, 2019:
U.S. Government- sponsored enterprises (GSEs) $ 2,972 $ (43) $ 5,987 $ (13) $ 8,959 $ (56)
Municipal securities 3,656 (16) 527 (3) 4,183 (19)
Other debt securities — — 947 (33) 947 (33)
Mortgage-backed securities (GSEs) 13,208 (194) 19,988 (232) 33,196 (426)
$ 19,836 $ (253) $ 27,449 $ (281) $ 47,285 $ (534)


	December 31, 2020
	Less than 12 Months					12 Months or Greater					Total
			Gross		Number			Gross		Number			Gross		Number
	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of
	Value		Losses		Securities	Value		Losses		Securities	Value		Losses		Securities
U.S. Government-sponsored enterprises (GSEs)	$	15,510	$	(5)	3	$	132	$	(1)	1	$	15,642	$	(6)	4
Municipal securities		—		—	—		—		—	—		—		—	—
Other debt securities		1,495		(5)	1		977		(8)	1		2,472		(13)	2
Mortgage-backed securities (GSEs)		9,790		(87)	6		6,083		(95)	3		15,873		(182)	9
Total	$	26,795	$	(97)	10	$	7,192	$	(104)	5	$	33,987	$	(201)	15

~~At March 31, 2020, the categories of temporarily impaired securities in an unrealized loss position twelve months or greater are as follows~~ ~~(dollars in thousands)~~:

Gross Unrealized Loss Number
of
Securities
U.S. Government-sponsored enterprises (GSEs) $ — —
Municipal securities (2) 1
Other debt securities (118) 1
Mortgage-backed securities (GSEs) (185) 11
$ (305) 13

The Company reviews the securities portfolio on a quarterly basis to monitor its exposure to other-than-temporary impairment. A determination as to whether a ~~security's~~security’s decline in fair value is other-than-temporary takes into consideration numerous factors and the relative significance of any single factor can vary by security. Some factors the Company may consider in the other-than-temporary impairment analysis include the length of time and extent to which the security has been in an unrealized loss position, changes in security ratings, financial condition and near-term prospects of the issuer, as well as security and industry specific economic conditions.

Based on this evaluation, the Company concluded that any unrealized losses at March 31, ~~2020,~~2021, represented a temporary impairment, as these unrealized losses are primarily attributable to changes in interest rates and current market conditions, and not credit deterioration of the issuers. As of March 31, ~~2020,~~2021, the Company does not intend to sell any of the securities, does not expect to be required to sell any of the securities, and expects to recover the entire amortized cost of all of the securities.

The following is the amortized cost and carrying value of other investments (in thousands):


	March 31,		December 31,
	2021		2020
Federal Reserve Bank stock	$	8,460	$	8,606
Federal Home Loan Bank stock		5,918		5,838
First National Bankers Bank stock		350		350
Total	$	14,728	$	14,794

March 31, December 31,
2020 2019
Federal Reserve Bank stock $ 7,925 $ 7,917
Federal Home Loan Bank stock 5,838 4,646
First National Bankers Bank stock 350 350
$ 14,113 $ 12,913

Our restricted investments consist of non-marketable equity securities that have no readily determinable market value. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

par value rather than recognizing temporary declines in value. As of March 31, ~~2020,~~2021, the Company determined that there was no0 impairment on its other ~~securities.~~

investments.

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Note 5. Loans and Allowance for Loan Losses

Portfolio Segmentation:

Major categories of loans are summarized as follows (in thousands):


	March 31, 2021						December 31, 2020
	PCI		All Other				PCI		All Other
	Loans¹		Loans		Total		Loans¹		Loans		Total
Commercial real estate	$	13,877	$	1,056,764	$	1,070,641	$	16,123	$	996,853	$	1,012,976
Consumer real estate		9,597		422,889		432,486		10,258		433,672		443,930
Construction and land development		5,350		280,623		285,973		5,348		272,727		278,075
Commercial and industrial		303		685,707		686,010		308		634,138		634,446
Consumer and other		21		11,998		12,019		27		12,789		12,816
Total loans		29,148		2,457,981		2,487,129		32,064		2,350,179		2,382,243
Less: Allowance for loan losses		(376)		(17,994)		(18,370)		(309)		(18,037)		(18,346)

Loans, net	$	28,772	$	2,439,987	$	2,468,759	$	31,755	$	2,332,142	$	2,363,897

March 31, 2020 December 31, 2019

PCI Loans¹
All Other
Loans²
Total
PCI Loans¹
All Other
Loans²
Total
Commercial real estate $ 16,589 $ 992,446 $ 1,009,035 $ 15,255 $ 890,051 $ 905,306
Consumer real estate 11,950 476,823 488,773 6,541 416,797 423,338
Construction and land development 6,479 246,966 253,445 4,458 223,168 227,626
Commercial and industrial 143 377,030 377,173 407 336,668 337,075
Consumer and other 325 16,541 16,866 326 9,577 9,903
Total loans 35,486 2,109,806 2,145,292 26,987 1,876,261 1,903,248
Less: Allowance for loan losses — (13,431) (13,431) (156) (10,087) (10,243)
Loans, net $ 35,486 $ 2,096,375 $ 2,131,861 $ 26,831 $ 1,866,174 $ 1,893,005

¹Purchased Credit Impaired loans (“PCI loans”) are loans with evidence of credit deterioration at purchase.

²~~Includes loans held for sale.~~

For purposes of the disclosures required pursuant to the adoption of ASC 310, the loan portfolio was disaggregated into segments. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. There are 5 loan portfolio segments that include commercial real estate, consumer real estate, construction and land development, commercial and industrial, and consumer and other.

As previously mentioned in Note 1 – Presentation of Financial Information, the CARES Act established the PPP, administered directly by the SBA. The PPP provides loans of up to $10 million to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency. PPP loans carry an interest rate of one percent, and a maturity of two or five years. These loans are fully guaranteed by the SBA and are not included in the Company’s loan loss allowance calculations. The loans may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan is made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. The SBA pays the Company fees for processing PPP loans and the fees are accounted for as loan origination fees and recognized over the contractual loan term as a yield adjustment on the loans. At March 31, 2021, the net deferred fees outstanding for the 2020 PPP loans is $1.9 million and $5.4 million for the 2021 PPP loans, respectively. PPP loans are included in the Commercial and Industrial loan class. As of March 31, 2021, the Company had 3,710 PPP loans outstanding, with an outstanding principal balance of $338.3 million and as of December 31, 2020, the Company had 2,863 PPP loans outstanding, with an outstanding principal balance of $288.9 million.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The composition of loans by loan classification for impaired and performing loan status is summarized in the tables below (in thousands):


					Construction		Commercial
	Commercial		Consumer		and Land		and		Consumer
	Real Estate		Real Estate		Development		Industrial		and Other		Total
March 31, 2021:
Performing loans	$	1,053,610	$	420,419	$	280,623	$	685,598	$	11,998	$	2,452,248
Impaired loans		3,154		2,470		—		109		—		5,733
		1,056,764		422,889		280,623		685,707		11,998		2,457,981
PCI loans		13,877		9,597		5,350		303		21		29,148
Total loans	$	1,070,641	$	432,486	$	285,973	$	686,010	$	12,019	$	2,487,129

December 31, 2020:
Performing loans	$	992,982	$	432,356	$	272,727	$	633,992	$	12,789	$	2,344,846
Impaired loans		3,871		1,316		—		146		—		5,333
		996,853		433,672		272,727		634,138		12,789		2,350,179
PCI loans		16,123		10,258		5,348		308		27		32,064
Total loans	$	1,012,976	$	443,930	$	278,075	$	634,446	$	12,816	$	2,382,243

Commercial
Real Estate Consumer
Real Estate Construction
and Land
Development Commercial
and
Industrial Consumer
and Other Total
March 31, 2020:
Performing loans $ 991,914 $ 475,303 $ 246,359 $ 376,872 $ 16,541 $ 2,106,989
Impaired loans 532 1,520 607 158 — 2,817
992,446 476,823 246,966 377,030 16,541 2,109,806
PCI loans 16,589 11,950 6,479 143 325 35,486
Total loans $ 1,009,035 $ 488,773 $ 253,445 $ 377,173 $ 16,866 $ 2,145,292

December 31, 2019:
Performing loans $ 889,795 $ 415,250 $ 222,621 $ 336,508 $ 9,577 $ 1,873,751
Impaired loans 256 1,547 547 160 — 2,510
890,051 416,797 223,168 336,668 9,577 1,876,261
PCI loans 15,255 6,541 4,458 407 326 26,987
Total loans $ 905,306 $ 423,338 $ 227,626 $ 337,075 $ 9,903 $ 1,903,248

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

The following tables show the allowance for loan losses allocation by loan classification for impaired, PCI, and performing loans (in thousands):


					Construction		Commercial		Consumer
	Commercial		Consumer		and Land		and		and
	Real Estate		Real Estate		Development		Industrial		Other		Total
March 31, 2021:
Performing loans	$	7,386	$	3,018	$	1,968	$	5,022	$	108	$	17,502
Impaired loans		251		132		—		109		—		492
		7,637		3,150		1,968		5,131		108		17,994
PCI loans		—		158		—		216		2		376
Total loans	$	7,637	$	3,308	$	1,968	$	5,347	$	110	$	18,370

December 31, 2020:
Performing loans	$	7,579	$	3,267	$	2,076	$	4,768	$	110	$	17,800
Impaired loans		—		116		—		121		—		237
		7,579		3,383		2,076		4,889		110		18,037
PCI loans		—		88		—		218		3		309
Total loans	$	7,579	$	3,471	$	2,076	$	5,107	$	113	$	18,346

Commercial
Real Estate Consumer
Real Estate Construction
and Land
Development Commercial
and
Industrial Consumer
and
Other Total
March 31, 2020:
Performing loans $ 5,917 $ 2,922 $ 1,484 $ 2,427 $ 126 $ 12,876
Impaired loans 46 379 — 130 — 555
5,963 3,301 1,484 2,557 126 13,431
PCI loans — — — — — —
Total loans $ 5,963 $ 3,301 $ 1,484 $ 2,557 $ 126 $ 13,431

December 31, 2019:
Performing loans $ 4,491 $ 2,159 $ 1,127 $ 1,766 $ 69 $ 9,612
Impaired loans — 343 — 132 — 475
4,491 2,502 1,127 1,898 69 10,087
PCI loans 17 74 — 59 6 156
Total loans $ 4,508 $ 2,576 $ 1,127 $ 1,957 $ 75 $ 10,243

The following tables detail the changes in the allowance for loan losses by loan classification (in thousands):


	Three Months Ended March 31, 2021
			Consumer		Construction		Commercial
	Commercial		Real		and Land		and		Consumer
	Real Estate		Estate		Development		Industrial		and Other		Total
Beginning balance	$	7,579	$	3,471	$	2,076	$	5,107	$	113	$	18,346
Charged-off loans		—		—		—		—		(120)		(120)
Recoveries of charge-offs		3		16		—		3		55		77
Provision charged to expense		55		(179)		(108)		237		62		67
Ending balance	$	7,637	$	3,308	$	1,968	$	5,347	$	110	$	18,370

Three Months Ended March 31, 2020
Commercial
Real Estate Consumer
Real
Estate Construction
and Land
Development Commercial
and
Industrial Consumer
and Other Total
Beginning balance $ 4,508 $ 2,576 $ 1,127 $ 1,957 $ 75 $ 10,243
Charged off loans — (2) — (8) (76) (86)
Recoveries of charge-offs 2 6 2 42 22 74
Provision (reallocation) charged to expense 1,453 721 355 566 105 3,200
Ending balance $ 5,963 $ 3,301 $ 1,484 $ 2,557 $ 126 $ 13,431

Three Months Ended March 31, 2019
Commercial
Real Estate Consumer
Real
Estate Construction
and Land
Development Commercial
and
Industrial Consumer
and Other Total
Beginning balance $ 3,639 $ 1,789 $ 795 $ 1,746 $ 306 $ 8,275
Charged off loans — (2) — (318) (130) (450)
Recoveries of charge-offs 2 4 2 12 62 82
Provision (reallocation) charged to expense 433 158 57 269 (120) 797
Ending balance $ 4,074 $ 1,949 $ 854 $ 1,709 $ 118 $ 8,704

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


	Three Months Ended March 31, 2020
			Consumer		Construction		Commercial
	Commercial		Real		and Land		and		Consumer
	Real Estate		Estate		Development		Industrial		and Other		Total
Beginning balance	$	4,508	$	2,576	$	1,127	$	1,957	$	75	$	10,243
Charged-off loans		—		(2)		—		(8)		(76)		(86)
Recoveries of charge-offs		2		6		2		42		22		74
Provision charged to expense		1,453		721		355		566		105		3,200
Ending balance	$	5,963	$	3,301	$	1,484	$	2,557	$	126	$	13,431

The following tables outline the amount of each loan classification and the amount categorized into each risk rating (in thousands):


	March 31, 2021
					Construction		Commercial
	Commercial		Consumer		and Land		and		Consumer
Non PCI Loans:	Real Estate		Real Estate		Development		Industrial		and Other		Total
Pass	$	1,011,291	$	418,604	$	280,299	$	680,635	$	11,908	$	2,402,737
Watch		38,170		1,234		245		4,489		52		44,190
Special mention		3,922		44		—		297		—		4,263
Substandard		3,381		3,007		79		238		38		6,743
Doubtful		—		—		—		48		—		48
Total		1,056,764		422,889		280,623		685,707		11,998		2,457,981

PCI Loans:
Pass		11,088		8,173		1,430		257		20		20,968
Watch		1,592		206		3,405		—		1		5,204
Special mention		17		58		—		—		—		75
Substandard		1,180		1,160		515		46		—		2,901
Doubtful		—		—		—		—		—		—
Total		13,877		9,597		5,350		303		21		29,148
Total loans	$	1,070,641	$	432,486	$	285,973	$	686,010	$	12,019	$	2,487,129

March 31, 2020
Non PCI Loans: Commercial
Real Estate Consumer
Real Estate Construction
and Land
Development Commercial
and
Industrial Consumer
and Other Total
Pass $ 903,306 $ 468,494 $ 238,701 $ 368,506 $ 16,423 $ 1,995,430
Watch 81,277 5,697 7,587 7,233 38 101,832
Special mention 7,225 748 — 1,020 — 8,993
Substandard 638 1,722 678 221 56 3,315
Doubtful — 162 — 50 24 236
Total 992,446 476,823 246,966 377,030 16,541 2,109,806

PCI Loans:
Pass 13,220 8,122 2,169 48 300 23,859
Watch 2,189 743 3,743 — 14 6,689
Special mention 21 59 — — — 80
Substandard 1,159 3,026 567 95 11 4,858
Doubtful — — — — — —
Total 16,589 11,950 6,479 143 325 35,486
Total loans $ 1,009,035 $ 488,773 $ 253,445 $ 377,173 $ 16,866 $ 2,145,292

December 31, 2019
Non PCI Loans: Commercial
Real Estate Consumer
Real Estate Construction
and Land
Development Commercial
and
Industrial Consumer
and Other Total
Pass $ 860,447 $ 413,192 $ 216,459 $ 328,564 $ 9,462 $ 1,828,124
Watch 25,180 989 6,089 6,786 40 39,084
Special mention 4,057 738 — 1,033 — 5,828
Substandard 367 1,713 620 228 51 2,979
Doubtful — 165 — 57 24 246
Total 890,051 416,797 223,168 336,668 9,577 1,876,261

PCI Loans:
Pass 12,473 5,258 902 41 300 18,974
Watch 2,234 38 3,556 — 13 5,841
Special mention 139 60 — — — 199
Substandard 409 1,185 — 366 13 1,973
Doubtful — — — — — —
Total 15,255 6,541 4,458 407 326 26,987
Total loans $ 905,306 $ 423,338 $ 227,626 $ 337,075 $ 9,903 $ 1,903,248

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


	December 31, 2020
					Construction		Commercial
	Commercial		Consumer		and Land		and		Consumer
Non PCI Loans:	Real Estate		Real Estate		Development		Industrial		and Other		Total
Pass	$	922,153	$	417,302	$	269,350	$	625,836	$	12,622	$	2,247,263
Watch		66,287		14,218		3,296		7,673		137		91,611
Special mention		4,446		46		—		320		—		4,812
Substandard		3,967		2,020		81		261		30		6,359
Doubtful		—		86		—		48		—		134
Total		996,853		433,672		272,727		634,138		12,789		2,350,179

PCI Loans:
Pass		11,072		8,382		1,008		262		25		20,749
Watch		3,381		224		3,820		—		2		7,427
Special mention		19		57		—		—		—		76
Substandard		1,651		1,595		520		46		—		3,812
Doubtful		—		—		—		—		—		—
Total		16,123		10,258		5,348		308		27		32,064
Total loans	$	1,012,976	$	443,930	$	278,075	$	634,446	$	12,816	$	2,382,243

Past Due Loans:

A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. Generally, management places a loan on nonaccrual when there is a clear indicator that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due.

