United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~September 30, 2021~~March 31, 2022



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

For the transition period from __________ to __________

Commission File Number: 001-37661

(Exact name of registrant as specified in its charter)



Tennessee		62-1173944
(State 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
(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: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

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).

Yes ☒ No ☐

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).

Yes ☐ No ☒

As of ~~November 5, 2021,~~May 4, 2022, there were ~~16,802,080~~16,896,987 shares of common stock, $1.00 par value per share, issued and outstanding.

Table of Contents

TABLE OF CONTENTS


PART I –FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (Unaudited)	3

	Consolidated Balance Sheets at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021	3

	Consolidated Statements of Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	4

	Consolidated Statements of Comprehensive Income (Loss) for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	5

	Consolidated Statements of Changes in Shareholders’ Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	6

	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4142

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5655

Item 4.	Controls and Procedures	5655

PART II – OTHER INFORMATION		5756

Item 1.	Legal Proceedings	5756

Item 1A.	Risk Factors	5756

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5756

Item 3.	Defaults Upon Senior Securities	5756

Item 4.	Mine Safety Disclosures	5857

Item 5.	Other Information	5857

Item 6.	Exhibits	5958

Table of Contents

PART I –FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

SMARTFINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except for share data)

(Unaudited)



September 30,

December 31,

2021

2020*
ASSETS:




Cash and due from banks

$
79,827

$
50,460
Interest-bearing deposits with banks

969,929

364,846
Federal funds sold

41,404

66,413
Total cash and cash equivalents

1,091,160

481,719
Securities available-for-sale, at fair value

339,343

215,634
Other investments

14,972

14,794
Loans held for sale

3,418

11,721
Loans and leases

2,652,663

2,382,243
Less: Allowance for loan and lease losses

(19,295)

(18,346)
Loans and leases, net

2,633,368

2,363,897
Premises and equipment, net

85,346

72,682
Other real estate owned

2,415

4,619
Goodwill and other intangibles, net

104,930

86,471
Bank owned life insurance

79,145

31,215
Other assets

29,934

22,197
Total assets

$
4,384,031

$
3,304,949

LIABILITIES AND SHAREHOLDERS' EQUITY:




Deposits:




Noninterest-bearing demand

$
977,180

$
685,957
Interest-bearing demand

847,007

649,129
Money market and savings

1,389,393

919,631
Time deposits

585,692

550,498
Total deposits

3,799,272

2,805,215
Borrowings

88,748

81,199
Subordinated debt

41,909

39,346
Other liabilities

29,382

22,021
Total liabilities

3,959,311

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; 16,801,447 and 15,107,214 shares issued and outstanding, respectively

16,801

15,107
Additional paid-in capital

292,760

252,693
Retained earnings

112,600

87,185
Accumulated other comprehensive income

2,559

2,183
Total shareholders' equity

424,720

357,168
Total liabilities and shareholders' equity

$
4,384,031

$
3,304,949


	(Unaudited)
	March 31,		December 31,
	2022		2021*
ASSETS:
Cash and due from banks	$	83,080	$	110,333
Interest-bearing deposits with banks		643,388		897,244
Federal funds sold		37,500		37,500
Total cash and cash equivalents		763,968		1,045,077
Securities available-for-sale, at fair value		540,483		482,453
Securities held-to-maturity, at amortized cost		289,532		76,969
Other investments		16,499		16,494
Loans held for sale		5,894		5,103
Loans and leases		2,806,026		2,693,397
Less: Allowance for loan and lease losses		(20,078)		(19,352)
Loans and leases, net		2,785,948		2,674,045
Premises and equipment, net		84,793		85,958
Other real estate owned		1,612		1,780
Goodwill and other intangibles, net		105,215		105,852
Bank owned life insurance		80,074		79,619
Other assets		44,561		38,229
Total assets	$	4,718,579	$	4,611,579

LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand	$	1,093,933	$	1,055,125
Interest-bearing demand		975,272		899,158
Money market and savings		1,573,101		1,493,007
Time deposits		549,047		574,648
Total deposits		4,191,353		4,021,938
Borrowings		36,713		87,585
Subordinated debt		41,952		41,930
Other liabilities		28,519		30,696
Total liabilities		4,298,537		4,182,149
Shareholders' equity:
Preferred stock, $1 par value; 2,000,000 shares authorized; No shares issued and outstanding		—		—
Common stock, $1 par value; 40,000,000 shares authorized; 16,893,282 and 16,802,990 shares issued and outstanding, respectively		16,893		16,803
Additional paid-in capital		293,376		292,937
Retained earnings		125,329		118,247
Accumulated other comprehensive income (loss)		(15,556)		1,443
Total shareholders' equity		420,042		429,430
Total liabilities and shareholders' equity	$	4,718,579	$	4,611,579

* Derived from audited financial statements.

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

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

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


		Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2021		2020		2021		2020		2022		2021
Interest income:
Loans and leases, including fees	$	31,674	$	28,621	$	88,015	$	83,718	$	29,643	$	28,018
Securities available-for-sale:
Securities:
Taxable		832		546		2,472		1,813		2,418		724
Tax-exempt		331		364		894		1,064		368		259
Federal funds sold and other earning assets		474		327		1,074		1,206		486		291
Total interest income		33,311		29,858		92,455		87,801		32,915		29,292
Interest expense:
Deposits		2,153		2,897		6,733		11,016		2,014		2,331
Borrowings		121		334		360		674		157		117
Subordinated debt		655		584		1,823		1,751		626		584
Total interest expense		2,929		3,815		8,916		13,441		2,797		3,032
Net interest income		30,382		26,043		83,539		74,360		30,118		26,260
Provision for loan and lease losses		1,149		2,634		1,211		8,683		1,006		67
Net interest income after provision for loan and lease losses		29,233		23,409		82,328		65,677		29,112		26,193
Noninterest income:
Service charges on deposit accounts		1,220		892		3,278		2,370		1,319		1,009
Gain (loss) on sale of securities		45		(9)		45		6
Mortgage banking		994		1,029		3,238		2,544		834		1,139
Investment services		448		359		1,546		1,159		1,070		531
Insurance commissions		745		560		2,768		1,302		901		1,466
Interchange and debit card transaction fees, net		1,078		868		2,839		1,652		1,284		839
Other		1,779		422		3,429		1,417		1,703		707
Total noninterest income		6,309		4,121		17,143		10,450		7,111		5,691
Noninterest expense:
Salaries and employee benefits		13,594		11,032		36,666		31,395		15,046		10,869
Occupancy and equipment		2,536		2,186		7,170		6,093		3,059		2,341
FDIC insurance		525		534		1,266		894		641		371
Other real estate and loan related expense		407		643		1,514		1,535		729		602
Advertising and marketing		235		253		654		653		369		190
Data processing and technology		1,753		1,131		4,642		3,293		1,586		1,379
Professional services		810		594		2,300		2,172		1,242		641
Amortization of intangibles		711		402		1,597		1,169		637		444
Merger related and restructuring expenses		464		290		939		3,863		439		103
Other		2,274		2,102		6,822		5,699		1,970		2,524
Total noninterest expense		23,309		19,167		63,570		56,766		25,718		19,464
Income before income tax expense		12,233		8,363		35,901		19,361		10,505		12,420
Income tax expense		2,633		1,968		7,767		4,059		2,246		2,664
Net income	$	9,600	$	6,395	$	28,134	$	15,302	$	8,259	$	9,756
Earnings per common share:
Basic	$	0.62	$	0.42	$	1.85	$	1.03	$	0.49	$	0.65
Diluted	$	0.61	$	0.42	$	1.84	$	1.02	$	0.49	$	0.65
Weighted average common shares outstanding:
Basic		15,557,528		15,160,579		15,192,919		14,903,757		16,718,371		15,011,573
Diluted		15,691,126		15,210,611		15,312,755		14,965,455		16,858,288		15,111,947

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

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in thousands)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
		2021		2020	2021		2020		2022		2021
Net income	$	9,600	$	6,395	$	28,134	$	15,302	$	8,259	$	9,756
Other comprehensive income:
Unrealized holding gains (losses) on securities available-for-sale arising during the period		284		77		(971)		2,980
Other comprehensive income (loss):
Investment securities:
Unrealized holding (losses) on securities available-for-sale										(20,348)		(2,808)
Tax effect		(74)		(142)		264		(779)		5,256		738
Reclassification adjustment for realized (gains) losses included in net income		(45)		(9)		(45)		6
Reclassification of unrealized loss on securities transferred from available-for-sale to held-to-maturity										(2,009)		—
Tax effect		12		2		12		(2)		519		—
Unrealized gains (losses) on securities available-for-sale arising during the period, net of tax		177		(72)		(740)		2,205
Amortization of unrealized gains on investment securities transferred from available-for-sale to held-to-maturity										(11)		—
Tax effect										3		—
Unrealized gains (losses) on securities available-for-sale, net of tax										(16,590)		(2,070)
Fair value hedging activities:
Unrealized gains (losses) on fair value municipal security hedges		59		538		1,510		(1,843)		(551)		1,313
Tax effect		(15)		(46)		(394)		482		142		(343)
Unrealized gains (losses) on fair value municipal security hedge instruments arising during the period, net of tax		44		492		1,116		(1,361)		(409)		970

Total other comprehensive income		221		420		376		844
Comprehensive income	$	9,821	$	6,815	$	28,510	$	16,146
Total other comprehensive income (loss)										(16,999)		(1,100)
Comprehensive income (loss)									$	(8,740)	$	8,656

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

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY - (Unaudited)

For the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~

(Dollars in thousands, except for share data)


								Accumulated											Accumulated
								Other											Other
	Common Stock			Additional		Retained		Comprehensive				Common Stock			Additional		Retained		Comprehensive
	Shares	Amount		Paid-in Capital		Earnings		(Loss) Income		Total		Shares	Amount		Paid-in Capital		Earnings		Income (Loss)		Total
Balance, December 31, 2019	14,008,233	$	14,008	$	232,732	$	65,839	$	168	$	312,747
Net income	—		—		—		15,302		—		15,302
Other comprehensive income	—		—		—		—		844		844
Common stock issued pursuant to:
Exercise of stock options	27,858		28		254		—		—		282
Restricted stock	36,113		36		(36)		—		—		—
Shareholders' of Progressive Financial Group, Inc.	1,292,578		1,293		23,254		—		—		24,547
Stock compensation expense	—		—		365		—		—		365
Common stock dividend ($0.15 per share)	—		—		—		(2,223)		—		(2,223)
Repurchases of common stock	(131,555)		(132)		(1,943)		—		—		(2,075)
Balance, September 30, 2020	15,233,227	$	15,233	$	254,626	$	78,918	$	1,012	$	349,789

Balance, December 31, 2020	15,107,214	$	15,107	$	252,693	$	87,185	$	2,183	$	357,168	15,107,214	$	15,107	$	252,693	$	87,185	$	2,183	$	357,168
Net income	—		—		—		28,134		—		28,134	—		—		—		9,756		—		9,756
Other comprehensive income	—		—		—		—		376		376
Other comprehensive income (loss)												—		—		—		—		(1,100)		(1,100)
Common stock issued pursuant to:
Exercise of stock options	19,165		19		175		—		—		194
Restricted stock	43,143		43		(43)		—		—		—
Shareholders' of Sevier County Bancshares, Inc.	1,691,535		1,691		40,563		—		—		42,254
Stock compensation expense	—		—		521		—		—		521
Common stock dividend ($0.18 per share)	—		—		—		(2,719)		—		(2,719)
Repurchases of common stock	(59,610)		(59)		(1,149)		—		—		(1,208)
Balance, September 30, 2021	16,801,447	$	16,801	$	292,760	$	112,600	$	2,559	$	424,720