The following tables present an aging analysis of our loan portfolio (in thousands):


	March 31, 2021
	30-60 Days		61-89 Days		Past Due 90				Total
	Past Due and		Past Due and		Days��or More				Past Due and		PCI		Current		Total
	Accruing		Accruing		and Accruing		Nonaccrual		Nonaccrual		Loans		Loans		Loans
Commercial real estate	$	565	$	—	$	1,495	$	3,155	$	5,215	$	13,877	$	1,051,549	$	1,070,641
Consumer real estate		968		1,336		—		1,481		3,785		9,597		419,104		432,486
Construction and land development		643		—		—		11		654		5,350		279,969		285,973
Commercial and industrial		666		12		—		60		738		303		684,969		686,010
Consumer and other		3		—		—		32		35		21		11,963		12,019
Total	$	2,845	$	1,348	$	1,495	$	4,739	$	10,427	$	29,148	$	2,447,554	$	2,487,129


	December 31, 2020
	30-60 Days		61-89 Days		Past Due 90				Total
	Past Due and		Past Due and		Days or More				Past Due and		PCI		Current		Total
	Accruing		Accruing		and Accruing		Nonaccrual		Nonaccrual		Loans		Loans		Loans
Commercial real estate	$	134	$	—	$	67	$	3,740	$	3,941	$	16,123	$	992,912	$	1,012,976
Consumer real estate		1,916		51		82		1,823		3,872		10,258		429,800		443,930
Construction and land development		245		—		—		12		257		5,348		272,470		278,075
Commercial and industrial		12		76		—		36		124		308		634,014		634,446
Consumer and other		14		5		—		22		41		27		12,748		12,816
Total	$	2,321	$	132	$	149	$	5,633	$	8,235	$	32,064	$	2,341,944	$	2,382,243

March 31, 2020
30-60 Days
Past Due and
Accruing 61-89 Days
Past Due and
Accruing Past Due 90
Days or More
and Accruing Nonaccrual Total
Past Due
and Nonaccrual PCI Loans Current
Loans Total
Loans
Commercial real estate $ 4,305 $ 418 $ — $ 397 $ 5,120 $ 16,589 $ 987,326 $ 1,009,035
Consumer real estate 4,029 486 — 1,860 6,375 11,950 470,448 488,773
Construction and land development 564 40 — 679 1,283 6,479 245,683 253,445
Commercial and industrial 665 302 — 48 1,015 143 376,015 377,173
Consumer and other 373 6 10 76 465 325 16,076 16,866
Total $ 9,936 $ 1,252 $ 10 $ 3,060 $ 14,258 $ 35,486 $ 2,095,548 $ 2,145,292

December 31, 2019
30-60 Days
Past Due and
Accruing 61-89 Days
Past Due and
Accruing Past Due 90
Days or More
and Accruing Nonaccrual Total
Past Due
and Nonaccrual PCI
Loans Current
Loans Total
Loans
Commercial real estate $ 466 $ 22 $ — $ 124 $ 612 $ 15,255 $ 889,439 $ 905,306
Consumer real estate 1,564 30 — 1,872 3,466 6,541 413,331 423,338
Construction and land development 507 — 607 620 1,734 4,458 221,434 227,626
Commercial and industrial 559 53 — 57 669 407 335,999 337,075
Consumer and other 86 14 — 70 170 326 9,407 9,903
Total $ 3,182 $ 119 $ 607 $ 2,743 $ 6,651 $ 26,987 $ 1,869,610 $ 1,903,248

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following is an analysis of the impaired loan portfolio, including PCI loans, detailing the related allowance recorded (in thousands):


	March 31, 2021						December 31, 2020
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
Impaired loans without a valuation allowance:
Commercial real estate	$	130	$	130	$	—	$	3,871	$	3,872	$	—
Consumer real estate		1,880		1,882		—		888		888		—
Construction and land development		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—
Consumer and other		—		—		—		—		—		—
		2,010		2,012		—		4,759		4,760		—

Impaired loans with a valuation allowance:
Commercial real estate		3,155		3,155		251		—		—		—
Consumer real estate		459		462		132		428		428		116
Construction and land development		—		—		—		—		—		—
Commercial and industrial		109		109		109		146		146		121
Consumer and other		—		—		—		—		—		—
		3,723		3,726		492		574		574		237
PCI loans:
Commercial real estate		—		—		—		—		—		—
Consumer real estate		1,210		1,347		158		1,827		2,086		88
Construction and land development		—		—		—		—		—		—
Commercial and industrial		266		233		216		270		234		218
Consumer and other		17		16		2		21		20		3
		1,493		1,596		376		2,118		2,340		309
Total impaired loans	$	7,226	$	7,334	$	868	$	7,451	$	7,674	$	546


	Three Months Ended March 31,
	2021				2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans without a valuation allowance:
Commercial real estate	$	2,001	$	1	$	196	$	3
Consumer real estate		1,384		12		550		4
Construction and land development		—		—		577		—
Commercial and industrial		—		—		—		—
Consumer and other		—		—		—		—
		3,385		13		1,323		7
Impaired loans with a valuation allowance:
Commercial real estate		1,577		102		198		2
Consumer real estate		444		5		984		9
Construction and land development		—		—		—		—
Commercial and industrial		128		2		159		2
Consumer and other		—		—		—		—
		2,149		109		1,341		13
PCI loans:
Commercial real estate		—		—		964		1
Consumer real estate		1,215		22		456		1
Construction and land development		—		—		231		—
Commercial and industrial		268		1		355		—
Consumer real estate		19		—		11		—
		1,502		23		2,017		2

Total impaired loans	$	7,036	$	145	$	4,681	$	22

March 31, 2020 December 31, 2019
Recorded
Investment Unpaid
Principal
Balance Related
Allowance Recorded
Investment Unpaid
Principal
Balance Related
Allowance
Impaired loans without a valuation allowance:
Commercial real estate $ 136 $ 136 $ — $ 256 $ 261 $ —
Consumer real estate 546 546 — 553 553 —
Construction and land development 607 607 — 547 547 —
Commercial and industrial — — — — — —
Consumer and other — — — — — —
1,289 1,289 — 1,356 1,361 —
Impaired loans with a valuation allowance:
Commercial real estate 396 402 46 — — —
Consumer real estate 974 974 379 994 994 343
Construction and land development — — — — — —
Commercial and industrial 158 158 130 160 160 132
Consumer and other — — — — — —
1,528 1,534 555 1,154 1,154 475
PCI loans:
Commercial real estate 1,010 1,019 — 17 99 17
Consumer real estate 486 491 — 1,205 1,371 74
Construction and land development 253 254 — — — —
Commercial and industrial 376 378 — 396 534 59
Consumer and other 14 14 — 45 51 6
2,139 2,156 — 1,663 2,055 156
Total impaired loans $ 4,956 $ 4,979 $ 555 $ 4,173 $ 4,570 $ 631

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Three Months Ended March 31,
2020 2019
Average
Recorded
Investment Interest
Income
Recognized Average
Recorded
Investment Interest
Income
Recognized
Impaired loans without a valuation allowance:
Commercial real estate $ 196 $ 3 $ 613 $ 20
Consumer real estate 550 4 967 4
Construction and land development 577 — 573 —
Commercial and industrial — — 50 1
Consumer and other — — 28 1
1,323 7 2,231 26
Impaired loans with a valuation allowance:
Commercial real estate 198 2 24 1
Consumer real estate 984 9 99 —
Construction and land development — — 28 —
Commercial and industrial 159 2 644 9
Consumer and other — — 57 —
1,341 13 852 10
PCI loans:
Commercial real estate 964 1 845 (10)
Consumer real estate 456 1 367 3
Construction and land development 231 — — —
Commercial and industrial 355 — — —
Consumer real estate 11 — — —
2,017 2 1,212 (7)
Total impaired loans $ 4,681 $ 22 $ 4,295 $ 29

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Troubled Debt Restructurings:

The Company began offering short-term loan modifications to assist borrowers during the COVID-19 national emergency. The Coronavirus Aid Relief and Economic Security (“CARES”) Act along with a joint agency statement issued by banking agencies, provides that short-term modifications made in response to COVID-19 does not need to be accounted for as a TDR. Accordingly, the Company does not account for such loan modifications as TDRs. See Note 1 Presentation of Financial Information for more information. At March 31, 2021, the Company had 10 loans remaining under COVID-19 modifications that amounted to $1.7 million, or 0.07% of the total loans outstanding.

Foreclosure Proceedings and Balances:

As of March 31, ~~2020,~~2021, there ~~were 7 properties~~was 0 residential property secured by real estate included in other real estate owned and there were ~~no consumer mortgage loans collateralized by~~3 residential real estate ~~property that were~~loans totaling $448 thousand in the process of foreclosure.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Purchased Credit Impaired Loans:

The Company has acquired loans where there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans are as follows (in thousands):


	March 31,		December 31,
	2021		2020
Commercial real estate	$	21,221	$	23,787
Consumer real estate		12,011		12,692
Construction and land development		968		1,812
Commercial and industrial		6,463		6,521
Consumer and other		122		161
Total loans		40,785		44,973
Less: Remaining purchase discount		(11,637)		(12,909)
Total loans, net of purchase discount		29,148		32,064
Less: Allowance for loan losses		(376)		(309)
Carrying amount, net of allowance	$	28,772	$	31,755

March 31, December 31,
2020 2019
Commercial real estate $ 24,557 $ 21,570
Consumer real estate 14,703 8,411
Construction and land development 2,321 5,394
Commercial and industrial 7,806 2,540
Consumer and other 486 504
  Total loans 49,873 38,419
Less: Remaining purchase discount (14,387) (11,432)
  Total loans, net of purchase discount 35,486 26,987
Less: Allowance for loan losses — (156)
  Carrying amount, net of allowance $ 35,486 $ 26,831

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Activity related to the accretable yield on loans acquired with deteriorated credit quality is as follows (in thousands):


	Three Months Ended
	March 31,
	2021		2020
Accretable yield, beginning of period	$	16,889	$	8,454
Additions		—		2,515
Accretion income		(1,931)		(2,077)
Reclassification		337		1,916
Other changes, net		(590)		171
Accretable yield, end of period	$	14,705	$	10,979

Three Months Ended
March 31,
2020 2019
Accretable yield, beginning of period $ 8,454 $ 7,052
Additions 2,515 —
Accretion income (2,077) (1,254)
Reclassification 1,916 1,035
Other changes, net 171 1,811
Accretable yield, end of period $ 10,979 $ 8,644

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Note 6. Goodwill and Intangible Assets

In accordance with FASB ASC 350, Goodwill and Other, regarding testing goodwill for impairment provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company performs its annual goodwill impairment test as of December 31 of each ~~year and~~year. Considering the recent economic conditions resulting from the COVID-19 pandemic the Company performed a Step 1 goodwill impairment test (which compares the fair value of a reporting unit with its carrying amount, including goodwill) at December 31, ~~2019,~~2020, the results ~~of the qualitative assessment provided no indication of potential~~indicated that there was 0 impairment. Goodwill will continue to be monitored for triggering events that may indicate impairment prior to the next scheduled annual impairment test. As of March 31, 2020 the Company was closely monitoring the effects of COVID-19 on the economy and considered this a triggering event and performed an interim goodwill impairment analysis. The results was no impairment charge for the period. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes.

The ~~Company's~~Company’s other intangible assets consist of core deposit intangibles, insurance agency customer relationships and isinsurance agency tradename. They are initially recognized based on a valuation performed as of the consummation date. The core deposit intangible is amortized over the average remaining life of the acquired customer ~~deposits.~~deposits, the insurance agency customer relationships are amortized over ten years and the insurance agency tradename is amortized over five years.

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The carrying amount of goodwill and other intangible assets as of the dates indicated is summarized below (in thousands):


	March 31,		December 31,
	2021		2020
Goodwill:
Balance, beginning of period	$	74,135	$	65,614
Acquisition of PFG		323		8,521
Balance, end of the period	$	74,458	$	74,135

March 31, 2020 December 31, 2019
Goodwill:
  Balance, beginning of period $ 65,614 $ 66,087
  Adjustment to values initially recorded for Acquisition of Foothills Bancorp, Inc. — (473)
  Acquisition of PFG 8,302 —
  Balance, end of the period $ 73,916 $ 65,614

March 31, 2020 December 31, 2019
Core deposit intangible:
  Balance, beginning of period $ 14,549 $ 14,549
  Acquisition of PFG 1,370 —
    Balance, gross core deposit intangible 15,919 14,549
  Less: accumulated amortization (3,332) (2,970)
    Net core deposit intangible, net $ 12,587 $ 11,579


	Core Deposit		Insurance Agency		Insurance Agency
Amortized other intangible assets:	Intangibles		Customer Relationships		Tradename		Total
Beginning balance January 1, 2021, gross	$	15,920	$	1,064	$	63	$	17,047
Less: accumulated amortization		(4,935)		(206)		(14)		(5,155)
Balance, March 31, 2021, other intangible assets, net	$	10,985	$	858	$	49	$	11,892

Beginning balance January 1, 2020	$	14,550	$	-	$	-	$	14,550
Acquisition of PFG		1,370		1,064		63		2,497
Balance, December 31, 2020, other intangible assets, gross		15,920		1,064		63		17,047
Less: accumulated amortization		(4,540)		(161)		(10)		(4,711)
Balance, December 31, 2020, other intangible assets, net	$	11,380	$	903	$	53	$	12,336

The aggregate amortization of core deposit intangibles expense for the three month periods ended March 31, 2021 and 2020, was $397 thousand and ~~2019, was~~ $362 thousand, ~~and $344 thousand,~~ respectively.

The estimated aggregate amortization expense for future periods for core deposit intangibles is as follows (in thousands):


Remainder of 2021	$	1,316
2022		1,697
2023		1,636
2024		1,588
2025		1,531
Thereafter		4,124
Total	$	11,892

Remainder of 2020 $ 1,207
2021 1,570
2022 1,526
2023 1,485
2024 1,456
Thereafter 5,343
Total $ 12,587

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Note 7. Borrowings and Line of Credit

~~FHLB:~~

The Bank has agreements with the Federal Home Loan Bank of Cincinnati ("FHLB") that can provide additional advances to the Bank in an amount up to $52.0 million. All of the loans are secured by first mortgages on 1-4 family residential, multi-family properties and commercial properties and are pledged as collateral for these advances. There were 0 securities pledged to FHLB at

Borrowings:

At March 31, ~~2020, or~~2021, total borrowings were $82.6 million compared to $81.2 million at December 31, ~~2019.~~

~~FHLB advances~~2020. Borrowings consist of the following (dollars in thousands):


	March 31,		December 31,
	2021		2020
Securities sold under customer repurchase agreements	$	7,250	$	5,803
FHLB borrowings		75,000		75,000
Other borrowings		392		396
Total	$	82,642	$	81,199

March 31, 2020 December 31, 2019
Long-term advance dated September 10, 2019, requiring monthly interest payments, fixed at 0.93%, with a put option exercisable on September 10, 2020 and then quarterly thereafter, principal due in September 2029.¹
$ 25,000 $ 25,000
Long-term advance dated February 28, 2020, requiring monthly interest payments, fixed at 0.46%, with a put option exercisable on February, 26, 2021 and then quarterly thereafter, principal due in February 2030.¹
50,000 —
Total $ 75,000 $ 25,000
¹On agreements with put options, the FHLB has the right, at its discretion, to terminate the entire advance prior to the stated maturity date. The termination option may only be exercised on the expiration date of the predetermined lockout period and on a quarterly basis thereafter.

~~Federal Reserve~~

Securities Sold Under Agreements to Repurchase:

At March 31, 2021 and December 31, 2020, the Company had securities sold under agreements to repurchase of ~~Atlanta Discount Window:~~

~~The Bank has agreements~~$7.3 million and $5.8 million, respectively, with ~~the Federal Reserve Bank of Atlanta Discount Window ("FRB") that can provide additional advances to the Bank in an amount up to $50.0 million. All of the loans are~~commercial checking customers which were secured by ~~commercial loans, first mortgages~~government agency securities. The carrying value of ~~farmland properties and commercial construction properties and are~~investment securities pledged as collateral ~~for these advances There were 0 securities pledged to the FRB~~under repurchase agreements was $6.8 million and $7.6 million at March 31, ~~2020. The Company did 0t have any borrowings from the FRB at December 31, 2019.~~

~~FRB advances consist of the following~~ ~~(dollars in thousands)~~:


	~~March 31, 2020~~
~~FRB advance dated March 27, 2020, fixed at 0.25%, with principal due in June 25, 2020~~	$	~~50,000~~

~~Other borrowings:~~

On May 1, 2018, the Company entered into a loan agreement in the amount of $500 thousand at a rate of 4.75% with semi-annual payments of principal plus accrued interest over an amortization period of ten years. The outstanding principal balance of the borrowing at March 31, 2020,2021 and December 31, ~~2019, was $439 thousand, with a maturity on April 30, 2028.~~2020, respectively.

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Line of Credit:

~~During the first quarter of 2020, the~~

The Company ~~entered into~~has a Loan and Security Agreement and revolving note with ServisFirst Bank, pursuant to which ServisFirst Bank has made a $25.0 million revolving line of credit available to the Company. The maturity of the line of credit is September 24, 2021. At March 31, ~~2020,~~2021, there was 0 outstanding balance under the line of credit, and the entire amount of the line of credit remained available to the Company.

The Loan and Security Agreement requires the Company to comply with certain covenants including those related to asset quality, capital levels, and incurring new indebtedness above certain amounts. The Company was in compliance with all covenants associated with this line of credit at March 31, 2020.

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~Scheduled maturities~~:

~~At March 31, 2020, scheduled maturities of the FHLB advances, FRB advance and other borrowings are as follows~~ ~~(dollars in thousands)~~:

Remainder of 2020 $ 50,043
2021 45
2022 47
2023 50
2024 52
Thereafter 75,202
Total $ 125,439

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Note 8. Employee Benefit Plans

401(k) Plan:

The Company provides a deferred salary reduction plan (“~~Plan~~”Plan”) under Section 401(k) of the Internal Revenue Code covering substantially all employees. After ~~one year~~90 days of service the Company matches 100% of employee contributions up to 3% of compensation and 50% of employee contributions on the next 2% of compensation. The ~~Company's~~Company’s contribution to the Plan for the three month ~~period~~periods ending March 31, ~~2020,~~2021 and ~~2019,~~2020, respectively, was ~~$251~~$288 thousand and ~~$198~~$251 thousand.

Equity Incentive Plans:

The Compensation Committee of the Company’s Board of Directors may grant or award eligible participants stock options, restricted stock, restricted stock units, stock appreciation rights, and other stock-based awards or any combination of awards (collectively referred to herein as "Rights"). At March 31, ~~2020,~~2021, the Company had 1 active equity incentive plan ~~administered by the Board of Directors, the 2015 Stock Incentive Plan. The Company had 32,034 Rights issued and 1,883,107 Rights~~ available for future grants, ~~or awards under this plan.~~

~~In addition to~~ the 2015 Stock Incentive Plan, which had 21,886 rights issued and 1,834,427 Rights available for future grants or awards.

In addition, the Company has ~~38,250~~19,250 Rights issued from the Cornerstone Bancshares, Inc. 2002 Long Term Incentive Plan, ~~49,250~~40,250 Rights issued from the Cornerstone Non-Qualified Plan Options, and 2,266 Rights issued from the Capstone Stock Option Plan.These plans do not have any Rights available for future grants or awards.

Stock Options:

A summary of the status of stock option plans is presented in the following table:


		Weighted
		Average
		Exercisable
	Number	Price
Outstanding at December 31, 2020	99,617	$	10.19
Granted	—		—
Exercised	(15,965)		9.24
Forfeited	—		—
Outstanding at March 31, 2021	83,652	$	10.37

Number Weighted
Average
Exercisable
Price
Outstanding at December 31, 2019 136,658 $ 10.29
Granted — —
Exercised (14,858) 11.62
Forfeited — —
Outstanding at March 31, 2020 121,800 $ 10.13

~~Information pertaining to stock options outstanding at March 31, 2020, is as follows:~~

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Options Outstanding Options Exercisable
Weighted-
Average
Remaining Weighted-
Average Weighted-
Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$ 6.60 25,000 1.6 years $ 6.60 25,000 $ 6.60
6.80 13,250 0.9 years 6.80 13,250 6.80
9.48 21,000 2.7 years 9.48 21,000 9.48
9.60 28,250 3.2 years 9.60 28,250 9.60
11.76 2,266 2.2 years 11.76 2,266 11.76
$ 15.05 32,034 5.0 years 15.05 32,034 15.05
Outstanding, end of period 121,800 3.0 years $ 10.13 121,800 $ 10.13

The Company did 0tnot recognize any stock option-based compensation expense during the three months ended March 31, 2021 and 2020, respectively, as all stock options issued are fully vested. ~~During the three month period ended~~

Information pertaining to stock options outstanding at March 31, ~~2019, stock option-based compensation expense was $31 thousand.~~

2021, is as follows:


		Options Outstanding				Options Exercisable
			Weighted-
			Average	Weighted-			Weighted-
			Remaining	Average			Average
Exercise		Number	Contractual	Exercise		Number	Exercise
Prices		Outstanding	Life	Price		Exercisable	Price
$	6.60	19,250	0.95 years	$	6.60	19,250	$	6.60
	9.48	18,000	1.95 years		9.48	18,000		9.48
	9.60	22,250	2.75 years		9.60	22,250		9.60
	11.76	2,266	1.25 years		11.76	2,266		11.76
	15.05	21,886	4.28 years		15.05	21,886		15.05
Outstanding, end of period		83,652	2.52 years	$	10.37	83,652	$	10.37

The intrinsic value of options exercised during the three month periods ended March 31, 2021 and 2020, ~~and 2019~~ was ~~$65~~$192 thousand and ~~$81~~$65 thousand, respectively. The aggregate intrinsic value of total options outstanding and exercisable options at March 31,

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~2020,~~ 2021, was ~~$618~~$944 thousand. Cash received from options exercised under all share-based payment arrangements for the three month period ended March 31, ~~2020~~2021 was ~~$173~~$147 thousand.