Balance, June 30, 2020	15,216,932	$	15,217	$	254,396	$	73,283	$	592	$	343,488
Net income	—		—		—		6,395		—		6,395
Other comprehensive income	—		—		—		—		420		420
Common stock issued pursuant to:
Exercise of stock options	12,500		12		92		—		—		104
Stock options exercised												15,965		16		131		—		—		147
Restricted stock	3,795		4		(4)		—		—		—	40,967		41		(41)		—		—		—
Stock compensation expense	—		—		142		—		—		142	—		—		201		—		—		201
Common stock dividend ($0.05 per share)	—		—		—		(760)		—		(760)
Common stock dividend ($0.06 per share)												—		—		—		(907)		—		(907)
Repurchases of common stock	—		—		—		—		—		—	(59,610)		(59)		(1,148)		—		—		(1,207)
Balance, September 30, 2020	15,233,227	$	15,233	$	254,626	$	78,918	$	1,012	$	349,789
Balance, March 31, 2021												15,104,536	$	15,105	$	251,836	$	96,034	$	1,083	$	364,058

Balance, June 30, 2021	15,109,736	$	15,110	$	252,039	$	103,906	$	2,338	$	373,393
Balance, December 31, 2021												16,802,990	$	16,803	$	292,937	$	118,247	$	1,443	$	429,430
Net income	—		—		—		9,600		—		9,600	—		—		—		8,259		—		8,259
Other comprehensive income	—		—		—		—		221		221
Other comprehensive income (loss)												—		—		—		—		(16,999)		(16,999)
Common stock issued pursuant to:
Stock awards	—		—		—		—		—		—
Exercise of stock options	—		—		—		—		—		—
Stock options exercised												27,550		27		190		—		—		217
Restricted stock	176		—		—		—		—		—	62,742		63		(63)		—		—		—
Shareholders' of Sevier County Bancshares, Inc.	1,691,535		1,691		40,563		—		—		42,254
Stock compensation expense	—		—		158		—		—		158	—		—		312		—		—		312
Common stock dividends ($0.06 per share)	—		—		—		(906)		—		(906)
Balance, September 30, 2021	16,801,447	$	16,801	$	292,760	$	112,600	$	2,559	$	424,720
Common stock dividend ($0.07 per share)												—		—		—		(1,177)		—		(1,177)
Repurchases of common stock												—		—		—		—		—		—
Balance, March 31, 2022												16,893,282	$	16,893	$	293,376	$	125,329	$	(15,556)	$	420,042

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

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

Nine Months Ended September 30,

2021

2020
Cash flows from operating activities:




Net income

$
28,134

$
15,302
Adjustments to reconcile net income to net cash provided by operating activities:


Depreciation and amortization

4,739

4,437
Accretion of fair value purchase accounting adjustments, net

(4,086)

(3,689)
Provision for loan and lease losses

1,211

8,683
Stock compensation expense

521

365
Gain from redemption and sale of securities available-for-sale

(45)

(6)
Deferred income tax expense (benefit)

731

(37)
Increase in cash surrender value of bank owned life insurance

(1,240)

(526)
Net losses from sale and write downs of other real estate owned

176

142
Net gains from mortgage banking

(3,238)

(2,544)
Origination of loans held for sale

(97,360)

(99,223)
Proceeds from sales of loans held for sale

108,901

96,330
Net (gain) from sale of branch

(137)

—
Net change in:




Accrued interest receivable

2,074

(3,221)
Accrued interest payable

(125)

807
Other assets

(414)

1,850
Other liabilities

5,709

3,556
Net cash provided by operating activities

45,551

22,226
Cash flows from investing activities:




Proceeds from sales of securities available-for-sale

16,771

11,759
Proceeds from maturities and calls of securities available-for-sale

43,551

45,800
Proceeds from paydowns of securities available-for-sale

21,550

18,622
Proceeds from sales of other investments

436

—
Purchases of securities available-for-sale

(145,316)

(81,893)
Purchases of other investments

(80)

(1,223)
Purchases of bank owned life insurance

(40,000)

—
Proceeds from bank owned life insurance benefits

427

—
Net (increase) decrease in loans and leases

4,444

(316,075)
Purchases of premises and equipment

(603)

(4,450)
Proceeds from sale of other real estate owned

2,171

875
Proceeds received from branch sale

83,745

—
Net cash received from business combinations

15,364

46,132
Net cash provided by (used in) investing activities

2,460

(280,453)
Cash flows from financing activities:




Net increase in deposits

558,410

332,319
Net (increase) decrease in securities sold under agreements to repurchase

(351)

9
Proceeds from borrowings

7,500

338,340
Repayment borrowings

(396)

(50,581)
Cash dividends paid

(2,719)

(2,223)
Issuance of common stock

194

282
Repurchases of common stock

(1,208)

(2,075)
Net cash provided by financing activities

561,430

616,071
Net change in cash and cash equivalents

609,441

357,844
Cash and cash equivalents, beginning of period

481,719

183,971
Cash and cash equivalents, end of period

$
1,091,160

$
541,815
Supplemental disclosures of cash flow information:




Cash paid during the period for interest

$
8,745

$
12,633
Cash paid during the period for income taxes

8,223

5,778
Noncash investing and financing activities:




Acquisition of real estate through foreclosure

580

971
Change in goodwill due to acquisitions and sale of a portfolio of loans

15,849

9,316


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	8,259	$	9,756
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,387		1,499
Accretion of fair value purchase accounting adjustments, net		(358)		(1,636)
Provision for loan and lease losses		1,006		67
Stock compensation expense		312		201
Deferred income tax expense		948		446
Increase in cash surrender value of bank owned life insurance		(455)		(370)
Net losses from sale and write downs of other real estate owned		59		151
Net gains from mortgage banking		(834)		(1,139)
Origination of loans held for sale		(30,916)		(35,229)
Proceeds from sales of loans held for sale		30,959		40,219
Net gain from sale of fixed assets		(348)		—
Net change in:
Accrued interest receivable		(452)		(86)
Accrued interest payable		352		367
Other assets		(5,244)		(1,234)
Other liabilities		5,019		3,078
Net cash provided by operating activities		10,694		16,090
Cash flows from investing activities:
Available-for-sale:
Proceeds from maturities, calls and paydowns		10,217		16,241
Purchases		(257,101)		(55,757)
Held-to-maturity:
Purchases		(50,575)		—
Proceeds from sales of other investments		—		147
Purchases of other investments		(5)		(80)
Purchases of bank owned life insurance		—		(40,000)
Net increase in loans and leases		(112,551)		(103,308)
Proceeds from sale of fixed assets		1,224		—
Purchases of premises and equipment		(879)		(1,009)
Proceeds from sale of other real estate owned		108		98
Net cash used in investing activities		(409,562)		(183,668)
Cash flows from financing activities:
Net increase in deposits		169,591		243,084
Net (decrease) increase in securities sold under agreements to repurchase		(872)		1,447
Repayment borrowings		(50,000)		(4)
Cash dividends paid		(1,177)		(907)
Issuance of common stock		217		147
Repurchases of common stock		—		(1,207)
Net cash provided by financing activities		117,759		242,560
Net change in cash and cash equivalents		(281,109)		74,982
Cash and cash equivalents, beginning of period		1,045,077		481,719
Cash and cash equivalents, end of period	$	763,968	$	556,701
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	2,112	$	2,665
Cash paid during the period for income taxes		15		—
Cash received from income taxes refunds		50		—
Noncash investing and financing activities:
Acquisition of real estate through foreclosure		—		14
Transfer of securities from available-for-sale to held-to-maturity		162,378		—
Change in goodwill due to acquisitions and sale of a portfolio of loans		—		324

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Presentation of Financial Information

Nature of Business:

SmartFinancial, Inc. (the ~~"Company"~~"Company," “SmartFinancial,” “we,” “our” or ~~“SmartFinancial”~~“us”) is a bank holding company whose principal activity is the ownership and management of its wholly owned subsidiary, SmartBank (the "Bank"). The Company provides a variety of financial services to individuals and corporate customers through its offices in East and Middle Tennessee, Alabama, and the Florida Panhandle. The Bank’s primary deposit products are noninterest-bearing and interest-bearing demand deposits, savings and money market deposits, and time deposits. Its primary lending products are commercial, residential, and consumer loans.

Basis of Presentation and Accounting Estimates:

The accounting and financial reporting policies of the Company and its wholly owned subsidiary conform to U.S. generally accepted accounting principles (“GAAP”) and reporting guidelines of banking regulatory authorities and regulators. The accompanying interim consolidated financial statements for the Company and its wholly owned subsidiary have not been audited. All material intercompany balances and transactions have been eliminated.

In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments are normal and recurring accruals considered necessary for a fair and accurate presentation. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan and lease losses, the valuation of foreclosed assets and deferred taxes, other than temporary impairments of securities, the fair value of financial instruments, goodwill, and the fair value of assets acquired, and liabilities assumed in acquisitions. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes appearing in the Company’s annual report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Recently Issued and Adopted Accounting Pronouncements:

In ~~December 2019,~~March 2020, the FASB issued ASU ~~No. 2019-12,~~ 2020-04~~“Simplifying~~, Reference Rate Reform (Topic 848): Facilitation of the ~~Accounting for Income Taxes.”~~ ~~This ASU simplifies~~Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional guidance to ease the potential burden in accounting for ~~income taxes by eliminating certain~~reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to ~~the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period~~contract modifications and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the 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 nothedging relationships, subject to ~~income tax are not required~~meeting certain criteria, that reference London Interbank Offered Rate (“LIBOR”). It is intended to ~~recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so. ASU 2019-12~~help stakeholders during the global market-wide reference rate transition period. The guidance is effective for ~~interim~~all entities as of March 12, 2020, through December 31, 2022. The Company implemented a transition plan to identify and ~~annual reporting periods beginning after~~modify its loans and other financial instruments, including certain indebtedness, with attributes that are either directly or indirectly influenced by LIBOR. As of December ~~15, 2020.~~31, 2021, the Company ceased issuance of new LIBOR loans. Alternative reference rates at this time are predominantly Secured Overnight Funding Rate (“SOFR”) based. Remaining LIBOR transition project activities include remediation of remaining LIBOR products by June of 2023. ASU ~~2019-12 did~~2020-04 will not have a material impact on the Company’s ~~Consolidated Financial Statements.~~consolidated financial statements.

Recently Issued Not Yet Effective Accounting Pronouncements:

During interim periods, the Company follows the accounting policies set forth in its annual audited financial statements for the year ended December 31, ~~2020,~~2021, as filed in its Annual Report on Form 10-K with the Securities and Exchange Commission ("SEC"). The following is a summary of recent authoritative pronouncements issued but not yet effective that could impact the accounting, reporting, and/or disclosure of financial information by the Company.

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 the Current Expected Credit Loss (“CECL”)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

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~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

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

periods within those fiscal years. For calendar-year-end companies that are not SRCs, 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 an SRC. For SRCs and 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.

Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model currently required under GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL model will materially affect how we determine our allowance for loan losses and could require us to significantly increase our allowance. Moreover, the CECL model may create more volatility in the level of our allowance for loan losses. If we are required to materially increase our level of allowance for loan losses for any reason, such increase could adversely affect our business, financial condition and results of operations.

A cross-functional working group comprised of individuals from credit administration, risk management and accounting and finance are in place implementing and developing the data, forecast, processes, and portfolio segmentation that will be used in the models that will estimate the expected credit loss for each loan segment. The Company has contracted with a third party vendor solution to assist us in the application, analysis, and model development required with implementation of ASU 2016-13. The Company is currently unable to reasonably estimate the impact of adopting ASU 2016-13, and it will be influenced by the composition, characteristics and quality of our loan and securities portfolio, as well as the economic conditions and forecasts as of each reporting period. These economic conditions and forecasts could be significantly different in future periods.