NaN ~~shares~~options vested during the periods ended March 31, ~~2020,~~2021, and ~~2019,~~2020, respectively. The income tax expense/benefit recognized for the exercise of options ~~for~~during the ~~periods~~three months ended March 31, 2021 and 2020, was a benefit of $1 thousand and ~~2019, was~~ $23 thousand, ~~and $22 thousand,~~ respectively.

As of March 31, ~~2020,~~2021, all options ~~are~~were fully vested and currently no0 future compensation cost will be recognized related to nonvested stock-based compensation arrangements granted under the Plans.

~~Stock Appreciation Rights ("SARs"):~~

~~A summary of the status of SARs plans is presented in the following table:~~

Number Weighted
Average
Exercisable
Price
Outstanding at December 31, 2019 67,000 $ 20.54
Granted 18,000 15.19
Exercised — —
Forfeited — —
Outstanding at March 31, 2020 85,000 $ 19.40

~~Information pertaining to SARs outstanding at March 31, 2020, is as follows:~~

SARs Outstanding SARs Exercisable
Weighted- Average Remaining Weighted- Average Weighted- Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$ 15.19 18,000 3.8 years $ 15.19 — $ —
18.12 21,000 2.8 years 18.12 — —
21.61 34,000 1.8 years 21.61 — —
$ 21.72 12,000 0.8 years 21.72 12,000 21.72
Outstanding, end of period 85,000 2.3 years $ 19.40 12,000 $ 21.72

SARs compensation expense of ($118) thousand and $21 thousand was recognized for the period ended March 31, 2020 and 2019, respectively. The credit in expense for the period ended March 31, 2020, was due to adjustments related to the current fair value evaluation of SARs.

~~Other stock based awards:~~

Direct stock grants of 3,298 shares were issued to local advisory board members during the three month period ended March 31, 2019. The expense for these grants was $65 thousand and was included in salary and benefit expense for the period ended March 31, 2019. There were 0 direct stock grants issued for the period ended March 31, 2020.

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Restricted Stock Awards:

A summary of the activity of the ~~Company's~~Company’s unvested restricted stock awards for the period ended March 31, ~~2020~~2021 is presented below:

Number Weighted Average Grant-Date Fair Value
Balance at December 31, 2019 65,400 $ 21.04
Granted 37,400 16.20
Vested (4,500) 18.12
Forfeited/expired (1,500) 18.12
Balance at March 31, 2020 96,800 $ 19.35


		Weighted
		Average
		Grant-Date
	Number	Fair Value
Balance at December 31, 2020	100,218	$	19.07
Granted	48,967		20.08
Vested	(3,918)		22.44
Forfeited/expired	—		—
Balance at March 31, 2021	145,267	$	19.32

The Company measures the fair value of restricted ~~shares~~stock awards based on the price of the Company’s common stock on the grant date, and compensation expense is recorded over the vesting period. ~~For~~The compensation expense for restricted stock awards during the three months ended March 31, 2021 and 2020, was $201 thousand and ~~2019, compensation expense was~~ $110 thousand, ~~and $112 thousand, respectively, for restricted stock awards.~~respectively. As of March 31, ~~2020,~~2021, there was ~~$1.3~~$1.8 million, respectively, of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan. The cost is expected to be recognized over a weighted average period of ~~3.59~~3.19 years. The grant-date fair value of restricted stock ~~grants~~awards vested was ~~$82~~$88 thousand for the period ended March 31, ~~2020. NaN restricted stock vested during the period ended March 31, 2019.~~2021.

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Stock Appreciation Rights ("SARs"):

A summary of the status of SARs plans is presented in the following table:


		Weighted
		Average
	Number	Exercisable Price
Outstanding at December 31, 2020	73,000	$	19.02
Granted	22,000		20.70
Exercised	—		—
Forfeited	—		—
Outstanding at March 31, 2021	95,000	$	19.41

Information pertaining to SARs outstanding at March 31, 2021, is as follows:


		SARs Outstanding				SARs Exercisable
			Weighted-
			Average	Weighted-
			Remaining	Average			Weighted- Average
Exercise		Number	Contractual	Exercise		Number	Exercise
Prices		Outstanding	Life		Price	Exercisable	Price
$	15.19	18,000	2.75 years	$	15.19	—	$	—
	18.12	21,000	1.75 years		18.12	—		—
	20.70	22,000	3.76 years		20.70	—		—
	21.61	34,000	0.75 years		21.61	34,000		21.61
	Outstanding, end of period	95,000	2.05 years	$	19.41	34,000	$	21.61

SARs compensation expense of $49 thousand and ($118) thousand was recognized for the three month periods ended March 31, 2021 and 2020, respectively. The credit in expense for the three month period ended March 31, 2020, was due to adjustments related to the fair value evaluation of SARs.

Note 9. Commitments and Contingent Liabilities

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing and depository needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized on the balance sheet. The majority of all commitments to extend credit are variable rate instruments while the standby letters of credit are primarily fixed rate instruments. The ~~Company's~~Company’s exposure to credit loss is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.

A summary of the Company’s total contractual amount for all off-balance sheet commitments are as follows (in thousands):

March 31, December 31,
2020 2019
Commitments to extend credit $ 419,287 $ 384,411
Standby letters of credit 22,994 11,727


	March 31,		December 31,
	2021		2020
Commitments to extend credit	$	542,825	$	476,841
Standby letters of credit		6,920		5,261

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established

in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

necessary by the Company upon extension of credit, is based on ~~management's~~management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate, and income-producing commercial properties.

Standby letters of credit issued by the Company are conditional commitments to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral held varies and is required in instances which the Company deems necessary. At March 31, ~~2020~~2021, and December 31, ~~2019,~~2020, the carrying amount of liabilities related to the ~~Company's~~Company’s obligation to perform under standby letters of credit was insignificant.

The Company is subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. Management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against the Company will be material to the ~~Company's~~Company’s consolidated financial position. On an on-going basis, the Company assesses any potential liabilities or contingencies in connection with such legal proceedings. For those matters where it is deemed probable that the Company will incur losses and the amount of the losses can be reasonably estimated, the Company would record an expense and corresponding liability in its consolidated financial statements.

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Note 10. Fair Value Disclosures

Determination of Fair Value:

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the “Fair Value Measurements and Disclosures” ASC Topic 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

ASC Topic 820 provides a consistent definition of fair value, which focuses on exit price in an orderly transaction between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact business at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy:

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 - Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted

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prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

A financial ~~instrument's~~instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Measurements of Fair Value:

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis are as follows (in thousands):


			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
Description	Fair Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2021:
Assets:
Securities available-for-sale:
U.S. Government-sponsored enterprises (GSEs)	$	72,257	$	—	$	72,257	$	—
Municipal securities		90,129		—		90,129		—
Other debt securities		26,055		—		26,055		—
Mortgage-backed securities (GSEs)		62,496		—		62,496		—
Total securities available-for-sale	$	250,937	$	—	$	250,937	$	—

Liabilities:
Derivative financial instruments	$	4,008	$	—	$	4,008	$	—

December 31, 2020:
Assets:
Securities available-for-sale:
U.S. Government-sponsored enterprises (GSEs)	$	30,530	$	—	$	30,530	$	—
Municipal securities		91,989		—		91,989		—
Other debt securities		25,118		—		25,118		—
Mortgage-backed securities (GSEs)		67,997		—		67,997		—
Total securities available-for-sale	$	215,634	$	—	$	215,634	$	—

Liabilities:
Derivative financial instruments	$	6,174		—	$	6,174		—

Description Fair Value Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Other
Unobservable
Inputs
(Level 3)
March 31, 2020:
Assets:
Securities available-for-sale:
U.S. Government-sponsored enterprises (GSEs) $ 17,045 $ — $ 17,045 $ —
Municipal securities 83,317 — 83,317 —
Other debt securities 5,462 — 5,462 —
Mortgage-backed securities (GSEs) 95,178 — 95,178 —
Total securities available-for-sale $ 201,002 $ — $ 201,002 $ —
Liabilities:
Derivative financial instruments $ 6,885 $ — $ 6,885 $ —

December 31, 2019:
Assets:
Securities available-for-sale:
U.S. Government-sponsored enterprises (GSEs) $ 19,000 $ — $ 19,000 $ —
Municipal securities 64,391 — 64,391 —
Other debt securities 3,470 — 3,470 —
Mortgage-backed securities (GSEs) 91,487 — 91,487 —
Total securities available-for-sale $ 178,348 $ — $ 178,348 $ —
Liabilities:
Derivative financial instruments $ 3,446 — $ 3,446 —

During the ~~periods presented,~~three month period ending March 31, 2021, there were no 0 transfers between Level 1 and Level 2 in the fair value hierarchy.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Assets Measured at Fair Value on a Nonrecurring Basis:

Under certain circumstances management makes adjustments to fair value for assets and liabilities although they are not measured at fair value on an ongoing basis. The following tables present the financial instruments carried on the consolidated balance sheets by caption and by level in the fair value hierarchy, for which a nonrecurring change in fair value has been recorded (in thousands):


			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2021:
Impaired loans	$	4,348	$	—	$	—	$	4,348
Other real estate owned		3,946		—		—		3,946

December 31, 2020:
Impaired loans	$	2,455	$	—	$	—	$	2,455
Other real estate owned		4,619		—		—		4,619

Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3)
March 31, 2020:
Impaired loans $ 2,262 $ — $ — $ 2,262
Other real estate owned 5,894 — — 5,894
December 31, 2019:
Impaired loans $ 2,185 $ — $ — $ 2,185
Other real estate owned 1,757 — — 1,757

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

For Level 3 assets measured at fair value on a non-recurring basis, the significant unobservable inputs used in the fair value measurements are presented below (dollars in thousands):


					Weighted
			Valuation	Significant Other	Average of
	Fair Value		Technique	Unobservable Input	Input
March 31, 2021:
Impaired loans	$	4,348	Appraisal	Appraisal discounts	17	%
Other real estate owned		3,946	Appraisal	Appraisal discounts	27	%

December 31, 2020:
Impaired loans	$	2,455	Appraisal	Appraisal discounts	9	%
Other real estate owned		4,619	Appraisal	Appraisal discounts	22	%

Fair Value Valuation
Technique Significant Other
Unobservable Input Weighted
Average of Input
March 31, 2020:
Impaired loans $ 2,262 Appraisal and cashflow Appraisal and cashflow discounts 20 %
Other real estate owned 5,894 Appraisal Appraisal discounts 27 %
December 31, 2019:
Impaired loans $ 2,185 Appraisal Appraisal and cashflow discounts 22 %
Other real estate owned 1,757 Appraisal Appraisal discounts 29 %

Impaired loans: Loans considered impaired under ASC 310-10-35, Receivables, are loans for which, based on current information and events, it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. An impaired loan can be measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent. The fair value of impaired loans was measured based on the value of the collateral securing these loans or the discounted cash flows of the loans, as applicable. Impaired loans are classified within Level 3 of the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory, and/or accounts receivable. The Company determines the value of the collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised values are discounted for costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors discussed above.

Other real estate owned: Other real estate owned, consisting of properties obtained through foreclosure or in satisfaction of loans, are initially recorded at fair value less estimated costs to sell upon transfer of the loans to other real estate.

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Subsequently, other real estate is carried at the lower of carrying value or fair value less costs to sell. Fair values are generally based on third party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes further discounted based on management’s historical knowledge, and/or changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts are typically significant unobservable inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less estimated costs to sell, a loss is recognized in noninterest expense.

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Carrying value and estimated fair value:

The carrying amount and estimated fair value of the Company’s financial instruments are as follows (in thousands):


	Fair Value Measurements Using
	Carrying								Estimated
	Amount		Level 1		Level 2		Level 3		Fair Value
March 31, 2021:
Assets:
Cash and cash equivalents	$	556,701	$	556,701	$	—	$	—	$	556,701
Securities available-for-sale		250,937		—		250,937		—		250,937
Other investments		14,728		N/A		N/A		N/A		N/A
Loans, net and loans held for sale		2,476,629		—		—		2,477,120		2,477,120

Liabilities:
Noninterest-bearing demand deposits		777,968		—		777,968		—		777,968
Interest-bearing demand deposits		683,887		—		683,887		—		683,887
Money market and savings deposits		1,073,941		—		1,073,941		—		1,073,941
Time deposits		512,417		—		515,440		—		515,440
Borrowings		82,642		—		83,743		—		83,743
Subordinated debt		39,367		—		—		40,866		40,866
Derivative financial instruments		4,008		—		4,008		—		4,008

December 31, 2020:
Assets:
Cash and cash equivalents	$	481,719	$	481,719	$	—	$	—	$	481,719
Securities available-for-sale		215,634		—		215,634		—		215,634
Other investments		14,794		N/A		N/A		N/A		N/A
Loans, net and loans held for sale		2,375,618		—		—		2,377,581		2,377,581

Liabilities:
Noninterest-bearing demand deposits		685,957		—		685,957		—		685,957
Interest-bearing demand deposits		649,129		—		649,129		—		649,129
Money market and savings deposits		919,631		—		919,631		—		919,631
Time deposits		550,498		—		554,120		—		554,120
Borrowings		81,199		—		82,892		—		82,892
Subordinated debt		39,346		—		—		40,550		40,550
Derivative financial instruments		6,174		—		6,174		—		6,174

Fair Value Measurements Using
Carrying
Amount Level 1 Level 2 Level 3 Estimated
Fair Value
March 31, 2020:
Assets:
Cash and cash equivalents $ 309,089 $ 309,089 $ — $ — $ 309,089
Securities available-for-sale 201,002 — 201,002 — 201,002
Other investments 14,113 N/A N/A N/A N/A
Loans, net 2,131,861 — — 2,115,550 2,115,550
Liabilities:
Noninterest-bearing demand deposits 431,781 — 431,781 — 431,781
Interest-bearing demand deposits 444,141 — 444,141 — 444,141
Money market and savings deposits 730,392 — 730,392 — 730,392
Time deposits 735,616 — 739,277 — 739,277
Securities sold under agreements to repurchase 6,164 — 6,164 — 6,164
Federal Home Loan Bank advances and other borrowings 125,439 — 124,797 — 124,797
Subordinated debt 39,283 — — 34,379 34,379
Derivative financial instruments 6,885 — 6,885 — 6,885

December 31, 2019:
Assets:
Cash and cash equivalents $ 183,971 $ 183,971 $ — $ — $ 183,971
Securities available-for-sale 178,348 — 178,348 — 178,348
Other investments 12,913 N/A N/A N/A N/A
Loans, net 1,893,005 — — 1,879,825 1,879,825
Liabilities:
Noninterest-bearing demand deposits 364,155 — 364,155 — 364,155
Interest-bearing demand deposits 380,234 — 380,234 — 380,234
Money market and savings deposits 623,284 — 623,284 — 623,284
Time deposits 679,541 — 681,902 — 681,902
Securities sold under agreements to repurchase 6,184 — 6,184 — 6,184
Federal Home Loan Bank advances and other borrowings 25,439 — 24,845 — 24,845
Subordinated debt 39,261 — — 35,868 35,868
Derivative financial instruments 3,446 — 3,446 — 3,446

Limitations:

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Note 11.Derivatives

Financial derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative net investment hedge instrument as well as the offsetting gain or loss on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate tax-exempt callable securities available-for-sale. The hedging strategy on securities converts the fixed interest rates to LIBOR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities. The Company has elected early adoption of ASU 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities, which allows such partial term hedge designations.

A summary of the ~~Company's~~Company’s fair value hedge relationships for the periods presented are as follows (dollars in thousands):

Weighted

Average

Balance

Remaining

Weighted

Sheet

Maturity

Average

Receive

Notional

Estimated

Liability derivatives

Location

(In Years)

Pay Rate

Rate

Amount

Fair Value

March 31, 2021:

Interest rate swap agreements - securities

Other liabilities

6.18

3.09

3 month LIBOR

36,000

(4,008)

December 31, 2020:

Interest rate swap agreements - securities

Other liabilities

7.13

3.08

3 month LIBOR

36,000

(6,174)

Liability derivatives Balance Sheet Location Weighted Average Remaining Maturity (In Years) Weighted Average Pay Rate Receive Rate Notional Amount Estimated Fair Value
March 31, 2020:
Interest rate swap agreements - securities Other liabilities 7.95 3.09% 3 month LIBOR $ 36,000 $ (6,885)
December 31, 2019:
Interest rate swap agreements - securities Other liabilities 8.20 3.09% 3 month LIBOR $ 36,000 $ (3,446)

The effects of the ~~Company's~~Company’s fair value hedge relationships reported in interest income on tax-exempt available-for-sale securities on the consolidated income statement were as follows (in thousands):


	Three Months Ended
	March 31,
	2021		2020
Interest income on tax-exempt securities	$	564	$	440
Effects of fair value hedge relationships		(305)		(157)
Reported interest income on tax-exempt securities	$	259	$	283


	Three Months Ended
	March 31,
Gain (loss) on fair value hedging relationship	2021		2020
Interest rate swap agreements - securities:
Hedged items	$	(4,008)	$	(6,885)
Derivative designated as hedging instruments	$	4,008	$	6,885

Three Months Ended
March 31,
2020 2019
Interest income on tax-exempt securities $ 440 $ 456
Effects of fair value hedge relationships (157) (32)
   Reported interest income on tax-exempt securities $ 283 $ 424
Three Months Ended
March 31,
Gain (loss) on fair value hedging relationship 2020 2019
Interest rate swap agreements - securities:
    Hedged items $ 6,885 2,063
    Derivative designated as hedging instruments (6,885) (2,063)

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges (in thousands):


			Cumulative Amount of Fair
			Value Hedging Adjustment
	Carrying Amount		Included in Other Comprehensive
Line item on the balance sheet	of the Hedged Assets		Income
March 31, 2021:
Securities available-for-sale	$	43,073	$	250
December 31, 2020:
Securities available-for-sale	$	44,017	$	(1,063)

Line item on the balance sheet Carrying Amount of the Hedged Assets Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
March 31, 2020:
Securities available-for-sale $ 46,060 $ 6,885
December 31, 2019:
Securities available-for-sale $ 42,710 $ 3,446

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Note 12. Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 and all subsequent ASUs that modified this topic (collectively referred to as "Topic 842"). For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.

Substantially all of the leases in which the Company is the lessee are comprised of real estate for branches and office space with terms extending through 2034. All of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheet. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated balance sheet as a right-of-use (“ROU”) asset and a corresponding lease liability.

The following table represents the consolidated balance sheet classification of the Company’s ROU assets and lease liabilities. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated balance sheet (in thousands):


		March 31,		December 31,
	Classification	2021		2020
Assets:
Operating lease right-of-use assets	Other assets	$	4,588	$	4,797
Liabilities:
Operating lease liabilities	Other liabilities	$	4,625	$	4,827

March 31, December 31,
Classification 2020 2019
Assets:
Operating lease right-of-use assets Other assets $ 5,493 $ 5,470
Liabilities:
Operating lease liabilities Other liabilities $ 5,508 $ 5,479

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used.

As of March 31, ~~2020,~~2021, the weighted average remaining lease term was ~~11.17~~11.32 years and the weighted average discount rate was ~~2.78%~~2.73%.

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table represents lease costs and other lease information, in thousands. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance (in thousands).


	Three Months Ended
	March 31,
	2021		2020
Lease costs:
Operating lease costs	$	240	$	237
Variable lease costs		24		26
Total	$	264	$	263
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	233	$	230

Three Months Ended
March 31,
2020 2019
Lease costs:
  Operating lease costs $ 237 $ 146
  Short-term lease costs — 36
  Variable lease costs 26 23
    Total $ 263 $ 205
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
  Operating cash flows from operating leases $ 230 $ 139

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, ~~2020,~~2021, were as follows (in thousands):


	Amounts
March 31, 2022	$	571
March 31, 2023		623
March 31, 2024		485
March 31, 2025		366
March 31, 2026		348
Thereafter		3,032
Total future minimum lease payments		5,425
Amounts representing interest		(800)
Present value of net future minimum lease payments	$	4,625


	~~Amounts~~
~~March 31, 2021~~	$	~~729~~
~~March 31, 2022~~	~~846~~
~~March 31, 2023~~	~~668~~
~~March 31, 2024~~	~~463~~
~~March 31, 2025~~	~~366~~
~~Thereafter~~	~~3,381~~
~~Total future minimum lease payments~~	~~6,453~~
~~Amounts representing interest~~	~~(945)~~
~~Present value of net future minimum lease payments~~	$	~~5,508~~

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Note 13. Regulatory Matters

Regulatory Capital Requirements:

The final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective January 1, 2015. In order to avoid restrictions on capital distributions and discretionary bonus payments to executives, under the new rules a covered banking organization is also required to maintain a “capital conservation buffer” in addition to its minimum risk-based capital requirements. This buffer is required to consist solely of common equity Tier 1, and the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital). As of January 1, 2019, an additional amount of Tier 1 common equity equal to 2.5% of risk-weighted assets is required for compliance with the capital conservation buffer. The ratios for the Company and the Bank are ~~subject~~currently sufficient to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgements by regulators. Failure to meet capital requirements can initiate regulatory action. Under Basel III rules,satisfy the ~~Company must hold a capital~~fully phased-in conservation ~~buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is 2.50%.~~buffer. At March 31, ~~2020, and 2019,~~2021, the Company and the Bank exceeded the minimum regulatory requirements and exceeded the threshold for the "well capitalized" regulatory classification.

Regulatory Restrictions on Dividends:

Pursuant to Tennessee banking law, the Bank may not, without the prior consent of the Commissioner of the Tennessee Department of Financial Institutions ~~(TDFI)~~(the “TDFI”), pay any dividends to the Company in a calendar year in excess of the total of the ~~Bank's~~Bank’s retained net income for that year plus the retained net income for the preceding two years. Because this test involves a measure of net income, any charge on the Bank’s income statement, such as an impairment of goodwill, could impair the Bank’s ability to pay dividends to the Company. Under Tennessee corporate law, the Company is not permitted to pay dividends if, after giving effect to such payment, it would not be able to pay its debts as they become due

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

in the usual course of business or its total assets would be less than the sum of its total liabilities plus any amounts needed to satisfy any preferential rights if it were dissolving. In addition, in deciding whether or not to declare a dividend of any particular size, the ~~Company's~~Company’s board of directors must consider its and the ~~Bank's~~Bank’s current and prospective capital, liquidity, and other needs. In addition to state law limitations on the ~~Company's~~Company’s ability to pay dividends, the Federal Reserve imposes limitations on the ~~Company's~~Company’s ability to pay dividends. Federal Reserve regulations limit dividends, stock repurchases and discretionary bonuses to executive officers if the ~~Company's~~Company’s regulatory capital is below the level of regulatory minimums plus the applicable capital conservation buffer.

During the three months ended March 31, ~~2020,~~2021, the Bank paid ~~$7.5~~$5.0 million in dividends to the ~~Company. As of March 31, 2020,~~Company and the ~~Bank could pay approximately $52.0 million of additional dividends to the~~ Company ~~without prior approval of the Commissioner of the TDFI. Since the fourth quarter of 2019, the Company has~~ paid a quarterly common stock dividend of ~~$0.05~~$0.06 per share. The amount and timing of all future dividend payments by the Company, if any, is subject to discretion of the ~~Company's~~Company’s board of directors and will depend on the ~~Company's~~Company’s earnings, capital position, financial condition and other factors, including new regulatory capital requirements, as they become known to the Company.

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

Regulatory Capital Levels:

Actual and required capital levels at March 31, ~~2020,~~2021, and December 31, ~~2019~~2020 are presented below (dollars in thousands):


									Minimum to be
									well
									capitalized under
					Minimum for				prompt
					capital				corrective action
		Actual			adequacy purposes				provisions¹
	Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2021
SmartFinancial:
Total Capital (to Risk Weighted Assets)	$	337,484	13.62	%	$	198,250	8.00	%		N/A	N/A
Tier 1 Capital (to Risk Weighted Assets)		279,747	11.29	%		148,687	6.00	%		N/A	N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		279,747	11.29	%		111,515	4.50	%		N/A	N/A
Tier 1 Capital (to Average Assets)²		279,747	8.55	%		130,918	4.00	%		N/A	N/A

SmartBank:
Total Capital (to Risk Weighted Assets)	$	323,288	13.05	%	$	198,174	8.00	%	$	247,718	10.00	%
Tier 1 Capital (to Risk Weighted Assets)		304,918	12.31	%		148,631	6.00	%		198,174	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		304,918	12.31	%		111,473	4.50	%		161,017	6.50	%
Tier 1 Capital (to Average Assets)²		304,918	9.33	%		130,783	4.00	%		163,479	5.00	%

December 31, 2020
SmartFinancial:
Total Capital (to Risk Weighted Assets)	$	329,431	14.07	%	$	187,303	8.00	%		N/A	N/A
Tier 1 Capital (to Risk Weighted Assets)		271,739	11.61	%		140,477	6.00	%		N/A	N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		271,739	11.61	%		105,358	4.50	%		N/A	N/A
Tier 1 Capital (to Average Assets)		271,739	8.70	%		125,002	4.00	%		N/A	N/A

SmartBank:
Total Capital (to Risk Weighted Assets)	$	317,660	13.57	%	$	187,294	8.00	%	$	234,117	10.00	%
Tier 1 Capital (to Risk Weighted Assets)		299,314	12.78	%		140,470	6.00	%		187,294	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		299,314	12.78	%		105,353	4.50	%		152,176	6.50	%
Tier 1 Capital (to Average Assets)		299,314	9.58	%		124,969	4.00	%		156,212	5.00	%

Actual Minimum for capital adequacy purposes
Minimum to be well capitalized under prompt corrective action provisions¹
Amount Ratio Amount Ratio Amount Ratio
March 31, 2020
SmartFinancial:
Total Capital (to Risk Weighted Assets) $ 306,982 13.13 % $ 187,099 8.00 % N/A N/A
Tier 1 Capital (to Risk Weighted Assets) 254,268 10.87 % 140,324 6.00 % N/A N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets) 254,268 10.87 % 105,243 4.50 % N/A N/A
Tier 1 Capital (to Average Assets)²
254,268 10.28 % 98,934 4.00 % N/A N/A
SmartBank:
Total Capital (to Risk Weighted Assets) $ 295,105 12.62 % $ 187,077 8.00 % $ 233,847 10.00 %
Tier 1 Capital (to Risk Weighted Assets) 281,674 12.05 % 140,308 6.00 % 187,077 8.00 %
Common Equity Tier 1 Capital (to Risk Weighted Assets) 281,674 12.05 % 105,231 4.50 % 152,000 6.50 %
Tier 1 Capital (to Average Assets)²
281,674 11.42 % 98,636 4.00 % 123,295 5.00 %
December 31, 2019
SmartFinancial:
Total Capital (to Risk Weighted Assets) $ 287,937 14.02 % $ 164,313 8.00 % N/A N/A
Tier 1 Capital (to Risk Weighted Assets) 238,433 11.61 % 123,235 6.00 % N/A N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets) 238,433 11.61 % 92,426 4.50 % N/A N/A
Tier 1 Capital (to Average Assets) 238,433 10.34 % 92,258 4.00 % N/A N/A
SmartBank:
Total Capital (to Risk Weighted Assets) $ 273,432 13.31 % $ 164,305 8.00 % $ 205,382 10.00 %
Tier 1 Capital (to Risk Weighted Assets) 263,189 12.81 % 123,229 6.00 % 164,305 8.00 %
Common Equity Tier 1 Capital (to Risk Weighted Assets) 263,189 12.81 % 92,422 4.50 % 133,498 6.50 %
Tier 1 Capital (to Average Assets) 263,189 11.41 % 92,254 4.00 % 115,317 5.00 %

¹The prompt corrective action provisions are applicable at the Bank level only.

²Average assets for the above calculations were based on the most recent quarter.

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 14. Other Comprehensive ~~(loss) income.~~

Income (Loss)

The changes in each component of accumulated other comprehensive income (loss), net of tax, were as follows (in thousands):


	Three Months Ended March 31, 2021
					Accumulated
	Securities		Fair Value		Other
	Available-for-		Municipal		Comprehensive
	Sale		Security Hedges		Income (Loss)
Beginning balance, December 31, 2020	$	2,968	$	(785)	$	2,183

Other comprehensive income (loss)		(2,070)		970		(1,100)
Reclassification of amounts included in net income		—		—		—
Net other comprehensive income (loss) during period		(2,070)		970		(1,100)

Ending balance, March 31, 2021	$	898	$	185	$	1,083

	Three Months Ended March 31, 2020
					Accumulated
	Securities		Fair Value		Other
	Available-for-		Municipal		Comprehensive
	Sale		Security Hedges		Income (Loss)
Beginning balance, December 31, 2019	$	391	$	(223)	$	168

Other comprehensive income (loss)		851		(2,266)		(1,415)
Reclassification of amounts included in net income		—		—		—
Net other comprehensive income (loss) during period		851		(2,266)		(1,415)

Ending balance, March 31, 2020	$	1,242	$	(2,489)	$	(1,247)

Note 15. Subsequent Events

On April 14, 2021, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Sevier County Bancshares, Inc., a Tennessee corporation (“SCB”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, SCB will merge with and into the Company, with the Company continuing as the surviving entity (the "Merger"). Following the Merger, Sevier County Bank, a Tennessee state-chartered banking association and wholly-owned subsidiary of SCB, will merge with and into the Bank, with the Bank continuing as the surviving bank.

Subject to the terms, conditions and adjustments set forth in the Merger Agreement, at the effective time of the Merger, (i) each share of SCB common stock owned by a holder of 20,000 or more shares of SCB common stock will be converted into the right to receive 0.4116 of a share of SmartFinancial common stock (the “Per Share Stock Consideration”) and (ii) each share of SCB common stock owned by a holder of fewer than 20,000 shares of SCB common stock will, at the election of such holder, be entitled to receive either (A) the Per Share Stock Consideration, or (B) an amount of cash equal to the Per Share Stock Consideration multiplied by the average closing price of SmartFinancial common stock as reported on the NASDAQ for the 10 consecutive trading days ending on the trading day immediately prior to the date that is five business days prior to the closing date (the “Per Share Cash Consideration”). Further, if SCB’s consolidated shareholders’ equity (as calculated in accordance with the Merger Agreement) is less than $30,326,000, then the Per Share Stock Consideration and Per Share Cash Consideration shall automatically be adjusted downward by an amount that is reflective of the overall shortfall. Additionally, at the effective time of the Merger, each share of SCB common stock subject to vesting restrictions shall become fully vested and converted automatically into the right to receive the merger consideration. Based upon SmartFinancial’s closing share price of $21.25 on April 13, 2021 and assuming that SCB’s

Three Months Ended March 31, 2020
Securities Available-for-Sale Fair Value Municipal Security Hedges Accumulated Other Comprehensive Income (Loss)
Beginning balance, January 1, 2020 $ 391 $ (223) $ 168
Other comprehensive income (loss) 851 (2,266) (1,415)
Reclassification of amounts included in net income — — —
Net other comprehensive income (loss) during period 851 (2,266) (1,415)
Ending balance, March 31, 2020 $ 1,242 $ (2,489) $ (1,247)
Three Months Ended March 31, 2019
Securities Available-for-Sale Fair Value Municipal Security Hedges Accumulated Other Comprehensive Income (Loss)
Beginning balance, January 1, 2019 $ (1,979) $ (786) $ (2,765)
Other comprehensive income (loss) 2,103 228 2,331
Reclassification of amounts included in net income — — —
Net other comprehensive income (loss) during period 2,103 228 2,331
Ending balance, March 31, 2019 $ 124 $ (558) $ (434)

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

consolidated shareholders’ equity is at least $30,326,000, the implied merger consideration per share of SCB common stock is $8.75, with an aggregate transaction value of approximately $38.2 million.

The Merger Agreement contains customary representations, warranties, and covenants of both SmartFinancial and SCB. The completion of the Merger is subject to approval of SCB shareholders, regulatory approvals, and other customary closing conditions, and is expected to be completed in the third quarter of 2021.

On May 2, 2021, the Bank entered into a Purchase Agreement (the “Purchase Agreement”) with the members of Fountain Leasing, LLC, a Tennessee limited liability Company (“Fountain”), pursuant to which SmartBank will acquire all of the membership interests of Fountain (the “Acquisition”). The Acquisition was subsequently completed on May 3, 2021. In accordance with the Purchase Agreement, the Bank paid $14 million in cash to the members of Fountain at closing, and repaid approximately $45 million of Fountain’s indebtedness. In addition to the closing consideration, the Purchase Agreement contains a performance-based earnout, pursuant to which the former members of Fountain could be entitled to up to $6 million in future cash payments from the Bank. Following the completion of the Acquisition, the Bank changed the name of Fountain to “Fountain Equipment Finance, LLC”.

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ITEM 2. ~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SmartFinancial, Inc. (the ~~"Company"~~“Company”) is a bank holding company whose principal activity is the ownership and management of its wholly-owned subsidiary, SmartBank (the "Bank"). SmartBank provides a comprehensive suite of commercial and consumer banking services to clients through 35 full-service bank branches and ~~two~~one loan production ~~offices~~office in select markets in East and Middle Tennessee, Alabama and the Florida Panhandle.

While we offer a wide range of commercial banking services, we focus on making loans secured primarily by commercial real estate and other types of secured and unsecured commercial loans to small and medium-sized businesses in a number of industries, as well as loans to individuals for a variety of purposes. Our principal sources of funds for loans and investing in securities are deposits and, to a lesser extent, borrowings. We offer a broad range of deposit products, including checking (“NOW”), savings, money market accounts and certificates of deposit. We actively pursue business relationships by utilizing the business contacts of our senior management, other bank officers and our directors, thereby capitalizing on our knowledge of our local market areas.

Forward-Looking ~~Statements~~

Statement

SmartFinancial, Inc. (“SmartFinancial”) may from time to time make written or oral statements, including statements contained in this report and information incorporated by reference herein (including, without limitation, certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2), that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements, including statements regarding the ~~potential~~ effects of the COVID-19 pandemic on the Company’s business and financial results and conditions, are based on assumptions and estimates and are not guarantees of future performance. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify some of the forward-looking statements by the use of forward-looking words (and their derivatives), such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast,” and the like, the negatives of such expressions, or the use of the future tense. Statements concerning current conditions may also be forward-looking if they imply a continuation of a current condition. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, financial condition, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to:

●

weakness or a decline in the U.S. economy, in particular in Tennessee, and other markets in which we operate;

●

the possibility that our asset quality would decline or that we experience greater loan losses than anticipated;

●

the impact of liquidity needs on our results of operations and financial condition;

●

competition from financial institutions and other financial service providers;

●

the impact of negative developments in the financial industry and U.S. and global capital and credit markets;

●

the impact of recently enacted and future legislation and regulation on our business, including changes to statutes, regulations or regulatory policies or practices as a result of, or in response to the COVID-19 pandemic;

●

negative changes in the real estate markets in which we operate and have our primary lending activities, which may result in an unanticipated decline in real estate values in our market area;

●

risks associated with our growth strategy, including a failure to implement our growth plans or an inability to manage our growth effectively;

●

claims and litigation arising from our business activities and from the companies we acquire, which may relate to contractual issues, environmental laws, fiduciary responsibility, and other matters;

●

expected revenue synergies and cost savings from the proposed acquisition of Sevier County Bancshares, Inc. (“SCB”) and our recently completed acquisition of Fountain Leasing, LLC (“Fountain”) may not be fully realized or may take longer than anticipated to be realized;

●

disruption from the merger with customers, suppliers or employees or other business partners’ relationships;

●

the risk of successful integration of SCB’s and Fountain’s businesses with our business;

●

lower than expected revenue following the acquisitions of SCB and Fountain;

•~~weakness or a decline in the U.S. economy, in particular in Tennessee, and other markets in which we operate;~~

•~~the possibility that our asset quality would decline or that we experience greater loan losses than anticipated;~~

•~~the impact of liquidity needs on our results of operations and financial condition;~~

•~~competition from financial institutions and other financial service providers;~~

•~~the impact of negative developments in the financial industry and U.S. and global capital and credit markets;~~

•the impact of recently enacted and future legislation and regulation on our business, including changes to statutes, regulations or regulatory policies or practices as a result of, or in response to COVID-19;

•~~negative changes in the real estate markets in which we operate and have our primary lending activities, which may result in an unanticipated decline in real estate values in our market area;~~

•~~risks associated with our growth strategy, including a failure to implement our growth plans or an inability to manage our growth effectively;~~

•~~claims and litigation arising from our business activities and from the companies we acquire, which may relate to contractual issues, environmental laws, fiduciary responsibility, and other matters;~~

•expected revenue synergies and cost savings from our recently completed acquisition of Progressive Financial Group, Inc ("PFG") may not be fully realized or may take longer than anticipated to be realized;

•~~disruption from the merger with customers, suppliers or employees or other business partners’ relationships;~~

•~~the risk of successful integration of the PFG's businesses with our business;~~

•~~lower than expected revenue following these mergers;~~

•~~SmartFinancial’s ability to manage the combined company’s growth following the mergers;~~

•~~the dilution caused by SmartFinancial’s issuance of additional shares of its common stock in connection with the PFG merger;~~

•cyber attacks, computer viruses or other malware that may breach the security of our websites or other systems we operate or rely upon for services to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems and negatively impact our operations and our reputation in the market;

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•~~results of examinations by our primary regulators, the Tennessee Department of Financial Institutions (the “TDFI”),~~

●

SmartFinancial’s ability to manage the combined company’s growth following the acquisitions;

●

the dilution caused by SmartFinancial’s issuance of additional shares of its common stock in connection with the SCB merger;

●

cyber attacks, computer viruses or other malware that may breach the security of our websites or other systems we operate or rely upon for services to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems and negatively impact our operations and our reputation in the market;

●

results of examinations by our primary regulators, the TDFI, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, require us to reimburse customers, change the way we do business, or limit or eliminate certain other banking activities;

●

government intervention in the U.S. financial system and the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve;

●

our inability to pay dividends at current levels, or at all, because of inadequate future earnings, impairments to goodwill, regulatory restrictions or limitations, and changes in the composition of qualifying regulatory capital and minimum capital requirements;

●

the relatively greater credit risk of commercial real estate loans and construction and land development loans in our loan portfolio;

●

unanticipated credit deterioration in our loan portfolio or higher than expected loan losses within one or more segments of our loan portfolio;

●

unexpected significant declines in the loan portfolio due to the lack of economic expansion, increased competition, large prepayments, changes in regulatory lending guidance or other factors;

●

unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather or other external events;

●

changes in expected income tax expense or tax rates, including changes resulting from revisions in tax laws, regulations and case law;

●

our ability to retain the services of key personnel;

●

adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions, including as a result of the Company’s participation in and execution of government programs related to the COVID-19 pandemic;

●

the impact of the COVID-19 pandemic on the Company’s assets, business, cash flows, financial condition, liquidity, prospects and results of operations;

●

potential increases in the provision for loan losses resulting from the COVID-19 pandemic; and

●

the impact of Tennessee’s anti-takeover statutes and certain of our charter provisions on potential acquisitions of us.