In March ~~2020,~~2022, the FASB issued ASU ~~2020-04~~2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method, ~~Reference Rate Reform (Topic 848):~~ ~~Facilitation~~which allows multiple hedged layers to be designated for a single closed portfolio of financial assets resulting in a greater portion of the ~~Effects~~interest rate risk in the closed portfolio being eligible to be hedged. The amendments allow the flexibility to use different types of ~~Reference Rate Reform on Financial Reporting, which provides temporary optional~~derivatives or combinations of derivatives to better align with risk management strategies. Furthermore, among other things, the amendments clarify that basis adjustments of hedged items in the closed portfolio should be allocated at the portfolio level and not the individual assets within the portfolio. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted, including early adoption in an interim period. An entity should apply ASU 2022-01 prospectively. If an entity elects to ~~ease~~early adopt ASU 2022-01 in an interim period, the 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 criteria,guidance should be applied as of the beginning of the fiscal year that ~~reference London Interbank Offered Rate (“LIBOR”). It is intended to help stakeholders during~~includes the ~~global market-wide reference rate transition~~interim period. The Company is implementing a transition plan to identify and 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~~2022-01 and its impact on its accounting and disclosures.

In March 2022, the ~~transition away from LIBOR~~FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which removes the accounting guidance for ~~its~~troubled debt restructurings and requires entities to evaluate whether a modification provided to a borrower results in a new loan or continuation of an existing loan. The amendments enhance existing disclosures and ~~other~~require new disclosures for receivables when there has been a modification in contractual cash flows due to a borrower experiencing financial ~~instruments.~~

~~Operating, Accounting~~difficulties. Additionally, the amendments require public business entities to disclose gross charge-off information by year of origination in the vintage disclosures. The guidance is effective for entities that have adopted ASU 2016-13 for fiscal years, and ~~Reporting Considerations related~~interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted, including early adoption in an interim period. An entity should apply ASU 2022-02 prospectively. If an entity elects 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 Act (“CARES Act”) was passed by Congress and signed into law on March 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 Leases and Allowance for Loan and Lease 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 Leases and Allowance for Loan and Lease Losses~~ ~~for more information.~~

~~Also~~early adopt ASU 2022-02 in response to the COVID-19 pandemic, the Board of Governors of the Federal Reserve System (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), the 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 a 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:an

●

~~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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

●

~~Past Due Reporting~~ - Regarding 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.~~

interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. 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~~will adopt ASU 2022-02 when adopting ASU 2016-13 in January 2023 and 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 Actwill assess its impact on its accounting and the joint interagency statement, and therefore, the Company does not account for 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 joint statement clarifies that for loan modifications 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 COVID event; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (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 CAA. All of the Company’s 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.disclosures.

~~Reclassifications:~~

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

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~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

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

Note 2. Business Combinations

Sevier County Bancshares, Inc.

On September 1, 2021, the Company completed the acquisition of Sevier County Bancshares, Inc., a Tennessee corporation (“SCB”), pursuant to an Agreement and Plan of Merger dated April 13, 2021 (the “Merger Agreement”).

In connection with the merger, the Company acquired $484.9 million of assets and assumed $443.1 million of liabilities. Pursuant to the Merger Agreement, at the effective time of the merger, SCB shareholders were entitled to receive for each share of SCB common stock, 0 par value per share, outstanding immediately prior to the Merger, either (i) $10.17 in cash (the “Per Share Cash Consideration”), or (ii) 0.4116 shares of Company common stock, par value $1.00 (the “Per Share Stock Consideration”). Pursuant to the terms of the Merger Agreement, (i) each SCB shareholder holding 20,000 shares or more of SCB common stock will receive the Per Share Stock Consideration and (ii) each SCB shareholder holding fewer than 20,000 shares of SCB common stock may elect to receive either the Per Share Stock Consideration or the Per Share Cash Consideration. SmartFinancial issued ~~1,691,535~~1,692,168 shares of SmartFinancial common stock and paid $9.6 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 ~~$15.6~~$17.2 million, representing the intangible value of SCB’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 $1.6 million using the effective yield method over 120 months (10 years), which represents the expected useful life of the asset.

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


			Initial								Initial
	As recorded		Fair value		Subsequent		As recorded		As recorded		Fair value		Subsequent		As recorded
	by SCB		adjustments		Adjustments		by the Company		by SCB		adjustments		Adjustments		by the Company
Assets:
Cash & cash equivalents	$	84,313	$	—	$	—	$	84,313	$	84,313	$	—	$	—	$	84,313
Investment securities available-for-sale		64,219		(614)		—		63,605		64,219		(614)		—		63,605
Restricted investments		533		—		—		533		533		—		—		533
Loans		304,620		(4,551)		—		300,069		304,620		(4,551)		(3,049)		297,020
Allowance for loan losses		(3,644)		3,644		—		—		(3,644)		3,644		—		—
Premises and equipment, net		15,579		(295)		—		15,284		15,579		(295)		(22)		15,262
Bank owned life insurance		7,116		—		—		7,116		7,116		—		—		7,116
Deferred tax asset, net		10,340		(4,007)		—		6,333		10,340		(4,007)		769		7,102
Core deposit intangible		—		1,550		—		1,550		—		1,550		—		1,550
Interest Receivable		884		—		—		884		884		—		—		884
Other assets		920		(272)		—		648		920		(272)		(533)		115
Total assets acquired	$	484,880	$	(4,545)	$	—	$	480,335	$	484,880	$	(4,545)	$	(2,835)	$	477,500

Liabilities:
Deposits	$	435,036	$	—		—	$	435,036	$	435,036	$	—	$	—	$	435,036
Time deposit premium		—		888		—		888		—		888		—		888
Subordinated debt		2,500		—		—		2,500		2,500		—		—		2,500
Payables and other liabilities		5,563		115		—		5,678		5,563		115		(1,254)		4,424
Total liabilities assumed		443,099		1,003		—		444,102		443,099		1,003		(1,254)		442,848
Excess of assets acquired over liabilities assumed	$	41,781							$	41,781
Aggregate fair value adjustments			$	(5,548)	$	—					$	(5,548)	$	(1,581)
Total identifiable net assets								36,233								34,652
Consideration transferred:
Cash								9,568								9,568
Common stock issued (1,691,535 shares)								42,254
Common stock issued (1,692,168 shares)																42,255
Total fair value of consideration transferred								51,822								51,823

Goodwill							$	15,589							$	17,171

⁽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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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):

September 1, 2021
Accounted for pursuant to ASC 310-30:

Contractually required principal and interest

$
25,932
Non-accretable differences

4,203
Cash flows expected to be collected

21,729
Accretable yield

3,480
Fair value

$
18,249

The following table discloses the impact of the merger with SCB since the acquisition date through the three and nine months ended September 30, 2021. The table also presents certain pro-forma information (net interest income plus total noninterest income (“Revenue”) and net income) as if the SCB acquisition had occurred on January 1, 2020. 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 costs for the three and nine months ended September 30, 2021, were $445 thousand and $683 thousand, respectively, and have been excluded from the pro-forma information presented below. The actual results and pro-forma information were as follows ~~(in thousands)~~:


	Three Months Ended				Nine Months Ended				September 1, 2021
	September 30,				September 30,
	Revenue		Net Income		Revenue		Net Income
2021:
Actual SCB results included in statement of income since acquisition date	$	1,090	$	343	$	1,090	$	343
Supplemental consolidation pro-forma as if SCB had been acquired January 1, 2021		39,207		10,516		110,745		30,984

2020:
Supplemental consolidation pro-forma as if SCB had been acquired January 1, 2020	$	32,965	$	6,624	$	93,213	$	16,473
Accounted for pursuant to ASC 310-30:
Contractually required principal and interest									$	30,293
Non-accretable differences										7,609
Cash flows expected to be collected										22,684
Accretable yield										3,552
Fair value									$	19,132

Fountain Leasing, LLC

On May 3, 2021, the Company completed the acquisition of Fountain Leasing, LLC, a Tennessee limited liability company, pursuant to the Purchase Agreement (the “Purchase Agreement”), dated May 2, 2021, by and among the Bank and the members of Fountain Leasing, LLC. Following the closing of the acquisition, on May 4, 2021, the Company changed the name of Fountain Leasing, LLC to Fountain Equipment Finance, LLC (“Fountain”).

In connection with the acquisition, the Company acquired $54.1 million of assets and assumed $683 thousand of liabilities. Pursuant to the Purchase Agreement, the Company paid an aggregate amount of consideration to the Fountain members of $14.0 million in cash at closing, and the Company repaid approximately $45.8 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 $6.0 million, which is excluded from consideration pursuant to ASC 805, in future cash payments from the Company based on future results of the acquired business over various periods through December 31, 2026. 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 $2.4 million, representing the intangible value of Fountains business and reputation within the markets it served. The goodwill recognized is expected to be deductible for income tax purposes. The Company established an intangible asset related to customer relationships of $2.7 million, amortizing sum-of-the-years digits over 96 months (8 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).


	As recorded		Fair value		Subsequent		As recorded
	by Fountain		adjustments		Adjustments		by the Company
Assets:
Cash & cash equivalents	$	413	$	—	$	—	$	413
Leases		54,945		(720)		—		54,225
Allowance for lease losses		(1,796)		1,796		—		—
Customer list intangible		—		2,658		—		2,658
Other repossessed assets		319		—		—		319
Other assets		233		—		—		233
Total assets acquired	$	54,114	$	3,734	$	—	$	57,848

Liabilities:
Payables and other liabilities	$	683	$	(229)	$	—	$	454
Total liabilities assumed		683		(229)		—		454
Excess of assets acquired over liabilities assumed	$	53,431
Aggregate fair value adjustments			$	3,963	$	—
Total identifiable net assets								57,394
Consideration transferred:
Cash								59,794
Total fair value of consideration transferred								59,794

Goodwill							$	2,400

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

As recorded

Fair value

Subsequent

As recorded

by Fountain

adjustments

Adjustments

by the Company
Assets:






Cash & cash equivalents

$
413

$
—

$
—

$
413
Leases

54,945

(720)

—

54,225
Allowance for lease losses

(1,796)

1,796

—

—
Customer list intangible

—

2,658

—

2,658
Other repossessed assets

319

—

—

319
Other assets

233

—

—

233
Total assets acquired

$
54,114

$
3,734

$
—

$
57,848

Liabilities:






Payables and other liabilities

683

(229)

—

454
Total liabilities assumed

683

(229)

—

454
Excess of assets acquired over liabilities assumed

$
53,431




Aggregate fair value adjustments



$
3,963

$
—


Total identifiable net assets





57,394
Consideration transferred:






Cash





59,794
Total fair value of consideration transferred





59,794

Goodwill





$
2,400

~~(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.~~

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


	May 3, 2021
Accounted for pursuant to ASC 310-30:
Contractually required principal and interest	$	6,018
Non-accretable differences		447
Cash flows expected to be collected		5,571
Accretable yield		649
Fair value	$	4,922

The following table discloses the impact of the merger with Fountain since the acquisition date through the three and nine months ended September 30, 2021. The table also presents certain pro-forma information (net interest income plus total noninterest income (“Revenue”) and net income) as if the Fountain acquisition had occurred on January 1, 2020. 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 costs for the three and nine months ended September 30, 2021, were $18 thousand and $159 thousand, respectively, and have been excluded from the pro-forma information presented below. The actual results and pro-forma information were as follows ~~(in thousands)~~:

Three Months Ended

Nine Months Ended

September 30,

September 30,


Revenue

Net Income

Revenue

Net Income
2021:









Actual Fountain results included in statement of income since acquisition date

$
1,696

$
357

$
2,834

$
702
Supplemental consolidation pro-forma as if Fountain had been acquired January 1, 2021

36,690

9,614

102,470

28,101

2020:








Supplemental consolidation pro-forma as if Fountain had been acquired January 1, 2020

$
31,566

$
6,744

$
89,016

$
16,274

~~Table of Contents~~

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

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

~~Progressive Financial Inc.~~

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

In connection with the merger, the Company acquired $301.0 million of assets and assumed $272.1 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 $8.8 million, representing the intangible value of 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 also established two intangible assets related to the insurance agency acquired as part of the PFG acquisition; 1.) Customer relationships of $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 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 acquired 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

~~Table of Contents~~

~~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

Note 3. Earnings Per Share

Basic earnings per common share is computed by dividing net income available to common 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 ~~and nine~~ months ended ~~September 30, 2021. There were 114 thousand~~March 31, 2022, and ~~85 thousand antidilutive shares for the three and nine months ended September 30, 2020,~~March 31, 2021, respectively.

The following is a summary of the basic and diluted earnings per share computation (dollars in thousands, except per share data):


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2021		2020		2021		2020		2022		2021
Basic earnings per share computation:
Net income available to common shareholders	$	9,600	$	6,395	$	28,134	$	15,302	$	8,259	$	9,756
Average common shares outstanding – basic		15,557,528		15,160,579		15,192,919		14,903,757		16,718,371		15,011,573
Basic earnings per share	$	0.62	$	0.42	$	1.85	$	1.03	$	0.49	$	0.65
Diluted earnings per share computation:
Net income available to common shareholders	$	9,600	$	6,395	$	28,134	$	15,302	$	8,259	$	9,756
Average common shares outstanding – basic		15,557,528		15,160,579		15,192,919		14,903,757		16,718,371		15,011,573
Incremental shares from assumed conversions:
Stock options and restricted stock		133,598		50,032		119,836		61,698		139,917		100,374
Average common shares outstanding - diluted		15,691,126		15,210,611		15,312,755		14,965,455		16,858,288		15,111,947
Diluted earnings per common share	$	0.61	$	0.42	$	1.84	$	1.02	$	0.49	$	0.65

~~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)~~:

September 30, 2021




Gross

Gross


Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value
U.S. Treasury

$
93,910

$
176

$
(61)

$
94,025
U.S. Government-sponsored enterprises (GSEs)

54,175

201

(913)

53,463
Municipal securities

93,422

2,179

(31)

95,570
Other debt securities

25,996

367

(72)

26,291
Mortgage-backed securities (GSEs)

68,837

1,339

(182)

69,994
Total

$
336,340

$
4,262

$
(1,259)

$
339,343

1512

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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

Note 4. Securities

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


	March 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Available-for-sale:	Cost		Gains		Losses		Value
U.S. Treasury	$	239,056	$	—	$	(9,143)	$	229,913
U.S. Government-sponsored enterprises (GSEs)		512		—		(6)		506
Municipal securities		55,318		67		(144)		55,241
Other debt securities		28,982		139		(581)		28,540
Mortgage-backed securities (GSEs)		236,929		167		(10,813)		226,283
Total	$	560,797	$	373	$	(20,687)	$	540,483


	March 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Held-to-maturity:	Cost		Gains		Losses		Value
U.S. Treasury	$	150,471	$	—	$	(2,131)	$	148,340
U.S. Government-sponsored enterprises (GSEs)		51,425		—		(3,634)		47,791
Municipal securities		54,459		—		(4,561)		49,898
Mortgage-backed securities (GSEs)		33,177		—		(1,472)		31,705
Total	$	289,532	$	—	$	(11,798)	$	277,734


	December 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Available-for-sale:	Cost		Gains		Losses		Value
U.S. Treasury	$	138,212	$	64	$	(518)	$	137,758
U.S. Government-sponsored enterprises (GSEs)		21,898		76		(173)		21,801
Municipal securities		67,310		512		(2)		67,820
Other debt securities		26,989		313		(82)		27,220
Mortgage-backed securities (GSEs)		228,011		971		(1,128)		227,854
Total	$	482,420	$	1,936	$	(1,903)	$	482,453


	December 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Held-to-maturity:	Cost		Gains		Losses		Value
U.S. Government-sponsored enterprises (GSEs)	$	31,023	$	20	$	(87)	$	30,956
Municipal securities		45,946		63		(19)		45,990
Total	$	76,969	$	83	$	(106)	$	76,946

At ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, securities with a carrying value totaling approximately ~~$161.4~~$219.6 million and ~~$80.2~~$201.2 million, respectively, were pledged to secure public funds and securities sold under agreements to repurchase.

During the first quarter of 2022, the Company transferred $162.4 million of available-for-sale securities to the held-to-maturity category, reflecting the Company’s intent to hold those securities to maturity. Transfers of investment securities into the held-to-maturity category from the available-for-sale category are made at fair value at the date of transfer. The

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

related $2.0 million of unrealized holding loss that was included in the transfer is retained in accumulated other comprehensive income, net of tax, and in the carrying value of the held-to-maturity securities. This amount will be amortized as an adjustment to interest income over the remaining life of the securities. This will offset the impact of amortization of the net premium created in the transfer. There were 0 gains or losses recognized as a result of this transfer.

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 Financial Instruments 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.

~~Proceeds from sale of securities available-for-sale, gross gains and gross losses on sales and redemptions for the three and nine months ended September 30, 2021, and 2020 were as follows~~ ~~(in thousands)~~:

Three Months Ended

Nine Months Ended

September 30,

September 30,


2021

2020

2021

2020
Proceeds from sales

$
16,771

$
4,884

$
16,771

$
11,759
Gross gains

$
64

$
17

$
64

$
43
Gross losses

$
(19)

$
(26)

$
(19)

$
(37)

Proceeds from maturities and calls

$
32,275

$
30,350

$
43,551

$
45,800

The amortized cost and estimated fair value of securities at ~~September 30, 2021,~~March 31, 2022 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.

September 30, 2021

Amortized

Fair

Cost

Value
Due in one year or less

$
61,259

$
61,267
Due from one year to five years

3,817

3,843
Due from five years to ten years

90,688

91,409
Due after ten years

111,739

112,830

267,503

269,349
Mortgage-backed securities

68,837

69,994
Total

$
336,340

$
339,343


	March 31, 2022
	Amortized		Fair
Available-for-sale:	Cost		Value
Due in one year or less	$	902	$	903
Due from one year to five years		178,294		173,044
Due from five years to ten years		99,601		95,174
Due after ten years		45,071		45,079
		323,868		314,200
Mortgage-backed securities		236,929		226,283
Total	$	560,797	$	540,483

Held-to-maturity:
Due in one year or less	$	—	$	—
Due from one year to five years		150,471		148,339
Due from five years to ten years		28,250		26,931
Due after ten years		77,634		70,759
		256,355		246,029
Mortgage-backed securities		33,177		31,705
Total	$	289,532	$	277,734

1614

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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 and held-to-maturity have been in a continuous unrealized loss position (in thousands):


	September 30, 2021															March 31, 2022
	Less than 12 Months					12 Months or Greater					Total					Less than 12 Months					12 Months or Greater					Total
			Gross		Number			Gross		Number			Gross		Number			Gross		Number			Gross		Number			Gross		Number
	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of
	Value		Losses		Securities	Value		Losses		Securities	Value		Losses		Securities
Available-for-sale:																Value		Losses		Securities	Value		Losses		Securities	Value		Losses		Securities
U.S. Treasury	$	76,626	$	(61)	4	$	—	$	—	—	$	76,626	$	(61)	4	$	229,913	$	(9,143)	19	$	—	$	—	—	$	229,913	$	(9,143)	19
U.S. Government-sponsored enterprises (GSEs)		37,469		(910)	10		841		(3)	3		38,310		(913)	13		—		—	—		506		(6)	2		506		(6)	2
Municipal securities		3,929		(31)	3		—		—	—		3,929		(31)	3		9,885		(144)	17		—		—	—		9,885		(144)	17
Other debt securities		5,982		(72)	6		—		—	—		5,982		(72)	6		16,086		(505)	16		1,424		(76)	1		17,510		(581)	17
Mortgage-backed securities (GSEs)		8,891		(59)	8		8,780		(123)	6		17,671		(182)	14		201,144		(10,627)	70		7,701		(186)	6		208,845		(10,813)	76
Total	$	132,897	$	(1,133)	31	$	9,621	$	(126)	9	$	142,518	$	(1,259)	40	$	457,028	$	(20,419)	122	$	9,631	$	(268)	9	$	466,659	$	(20,687)	131

																March 31, 2022
																Less than 12 Months					12 Months or Greater					Total
																		Gross		Number			Gross		Number			Gross		Number
																Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of
Held-to-maturity:																Value		Losses		Securities	Value		Losses		Securities	Value		Losses		Securities
U.S. Treasury																$	148,339	$	(2,131)	4	$	—	$	—	—	$	148,339	$	(2,131)	4
U.S. Government-sponsored enterprises (GSEs)																	23,735		(1,576)	6		24,057		(2,058)	7		47,792		(3,634)	13
Municipal securities																	49,628		(4,561)	34		—		—	—		49,628		(4,561)	34
Mortgage-backed securities (GSEs)																	31,705		(1,472)	5		—		—	—		31,705		(1,472)	5
Total																$	253,407	$	(9,740)	49	$	24,057	$	(2,058)	7	$	277,464	$	(11,798)	56


	December 31, 2020															December 31, 2021
	Less than 12 Months					12 Months or Greater					Total					Less than 12 Months					12 Months or Greater					Total
			Gross		Number			Gross		Number			Gross		Number			Gross		Number			Gross		Number			Gross		Number
	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of
	Value		Losses		Securities	Value		Losses		Securities	Value		Losses		Securities
Available-for-sale:																Value		Losses		Securities	Value		Losses		Securities	Value		Losses		Securities
U.S. Treasury																$	99,959	$	(518)	11	$	—	$	—	—	$	99,959	$	(518)	11
U.S. Government-sponsored enterprises (GSEs)	$	15,510	$	(5)	3	$	132	$	(1)	1	$	15,642	$	(6)	4		14,156		(168)	2		579		(5)	2		14,735		(173)	4
Municipal securities																	2,519		(2)	1		—		—	—		2,519		(2)	1
Other debt securities		1,495		(5)	1		977		(8)	1		2,472		(13)	2		5,983		(82)	6		—		—	—		5,983		(82)	6
Mortgage-backed securities (GSEs)		9,790		(87)	6		6,083		(95)	3		15,873		(182)	9		159,725		(1,002)	31		8,233		(126)	6		167,958		(1,128)	37
Total	$	26,795	$	(97)	10	$	7,192	$	(104)	5	$	33,987	$	(201)	15	$	282,342	$	(1,772)	51	$	8,812	$	(131)	8	$	291,154	$	(1,903)	59

																December 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
Held-to-maturity:																Value		Losses		Securities	Value		Losses		Securities	Value		Losses		Securities
U.S. Government-sponsored enterprises (GSEs)																$	21,901	$	(87)	8	$	—	$	—	—	$	21,901	$	(87)	8
Municipal securities																	4,173		(19)	6		—		—	—		4,173		(19)	6
Total																$	26,074	$	(106)	14	$	—	$	—	—	$	26,074	$	(106)	14

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 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

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 ~~September 30, 2021,~~March 31, 2022, 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 ~~September 30, 2021,~~March 31, 2022, the Company does not intend, or 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:

Our other investments ~~(in thousands)~~:

September 30,

December 31,

2021

2020
Federal Reserve Bank stock

$
8,171

$
8,606
Federal Home Loan Bank stock

6,451

5,838
First National Bankers Bank stock

350

350
Total

$
14,972

$
14,794

~~Our restricted investments~~ consist of restricted 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 par value rather than recognizing temporary declines in value. As of ~~September 30, 2021,~~March 31, 2022, the Company determined that there was 0no impairment on its other ~~investments.~~investment securities.