•~~government intervention in the U.S. financial system and the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve;~~

•our inability to pay dividends at current levels, or at all, because of inadequate future earnings, regulatory restrictions or limitations, and changes in the composition of qualifying regulatory capital and minimum capital requirements;

•~~the relatively greater credit risk of commercial real estate loans and construction and land development loans in our loan portfolio;~~

•~~unanticipated credit deterioration in our loan portfolio or higher than expected loan losses within one or more segments of our loan portfolio;~~

•~~unexpected significant declines in the loan portfolio due to the lack of economic expansion, increased competition, large prepayments, changes in regulatory lending guidance or other factors;~~

•~~unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather or other external events;~~

•~~changes in expected income tax expense or tax rates, including changes resulting from revisions in tax laws, regulations and case law;~~

•~~our ability to retain the services of key personnel;~~

•adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions, including as a result of the Company’s participation in and execution of government programs related to the COVID-19 pandemic;

•~~the impact of the COVID-19 pandemic on the Company’s assets, business, cash flows, financial condition, liquidity, prospects and results of operations;~~

•~~potential increases in the provision for loan losses resulting from the COVID-19 pandemic; and~~

•~~the impact of Tennessee’s anti-takeover statutes and certain of our charter provisions on potential acquisitions of us.~~

These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found in SmartFinancial’s most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, in each case filed with or furnished to the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website (www.sec.gov). Undue reliance should not be placed on forward-looking statements. SmartFinancial disclaims any obligation to update or revise any forward-looking statements contained in this release, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise.

~~Non-GAAP Financial Measures~~

Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure. The SEC has exempted from the definition of non-GAAP financial measures certain commonly used financial measures that are not based on GAAP. However, two non-GAAP financial measures commonly used by financial institutions, namely tax-equivalent net interest income and tax-equivalent net interest margin, have not been specifically exempted by the SEC, and may therefore constitute non-GAAP financial measures under Regulation G. We are unable to state with certainty whether the SEC would regard those measures as subject to Regulation G. Management believes that Non-GAAP financial measures provide additional useful information that allows investors to evaluate the ongoing performance of the company and provide meaningful comparisons to its peers. Management believes these non-GAAP financial measures also enhance investors' ability to compare period-to-period financial results and allow investors and company management to view our operating results excluding the impact of items that are not reflective of the underlying operating performance. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider SmartFinancial's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

Certain captions and amounts in the prior periods presented were reclassified to conform to the current presentation. Such reclassifications had no effect on net income or ~~shareholders'~~shareholders’ equity.

Executive Summary

The following is a summary of the Company’s financial highlights and significant events during the first quarter of ~~2020:~~2021:

●

Successfully completed the hiring of an experienced banking team in the Gulf Coast Region.

●

Originated 1,231 Paycheck Protection Program (“PPP”) loans totaling $119.5 million.

•~~Completed the acquisition~~Table of ~~Progressive Financial Group, Inc. ("PFG") on March 1, 2020.~~Contents

●

Net income totaled $9.8 million, or $0.65 per diluted common share, during the first quarter of 2021 compared to $2.7 million, or $0.19 per diluted common share, for the same period in 2020.

●

Annualized return on average assets was 1.18% at March 31, 2021 compared to 0.43% at March 31, 2020.

●

On December 21, 2020, the Bipartisan-Bicameral Omnibus COVID Relief Deal, included as a component of appropriations legislation, was passed by Congress to provide economic stimulus to individuals and businesses in further response to the economic distress caused by the COVID-19 pandemic. Among other things, the legislation includes (i) payments of $600 for individuals making up to $75,000 per year, (ii) extension of the Federal Pandemic Unemployment Compensation program to include a $300 weekly enhancement in unemployment benefits beginning after December 26, 2020 up to March 14, 2021, (iii) a temporary and targeted rental assistance program, and extends the eviction moratorium through January 31, 2021, (iv) targeted funding related to transportation, education, agriculture, nutrition and other public health measures, and (v) approximately $325 billion for small business relief, including approximately $284 billion for a second round of PPP loans and a new simplified forgiveness procedure for PPP loans of $150,000 or less. We are continuing to monitor the potential development of additional legislation and further actions taken by the U.S. government.

Analysis of Results of Operations

•First quarter of 2021 compared to 2020

Net income ~~totaled $2.7~~was $9.8 million, or ~~$0.19 per diluted common share, during the first quarter of 2020 compared to $4.7 million, or $0.34~~$0.65 per diluted common share, for the ~~same period in 2019.~~

•~~Return on average assets was 0.43% at March 31, 2020~~first quarter of 2021, compared to ~~0.84% at March 31, 2019.~~

•~~Allowance for loan losses increased to $13.4 million, an increase of 31.1%, in light of the current economic conditions.~~

•The COVID-19 pandemic has caused economic and social disruption on an unprecedented scale. Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout. Most notably, the Coronavirus Aid Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020 as a $2 trillion legislative relief package. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and providers. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts are expected to have a material impact on our operations.

~~Analysis of Results of Operations~~

~~First quarter of 2020 compared to 2019~~

~~Net income was~~ $2.7 million, or $0.19 per diluted common share, for the first quarter of ~~2020, compared to $4.7 million, or $0.34 per diluted common share, for the first quarter of 2019.~~2020. The tax equivalent net interest margin was 3.48% for the first quarter of 2021 compared to 3.90% for the first quarter of ~~2020 compared to 4.10% for the first quarter of 2019.~~2020. Noninterest income to average assets was 0.69% for the first quarter of 2021, increasing from 0.44% for the first quarter of ~~2020, increasing from 0.30% for the first quarter of 2019.~~2020. Noninterest expense to average assets ~~increased~~decreased to 2.35% in the first quarter of 2021, from 2.96% in the first quarter of ~~2020, from 2.77% in the first quarter of 2019. The results above include one month of operating effects of the PFG acquisition, which was completed on March 1,~~ 2020.

Net Interest Income and Yield Analysis

First quarter of ~~2020~~2021 compared to ~~2019~~

2020

Net interest income, taxable equivalent, increased to $26.4 million for the first quarter of 2021, up from $22.7 million for the first quarter of ~~2020, up from $21.1 million for the first quarter of 2019.~~2020. Net interest income was positively impacted, compared to the prior year, primarily ~~due to increases~~by the full-quarters effects of the Company’s March 1, 2020 acquisition of PFG, the increase in loan balances and the reduction in interest expense on interest bearing liabilities. Average interest-earning assets increased from ~~$2.09 billion for the first quarter of 2019, to~~ $2.34 billion for the first quarter of 2020, to $3.08 billion for the first quarter of 2021, primarily as a result of the acquisition of PFG being completed on March 1, 2020, the Company’s participation in the PPP, and ~~continued organic growth.~~the increase in our overall liquidity position. Over this period, average loan balances increased by ~~$185.3~~$445.5 million, average interest-bearing deposits increased by ~~$126.4~~$415.9 million, ~~and~~ average noninterest-bearing deposits increased ~~$53.0~~$327.8 million and average borrowings increased $29.9 million. The tax equivalent net interest margin decreased to 3.48% for the first quarter of 2021, compared to 3.90% for the first quarter of ~~2020, compared to 4.10% for the first quarter of 2019.~~2020. The yield on earning assets decreased from ~~5.25% for the first quarter of 2019, to~~ 4.83% for the first quarter of 2020, to 3.88% for the first quarter of 2021, primarily due to rate cuts by the Federal Reserve over the past ~~nine months~~year and, to a lesser extent, loan yields ~~have declined~~declining from market competition. The cost of average interest-bearing deposits decreased from ~~1.32% for the first quarter of 2019, to~~ 1.10% for the first quarter of 2020, to 0.44% for the first quarter of 2021, primarily due to a lower interest rate environment during the period.

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The following ~~table~~tables summarizes the major components of net interest income and the related yields and costs for the periods presented (dollars in thousands):


	Three Months Ended March 31,
	2021						2020
	Average				Yield/		Average				Yield/
	Balance		Interest		Rate		Balance		Interest		Rate
Assets:
Loans, including fees¹	$	2,428,499		27,943	4.67	%	$	1,982,997		26,389	5.35	%
Loans held for sale		7,913		75	3.82	%		4,294		45	4.24	%
Taxable securities		136,492		724	2.15	%		116,837		679	2.34	%
Tax-exempt securities²		90,849		409	1.82	%		70,397		400	2.28	%
Federal funds sold and other earning assets		417,144		291	0.28	%		165,512		602	1.46	%
Total interest-earning assets		3,080,897		29,442	3.88	%		2,340,037		28,115	4.83	%
Noninterest-earning assets		275,272						216,498
Total assets	$	3,356,169					$	2,556,535

Liabilities and Shareholders' Equity:
Interest-bearing demand deposits	$	641,214	$	256	0.16	%	$	389,500	$	434	0.45	%
Money market and savings deposits		983,893		821	0.34	%		664,983		1,389	0.84	%
Time deposits		526,062		1,254	0.97	%		680,830		2,931	1.73	%
Total interest-bearing deposits		2,151,169		2,331	0.44	%		1,735,313		4,754	1.10	%
Borrowings		81,837		117	0.58	%		51,921		89	0.69	%
Subordinated debt		39,354		584	6.01	%		39,269		584	5.98	%
Total interest-bearing liabilities		2,272,360		3,032	0.54	%		1,826,503		5,427	1.20	%
Noninterest-bearing deposits		700,962						373,125
Other liabilities		21,928						27,215
Total liabilities		2,995,250						2,226,843
Shareholders' equity		360,919						329,692
Total liabilities and shareholders’ equity	$	3,356,169					$	2,556,535
Net interest income, taxable equivalent			$	26,410					$	22,689
Interest rate spread					3.33	%					3.63	%
Tax equivalent net interest margin					3.48	%					3.90	%

Percentage of average interest-earning assets to average interest-bearing liabilities					135.58	%					128.12	%
Percentage of average equity to average assets					10.75	%					12.90	%

Three Months Ended March 31,
2020 2019
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
Assets
Loans¹
$ 1,987,291 26,434 5.35 % $ 1,802,014 24,975 5.62 %
Taxable securities 116,837 679 2.34 % 147,188 971 2.68 %
Tax-exempt securities²
70,397 400 2.28 % 53,650 539 4.07 %
Federal funds sold and other earning assets 165,512 602 1.46 % 86,688 573 2.68 %
Total interest-earning assets 2,340,037 28,115 4.83 % 2,089,540 27,058 5.25 %
Noninterest-earning assets 216,498 193,698
Total assets $ 2,556,535 $ 2,283,238
Liabilities and Stockholders’ Equity
Interest-bearing demand deposits $ 389,500 $ 434 0.45 % $ 306,164 $ 422 0.56 %
Money market and savings deposits 664,983 1,389 0.84 % 665,018 2,029 1.24 %
Time deposits 680,830 2,931 1.73 % 637,767 2,800 1.78 %
Total interest-bearing deposits 1,735,313 4,754 1.10 % 1,608,949 5,251 1.32 %
Securities sold under agreement to repurchase 5,601 5 0.36 % 7,971 8 0.41 %
Federal funds purchased and other borrowings 46,320 84 0.73 % 10,217 103 4.09 %
Subordinated debt 39,269 584 5.98 % 39,184 584 6.04 %
Total interest-bearing liabilities 1,826,503 5,427 1.20 % 1,666,321 5,946 1.45 %
Noninterest-bearing deposits 373,125 320,134
Other liabilities 27,215 10,707
Total liabilities 2,226,843 1,997,162
Stockholders’ equity 329,692 286,076
Total liabilities and stockholders’ equity $ 2,556,535 $ 2,283,238
Net interest income, taxable equivalent $ 22,688 $ 21,112
Interest rate spread 3.63 % 3.80 %
Tax equivalent net interest margin 3.90 % 4.10 %
Percentage of average interest-earning assets to average interest-bearing liabilities 128.12 % 125.40 %
Percentage of average equity to average assets 12.90 % 12.53 %

~~(1)Includes nonaccrual~~

¹Loans include PPP loans ~~and accretion income on acquired loans~~with an average balance of ~~$1.8 million and $1.9~~$312.6 million for the ~~quarters~~three month period ended March 31, 2021. No PPP loans are included in the three month period ended March 31, 2020. Loan fees included in loan income was $2.9 million and $886 thousand for the three month periods ended March 31, 2021 and 2020, ~~and 2019,~~ respectively.

~~(2)~~ Loan fee income for the three month period ended March 31, 2021, includes $2.4 million accretion of loan fees on PPP loans. No loan fees on PPP loans are included in the three month period ended March 31, 2020.

²Yields related to investment securities exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of ~~21.0 percent.~~21.0%. The taxable-equivalent adjustment was $150 thousand for the three month period ended March 31, 2021 and $117 thousand for the three month period ended March 31, ~~2020 and $115 thousand for the period ended March 31, 2019.~~2020.

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Noninterest Income

The following table summarizes noninterest income by category (in thousands):


	Three Months Ended
	March 31,
	2021		2020
Service charges on deposit accounts	$	1,009	$	770
Mortgage banking		1,139		584
Investment services		531		437
Insurance commissions		1,466		269
Interchange and debit card transaction fees, net		839		276
Other		707		482
Total noninterest income	$	5,691	$	2,818

First quarter of ~~2020~~2021 compared to ~~2019~~

2020

Noninterest income increased by ~~$1.1~~$2.9 million, or ~~66.0%~~102.0%, during the first quarter of ~~2020~~2021 compared to the same period in ~~2019.~~2020. This quarterly change in total noninterest income primarily resulted from the following:

●

Increase in service charges on deposit accounts of $239 thousand, related to the PFG acquisition, deposit growth and transaction volume;

●

Increase in mortgage banking of $555 thousand, from increased volume due to low rate environment;

●

Increase in insurance commissions of $1.2 million, primarily from commissions of $815 thousand from the placement of life insurance policies and an insurance agency acquired in the PFG acquisition;

●

Increase in interchange and debit card transaction fees, net of $563 thousand, related to increased volume, deposit growth and the PFG acquisition: and

●

Increase in other of $225 thousand, primarily from the increase in cash surrender value of bank owned life insurance (“BOLI”) of $208 thousand from the additional BOLI purchased during the first quarter of 2021.

•~~Increase in mortgage banking, from increased activity;~~

•~~Increase in investment services, stemming from personnel hires in 2019; and~~

•~~Addition of insurance commissions from the PFG acquisition.~~

Noninterest Expense

The following table summarizes noninterest ~~income~~expense by category (in thousands):


	Three Months Ended
	March 31,
	2021		2020
Salaries and employee benefits	$	10,869	$	10,006
Occupancy and equipment		2,341		1,911
FDIC insurance		371		180
Other real estate and loan related expense		602		545
Advertising and marketing		190		198
Data processing and technology		1,379		1,008
Professional services		641		711
Amortization of intangibles		444		362
Merger related and restructuring expenses		103		2,096
Other		2,524		1,776
Total noninterest expense	$	19,464	$	18,793

Three Months Ended
March 31,
2020 2019
Service charges on deposit accounts $ 770 $ 654
Mortgage banking 584 282
Investment services 437 169
Insurance commissions 269 —
Interchange and debit card transaction fees 276 175
Other 482 418
Total noninterest income $ 2,818 $ 1,698

~~Noninterest Expense~~

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First quarter of ~~2020~~2021 compared to ~~2019~~

2020

Noninterest expense increased by ~~$3.2 million,~~$671 thousand, or ~~20.6%~~3.6%, in the first quarter of ~~2020~~2021 as compared to the same period in ~~2019.~~2020. The quarterly increase in total noninterest expense primarily resulted from the following:

●

Increase in salary and employee benefits of $863 thousand, due to the overall franchise growth, including the acquisition of PFG;

●

Increase in occupancy and equipment of $430 thousand, due to ongoing infrastructure and facilities added to accommodate growth in operations and the additional branches of the PFG acquisition;

●

Increase in FDIC insurance of $191 thousand, related to asset growth stemming from our acquisition of PFG, deposit growth and production of PPP loans.

●

Increase in data processing and technology of $371 thousand, primarily due to implementation of new contactless chip card and tier pricing adjustments from our core system provider; and

●

Increase in other noninterest expenses of $748 thousand, primarily from an equity method investment in a start-up fintech company.

Taxes

•~~Increase is salary and employee benefits from the addition of talented staff throughout 2019 and one month of salary and benefits related to the PFG acquisition;~~

•Increase in occupancy and equipment associated with ongoing infrastructure and facilities added to accommodate our growth in operations and to lesser extent the additional branches of the PFG acquisition; and

•~~Increase in merger related and restructuring expenses from the PFG acquisition.~~

~~The following table summarizes noninterest expense by category~~ ~~(in thousands)~~:

Three Months Ended
March 31,
2020 2019
Salaries and employee benefits $ 10,006 $ 8,398
Occupancy and equipment 1,911 1,640
FDIC insurance 180 179
Other real estate and loan related expense 545 490
Advertising and marketing 198 295
Data processing 538 615
Professional services 711 662
Amortization of intangibles 362 344
Software as service contracts 470 567
Merger related and restructuring expenses 2,096 923
Other 1,776 1,466
Total noninterest expense $ 18,793 $ 15,579

~~Taxes~~

First quarter of ~~2020~~2021 compared to ~~2019~~

2020

In the first quarter of ~~2020~~2021 income tax expense totaled ~~$664 thousand~~$2.7 million compared to ~~$1.6 million~~$664 thousand a year ago. The effective tax rate was approximately ~~19.6%~~21.5% in the first quarter of ~~2020~~2021 compared to ~~25.1%~~19.6% a year ago. The ~~decrease is primarily~~higher effective tax rate for the first quarter of 2021 compared to same quarter in 2020 was due to ~~the~~ utilization of an NOL carryforward in March of 2020 that was available as part of the CARES ~~Act~~.

Act.

Loan Portfolio

The Company had total net loans outstanding, including organic and purchased loans, of approximately ~~$2.13~~$2.47 billion at March 31, ~~2020~~2021 compared to ~~$1.89~~$2.36 billion at December 31, ~~2019.~~2020. Loans secured by real estate, consisting of commercial orand residential property, are the principal component of our loan portfolio.

Organic Loans

Our organic net ~~loans.~~loans, which excludes loans purchased through ~~the PFG and other~~ acquisitions, increased by ~~$97.0~~$142.8 million, or ~~6.4%~~7.2%, from December 31, ~~2019,~~2020, to ~~$1.61~~$2.12 billion at March 31, ~~2020. Our goal~~2021. Included in the growth was $119.5 million of ~~streamlining~~PPP loans that were originated and funded during the ~~credit process has improved our efficiency~~first quarter of 2021 and ~~is a competitive advantage~~offset by $82.0 million in ~~many~~forgiven PPP loans. Total net deferred fees associated with the PPP loans originated during the first quarter of ~~our markets, and contributed to our organic loan growth.~~

2021 was approximately $5.6 million with $116 thousand accreted into income.