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

~~Table of Contents~~

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

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


	March 31,		December 31,
	2022		2021
Federal Reserve Bank stock	$	9,698	$	9,693
Federal Home Loan Bank stock		6,451		6,451
First National Bankers Bank stock		350		350
Total	$	16,499	$	16,494

Note 5. Loans and Leases and Allowance for Loan and Lease Losses

Portfolio Segmentation:

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


	September 30, 2021						December 31, 2020						March 31, 2022						December 31, 2021
	PCI		All Other				PCI		All Other				PCI		All Other				PCI		All Other
	Loans and Leases¹		Loans and Leases		Total		Loans and Leases¹		Loans and Leases		Total		Loans and Leases¹		Loans and Leases		Total		Loans and Leases¹		Loans and Leases		Total
Commercial real estate	$	23,156	$	1,290,091	$	1,313,247	$	16,123	$	996,853	$	1,012,976	$	20,270	$	1,455,586	$	1,475,856	$	20,875	$	1,363,281	$	1,384,156
Consumer real estate		10,863		467,298		478,161		10,258		433,672		443,930		9,791		473,438		483,229		11,833		465,439		477,272
Construction and land development		2,904		323,470		326,374		5,348		272,727		278,075		2,662		311,992		314,654		2,882		275,504		278,386
Commercial and industrial		2,871		466,868		469,739		308		634,138		634,446		2,479		458,674		461,153		2,516		485,508		488,024
Leases		3,748		49,648		53,396		—		—		—		2,230		57,662		59,892		3,170		50,538		53,708
Consumer and other		87		11,659		11,746		27		12,789		12,816		17		11,225		11,242		71		11,780		11,851
Total loans and leases		43,629		2,609,034		2,652,663		32,064		2,350,179		2,382,243		37,449		2,768,577		2,806,026		41,347		2,652,050		2,693,397
Less: Allowance for loan and lease losses		(427)		(18,868)		(19,295)		(309)		(18,037)	��	(18,346)		(187)		(19,891)		(20,078)		(179)		(19,173)		(19,352)
Loans and leases, net	$	43,202	$	2,590,166	$	2,633,368	$	31,755	$	2,332,142	$	2,363,897	$	37,262	$	2,748,686	$	2,785,948	$	41,168	$	2,632,877	$	2,674,045

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

For purposes of the disclosures required pursuant to ASC 310, the loan and lease 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~~loan and lease losses. There are 6 loan and lease portfolio segments that include commercial real estate, consumer real estate, construction and land development, commercial and industrial, leases, and consumer and other.

~~As previously mentioned in Note 1 –~~ ~~Presentation~~The following describe risk characteristics relevant to each of ~~Financial Information~~, the ~~CARES Act established the PPP, administered directly by the SBA. The PPP provides~~portfolio segments:

Commercial Real Estate: Commercial real estate 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 and lease 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 PPPinclude owner-occupied commercial real estate loans and ~~the fees~~loans secured by income-producing properties. Owner-occupied commercial real estate loans to operating businesses are accounted for as loan origination fees and recognized over the contractual loan term as a yield adjustment on the loans. At September 30, 2021, the net deferred fees outstanding was $3.8 million for the 2021 PPP loans and 0 net deferred fees were outstanding for the 2020 PPP loans. At December 31, 2020, the net deferred fees outstanding for the 2020 PPP loans was $4.2 million. PPP loans are included in the Commercial and Industrial loan segments. As of September 30, 2021, the Company had 1,126 PPP loans outstanding, with an outstanding principal balance of $87.1 million and as of December 31, 2020, the Company had 2,863 PPP loans outstanding, with an outstanding principal balance of $288.9 million.

long-

1816

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

term financing of land and buildings. These loans are repaid by cash flow generated from the business operation. Real estate loans for income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Consumer Real Estate: Consumer real estate loans include real estate loans secured by first liens, second liens, or open end real estate loans, such as home equity lines. These are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Construction and Land Development: Loans for real estate construction and development are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Commercial and Industrial: The commercial and industrial loan portfolio segment includes commercial and financial loans. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the customers’ business operations.

Leases: The lease portfolio segment includes leases to small and mid-size companies for equipment financing leases. These leases are secured by a secured interest in the equipment being leased.

Consumer and Other: The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans, and educational loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures.

Credit Risk Management:

The ~~composition~~Company employs a credit risk management process with defined policies, accountability and routine reporting to manage credit risk in the loan and lease portfolio segments. Credit risk management is guided by credit policies that provide for a consistent and prudent approach to underwriting and approvals of credits. Within the Credit Policy, procedures exist that elevate the approval requirements as credits become larger and more complex. All loans and leases ~~by loan classification~~are individually underwritten, risk-rated, approved, and monitored.

Responsibility and accountability for ~~performing, impaired~~adherence to underwriting policies and ~~PCI~~accurate risk ratings lies in each portfolio segment. For the consumer real estate and consumer and other portfolio segments, the risk management process focuses on managing customers who become delinquent in their payments. For the other portfolio segments, the risk management process focuses on underwriting new business and, on an ongoing basis, monitoring the credit of the portfolios, including a third party review of the largest credits on an annual basis or more frequently, as needed. To ensure problem credits are identified on a timely basis, several specific portfolio reviews occur periodically to assess the larger adversely rated credits for proper risk rating and accrual status.

Credit quality and trends in the loan and ~~leases~~lease portfolio segments are measured and monitored regularly. Detailed reports, by product, collateral, accrual status, etc., are reviewed by Director, Management and Loan Committees.

The allowance for loan and lease losses is ~~summarized~~a valuation reserve established through provisions for loan and lease losses charged against income. The allowance for loan and lease losses, which is evaluated quarterly, is maintained at a level that management deems sufficient to absorb probable losses inherent in the ~~tables below~~ ~~(in thousands)~~:

Construction

Commercial

Commercial

Consumer

and Land

and

Consumer

Real Estate

Real Estate

Development

Industrial

Leases

and Other

Total
September 30, 2021:













Performing loans and leases

$
1,289,233

$
464,881

$
323,470

$
466,769

$
49,648

$
11,659

$
2,605,660
Impaired loans and leases

858

2,417

—

99

—

—

3,374

1,290,091

467,298

323,470

466,868

49,648

11,659

2,609,034
PCI loans and leases

23,156

10,863

2,904

2,871

3,748

87

43,629
Total loans and leases

$
1,313,247

$
478,161

$
326,374

$
469,739

$
53,396

$
11,746

$
2,652,663

December 31, 2020:












Performing loans and leases

$
992,982

$
432,356

$
272,727

$
633,992

$
—

$
12,789

$
2,344,846
Impaired loans and leases

3,871

1,316

—

146

—

—

5,333

996,853

433,672

272,727

634,138

—

12,789

2,350,179
PCI loans and leases

16,123

10,258

5,348

308

—

27

32,064
Total loans and leases

$
1,012,976

$
443,930

$
278,075

$
634,446

$
—

$
12,816

$
2,382,243

~~The following tables show~~loan and lease portfolio. Loans and leases deemed to be uncollectible are charged against the allowance for loan and lease losses, ~~allocation by~~while recoveries of previously charged-off amounts are credited to the allowance for loan and lease ~~classification~~losses. The allowance for ~~impaired, PCI,~~loan and ~~performing~~ ~~(in thousands)~~:lease losses is comprised of

Construction

Commercial

Consumer

Commercial

Consumer

and Land

and

and

Real Estate

Real Estate

Development

Industrial

Leases

Other

Total
September 30, 2021:

Performing loans and leases

$
8,927

$
3,316

$
2,218

$
3,493

$
225

$
103

$
18,282
Impaired loans and leases

417

70

—

99

—

—

586

9,344

3,386

2,218

3,592

225

103

18,868
PCI loans and leases

61

155

—

209

—

2

427
Total loans and leases

$
9,405

$
3,541

$
2,218

$
3,801

$
225

$
105

$
19,295

December 31, 2020:

Performing loans and leases

$
7,579

$
3,267

$
2,076

$
4,768

$
—

$
110

$
17,800
Impaired loans and leases

—

116

—

121

—

—

237

7,579

3,383

2,076

4,889

—

110

18,037
PCI loans and leases

—

88

—

218

—

3

309
Total loans and leases

$
7,579

$
3,471

$
2,076

$
5,107

$
—

$
113

$
18,346

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

19specific valuation allowances for loans and leases evaluated individually for impairment and general allocations for pools of homogeneous loans and leases with similar risk characteristics and trends.

The allowance for loan and lease losses related to specific loans and leases is based on management’s estimate of potential losses on impaired loans and leases as determined by (1) the present value of expected future cash flows; (2) the fair value of collateral if the loan or lease is determined to be collateral dependent or (3) the loan’s or leases’ observable market price. The Company’s homogeneous loan and lease pools include commercial real estate loans, consumer real estate loans, construction and land development loans, commercial and industrial loans, leases and consumer and other loans. The general allocations to these loan and lease pools are based on the historical loss rates for specific loan and lease types and the internal risk grade, if applicable, adjusted for both internal and external qualitative risk factors.

The qualitative factors considered by management include, among other factors, (1) changes in local and national economic conditions; (2) changes in asset quality; (3) changes in loan and lease portfolio volume; (4) the composition and concentrations of credit; (5) the impact of competition on loan and lease structuring and pricing; (6) the impact of the regulatory environment and changes in laws; (7) effectiveness of the Company’s loan and lease policies, procedures and internal controls; (8) COVID-19 loan modification factor and (9) COVID-19 Q factor, which is based upon active COVID cases within the Company’s footprint. The total allowance established for each homogeneous loan and lease pool represents the product of the historical loss ratio adjusted for qualitative factors and the total dollar amount of the loans and leases in the pool.

The determination of the adequacy of the allowance for loan and lease losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans and leases, management obtains independent appraisals for significant collateral.

The Company’s loans and leases are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Company has a diversified loan and lease portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on local economic conditions.

While management uses available information to recognize losses on loans and leases, further reductions in the carrying amounts of loans and leases may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans and leases. Such agencies may require the Company to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans and leases may change materially in the near term.

At March 31, 2022, the net deferred fees outstanding was $972 thousand for the 2021 Paycheck Protection Program (“PPP“) loans and as of December 31, 2021, the net deferred fees outstanding for the 2021 PPP loans was $2.0 million. PPP loans are included in the Commercial and Industrial loan segments. As of March 31, 2022, the Company had 273 PPP loans outstanding, with an outstanding principal balance of $27.9 million and as of December 31, 2021, the Company had 587 PPP loans outstanding, with an outstanding principal balance of $52.2 million.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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


					Construction		Commercial
	Commercial		Consumer		and Land		and				Consumer
	Real Estate		Real Estate		Development		Industrial		Leases		and Other		Total
March 31, 2022:
Performing loans and leases	$	1,454,728	$	471,368	$	311,992	$	458,674	$	57,662	$	11,225	$	2,765,649
Impaired loans and leases		858		2,070		—		—		—		—		2,928
		1,455,586		473,438		311,992		458,674		57,662		11,225		2,768,577
PCI loans and leases		20,270		9,791		2,662		2,479		2,230		17		37,449
Total loans and leases	$	1,475,856	$	483,229	$	314,654	$	461,153	$	59,892	$	11,242	$	2,806,026

December 31, 2021:
Performing loans and leases	$	1,362,423	$	463,374	$	275,504	$	485,411	$	50,538	$	11,780	$	2,649,030
Impaired loans and leases		858		2,065		—		97		—		—		3,020
		1,363,281		465,439		275,504		485,508		50,538		11,780		2,652,050
PCI loans and leases		20,875		11,833		2,882		2,516		3,170		71		41,347
Total loans and leases	$	1,384,156	$	477,272	$	278,386	$	488,024	$	53,708	$	11,851	$	2,693,397

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


					Construction		Commercial				Consumer
	Commercial		Consumer		and Land		and				and
	Real Estate		Real Estate		Development		Industrial		Leases		Other		Total
March 31, 2022:
Performing loans and leases	$	9,945	$	3,267	$	2,120	$	3,501	$	548	$	115	$	19,496
Impaired loans and leases		395		—		—		—		—		—		395
		10,340		3,267		2,120		3,501		548		115		19,891
PCI loans and leases		65		121		—		—		—		1		187
Total loans and leases	$	10,405	$	3,388	$	2,120	$	3,501	$	548	$	116	$	20,078

December 31, 2021:
Performing loans and leases	$	9,355	$	3,237	$	1,882	$	3,685	$	330	$	123	$	18,612
Impaired loans and leases		396		69		—		96		—		—		561
		9,751		3,306		1,882		3,781		330		123		19,173
PCI loans and leases		30		148		—		—		—		1		179
Total loans and leases	$	9,781	$	3,454	$	1,882	$	3,781	$	330	$	124	$	19,352

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


	Three Months Ended September 30, 2021														Three Months Ended March 31, 2022
			Consumer		Construction		Commercial										Consumer		Construction		Commercial
	Commercial		Real		and Land		and				Consumer				Commercial		Real		and Land		and				Consumer
	Real Estate		Estate		Development		Industrial		Leases		and Other		Total		Real Estate		Estate		Development		Industrial		Leases		and Other		Total
Beginning balance	$	8,382	$	3,323	$	2,061	$	4,442	$	—	$	102	$	18,310	$	9,781	$	3,454	$	1,882	$	3,781	$	330	$	124	$	19,352
Charged-off loans and leases		—		—		—		(41)		(68)		(132)		(241)		—		(33)		—		(188)		(85)		(182)		(488)
Recoveries of charge-offs		23		13		—		3		5		33		77		1		7		—		17		157		26		208
Provision charged to expense		1,000		205		157		(603)		288		102		1,149		623		(40)		238		(109)		146		148		1,006
Ending balance	$	9,405	$	3,541	$	2,218	$	3,801	$	225	$	105	$	19,295	$	10,405	$	3,388	$	2,120	$	3,501	$	548	$	116	$	20,078

Three Months Ended September 30, 2020

Consumer

Construction

Commercial

Commercial

Real

and Land

and

Consumer

Real Estate

Estate

Development

Industrial

Leases

and Other

Total
Beginning balance

$
6,595

$
3,313

$
1,795

$
4,443

$
—

$
108

$
16,254
Charged-off loans and leases

—

(21)

—

(60)

—

(89)

(170)
Recoveries of charge-offs

11

17

—

55

—

16

99
Provision charged to expense

1,123

135

265

1,025

—

86

2,634
Ending balance

$
7,729

$
3,444

$
2,060

$
5,463

$
—

$
121

$
18,817

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Nine Months Ended September 30, 2021

Consumer

Construction

Commercial

Commercial

Real

and Land

and

Consumer

Real Estate

Estate

Development

Industrial

Leases

and Other

Total
Beginning balance

$
7,579

$
3,471

$
2,076

$
5,107

$
—

$
113

$
18,346
Charged-off loans and leases

—

(60)

—

(45)

(68)

(341)

(514)
Recoveries of charge-offs

29

34

—

13

5

171

252
Provision charged to expense

1,797

96

142

(1,274)

288

162

1,211
Ending balance

$
9,405

$
3,541

$
2,218

$
3,801

$
225

$
105

$
19,295

Nine Months Ended September 30, 2020

Consumer

Construction

Commercial

Commercial

Real

and Land

and

Consumer

Real Estate

Estate

Development

Industrial

Leases

and Other

Total
Beginning balance

$
4,508

$
2,576

$
1,127

$
1,957

$
—

$
75

$
10,243
Charged-off loans and leases

—

(23)

—

(77)

—

(231)

(331)
Recoveries of charge-offs

16

34

2

103

—

67

222
Provision charged to expense

3,205

857

931

3,480

—

210

8,683
Ending balance

$
7,729

$
3,444

$
2,060

$
5,463

$
—

$
121

$
18,817


	Three Months Ended March 31, 2021
			Consumer		Construction		Commercial
	Commercial		Real		and Land		and				Consumer
	Real Estate		Estate		Development		Industrial		Leases		and Other		Total
Beginning balance	$	7,579	$	3,471	$	2,076	$	5,107	$	—	$	113	$	18,346
Charged-off loans and leases		—		—		—		—		—		(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

We maintain the allowance at a level that we deem appropriate to adequately cover the probable losses inherent in the loan and lease portfolio. Our provision for loan and lease losses for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, is $1.0 million compared to $67 thousand in the same period in 2021, ~~is $1.1 million and $1.2 million, respectively, and $2.6 million $8.7 million, during the three and nine months ended September 30, 2020, respectively.~~an increase of $939 thousand. As of ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, our allowance for loan and lease losses was ~~$19.3~~$20.1 million and ~~$18.3~~$19.4 million, respectively, which we deemed to be adequate at each of the respective dates. Our allowance for loan and lease losses as a percentage of total loans and leases was ~~0.73%~~0.72% at ~~September 30,~~March 31, 2021 and ~~0.77% at~~ December 31, ~~2020.~~2021.

A description of the general characteristics of the risk grades used by the Company is as follows:

Pass: Loans and leases in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan and lease obligations. Loans and leases in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the debt if required, for any weakness that may exist.

Watch: Loans and leases in this risk category involve borrowers that exhibit characteristics, or are operating under conditions that, if not successfully mitigated as planned, have a reasonable risk of resulting in a downgrade within the next six to twelve months. Loans and leases may remain in this risk category for six months and then are either upgraded or downgraded upon subsequent evaluation.

Special Mention: Loans and leases in this risk grade are the equivalent of the regulatory definition of "Other Assets Especially Mentioned" classification. Loans and leases in this category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and /or reliance on the secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the asset or in the Company’s credit position.

Substandard: Loans and leases in this risk grade are inadequately protected by the borrower’s current financial condition and payment capability or of the collateral pledged, if any. Loans and leases so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans and leases in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimated loss is deferred until its more exact status may be determined.

Uncollectible: Loans and leases in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan or lease has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan or lease, even though partial recovery may be obtained in the future. Charge-offs against the allowance for loan and lease losses are taken in the period in which the loan or lease becomes uncollectible. Consequently, the Company typically does not maintain a recorded investment in loans or leases within this category.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The Company evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. No significant changes have been made.

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

September 30, 2021

Construction

Commercial

Commercial

Consumer

and Land

and

Consumer

Non PCI Loans and Leases:

Real Estate

Real Estate

Development

Industrial

Leases

and Other

Total
Pass

$
1,245,064

$
461,422

$
323,156

$
460,588

$
49,648

$
11,591

$
2,551,469
Watch

40,106

1,490

240

5,767

—

45

47,648
Special mention

3,841

1,527

—

244

—

—

5,612
Substandard

1,080

2,859

74

224

—

23

4,260
Doubtful

—

—

—

45

—

—

45
Total

1,290,091

467,298

323,470

466,868

49,648

11,659

2,609,034

PCI Loans and Leases:

Pass


11,769


8,473


2,344


2,824


3,748


69


29,227
Watch

7,719

754

91

1

—

18

8,583
Special mention

579

70

—

—

—

—

649
Substandard

3,089

1,566

469

46

—

—

5,170
Doubtful

—

—

—

—

—

—

—
Total

23,156

10,863

2,904

2,871

3,748

87

43,629
Total loans and leases

$
1,313,247

$
478,161

$
326,374

$
469,739

$
53,396

$
11,746

$
2,652,663


	December 31, 2020														March 31, 2022
					Construction		Commercial												Construction		Commercial
	Commercial		Consumer		and Land		and				Consumer				Commercial		Consumer		and Land		and				Consumer
Non PCI Loans and Leases:	Real Estate		Real Estate		Development		Industrial		Leases		and Other		Total		Real Estate		Real Estate		Development		Industrial		Leases		and Other		Total
Pass	$	922,153	$	417,302	$	269,350	$	625,836	$	—	$	12,622	$	2,247,263	$	1,421,096	$	467,908	$	311,618	$	454,048	$	57,662	$	11,190	$	2,723,522
Watch		66,287		14,218		3,296		7,673		—		137		91,611		26,938		1,610		297		4,392		—		24		33,261
Special mention		4,446		46		—		320		—		—		4,812		6,524		1,512		69		109		—		—		8,214
Substandard		3,967		2,020		81		261		—		30		6,359		1,028		2,408		8		125		—		11		3,580
Doubtful		—		86		—		48		—		—		134		—		—		—		—		—		—		—
Total		996,853		433,672		272,727		634,138		—		12,789		2,350,179		1,455,586		473,438		311,992		458,674		57,662		11,225		2,768,577

PCI Loans and Leases:
Pass		11,072		8,382		1,008		262		—		25		20,749		15,490		8,063		2,119		2,479		2,230		17		30,398
Watch		3,381		224		3,820		—		—		2		7,427		1,228		483		89		—		—		—		1,800
Special mention		19		57		—		—		—		—		76		14		64		—		—		—		—		78
Substandard		1,651		1,595		520		46		—		—		3,812		3,538		1,181		454		—		—		—		5,173
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total		16,123		10,258		5,348		308		—		27		32,064		20,270		9,791		2,662		2,479		2,230		17		37,449
Total loans and leases	$	1,012,976	$	443,930	$	278,075	$	634,446	$	—	$	12,816	$	2,382,243	$	1,475,856	$	483,229	$	314,654	$	461,153	$	59,892	$	11,242	$	2,806,026


	December 31, 2021
					Construction		Commercial
	Commercial		Consumer		and Land		and				Consumer
Non PCI Loans and Leases:	Real Estate		Real Estate		Development		Industrial		Leases		and Other		Total
Pass	$	1,330,888	$	460,190	$	275,124	$	480,677	$	50,538	$	11,724	$	2,609,141
Watch		27,246		1,334		237		4,345		—		42		33,204
Special mention		4,120		1,525		70		228		—		—		5,943
Substandard		1,027		2,390		73		213		—		14		3,717
Doubtful		—		—		—		45		—		—		45
Total		1,363,281		465,439		275,504		485,508		50,538		11,780		2,652,050

PCI Loans and Leases:
Pass		16,019		9,714		2,335		2,516		3,170		71		33,825
Watch		1,271		539		91		—		—		—		1,901
Special mention		15		68		—		—		—		—		83
Substandard		3,570		1,512		456		—		—		—		5,538
Doubtful		—		—		—		—		—		—		—
Total		20,875		11,833		2,882		2,516		3,170		71		41,347
Total loans and leases	$	1,384,156	$	477,272	$	278,386	$	488,024	$	53,708	$	11,851	$	2,693,397

Past Due Loans and Leases:

A loan or lease 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 or lease agreement. Generally, management places a loan or lease 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 or lease is 90 days past due.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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


	September 30, 2021																March 31, 2022
	30-60 Days		61-89 Days		Past Due 90				Total								30-60 Days		61-89 Days		Past Due 90				Total
	Past Due and		Past Due and		Days or More				Past Due and								Past Due and		Past Due and		Days or More				Past Due and
	Accruing		Accruing		and Accruing		Nonaccrual		Nonaccrual		PCI		Current		Total		Accruing		Accruing		and Accruing		Nonaccrual		Nonaccrual		PCI		Current		Total
Commercial real estate	$	1,599	$	—	$	—	$	858	$	2,457	$	23,156	$	1,287,634	$	1,313,247	$	118	$	—	$	—	$	858	$	976	$	20,270	$	1,454,610	$	1,475,856
Consumer real estate		170		—		—		2,564		2,734		10,863		464,564		478,161		846		—		—		2,383		3,229		9,791		470,209		483,229
Construction and land development		45		—		—		—		45		2,904		323,425		326,374		—		—		—		—		—		2,662		311,992		314,654
Commercial and industrial		342		214		—		125		681		2,871		466,187		469,739		158		—		—		92		250		2,479		458,424		461,153
Leases		377		42		—		—		419		3,748		49,229		53,396		336		—		—		—		336		2,230		57,326		59,892
Consumer and other		193		—		—		20		213		87		11,446		11,746		308		—		—		9		317		17		10,908		11,242
Total	$	2,726	$	256	$	—	$	3,567	$	6,549	$	43,629	$	2,602,485	$	2,652,663	$	1,766	$	—	$	—	$	3,342	$	5,108	$	37,449	$	2,763,469	$	2,806,026