Purchased Loans

Purchased non-credit impaired loans, net of ~~$482.2~~$315.8 million at March 31, ~~2020 increased~~2021 decreased by ~~$133.2~~$34.9 million from December 31, ~~2019.~~2020. Since December 31, ~~2019,~~2020, our net purchased credit impaired (“PCI”) loans, ~~increased~~net decreased by ~~$8.7~~$3.0 million to ~~$35.5~~$28.8 million at March 31, ~~2020.~~2021. The ~~increase~~decrease in purchased non-credit impaired loans and PCI loans ~~are~~is related to ~~the acquisition of PFG and offset by~~ maturities, paydowns and payoffs.

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The following tables summarize the composition of our loan portfolio ~~(includes loans held for sale)~~ for the periods presented (dollars in thousands):


	March 31, 2021
			Purchased		Purchased
			Non-Credit		Credit				% of
	Organic		Impaired		Impaired		Total		Gross
	Loans		Loans		Loans		Amount		Total
Commercial real estate-mortgage	$	883,521	$	173,243	$	13,877	$	1,070,641	43.0	%
Consumer real estate-mortgage		315,709		107,180		9,597		432,486	17.4	%
Construction and land development		269,575		11,048		5,350		285,973	11.5	%
Commercial and industrial		662,337		23,370		303		686,010	27.6	%
Consumer and other		9,459		2,539		21		12,019	0.5	%
Total gross loans receivable, net of deferred fees		2,140,601		317,380		29,148		2,487,129	100.0	%
Allowance for loan losses		(16,411)	$	(1,583)		(376)		(18,370)
Total loans, net	$	2,124,190	$	315,797	$	28,772	$	2,468,759

March 31, 2020
Organic
Loans Purchased
Non-Credit
Impaired Loans Purchased
Credit
Impaired Loans Total Amount % of
Gross
Total
Commercial real estate-mortgage $ 758,400 $ 234,046 $ 16,589 $ 1,009,035 47.0 %
Consumer real estate-mortgage 309,672 167,151 11,950 488,773 22.8 %
Construction and land development 219,172 27,794 6,479 253,445 11.8 %
Commercial and industrial 329,987 47,043 143 377,173 17.6 %
Consumer and other 9,343 7,198 325 16,866 0.8 %
Total gross loans receivable, net of deferred fees 1,626,574 483,232 35,486 2,145,292 100.0 %
Allowance for loan losses (12,412) $ (1,019) — (13,431)
Total loans, net $ 1,614,162 $ 482,213 $ 35,486 $ 2,131,861


	December 31, 2020
			Purchased		Purchased
			Non-Credit		Credit				% of
	Organic		Impaired		Impaired		Total		Gross
	Loans		Loans		Loans		Amount		Total
Commercial real estate-mortgage	$	807,913	$	188,940	$	16,123	$	1,012,976	42.5	%
Consumer real estate-mortgage		313,582		120,090		10,258		443,930	18.6	%
Construction and land development		259,622		13,105		5,348		278,075	11.7	%
Commercial and industrial		607,212		26,926		308		634,446	26.6	%
Consumer and other		9,250		3,539		27		12,816	0.5	%
Total gross loans receivable, net of deferred fees		1,997,579		352,600		32,064		2,382,243	100.0	%
Allowance for loan losses		(16,154)		(1,883)		(309)		(18,346)
Total loans, net	$	1,981,425	$	350,717	$	31,755	$	2,363,897

December 31, 2019
Organic
Loans Purchased
Non-Credit
Impaired Loans Purchased
Credit
Impaired Loans Total Amount % of
Gross
Total
Commercial real estate-mortgage $ 705,691 $ 184,360 $ 15,255 $ 905,306 47.6 %
Consumer real estate-mortgage 301,771 115,026 6,541 423,338 22.2 %
Construction and land development 210,421 12,747 4,458 227,626 12.0 %
Commercial and industrial 306,521 30,147 407 337,075 17.7 %
Consumer and other 2,817 6,760 326 9,903 0.5 %
Total gross loans receivable, net of deferred fees 1,527,221 349,040 26,987 1,903,248 100.0 %
Allowance for loan losses (10,087) — (156) (10,243)
Total loans, net $ 1,517,134 $ 349,040 $ 26,831 $ 1,893,005

Loan Portfolio Maturities

The following table sets forth the maturity distribution of our loans at March 31, 2021, including the interest rate sensitivity for loans maturing after one year (in thousands):


									Rate Structure for Loans
									Maturing Over One Year
	One Year		One through		Over Five				Fixed		Floating
	or Less		Five Years		Years		Total		Rate		Rate
Commercial real estate-mortgage	$	108,966	$	465,687	$	495,988	$	1,070,641	$	751,532	$	210,143
Consumer real estate-mortgage		30,112		169,217		233,157		432,486		202,830		199,544
Construction and land development		51,168		129,351		105,454		285,973		109,451		125,354
Commercial and industrial		79,939		546,200		59,871		686,010		562,078		43,993
Consumer and other		4,491		6,861		667		12,019		7,149		379
Total Loans	$	274,676	$	1,317,316	$	895,137	$	2,487,129	$	1,633,040	$	579,413

Rate Structure for Loans
Maturing Over One Year
One Year
or Less One through
Five Years Over Five
Years Total Fixed
Rate Floating
Rate
Commercial real estate-mortgage $ 93,156 $ 430,195 $ 485,684 $ 1,009,035 $ 736,451 $ 179,854
Consumer real estate-mortgage 38,565 179,200 271,008 488,773 267,342 182,866
Construction and land development 71,456 97,634 84,355 253,445 100,953 81,036
Commercial and industrial 90,593 194,135 92,445 377,173 242,063 45,652
Consumer and other 6,223 9,056 1,587 16,866 8,975 107
Total Loans $ 299,993 $ 910,220 $ 935,079 $ 2,145,292 $ 1,355,784 $ 489,515

Nonaccrual, Past Due, and Restructured Loans

Nonperforming loans as a percentage of total gross loans, net of deferred fees, was ~~0.14%~~0.25% as of March 31, ~~2020, which decreased from 0.18%~~2021, and 0.24% as of December 31, ~~2019.~~2020, respectively. Total nonperforming assets as a percentage of total assets as of March 31, ~~2020~~2021 totaled ~~0.31%~~0.29% compared to ~~0.21%~~0.31% as of December 31, ~~2019. The increase was primarily the result of the addition of other real estate owned from the PFG acquisition.~~2020. Acquired PCI loans that are included in loan pools are reclassified at acquisition to accrual status and thus are not included as nonperforming assets.

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The following table summarizes the ~~Company's~~Company’s nonperforming assets for the periods presented (in thousands):


	March 31,		December 31,
	2021		2020
Nonaccrual loans	$	4,739	$	5,633
Accruing loans past due 90 days or more		1,495		149
Total nonperforming loans		6,234		5,782
Other real estate owned		3,946		4,619
Total nonperforming assets	$	10,180	$	10,401
Restructured loans not included above	$	250	$	257

March 31, December 31,
2020 2019
Nonaccrual loans $ 3,060 $ 2,743
Accruing loans past due 90 days or more 10 607
Total nonperforming loans 3,070 3,350
Other real estate owned 5,894 1,757
Total nonperforming assets $ 8,964 $ 5,107
Restructured loans not included above $ 9 $ 61

Potential Problem Loans

At March 31, ~~2020~~2021 potential problem loans amounted to approximately ~~$695 thousand~~$6.9 million or ~~0.03%~~0.29% of total loans outstanding. Potential problem loans, which are not included in nonperforming loans, represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have doubts about the ~~borrower's~~borrower’s ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by the Bank’s primary regulators for loans classified as substandard or worse, but not considered nonperforming loans.

COVID-19 Loan Modifications

As a result of the CARES Act, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. At March 31, 2021, the Company had 10 loans remaining under COVID-19 modifications that amounted to $1.7 million, or 0.07% of the total loans outstanding.

Allocation of the Allowance for Loan Losses

We maintain the allowance at a level that we deem appropriate to adequately cover the probable losses inherent in the loan portfolio. Our provision for loan losses for the three months ended March 31, 2021, is $67 thousand compared to $3.2 million in the same period of 2020, a decrease of $3.1 million. The allowance for loan loss provision for the quarter ended March 31, 2020, increased due to the onset of the COVID-19 pandemic and related economic uncertainty. As of March 31, ~~2020~~2021, and December 31, ~~2019,~~2020, our allowance for loan losses was ~~$13.4~~$18.4 million and ~~$10.2~~$18.3 million, respectively, which we deemed to be adequate at each of the respective dates. The increase in the allowance for loan losses at March 31, 2020, as compared to December 31, 2019 is primarily due to the deterioration in the qualitative factors, such as unemployment and GDP, in our loan loss allowance methodology which was caused by the unstable economic conditions facing the U.S. economy related to the challenges being faced with the world wide COVID-19 pandemic. Our allowance for loan loss as a percentage of total loans was ~~0.63%~~0.74% at March 31, ~~2020~~2021 and ~~0.54%~~0.77% at December 31, ~~2019.~~

2020.

Our purchased loans were recorded at fair value upon acquisition. The fair value adjustments on the performing purchased loans will be accreted into income over the life of the loans. A provision for loan losses is recorded for any deterioration in these loans subsequent to the acquisition. As of March 31, ~~2020~~2021, the notional balances on PCI loans was ~~$49.9~~$40.8 million while the carrying value was ~~$35.5~~$29.1 million. At March 31, ~~2020,~~2021, there was ~~no loan loss allowances~~an allowance on PCI ~~loans.~~

loans of $376 thousand.

The following table sets forth, based on our best estimate, the allocation of the allowance to types of loans for the periods presented, and the percentage of loans in each category to total loans (dollars in thousands):


	March 31, 2021				December 31, 2020
	Amount		Percent		Amount		Percent
Commercial real estate-mortgage	$	7,637	43.0	%	$	7,579	42.5	%
Consumer real estate-mortgage		3,308	17.4	%		3,471	18.6	%
Construction and land development		1,968	11.5	%		2,076	11.7	%
Commercial and industrial		5,347	27.6	%		5,107	26.6	%
Consumer and other		110	0.5	%		113	0.5	%
Total allowance for loan losses	$	18,370	100.0	%	$	18,346	100.0	%

March 31, 2020 December 31, 2019
Amount Percent Amount Percent
Commercial real estate-mortgage $ 5,963 44.5 % $ 4,508 44.1 %
Consumer real estate-mortgage 3,301 24.6 % 2,576 25.1 %
Construction and land development 1,484 11.0 % 1,127 11.0 %
Commercial and industrial 2,557 19.0 % 1,957 19.1 %
Consumer and other 126 0.9 % 75 0.7 %
Total allowance for loan losses $ 13,431 100.0 % $ 10,243 100.0 %

The allocation by category is determined based on the loans individually assigned risk rating, if applicable, and environmental factors applicable to each category of loans. For impaired loans, those loans are reviewed for a specific

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allowance allocation. Specific valuation allowances related to impaired, non PCI, loans were approximately ~~$156~~$237 thousand at December 31, ~~2019~~2020, compared to $0$492 thousand at March 31, ~~2020.~~

2021.

Analysis of the Allowance for Loan Losses

The following is a summary of changes in the allowance for loan losses for the periods presented including the ratio of the allowance for loan losses to total loans as of the end of each period (dollars in thousands):


	Three Months Ended March 31,
	2021			2020
Balance at beginning of period	$	18,346		$	10,243
Provision for loan losses		67			3,200
Charged-off loans:
Commercial real estate-mortgage		—			—
Consumer real estate-mortgage		—			(2)
Construction and land development		—			—
Commercial and industrial		—			(8)
Consumer and other		(120)			(76)
Total charged-off loans		(120)			(86)
Recoveries of previously charged-off loans:
Commercial real estate-mortgage		3			2
Consumer real estate-mortgage		16			6
Construction and land development		—			2
Commercial and industrial		3			42
Consumer and other		55			22
Total recoveries of previously charged-off loans		77			74
Net loan charge-offs		(43)			(12)
Balance at end of period	$	18,370		$	13,431
Ratio of allowance for loan losses to total loans outstanding at end of period		0.74	%		0.63	%
Ratio of net loan charge-offs to average loans outstanding for the period		—	%		—	%

Three Months Ended March 31,
2020 2019
Balance at beginning of period $ 10,243 $ 8,275
Provision for loan losses 3,200 797
Charged-off loans:
Commercial real estate-mortgage — —
Consumer real estate-mortgage (2) (2)
Construction and land development — —
Commercial and industrial (8) (318)
Consumer and other (76) (130)
Total charged-off loans (86) (450)
Recoveries of previously charged-off loans:
Commercial real estate-mortgage 2 2
Consumer real estate-mortgage 6 4
Construction and land development 2 2
Commercial and industrial 42 12
Consumer and other 22 62
Total recoveries of previously charged-off loans 74 82
Net loan charge-offs (12) (368)
Balance at end of period $ 13,431 $ 8,704
Ratio of allowance for loan losses to total loans outstanding at end of period 0.63 % 0.47 %
Ratio of net loan charge-offs to average loans outstanding for the period (annualized) — % 0.08 %

We assess the adequacy of the allowance at the end of each calendar quarter. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon our evaluation of the loan portfolio, past loan loss experience, known and inherent risks in the portfolio, the views of the Bank’s regulators, adverse situations that may affect ~~borrowers'~~borrowers’ ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change.

Securities Portfolio

Our securities portfolio, consisting primarily of Federal agency bonds, state and municipal securities, and mortgage-backed securities, amounted to fair values of ~~$201.0~~$250.9 million and ~~$178.3~~$215.6 million at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Our investments to assets ratio ~~decreased~~increased from ~~7.3 percent~~6.5% at December 31, ~~2019~~2020 to ~~7.0 percent~~7.1% at March 31, ~~2020.~~2021. Our securities portfolio serves many purposes including serving as a potential liquidity source, collateral for public funds, and as a stable source of income. All of the ~~Company's~~Company’s securities are designated as available-for-sale.

The following table shows the amortized cost of the Company’s securities, byall investment ~~categories~~ securities were classified as available for sale (in thousands):


	March 31,		December 31,
	2021		2020
U.S. Government-sponsored enterprises (GSEs)	$	73,905	$	30,526
Municipal securities		88,509		89,644
Other debt securities		26,019		25,019
Mortgage-backed securities		61,294		66,425
Total securities	$	249,727	$	211,614

March 31, December 31,
2020 2019
U.S. Government-sponsored enterprises (GSEs) $ 17,012 $ 19,015
Municipal securities 82,599 63,792
Other debt securities 5,461 3,481
Mortgage-backed securities 94,306 91,531
Total securities $ 199,378 $ 177,819

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The following table presents the contractual maturity of the ~~Company's~~Company’s securities by contractual maturity date and average yields based on amortized cost (for all obligations on a fully taxable basis) at March 31, ~~2020.~~2021. The composition and maturity / repricing distribution of the securities portfolio is subject to change depending on rate sensitivity, capital and liquidity needs (dollars in thousands):


	Maturity By Years
	1 or Less			1 to 5			5 to 10			Over 10			Total
U.S. Government agencies	$	—		$	124		$	26,130		$	47,651		$	73,905
State and political subdivisions		4,947			3,460			6,324			73,778			88,509
Other debt securities		—			985			24,534			500			26,019
Mortgage-backed securities		—			4,017			12,354			44,923			61,294
Total securities	$	4,947		$	8,586		$	69,342		$	166,852		$	249,727
Weighted average yield⁽¹⁾		1.90	%		1.43	%		2.92	%		2.46	%		2.54	%

(1)	Based on amortized cost, taxable equivalent basis

Maturity By Years
1 or Less 1 to 5 5 to 10 Over 10 Total
U.S. Government agencies $ 8,000 $ 3,007 $ 6,005 $ — $ 17,012
State and political subdivisions 490 2,170 7,679 72,260 82,599
Other debt securities — — 5,461 — 5,461
Mortgage-backed securities — 4,738 14,275 75,293 94,306
Total securities $ 8,490 $ 9,915 $ 33,420 $ 147,553 $ 199,378
Weighted average yield (1)
1.56 % 1.67 % 2.78 % 3.00 % 2.82 %

~~(1) Based on amortized cost, taxable equivalent basis~~

Deposits

Deposits are the primary source of funds for the ~~Company's~~Company’s lending and investing activities. The Company provides a range of deposit services to businesses and individuals, including noninterest-bearing checking accounts, interest-bearing checking accounts, savings accounts, money market accounts, IRAs and CDs. These accounts generally earn interest at rates the Company establishes based on market factors and the anticipated amount and timing of funding needs. The establishment or continuity of a core deposit relationship can be a factor in loan pricing decisions. While the ~~Company's~~Company’s primary focus is on establishing customer relationships to attract core deposits, at times, the Company uses brokered deposits and other wholesale deposits to supplement its funding sources. As of March 31, ~~2020,~~2021, brokered deposits represented approximately ~~11.2%~~1.7% of total deposits.

The Company believes its deposit product offerings are properly structured to attract and retain core low-cost deposit relationships. The average cost of interest-bearing deposits for the three months ended March 31, ~~2020~~2021 was ~~1.10%~~0.44% compared to ~~1.32%~~1.10% for the same period in ~~2019, respectively.~~2020. The decreased cost onof interest-bearing deposits was due to changes in rates caused by federal rate-changes during the periods.

Total deposits as of March 31, ~~2020~~2021 were ~~$2.3~~$3.05 billion, which was an increase of ~~$294.7~~$243.0 million from December 31, ~~2019.~~2020. This increase was primarily from ~~the completed acquisition of PFG.~~organic deposit growth. As of March 31, ~~2020~~2021, the Company had outstanding time deposits under $250,000 with balances of ~~$584.6~~$383.5 million and time deposits over $250,000 with balances of ~~$151.0~~$129.0 million.

The following table summarizes the maturities of time deposits $250,000 or more (in thousands).


	March 31,
	2021
Three months or less	$	32,161
Three to six months		26,770
Six to twelve months		36,117
More than twelve months		33,906
Total	$	128,954


	~~March 31,~~
	~~2020~~
~~Three months or less~~	$	~~28,136~~
~~Three to six months~~	~~24,768~~
~~Six to twelve months~~	~~47,981~~
~~More than twelve months~~	~~50,106~~
~~Total~~	$	~~150,991~~

Borrowings

The Company uses short-term borrowings and long-term debt to provide both funding and, to a lesser extent, regulatory capital using debt at the Company level which can be downstreamed as Tier 1 capital to the Bank. Borrowings totaled ~~$125.4~~$82.6 million at March 31, ~~2020,~~2021, and primarily consisted of $75.0 million in ~~Federal Home Loan Bank~~FHLB borrowings and ~~$50.0 million from the Federal Reserve Discount Window. Short-term~~short-term borrowings totaled ~~$6.2~~$7.2 million ~~at March 31, 2020 and December 31, 2019, respectively~~ and consisted entirely of securities sold under repurchase agreements. Long-term debt totaled ~~$39.3~~$39.4 million at March 31, ~~2020~~2021, and $39.3 million at December 31, ~~2019, respectively~~2020, and consisted entirely of subordinated debt. For more

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information regarding our borrowings, see "Part I - Item 1. Consolidated Financial Statements - Note 7 ~~- Borrowings.~~– Borrowings and Line of Credit."

Capital Resources

The Company uses leverage analysis to examine the potential of the institution to increase assets and liabilities using the current capital base. The key measurements included in this analysis are the Bank’s Common Equity Tier 1 capital, Tier 1 capital, leverage and total capital ratios. At March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, our capital ratios, including our Bank’s capital ratios, exceeded regulatory minimum capital requirements. From time to time we may be required to support the capital needs of our bank subsidiary. We believe we have various capital raising techniques available to us to provide for the capital needs of our bank, if ~~necessary..~~necessary. For more information regarding our capital, leverage and total capital ratios, see ~~"Part~~“Part I - Item 1. Consolidated Financial Statements - Note 13 - Regulatory Matters."