	December 31, 2020																December 31, 2021
	30-60 Days		61-89 Days		Past Due 90				Total								30-60 Days		61-89 Days		Past Due 90				Total
	Past Due and		Past Due and		Days or More				Past Due and								Past Due and		Past Due and		Days or More				Past Due and
	Accruing		Accruing		and Accruing		Nonaccrual		Nonaccrual		PCI		Current		Total		Accruing		Accruing		and Accruing		Nonaccrual		Nonaccrual		PCI		Current		Total
Commercial real estate	$	134	$	—	$	67	$	3,740	$	3,941	$	16,123	$	992,912	$	1,012,976	$	172	$	—	$	—	$	858	$	1,030	$	20,875	$	1,362,251	$	1,384,156
Consumer real estate		1,916		51		82		1,823		3,872		10,258		429,800		443,930		884		10		—		2,139		3,033		11,833		462,406		477,272
Construction and land development		245		—		—		12		257		5,348		272,470		278,075		91		—		—		—		91		2,882		275,413		278,386
Commercial and industrial		12		76		—		36		124		308		634,014		634,446		1,191		119		45		116		1,471		2,516		484,037		488,024
Leases		—		—		—		—		—		—		—		—		361		—		—		—		361		3,170		50,177		53,708
Consumer and other		14		5		—		22		41		27		12,748		12,816		99		4		19		11		133		71		11,647		11,851
Total	$	2,321	$	132	$	149	$	5,633	$	8,235	$	32,064	$	2,341,944	$	2,382,243	$	2,798	$	133	$	64	$	3,124	$	6,119	$	41,347	$	2,645,931	$	2,693,397

Impaired Loans and Leases:

~~The following~~

A loan or lease held for investment is ~~an analysis~~considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both principal and interest) according to the terms of the ~~impaired~~ loan ~~and~~or lease ~~portfolio, including PCI loans and leases, detailing the related allowance recorded~~ ~~(in thousands)~~:

September 30, 2021

December 31, 2020

Unpaid

Unpaid

Recorded

Principal

Related

Recorded

Principal

Related

Investment

Balance

Allowance

Investment

Balance

Allowance
Impaired loans and leases without a valuation allowance:


















Commercial real estate

$
—

$
—

$
—

$
3,871

$
3,872

$
—
Consumer real estate

2,156

2,157

—

888

888

—
Construction and land development

—

—

—

—

—

—
Commercial and industrial

—

—

—

—

—

—
Leases

—

—

—

—

—

—
Consumer and other

—

—

—

—

—

—

2,156

2,157

—

4,759

4,760

—
Impaired loans and leases with a valuation allowance:












Commercial real estate

858

858

417

—

—

—
Consumer real estate

261

263

70

428

428

116
Construction and land development

—

—

—

—

—

—
Commercial and industrial

99

99

99

146

146

121
Leases

—

—

—

—

—

—
Consumer and other

—

—

—

—

—

—

1,218

1,220

586

574

574

237
PCI loans and leases:












Commercial real estate

1,206

1,500

61

—

—

—
Consumer real estate

1,196

1,318

155

1,827

2,086

88
Construction and land development

—

—

—

—

—

—
Commercial and industrial

255

228

209

270

234

218
Leases

—

—

—

—

—

—
Consumer and other

6

5

2

21

20

3

2,663

3,051

427

2,118

2,340

309
Total impaired loans and leases

$
6,037

$
6,428

$
1,013

$
7,451

$
7,674

$
546

agreement.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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


	March 31, 2022						December 31, 2021
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
Impaired loans and leases without a valuation allowance:
Commercial real estate	$	—	$	—	$	—	$	—	$	—	$	—
Consumer real estate		2,070		2,069		—		1,805		1,806		—
Construction and land development		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—
Leases		—		—		—		—		—		—
Consumer and other		—		—		—		—		—		—
		2,070		2,069		—		1,805		1,806		—
Impaired loans and leases with a valuation allowance:
Commercial real estate		858		858		395		858		859		396
Consumer real estate		—		—		—		260		262		69
Construction and land development		—		—		—		—		—		—
Commercial and industrial		—		—		—		97		96		96
Leases		—		—		—		—		—		—
Consumer and other		—		—		—		—		—		—
		858		858		395		1,215		1,217		561
PCI loans and leases:
Commercial real estate		1,232		1,513		65		707		926		30
Consumer real estate		901		865		121		1,129		1,251		148
Construction and land development		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—
Leases		—		—		—		—		—		—
Consumer and other		3		2		1		5		3		1
		2,136		2,380		187		1,841		2,180		179
Total impaired loans and leases	$	5,064	$	5,307	$	582	$	4,861	$	5,203	$	740

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Three Months Ended September 30,

2021

2020


Average

Interest

Average

Interest

Recorded

Income

Recorded

Income

Investment

Recognized

Investment

Recognized
Impaired loans and leases without a valuation allowance:








Commercial real estate

$
—

$
—

$
552

$
3
Consumer real estate

2,171

19

758

3
Construction and land development

—

—

—

—
Commercial and industrial

—

—

—

—
Leases

—

—

—

—
Consumer and other

—

—

—

—

2,171

19

1,310

6
Impaired loans and leases with a valuation allowance:








Commercial real estate

858

—

198

—
Consumer real estate

261

3

440

4
Construction and land development

—

—

—

—
Commercial and industrial

154

2

379

2
Leases

—

—

—

—
Consumer and other

—

—

—

—

1,273

5

1,017

6
PCI loans and leases:








Commercial real estate

1,230

27

8

—
Consumer real estate

1,176

21

1,869

38
Construction and land development

—

—

—

—
Commercial and industrial

258

1

305

2
Leases

—

—

—

—
Consumer and other

10

—

27

—

2,674

49

2,209

40
Total impaired loans and leases

$
6,118

$
73

$
4,536

$
52


	Three Months Ended March 31,
	2022				2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans and leases without a valuation allowance:
Commercial real estate	$	—	$	—	$	2,001	$	1
Consumer real estate		1,937		17		1,384		12
Construction and land development		—		—		—		—
Commercial and industrial		—		—		—		—
Leases		—		—		—		—
Consumer and other		—		—		—		—
		1,937		17		3,385		13
Impaired loans and leases with a valuation allowance:
Commercial real estate		858		—		1,577		102
Consumer real estate		130		—		444		5
Construction and land development		—		—		—		—
Commercial and industrial		49		—		128		2
Leases		—		—		—		—
Consumer and other		—		—		—		—
		1,037		—		2,149		109
PCI loans and leases:
Commercial real estate		1,231		24		—		—
Consumer real estate		901		16		1,215		22
Construction and land development		—		—		—		—
Commercial and industrial		—		—		268		1
Leases		—		—		—		—
Consumer and other		3		—		19		—
		2,135		40		1,502		23
Total impaired loans and leases	$	5,109	$	57	$	7,036	$	145

Nine Months Ended September 30,

2021

2020


Average

Interest

Average

Interest

Recorded

Income

Recorded

Income

Investment

Recognized

Investment

Recognized
Impaired loans and leases without a valuation allowance:








Commercial real estate

$
1,000

$
1

$
374

$
7
Consumer real estate

1,778

39

653

17
Construction and land development

—

—

289

—
Commercial and industrial

—

—

—

—
Leases

—

—

—

—
Consumer and other

—

—

—

—

2,778

40

1,316

24
Impaired loans and leases with a valuation allowance:






Commercial real estate

1,218

104

198

2
Consumer real estate

352

11

712

18
Construction and land development

—

—

—

—
Commercial and industrial

141

7

269

7
Leases

—

—

—

—
Consumer and other

—

—

—

—

1,711

122

1,179

27
PCI loans and leases:








Commercial real estate

410

27

250

1
Consumer real estate

1,169

64

1,344

77
Construction and land development

—

—

58

—
Commercial and industrial

263

3

343

5
Leases

—

—

—

—
Consumer and other

15

—

29

—

1,857

94

2,024

83
Total impaired loans and leases

$
6,346

$
256

$
4,519

$
134

~~Table of Contents~~

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

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

Troubled Debt Restructurings:

For the periods presented, impaired loans included loans that were classified as ~~TDRs.~~trouble debt restricting (“TDRs”). The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

In assessing whether or not a borrower is experiencing financial difficulties, the Company considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy; and (iv) the debtor’s projected cash flow is sufficient to satisfy contractual payments due under the original terms of the loan without a modification.

The Company considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by the Company include the debtor’s ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan.

The most common concessions granted by the Company generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt; (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk; (iii) a temporary period of interest-only payments; and (iv) a reduction in the contractual payment amount for either a short period or remaining term of the loan.

As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, management had approximately ~~$212~~$625 thousand and ~~$257~~$206 thousand, respectively, in loans that met the criteria for TDR, NaN of which were on nonaccrual. A loan is placed back on accrual status when both principal and interest are current, and it is probable that the Company will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.

There were 0 loans that were modified as a TDR during the nine months ended September 30, 2021, and 1 loan that was modified during the nine months ended September 30, 2020. There were 0 loans that were modified as TDRs during the past nine months and for which there was a subsequent payment default.

The Company began offering short-term loan modifications to assist borrowers during the COVID-19 national emergency. 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 September 30, 2021, the Company had 0 loans remaining under COVID-19 modifications.~~

~~Foreclosure Proceedings and Balances~~:

As of September 30, 2021, there were 0 residential properties secured by real estate included in other real estate owned and there was one residential real estate loan totaling $33 thousand in the process of foreclosure.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

There was 1 loan for $516 thousand that was modified as a TDR during the three months ended March 31, 2022, and 0 loans were modified during the three months ended March 31, 2021. There were 0 loans that were modified as TDRs during the past three months and for which there was a subsequent payment default.

Foreclosure Proceedings and Balances:

As of March 31, 2022, there were 0 residential properties secured by real estate included in other real estate owned and there were no residential real estate loans in the process of foreclosure.

Purchased Credit Impaired Loans and Leases:

The Company has acquired loans and leases 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 and leases are as follows (in thousands):


	September 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
Commercial real estate	$	31,664	$	23,787	$	30,981	$	31,600
Consumer real estate		13,211		12,692		11,954		14,215
Construction and land development		3,686		1,812		3,127		3,699
Commercial and industrial		3,794		6,521		3,467		3,424
Leases		4,133		—		2,542		3,557
Consumer and other		154		161		65		125
Total loans and leases		56,642		44,973		52,136		56,620
Less: Remaining purchase discount		(13,013)		(12,909)		(14,687)		(15,273)
Total loans and leases, net of purchase discount		43,629		32,064		37,449		41,347
Less: Allowance for loan and leases losses		(427)		(309)		(187)		(179)
Carrying amount, net of allowance	$	43,202	$	31,755	$	37,262	$	41,168

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


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2021		2020		2021		2020		2022		2021
Accretable yield, beginning of period	$	14,522	$	11,777	$	16,889	$	8,454	$	14,618	$	16,889
Additions		4,072		—		4,721		2,515		—		—
Accretion income		(2,151)		(1,267)		(5,180)		(4,401)		(1,096)		(1,931)
Reclassification		254		265		1,931		2,428		269		337
Other changes, net		(1,034)		7,405		(2,698)		9,184		7,490		(590)
Accretable yield, end of period	$	15,663	$	18,180	$	15,663	$	18,180	$	21,281	$	14,705

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. 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, 2020,For 2021, the results ~~indicated that there was 0 impairment. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes.~~

On September 30, 2021, the Company entered into a Purchase and Assumption Agreement and completed the sale of a portfolio of loans and certain assets associated (the “Sale”) with its branch office located in Richmond, Virginia to Strasburg, Virginia-based First Bank. In accordance with GAAP, the Company allocated a proportionate share of its goodwill balance to the Sale on a relative fair value basis. Based on a relative fair value analysis performed through the date of the ~~sale, goodwill adjustment in the amount~~qualitative assessment provided no indication of ~~$2.5 million related to the Sale was recorded during the third quarter of 2021.~~

potential impairment.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The Company’s other intangible assets consist of core deposit, customer relationships and 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, the customer relationships are amortized over a weighted average of 8.6 years and the tradename is amortized over five years.