”

Liquidity and Off-Balance Sheet Arrangements

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing and depository needs of its customers. At March 31, ~~2020,~~2021, we had ~~$419.3~~$542.8 million of pre-approved but unused lines of credit and ~~$23.0~~$6.9 million of standby letters of credit. These commitments generally have fixed expiration dates and many will expire without being drawn upon. The total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Bank has the ability to liquidate Federal funds sold or securities available-for-sale, or on a short-term basis to borrow and purchase Federal funds from other financial institutions.

For more information regarding our off balance sheet arrangements, see “Part I - Item 1. Consolidated Financial Statements - Note 9 – Commitments and Contingent Liabilities.”

Market Risk and Liquidity Risk Management

The Bank’s Asset Liability Management Committee (“ALCO”) is responsible for making decisions regarding liquidity and funding solutions based upon approved liquidity, loan, capital and investment policies. The ALCO must consider interest rate sensitivity and liquidity risk management when rendering a decision on funding solutions and loan pricing. To assist in this process the Bank has contracted with an independent third party to prepare quarterly reports that summarize several key asset-liability measurements. In addition, the third party will also provide recommendations to the Bank’s ALCO regarding future balance sheet structure, earnings and liquidity strategies. Two critical areas of focus for ALCO are interest rate sensitivity and liquidity risk management.

Interest Rate Sensitivity

Interest rate sensitivity refers to the responsiveness of interest-earning assets and interest-bearing liabilities to changes in market interest rates. In the normal course of business, we are exposed to market risk arising from fluctuations in interest rates. ALCO measures and evaluates the interest rate risk so that we can meet customer demands for various types of loans and deposits. ALCO determines the most appropriate amounts of on-balance sheet and off-balance sheet items. The primary measurements we use to help us manage interest rate sensitivity are an earnings simulation model and an economic value of equity model. These measurements are used in conjunction with competitive pricing analysis and are further described below.

Earnings Simulation Model We believe interest rate risk is effectively measured by our earnings simulation modeling. Earning assets, interest-bearing liabilities and off-balance sheet financial instruments are combined with simulated forecasts of

interest rates for the next 12 months and 24 months. To limit interest rate risk, we have guidelines for our earnings at risk which seek to limit the variance of net interest income in instantaneous changes to interest rates. We also periodically monitor simulations based on various rate scenarios such as non-parallel shifts in market interest rates over time. For changes up or down in rates from our dynamic interest rate forecast over the next 12 and 24 months, limits in the decline in net interest income are as follows:

Estimated % Change in Net Interest Income Over 12 Months Maximum Percentage Decline in Net Interest Income from the Budgeted or Base Case Projection of Net Interest Income
March 31, 2020: Increase + Decrease - Next 12 Months
An instantaneous, parallel rate increase or decrease of the following at the beginning of the first quarter:
± 100 basis points 0.88% 0.39% 8%
± 200 basis points 0.13% 0.18% 14%

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			Maximum Percentage Decline
			in Net Interest
			Income from the Budgeted
	Estimated % Change in Net		or Base Case
	Interest Income Over 12		Projection of Net Interest
	Months		Income
March 31, 2021:	Increase +	Decrease -	Next 12 Months
An instantaneous, parallel rate increase or decrease of the following at the beginning of the third quarter:
± 100 basis points	6.22%	(0.81)%	8%
± 200 basis points	12.66%	(1.23)%	14%

Economic Value of Equity Our economic value of equity model measures the extent that estimated economic values of our assets, liabilities and off-balance sheet items will change as a result of interest rate changes. Economic values are determined by discounting expected cash flows from assets, liabilities and off-balance sheet items, which establishes a base case economic value of equity.

To help monitor our related risk, we’ve established the following policy limits regarding simulated changes in our economic value of equity:

March 31, 2020: Current Estimated Instantaneous Rate Change Maximum Percentage Decline in Economic Value of Equity from the Economic Value of Equity at Currently Prevailing Interest Rates
Instantaneous, Parallel Change in Prevailing
Interest Rates Equal to Increase + Decrease -
±100 basis points (0.36)% (5.17)% 10%
±200 basis points (3.86)% 1.35% 15%


			Maximum
			Percentage
			Decline in
			Economic Value
			of Equity from
			the Economic
			Value of Equity
	Current Estimated Instantaneous		at Currently
	Rate Change		Prevailing
March 31, 2021:	Increase +	Decrease -	Interest Rates

Instantaneous, Parallel Change in Prevailing Interest Rates Equal to:
±100 basis points	5.29%	(7.48)%	10%
±200 basis points	9.26%	(8.03)%	15%

At March 31, ~~2020,~~2021, our model results indicated that we were within these policy limits.

Liquidity Risk Management

The purpose of liquidity risk management is to ensure that there are sufficient cash flows to satisfy loan demand, deposit withdrawals, and our other needs. Traditional sources of liquidity for a bank include asset maturities and growth in core deposits. A bank may achieve its desired liquidity objectives from the management of its assets and liabilities and by internally generated funding through its operations. Funds invested in marketable instruments that can be readily sold and the continuous maturing of other earning assets are sources of liquidity from an asset perspective. The liability base provides sources of liquidity through attraction of increased deposits and borrowing funds from various other institutions.

Changes in interest rates also affect our liquidity position. We currently price deposits in response to market rates and intend to continue this policy. If deposits are not priced in response to market rates, a loss of deposits could occur which would negatively affect our liquidity position.

Scheduled loan payments are a relatively stable source of funds, but loan payoffs and deposit flows fluctuate significantly, being influenced by interest rates, general economic conditions and competition. Additionally, debt security investments are subject to prepayment and call provisions that could accelerate their payoff prior to stated maturity. We attempt to price our deposit products to meet our asset/liability objectives consistent with local market conditions. Our ALCO is responsible for monitoring our ongoing liquidity needs. Our regulators also monitor our liquidity and capital resources on a periodic basis.

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The Company has ~~$8.5~~$4.9 million in investments that mature throughout the next 12 months. The Company also anticipates ~~$14.4~~$16.7 million of principal payments from mortgage-backed securities over the same period. The Company also has unused borrowing capacity in the amount of ~~$196.6~~$276.7 million available with the Federal Reserve, FHLB, several correspondent banks and a line of credit. With these sources of funds, the Company currently anticipates adequate liquidity to meet the expected obligations of its customers.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

This item is not required for a Smaller Reporting Company.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of management, including SmartFinancial’s Chief Executive Officer and Chief Financial Officer, SmartFinancial has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of March 31, ~~2020~~2021 (the “Evaluation Date”). Based on such evaluation, ~~SmartFinancial's~~SmartFinancial’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, SmartFinancial’s disclosure controls and procedures were effective to ensure that information required to be disclosed by SmartFinancial in the reports that it files or submits under the Exchange Act is (i) accumulated and communicated to ~~SmartFinancial's~~SmartFinancial’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decision regarding the required disclosure and (ii) recorded, processed, summarized and reported within the time periods specified in the ~~SEC's~~SEC’s rules and forms.

There were no changes in SmartFinancial’s internal control over financial reporting during SmartFinancial’s fiscal quarter ended March 31, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, SmartFinancial’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

SmartFinancial, Inc. and its wholly owned subsidiary, SmartBank, are periodically involved as a plaintiff or a defendant in various legal actions in the ordinary course of business. While the outcome of these matters is not currently determinable, management does not expect the disposition of any of these matters to have a material adverse impact on the Company’s financial condition, financial statements or results of operations.

Item 1A. Risk Factors.

~~The Company disclosed risk~~

In addition to the other information set forth in this report, you should carefully consider the factors discussed under “Part I--Item 1A--Risk Factors” in ~~its Annual Report on~~our Form 10-K for the year ended December 31, ~~2019. The risks described may not be the only risks facing us. Additional risks~~2020. These factors could materially and ~~uncertainties not currently known to us or that are currently considered to not be material also may materially~~ adversely affect our business, financial condition, and/or operating results. The following risk factors have been included in this Quarterly Report on Form 10-Q in response to the global market disruptions that have resulted from the COVID-19 pandemic.

~~The ongoing COVID-19 pandemic and measures implemented to prevent its spread could have a material adverse effect on our business,~~liquidity, results of operations and ~~financial condition,~~capital position, and ~~such effects will depend on future developments, which are highly uncertain~~could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Please be aware that these risks may change over time and ~~are difficult~~other risks may prove to ~~predict.~~

~~Global health concerns relating to~~be important in the ~~COVID-19 outbreak~~future. In addition, these risks may be heightened by the continued disruption and ~~related government actions taken to reduce the spread of the virus~~uncertainty resulting from COVID-19. There have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty and reduced economic activity. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns. Such measures have significantly contributed to rising unemployment and negatively impacted consumer and business spending. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the CARES Act, but there can be no ~~assurance that such steps will be effective or achieve their desired results in a timely fashion.~~

The outbreak has adversely impacted and is likely to further adversely impact our workforce and operations and the operations of our borrowers, customers and business partners. In particular, we may experience financial losses due to a number of operational factors impacting us or our borrowers, customers or business partners, including but not limited to:

•credit losses resulting from financial stress being experienced by our borrowers as a result of the outbreak and related governmental actions, particularly in the hospitality, energy, retail and restaurant industries;

•~~declines in collateral values;~~

•~~third party disruptions, including outages at network providers and other suppliers;~~

•~~increased cyber and payment fraud risk, as cybercriminals attempt to profit~~material changes from the ~~disruption, given increased online and remote activity;~~

•risk ~~of litigation or other third-party claims, including with respect to our participation in the Payroll Protection Program and any other government-sponsored stimulus programs; and~~

•~~operational failures due to changes~~factors described in our ~~normal business practices necessitated by the outbreak and related governmental actions.~~

These factors may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided.

The spread of COVID-19 has caused us to modify our business practices (including restricting employee travel, and developing work from home and social distancing plans for our employees), and we may take further actions as may be required by government authorities or as we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities.

The extent to which the coronavirus outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to

experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a)

Not applicable

(b)

Not applicable

(c)

Issuer Purchases of Registered Equity Securities

~~(a) Not applicable~~

~~(b) Not applicable~~

~~(c) Issuer Purchases of Registered Equity Securities~~

On November 20, 2018, the Company announced that its board of directors has authorized a stock repurchase plan pursuant to which the Company may purchase up to $10.0 million in shares of the Company’s outstanding common stock. Stock repurchases under the plan will be made from time to time in the open market, at the discretion of the management of the Company, and in accordance with applicable legal requirements. The stock repurchase plan does not obligate the Company to repurchase any dollar amount or number of shares, and the program may be extended, modified, amended, suspended, or discontinued at any time. As of March 31, ~~2020~~2021, we have purchased ~~$2.0~~$5.5 million of the authorized $10.0 million and may purchase up to an additional ~~$8.0~~$4.5 million in the ~~Company's~~Company’s outstanding common stock.

The following table summarizes the ~~Company's~~Company’s repurchase activity during the three months ended March 31, ~~2020.~~

Period Total Number of Shares Repurchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands)
January 1, 2020 to January 31, 2020 — $ — — $ 10,000
February 1, 2020 to February 29, 2020 6,263 19.17 6,263 9,880
March 1, 2020 to March 31, 2020 119,316 15.68 119,316 8,009
Total 125,579 $ 15.86 125,579 $ 8,009

2021.


					Maximum
					Number (or
					Approximate
					Dollar Value) of
					Shares That May
				Total Number of Shares	Yet Be Purchased
	Total Number of	Weighted		Purchased as Part of	Under the Plans
	Shares	Average Price Paid		Publicly Announced	or Programs (in
Period	Repurchased	Per Share		Plans or Programs	thousands)
January 1, 2021 to January 31, 2021	28,189	$	20.15	28,189	$	5,124
February 1, 2021 to February 28, 2021	31,421		20.37	31,421		4,484
March 1, 2021 to March 31, 2021	—		—	—		4,484
Total	59,610	$	20.26	59,610	$	4,484

Item 3. Defaults Upon Senior Securities.

None.

~~None.~~

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Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

On March 9, 2020 (the “Grant Date”), pursuant to the SmartFinancial, Inc. 2015 Stock Incentive Plan (the “Plan”), the Board of Directors of the Company approved grants of performance-based restricted stock (the “Restricted Stock Awards”) to certain officers and employees of the Company and SmartBank, including William (“Billy”) Y. Carroll, Jr., the President and Chief Executive Officer of the Company and SmartBank; Ronald J. Gorczynski, the Chief Financial Officer of the Company and SmartBank; and Wesley M. (“Miller”) Welborn, Chairman of the Company and SmartBank (such individuals, collectively, the “Designated Officers”). The Restricted Stock Award for each Designated Officer is subject to the terms of a Performance-Based Restricted Stock Award Agreement entered into by the Company and the Designated Officer, the form of which is filed herewith as Exhibit 10.7 (the “Form of Performance-Based Restricted Stock Award Agreement”). The number of shares of performance-based restricted stock granted to each Designated Officer is set forth below.


~~Name~~						~~Shares of Restricted Stock Granted~~
~~William ("Billy") Y. Carroll, Jr.~~						~~6,500~~
~~Wesley M. ("Miller") Welborn~~						~~4,400~~
~~Ronald J. Gorczynski~~						~~2,500~~

Generally, up to 50% of each Designated Officer’s restricted shares can be earned if the Company achieves certain operating earnings per share targets for the fiscal year ending December 31, 2020, and up to 50% of each Designated Officer’s restricted shares can be earned if the Company achieves certain operating return on average assets targets for the fiscal year ending December 31, 2020. All restricted shares so earned generally will vest on January 1, 2025, subject to the Designated Officer’s continuous employment until such date.

If a Designated Officer’s employment is terminated for “cause” (as defined in the Form of Performance-Based Restricted Stock Award Agreement) or by the Designated Officer without “good reason” (as defined in the Form of Performance-Based Restricted Stock Award Agreement), any unvested restricted shares will be forfeited by the Designated Officer.

If a Designated Officer’s employment is terminated without cause or by the Designated Officer with good reason, or in the event of a Designated Officer’s “retirement” (as defined in the Form of Performance-Based Restricted Stock Award Agreement), any restricted shares that have been earned but that have not vested will vest on a pro rata basis based on the number of full calendar months the Designated Officer has been employed since the Grant Date. Any restricted shares that have been earned but that have not vested will vest on an accelerated basis in full upon the death or disability (as defined in the Plan) of a Designated Officer. In the event of a change in control (as defined in the Form of Performance-Based Restricted Stock Award Agreement), all unvested restricted shares, whether or not they have been earned, will vest on an accelerated basis in full.

The foregoing summary of the terms of the Restricted Stock Awards is not complete and is qualified in its entirety by reference to the Form of Performance-Based Restricted Stock Award Agreement, which is incorporated herein by reference.

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Item 6. Exhibits


Exhibit No.	~~Description~~	Description		Location
2.1		Agreement and Plan of Merger, dated ~~as of October 29, 2019,~~April 13, 2021, by and between SmartFinancial, Inc. and ~~Progressive Financial Group,~~Sevier County Bancshares, Inc.		Incorporated by reference to Exhibit 2.1 to Form 8-K filed ~~October 30, 2019~~April 14, 2021
~~3.1~~ 2.2		Purchase Agreement, dated as of May 2, 2021, by and among Warren Payne, G. Price Cooper, B. Wade West, Craig Phillipy, and SmartBank		Incorporated by reference to Exhibit 2.1 to Form 8-K filed May 3, 2021
3.1		Second Amended and Restated Charter of SmartFinancial, ~~Inc~~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~~Inc.		Incorporated by reference to Exhibit 3.1 to Form 8-K filed October 26, 2015
~~4.1~~ 31.1	~~Specimen Common Stock Certificate~~	~~Incorporated by reference to Exhibit 4.2 to Form 10-K filed March 30, 2016~~
~~4.2~~			~~The rights of securities holders are defined in the Charter and Bylaws provided in Exhibits 3.1 and 3.2~~
~~10.1~~			~~Executive Change in Control Agreement with W. Miller Welborn, dated as of March 9, 2020~~		~~Incorporated by reference to Exhibit 10.1 to Form 8-K filed March 11, 2020~~
~~10.2~~			~~Employment Agreement with William Y. Carroll, Jr., dated as of March 9, 2020~~		~~Incorporated by reference to Exhibit 10.2 to Form 8-K filed March 11, 2020~~
~~10.3~~			~~Employment Agreement with Ronald J. Gorczynski, dated as of March 9, 2020~~		~~Incorporated by reference to Exhibit 10.3 to Form 8-K filed March 11, 2020~~
~~10.4~~			~~Loan and Security Agreement, dated as of March 31, 2020, by and between SmartFinancial, Inc., as Borrower, and SerrvisFirst Bank, as Lender~~		~~Incorporated by reference to Exhibit 10.1 to Form 8-K filed April 3, 2020~~
~~10.5~~			~~Revolving Note, dated as of March 31, 2020, by and between SmartFinancial, Inc., as Borrower, and ServisFirst Bank, as Lender~~		~~Incorporated by reference to Exhibit 10.2 to Form 8-K filed April 3, 2020~~
~~10.6~~			~~Pledge Agreement, dated as of March 31, 2020, by and between~~ ~~SmartFinancial, Inc.,~~ ~~as Borrower, and ServisFirst Bank, as Lender~~		~~Incorporated by reference to Exhibit 10.3 to Form 8-K filed April 3, 2020~~
~~10.7~~			Form of Performance-Based Restricted Stock Award Agreement*		~~Filed herewith.~~
~~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 pursuant to Item 601(a)(5) of Regulation S-K. The registrant will furnish a copy of any omitted schedule to the Securities and Exchange Commission upon request.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		SmartFinancial, Inc.

Date:	May ~~11, 2020~~10, 2021		/s/ William Y. Carroll, Jr.
			William Y. Carroll, Jr.
			President and Chief Executive Officer
			(principal executive officer)

Date:	May ~~11, 2020~~10, 2021		/s/ Ronald J. Gorczynski
			Ronald J. Gorczynski
			Executive Vice President and Chief Financial Officer
			(principal financial officer and accounting officer)


PART I –FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (Unaudited)	3

	Consolidated Balance Sheets at March 31,~~, 20~~20 2021 and December 31, ~~201~~2020 9	3

	Consolidated Statements of Income for the Three Months Ended March 31,~~, 20~~20 2021 and ~~201~~2020 9	4

	Consolidated Statements of Comprehensive Income for the Three Months Ended ~~Marc~~hMarch 31,~~, 20~~20 2021 and ~~201~~2020 9	5

	Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31,~~, 20~~20 2021 and ~~201~~2020 9	6

	Consolidated Statements of Cash Flows for the Three Months Ended March 31,~~, 20~~20 2021 and ~~201~~2020 9	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40 36

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52 49

Item 4.	Controls and Procedures	53 49

PART II – OTHER INFORMATION			50

Item 1.	Legal Proceedings	54 50

Item 1A.	Risk Factors	54 50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55 50

Item 3.	Defaults Upon Senior Securities	55 50

Item 4.	Mine Safety Disclosures	55 51

Item 5.	Other Information	55 51

Item 6.	Exhibits	57 52


	(Unaudited) March 31, 2020		December 31, 2019
ASSETS:
Cash and due from banks	$	38,802	$	33,205
Interest-bearing deposits with banks	194,454		127,329
Federal funds sold	75,833		23,437
Total cash and cash equivalents	309,089		183,971
Securities available-for-sale, at fair value	201,002		178,348
Other investments	14,113		12,913
Loans held for sale	6,045		5,856
Loans	2,139,247		1,897,392
Less: Allowance for loan losses	(13,431)		(10,243)
Loans, net	2,125,816		1,887,149

Premises and equipment, net	73,801		59,433
Other real estate owned	5,894		1,757
Goodwill and core deposit intangible, net	86,503		77,193
Bank owned life insurance	30,671		24,949
Other assets	20,781		17,554
Total assets	$	2,873,715	$	2,449,123
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand	$	431,781	$	364,155
Interest-bearing demand	444,141		380,234
Money market and savings	730,392		623,284
Time deposits	735,616		679,541
Total deposits	2,341,930		2,047,214
Securities sold under agreement to repurchase	6,164		6,184
Federal Home Loan Bank advances and other borrowings	125,439		25,439
Subordinated debt	39,283		39,261
Other liabilities	24,699		18,278
Total liabilities	2,537,515		2,136,376
Shareholders' equity:
Preferred stock, $1 par value; 2,000,000 shares authorized; NaN shares issued and outstanding	—		—
Common stock, $1 par value; 40,000,000 shares authorized; 15,221,990 and 14,008,233 shares issued and outstanding, respectively	15,222		14,008
Additional paid-in capital	254,356		232,732
Retained earnings	67,869		65,839
Accumulated other comprehensive income (loss)	(1,247)		168
Total shareholders' equity	336,200		312,747
Total liabilities and shareholders' equity	$	2,873,715	$	2,449,123


	Three Months Ended March 31,
	2020		2019
Interest income:
Loans, including fees	$	26,434	$	24,975
Securities available-for-sale:
Taxable	679		971
Tax-exempt	283		424
Federal funds sold and other earning assets	602		573
Total interest income	27,998		26,943

Interest expense:
Deposits	4,754		5,251
Securities sold under agreements to repurchase	5		8
Federal Home Loan Bank advances and other borrowings	84		103
Subordinated debt	584		584
Total interest expense	5,427		5,946
Net interest income	22,571		20,997
Provision for loan losses	3,200		797
Net interest income after provision for loan losses	19,371		20,200

Noninterest income:
Service charges on deposit accounts	770		654

Mortgage banking	584		282
Investment services	437		169
Insurance commissions	269		—
Interchange and debit card transaction fees	276		175

Other	482		418
Total noninterest income	2,818		1,698

Noninterest expense:
Salaries and employee benefits	10,006		8,398
Occupancy and equipment	1,911		1,640
FDIC insurance	180		179
Other real estate and loan related expense	545		490
Advertising and marketing	198		295
Data processing	538		615
Professional services	711		662
Amortization of intangibles	362		344
Software as service contracts	470		567
Merger related and restructuring expenses	2,096		923
Other	1,776		1,466
Total noninterest expense	18,793		15,579
Income before income tax expense	3,396		6,319
Income tax expense	664		1,588


Net income	$	2,732	$	4,731

Earnings per common share:
Basic	$	0.19	$	0.34
Diluted	$	0.19	$	0.34
Weighted average common shares outstanding:
Basic	14,395,103		13,942,016
Diluted	14,479,671		14,018,163


	Common Stock
	Shares	Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total
Balance, December 31, 2018	13,933,504	$	13,934	$	231,852	$	39,991	$	(2,765)	$	283,011
Net income	—	—		—		4,731		—		4,731
Other comprehensive income	—	—		—		—		2,331		2,331




Common stock issued pursuant to:
Stock awards	3,298	3		61		—		—		65
Exercise of stock options	14,788	15		184		—		—		199

Stock compensation expense	—	—		143		—		—		143
Balance, March 31, 2019	13,951,590	$	13,952	$	232,241	$	44,722	$	(434)	$	290,481


Balance, December 31, 2019	14,008,233	$	14,008	$	232,732	$	65,839	$	168	$	312,747
Net income	—	—		—		2,732		—		2,732
Other comprehensive loss	—	—		—		—		(1,415)		(1,415)


Common stock issued pursuant to:

Exercise of stock options	14,858	15		158		—		—		173
Restricted stock, net of forfeitures	31,900	32		(32)		—		—		—
Shareholders of Progressive Financial Group, Inc.	1,292,578	1,293		23,254		—		—		24,547
Stock compensation expense	—	—		110		—		—		110
Common stock dividend ($0.05 per share)	—	—		—		(702)		—		(702)
Purchase of common stock	(125,579)	(126)		(1,866)		—		—		(1,992)
Balance, March 31, 2020	15,221,990	$	15,222	$	254,356	$	67,869	$	(1,247)	$	336,200


	Three Months Ended March 31,
	2020		2019
Cash flows from operating activities:
Net income	$	2,732	$	4,731
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,634		1,156
Accretion of fair value purchase accounting adjustments, net	(1,841)		(1,717)
Provision for loan losses	3,200		797
Stock compensation expense	110		143

Deferred income tax expense	90		1,039
Increase in cash surrender value of bank owned life insurance	(162)		(158)
Loss on disposal of fixed assets	—		7
Net losses from sale of other real estate owned	14		26
Net gains from sale of loans	(576)		(282)
Origination of loans held for sale	(15,195)		(16,805)
Proceeds from sales of loans held for sale	15,582		16,061
Net change in:
Accrued interest receivable	35		(1,093)
Accrued interest payable	784		748
Other assets	685		(1,660)
Other liabilities	2,010		4,702
Net cash provided by operating activities	9,102		7,695
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale	2,115		—
Proceeds from maturities and calls of securities available-for-sale	3,250		5,000
Proceeds from paydowns of securities available-for-sale	3,816		3,173
Purchases of securities available-for-sale	(3,377)		(1,054)
Purchases of other investments	(507)		(899)

Net increase in loans	(52,721)		(61,011)
Purchases of premises and equipment	(2,429)		(1,296)
Proceeds from sale of other real estate owned	120		458
Net cash and cash equivalents received from business combination	46,132		—
Net cash used in investing activities	(3,601)		(55,629)
Cash flows from financing activities:
Net increase in deposits	22,158		72,166
Net decrease in securities sold under agreements to repurchase	(20)		(4,686)

Proceeds from Federal Home Loan Bank advances and other borrowings	100,000		50,094
Repayment of Federal Home Loan Bank advances and other borrowings	—		(52,732)
Cash dividends paid	(702)		—
Issuance of common stock	173		264
Purchase of common stock	(1,992)		—
Net cash provided by financing activities	119,617		65,106
Net change in cash and cash equivalents	125,118		17,172
Cash and cash equivalents, beginning of period	183,971		115,822
Cash and cash equivalents, end of period	$	309,089	$	132,994
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	4,643	$	5,198
Cash paid during the period for income taxes	—		—
Noncash investing and financing activities:
Acquisition of real estate through foreclosure	676		55


Change in goodwill due to acquisitions	8,302		—
Initial recognition of operating lease right-of-use assets	222		2,344
Initial recognition of operating lease liabilities	222		2,344


	As recorded		Fair value		As recorded
	by PFG		adjustments ⁽¹⁾		by the Company
Assets:
Cash & cash equivalents	$	55,971	$	—	$	55,971
Investment securities available-for-sale	27,054		203		27,257
Restricted investments	692		—		692
Loans	191,672		(3,691)		187,981
Allowance for loan losses	(2,832)		2,832		—
Premises and equipment, net	15,681		(2,919)		12,762
Bank owned life insurance	5,560		—		5,560
Deferred tax asset, net	—		813		813
Intangibles	—		1,370		1,370
Other real estate owned	3,695		(100)		3,595
Interest Receivable	1,061		(280)		781
Prepaids	375		(174)		201
Goodwill	231		(231)		—
Other assets	1,881		—		1,881
Total assets acquired	$	301,041	$	(2,177)	$	298,864

Liabilities:
Deposits	$	271,276	$	—	$	271,276
Time deposit premium	—		729		729
Payables and other liabilities	776		—		776
Total liabilities assumed	272,052		729		272,781
Excess of assets assumed over liabilities assumed	$	28,989
Aggregate fair value adjustments			$	(2,906)
Total identifiable net assets					26,083
Consideration transferred:
Cash					9,838
Common stock issued (1,292,578 shares)					24,547
Total fair value of consideration transferred					34,385

Goodwill					$	8,302
⁽¹⁾ Fair values are preliminary and are subject to refinement for a period of one year after the closing date of an acquisition as information relative to the closing date fair value becomes available.


	Three Months Ended March 31,
	Revenue		Net Income
2020:
Actual PFG results included in statement of income since acquisition date	$	505	$	117
Supplemental consolidation pro-forma as if PFG had been acquired January 1, 2019	28,050		4,013

2019:
Supplemental consolidation pro-forma as if PFG had been acquired January 1, 2019	$	26,766	$	3,513


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2020:
U.S. Government-sponsored enterprises (GSEs)	$	17,012	$	96	$	(63)	$	17,045
Municipal securities	82,599		970		(252)		83,317
Other debt securities	5,461		129		(128)		5,462
Mortgage-backed securities (GSEs)	94,306		1,482		(610)		95,178
	$	199,378	$	2,677	$	(1,053)	$	201,002


December 31, 2019:
U.S. Government-sponsored enterprises (GSEs)	$	19,015	$	41	$	(56)	$	19,000
Municipal securities	63,792		618		(19)		64,391
Other debt securities	3,481		22		(33)		3,470
Mortgage-backed securities (GSEs)	91,531		382		(426)		91,487
	$	177,819	$	1,063	$	(534)	$	178,348


	Less than 12 Months						12 Months or Greater						Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
March 31, 2020:
U.S. Government- sponsored enterprises (GSEs)	$	696	$	(63)	$	—	$	—	$	696	$	(63)
Municipal securities	16,370		(250)		527		(2)		16,897		(252)
Other debt securities	1,970		(10)		863		(118)		2,833		(128)
Mortgage-backed securities (GSEs)	29,967		(425)		7,125		(185)		37,092		(610)
	$	49,003	$	(748)	$	8,515	$	(305)	$	57,518	$	(1,053)


	Gross Unrealized Loss		Number of Securities
U.S. Government-sponsored enterprises (GSEs)	$	—	—
Municipal securities	(2)		1
Other debt securities	(118)		1
Mortgage-backed securities (GSEs)	(185)		11
	$	(305)	13


	March 31,		December 31,
	2020		2019
Federal Reserve Bank stock	$	7,925	$	7,917
Federal Home Loan Bank stock	5,838		4,646
First National Bankers Bank stock	350		350
	$	14,113	$	12,913


	March 31, 2020										December 31, 2019
	PCI Loans¹		All Other Loans²		Total		PCI Loans¹		All Other Loans²		Total
Commercial real estate	$	16,589	$	992,446	$	1,009,035	$	15,255	$	890,051	$	905,306
Consumer real estate	11,950		476,823		488,773		6,541		416,797		423,338
Construction and land development	6,479		246,966		253,445		4,458		223,168		227,626
Commercial and industrial	143		377,030		377,173		407		336,668		337,075
Consumer and other	325		16,541		16,866		326		9,577		9,903
Total loans	35,486		2,109,806		2,145,292		26,987		1,876,261		1,903,248
Less: Allowance for loan losses	—		(13,431)		(13,431)		(156)		(10,087)		(10,243)
Loans, net	$	35,486	$	2,096,375	$	2,131,861	$	26,831	$	1,866,174	$	1,893,005


	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
March 31, 2020:
Performing loans	$	991,914	$	475,303	$	246,359	$	376,872	$	16,541	$	2,106,989
Impaired loans	532		1,520		607		158		—		2,817
	992,446		476,823		246,966		377,030		16,541		2,109,806
PCI loans	16,589		11,950		6,479		143		325		35,486
Total loans	$	1,009,035	$	488,773	$	253,445	$	377,173	$	16,866	$	2,145,292


December 31, 2019:
Performing loans	$	889,795	$	415,250	$	222,621	$	336,508	$	9,577	$	1,873,751
Impaired loans	256		1,547		547		160		—		2,510
	890,051		416,797		223,168		336,668		9,577		1,876,261
PCI loans	15,255		6,541		4,458		407		326		26,987
Total loans	$	905,306	$	423,338	$	227,626	$	337,075	$	9,903	$	1,903,248


	Three Months Ended March 31, 2020
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Beginning balance	$	4,508	$	2,576	$	1,127	$	1,957	$	75	$	10,243
Charged off loans	—		(2)		—		(8)		(76)		(86)
Recoveries of charge-offs	2		6		2		42		22		74
Provision (reallocation) charged to expense	1,453		721		355		566		105		3,200
Ending balance	$	5,963	$	3,301	$	1,484	$	2,557	$	126	$	13,431


	Three Months Ended March 31, 2019
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Beginning balance	$	3,639	$	1,789	$	795	$	1,746	$	306	$	8,275
Charged off loans	—		(2)		—		(318)		(130)		(450)
Recoveries of charge-offs	2		4		2		12		62		82
Provision (reallocation) charged to expense	433		158		57		269		(120)		797
Ending balance	$	4,074	$	1,949	$	854	$	1,709	$	118	$	8,704


	March 31, 2020
Non PCI Loans:	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Pass	$	903,306	$	468,494	$	238,701	$	368,506	$	16,423	$	1,995,430
Watch	81,277		5,697		7,587		7,233		38		101,832
Special mention	7,225		748		—		1,020		—		8,993
Substandard	638		1,722		678		221		56		3,315
Doubtful	—		162		—		50		24		236
Total	992,446		476,823		246,966		377,030		16,541		2,109,806


PCI Loans:
Pass	13,220		8,122		2,169		48		300		23,859
Watch	2,189		743		3,743		—		14		6,689
Special mention	21		59		—		—		—		80
Substandard	1,159		3,026		567		95		11		4,858
Doubtful	—		—		—		—		—		—
Total	16,589		11,950		6,479		143		325		35,486
Total loans	$	1,009,035	$	488,773	$	253,445	$	377,173	$	16,866	$	2,145,292


PCI Loans:
Pass	12,473		5,258		902		41		300		18,974
Watch	2,234		38		3,556		—		13		5,841
Special mention	139		60		—		—		—		199
Substandard	409		1,185		—		366		13		1,973
Doubtful	—		—		—		—		—		—
Total	15,255		6,541		4,458		407		326		26,987
Total loans	$	905,306	$	423,338	$	227,626	$	337,075	$	9,903	$	1,903,248


	March 31, 2020
	30-60 Days Past Due and Accruing		61-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Past Due and Nonaccrual		PCI Loans		Current Loans		Total Loans
Commercial real estate	$	4,305	$	418	$	—	$	397	$	5,120	$	16,589	$	987,326	$	1,009,035
Consumer real estate	4,029		486		—		1,860		6,375		11,950		470,448		488,773
Construction and land development	564		40		—		679		1,283		6,479		245,683		253,445
Commercial and industrial	665		302		—		48		1,015		143		376,015		377,173
Consumer and other	373		6		10		76		465		325		16,076		16,866
Total	$	9,936	$	1,252	$	10	$	3,060	$	14,258	$	35,486	$	2,095,548	$	2,145,292


	March 31, 2020										December 31, 2019
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Impaired loans without a valuation allowance:
Commercial real estate	$	136	$	136	$	—	$	256	$	261	$	—
Consumer real estate	546		546		—		553		553		—
Construction and land development	607		607		—		547		547		—
Commercial and industrial	—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—
	1,289		1,289		—		1,356		1,361		—

Impaired loans with a valuation allowance:
Commercial real estate	396		402		46		—		—		—
Consumer real estate	974		974		379		994		994		343
Construction and land development	—		—		—		—		—		—
Commercial and industrial	158		158		130		160		160		132
Consumer and other	—		—		—		—		—		—
	1,528		1,534		555		1,154		1,154		475

PCI loans:
Commercial real estate	1,010		1,019		—		17		99		17
Consumer real estate	486		491		—		1,205		1,371		74
Construction and land development	253		254		—		—		—		—
Commercial and industrial	376		378		—		396		534		59
Consumer and other	14		14		—		45		51		6
	2,139		2,156		—		1,663		2,055		156

Total impaired loans	$	4,956	$	4,979	$	555	$	4,173	$	4,570	$	631


	Three Months Ended
	March 31,
	2020		2019
Accretable yield, beginning of period	$	8,454	$	7,052
Additions	2,515		—
Accretion income	(2,077)		(1,254)
Reclassification	1,916		1,035
Other changes, net	171		1,811
Accretable yield, end of period	$	10,979	$	8,644


	March 31, 2020		December 31, 2019
Core deposit intangible:
Balance, beginning of period	$	14,549	$	14,549
Acquisition of PFG	1,370		—
Balance, gross core deposit intangible	15,919		14,549
Less: accumulated amortization	(3,332)		(2,970)
Net core deposit intangible, net	$	12,587	$	11,579


Remainder of 2020	$	1,207
2021	1,570
2022	1,526
2023	1,485
2024	1,456
Thereafter	5,343
Total	$	12,587


	March 31, 2020		December 31, 2019
Long-term advance dated September 10, 2019, requiring monthly interest payments, fixed at 0.93%, with a put option exercisable on September 10, 2020 and then quarterly thereafter, principal due in September 2029.¹	$	25,000	$	25,000
Long-term advance dated February 28, 2020, requiring monthly interest payments, fixed at 0.46%, with a put option exercisable on February, 26, 2021 and then quarterly thereafter, principal due in February 2030.¹	50,000		—
Total	$	75,000	$	25,000
¹On agreements with put options, the FHLB has the right, at its discretion, to terminate the entire advance prior to the stated maturity date. The termination option may only be exercised on the expiration date of the predetermined lockout period and on a quarterly basis thereafter.


Remainder of 2020	$	50,043
2021	45
2022	47
2023	50
2024	52
Thereafter	75,202
Total	$	125,439


	Number	Weighted Average Exercisable Price
Outstanding at December 31, 2019	136,658	$	10.29
Granted	—	—
Exercised	(14,858)	11.62
Forfeited	—	—
Outstanding at March 31, 2020	121,800	$	10.13


		Options Outstanding							Options Exercisable
			Weighted- Average Remaining	Weighted- Average			Weighted- Average
Exercise		Number	Contractual	Exercise		Number	Exercise
Prices		Outstanding	Life	Price		Exercisable	Price
$	6.60	25,000	1.6 years	$	6.60	25,000	$	6.60
6.80		13,250	0.9 years	6.80		13,250	6.80
9.48		21,000	2.7 years	9.48		21,000	9.48
9.60		28,250	3.2 years	9.60		28,250	9.60
11.76		2,266	2.2 years	11.76		2,266	11.76
$	15.05	32,034	5.0 years	15.05		32,034	15.05


Outstanding, end of period		121,800	3.0 years	$	10.13	121,800	$	10.13


		SARs Outstanding							SARs Exercisable
			Weighted- Average Remaining	Weighted- Average			Weighted- Average
Exercise		Number	Contractual	Exercise		Number	Exercise
Prices		Outstanding	Life	Price		Exercisable	Price
$	15.19	18,000	3.8 years	$	15.19	—	$	—
18.12		21,000	2.8 years	18.12		—	—
21.61		34,000	1.8 years	21.61		—	—
$	21.72	12,000	0.8 years	21.72		12,000	21.72
Outstanding, end of period		85,000	2.3 years	$	19.40	12,000	$	21.72