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


	September 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
Goodwill:
Balance, beginning of period	$	74,135	$	65,614	$	91,565	$	74,135
Acquisition of PFG		323		8,521		—		323
Acquisition of Fountain		2,400		—		—		2,400
Acquisition of SCB		15,589		—		—		17,171
Adjustment, due to Sale		(2,463)		—		—		(2,464)
Balance, end of the period	$	89,984	$	74,135	$	91,565	$	91,565


	Core Deposit		Customer Relationships		Tradename				Core Deposit		Customer Relationships		Tradename
Amortized other intangible assets:	Intangibles		Intangibles		Intangibles		Total		Intangibles		Intangibles		Intangibles		Total
March 31, 2022:
Beginning balance January 1, 2022, gross									$	17,470	$	3,722	$	63	$	21,255
Less: accumulated amortization										(6,671)		(908)		(26)		(7,605)
Balance, March 31, 2022, other intangible assets, net									$	10,799	$	2,814	$	37	$	13,650

December 31, 2021:
Beginning balance January 1, 2021, gross	$	15,920	$	1,064	$	63	$	17,047	$	15,920	$	1,064	$	63	$	17,047
Acquisition of Fountain		-		2,658		-		2,658		-		2,658		-		2,658
Acquisition of SCB		1,550		-		-		1,550		1,550		-		-		1,550
Balance, September 30, 2021, other intangible assets, gross		17,470		3,722		63		21,255
Balance, December 31, 2021, other intangible assets, gross										17,470		3,722		63		21,255
Less: accumulated amortization		(5,748)		(541)		(20)		(6,309)		(6,212)		(733)		(23)		(6,968)
Balance, September 30, 2021, other intangible assets, net	$	11,722	$	3,181	$	43	$	14,946
Balance, December 31, 2021, other intangible assets, net									$	11,258	$	2,989	$	40	$	14,287

Beginning balance January 1, 2020, gross	$	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 expense for other intangible assets for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, was ~~$711~~$637 thousand and ~~$1.6 million, respectively, and for the three and nine months ended September 30, 2020, was $402~~$444 thousand, ~~and $1.2 million,~~ respectively.

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


Remainder of 2021	$	660
2022		2,521
Remainder of 2022			$	1,884
2023		2,356		2,356
2024		2,203		2,203
2025		2,041		2,041
2026				1,888
Thereafter		5,165		3,278
Total	$	14,946	$	13,650

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7. Borrowings, Line of Credit and Subordinated Debt

Borrowings:

At ~~September 30, 2021,~~March 31, 2022, total borrowings were ~~$88.7~~$36.7 million compared to ~~$81.2~~$87.6 million at December 31, ~~2020.~~2021. During the quarter ending March 31, 2022, the FHLB called a $50 million advance. Borrowings consist of the following (dollars in thousands):


	September 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
Securities sold under customer repurchase agreements	$	6,248	$	5,803	$	4,213	$	5,085
FHLB borrowings		75,000		75,000		25,000		75,000
Other borrowings		7,500		396		7,500		7,500
Total	$	88,748	$	81,199	$	36,713	$	87,585

Securities Sold Under Agreements to Repurchase:

Securities sold under repurchase agreements, which are secured borrowings, generally mature within one to four days from the transaction date. Securities sold under repurchase agreements are reflected at the amount of cash received in connection with the transaction. The Company may be required to provide additional collateral based on the fair value of the underlying securities. The Company monitors the fair value of the underlying securities on a daily basis.

The Company had securities sold under agreements to repurchase with commercial checking customers which were secured by government agency securities. The carrying value of investment securities pledged as collateral under repurchase agreements was ~~$5.6~~$9.8 million and ~~$7.6~~$10.1 million at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. The average balance during the three month period March 31, 2022 and 2021 was $5.0 million and $6.4 million, respectively. The maximum month-end outstanding balance for the three month period March 31, 2022 and 2021 was $5.5 million and $7.2 million, respectively.

Line of Credit:

The Company 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 March 24, 2023. At ~~September 30, 2021,~~March 31, 2022, $7.5 million was outstanding under the line of credit, and $17.5 million of the line of credit remained available to the Company.

Subordinated ~~Debit:~~Debt:

On September 28, 2018, the Company issued $40 million of 5.625% fixed-to-floating rate subordinated notes (the "Notes"), which was outstanding as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. Unamortized debt issuance cost was ~~$591~~$548 thousand and ~~$654~~$570 thousand at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

The Notes initially bears interest at a rate of 5.625% per annum from and including September 28, 2018, to but excluding October 2, 2023, with interest during this period payable semi-annually in arrears. From and including October 2, 2023, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to three-month LIBOR, or an alternative rate determined in accordance with the terms of the Notes if three-month LIBOR cannot be determined, plus 255 basis points, with interest during this period payable quarterly in arrears. The Notes are redeemable by the Company, in whole or in part, on or after October 2, 2023, and at any time, in whole but not in part, upon the occurrence of certain events. The Notes have been structured to qualify initially as Tier 2 capital for the Company for regulatory capital purposes.

The Notes unamortized debt issuance costs totaled ~~$842~~$548 thousand at March 31, 2022, and will be amortized through the Notes’ maturity date. Amortization expense totaled $21 thousand ~~and $63 thousand~~ for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and September 30, 2020,~~ respectively

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

On September 1, 2021, the Company acquired $2.5 million of subordinated notes (“sub-debt”) from the acquisition of SCB. The sub-debt bears interest at a rate of 6.75% per annum until August 14, 2024, with the interest during this period payable semi-annually in arrears. From and including August 14, 2024, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to three-month LIBOR, or an alternative rate determined in accordance with the terms of the sub-debt if three-month LIBOR cannot be determined, plus 530.25 basis points, with interest during this period payable quarterly in arrears. The sub-debt is redeemable by the Company, in whole or in part, on or after August 14, 2024, and at any time, in whole but not in part, upon the occurrence

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

of certain events. The sub-debt has been structured to qualify initially as Tier 2 capital for the Company for regulatory capital purposes.

Note 8. Employee Benefit Plans

401(k) Plan:

The Company provides a deferred salary reduction plan (“Plan”) under Section 401(k) of the Internal Revenue Code covering substantially all employees. After 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 contribution to the Plan for the three month periods ending March 31, 2022 and ~~nine months ending September 30,~~ 2021, respectively, was ~~$287~~$393 thousand and ~~$925 thousand, respectively. The Company’s contribution to the Plan for the three and nine months ending September 30, 2020, was $282 thousand and $840 thousand, respectively.~~$288 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 ~~September 30, 2021,~~March 31, 2022, the Company had 1 active equity incentive plan available for future grants, the 2015 Stock Incentive Plan, which has ~~1,830,260~~1,767,518 Rights available for future grants or awards.

In addition, the Company has ~~19,250 Rights issued from the Cornerstone Bancshares, Inc. 2002 Long Term Incentive Plan, 40,250~~33,500 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

(19,040)

10.18
Forfeited

—

—
Outstanding at September 30, 2021

80,577

$
10.19

~~The Company did 0t recognize any stock option-based compensation expense during the three and nine months ended September 30, 2021 and 2020, respectively, as all stock options issued are fully vested.~~


		Weighted
		Average
		Exercisable
	Number	Price
Outstanding at December 31, 2021	79,667	$	10.17
Granted	—		—
Exercised	(27,550)		7.90
Forfeited	—		—
Outstanding at March 31, 2022	52,117	$	11.37

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Information pertaining to stock options outstanding at ~~September 30, 2021,~~March 31, 2022, is as follows:


		Options Outstanding				Options Exercisable				Options Outstanding				Options Exercisable
			Weighted-								Weighted-
			Average	Weighted-			Weighted-				Average	Weighted-			Weighted-
			Remaining	Average			Average				Remaining	Average			Average
Exercise	Exercise	Number	Contractual	Exercise		Number	Exercise		Exercise	Number	Contractual	Exercise		Number	Exercise
Prices	Prices	Outstanding	Life	Price		Exercisable	Price		Prices	Outstanding	Life	Price		Exercisable	Price
$	6.60	19,250	0.45 years	$	6.60	19,250	$	6.60	9.48	15,500	0.95 years	$	9.48	15,500	$	9.48
	9.48	18,000	1.45 years		9.48	18,000		9.48	9.60	18,000	1.71 years		9.60	18,000		9.60
	9.60	22,250	2.25 years		9.60	22,250		9.60	11.76	2,266	0.25 years		11.76	2,266		11.76
	11.76	2,266	0.75 years		11.76	2,266		11.76	15.05	16,351	3.21 years		15.05	16,351		15.05
	15.05	18,811	3.75 years		15.05	18,811		15.05
Outstanding, end of period	Outstanding, end of period	80,577	1.95 years	$	10.19	80,577	$	10.19	Outstanding, end of period	52,117	1.89 years	$	11.37	52,117	$	11.37

~~NaN~~The Company did not recognize any stock ~~options were exercised~~option-based compensation expense during the three months ended ~~September 30, 2021. The intrinsic value of options exercised during nine months ended September 30,~~March 31, 2022 and 2021, was $220 thousand, and $75 thousand and $141 thousand, during the three and nine months ended September 30, 2020, respectively. The aggregate intrinsic value of total options outstanding and exercisable options at September 30, 2021, was $1.3 million. Cash received from options exercised underrespectively, as all ~~share-based payment arrangements for the nine months ended September 30, 2021 was $194 thousand.~~

~~NaN options vested during the nine months ended September 30, 2021 and 2020, respectively. NaN~~ stock options were exercised during the three months ended September 30, 2021. The income tax expense/benefit recognized for the exercise of options during the nine months ended September 30, 2021, was a benefit of $9 thousand and for the three and nine months ended September 30, 2020, was an expense of $3 thousand and a benefit of $19 thousand, respectively.

~~As of September 30, 2021, all options were~~issued are fully vested, and ~~currently 0~~no future compensation cost will be recognized related to nonvested stock-based compensation arrangements granted under the Plans.

The intrinsic value of options exercised during the three months ended March 31, 2022 and 2021, was $506 thousand and $192 thousand, respectively. The aggregate intrinsic value of total options outstanding and exercisable options at March 31, 2022, was $741 thousand. Cash received from options exercised under all share-based payment arrangements for the three months ended March 31, 2022 was $217 thousand.

Stock options of 27,550 and 15,965 shares were exercised during the three month periods ended March 31, 2022, and 2021, respectively. The income tax benefit recognized for the exercise of options during the three months ended March 31, 2022, and 2021, was a $76 thousand and $1 thousand, respectively.

Restricted Stock Awards:

A summary of the activity of the Company’s unvested restricted stock awards for the period ended ~~September 30, 2021~~March 31, 2022 is presented below:


		Weighted			Weighted
		Average			Average
		Grant-Date			Grant-Date
	Number	Fair Value		Number	Fair Value
Balance at December 31, 2020	100,218	$	19.07
Balance at December 31, 2021				144,367	$	19.49
Granted	53,134		20.43	21,842		26.66
Vested	(7,185)		21.42	(4,167)		20.14
Forfeited/expired	(1,800)		16.37	—		—
Balance at September 30, 2021	144,367	$	19.49
Balance at March 31, 2022				162,042	$	20.44

The Company measures the fair value of restricted 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. The compensation expense for restricted stock awards during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, was ~~$163~~$312 thousand and ~~$525~~$201 thousand, ~~respectively, and was $142 thousand and $365 thousand, during the three and nine months ended September 30, 2020,~~ respectively. As of ~~September 30, 2021,~~March 31, 2022, there was ~~$1.6~~$1.7 million 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 ~~2.74~~2.20 years. The grant-date fair value of restricted stock awards vested was ~~$154~~$84 thousand for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022.

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Stock Appreciation Rights ("SARs"):

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


		Weighted			Weighted
		Average			Average
	Number	Exercisable Price		Number	Exercisable Price
Outstanding at December 31, 2020	73,000	$	19.02
Outstanding at December 31, 2021				55,000	$	18.21
Granted	22,000		20.70	—		—
Exercised	(23,500)		21.61	(4,500)		18.12
Forfeited	(6,000)		18.00	—		—
Outstanding at September 30, 2021	65,500	$	18.75
Outstanding at March 31, 2022				50,500	$	18.21

Information pertaining to SARs outstanding at ~~September 30, 2021,~~March 31, 2022, is as follows:


		SARs Outstanding				SARs Exercisable				SARs Outstanding				SARs Exercisable
			Weighted-								Weighted-
			Average	Weighted-							Average	Weighted-
			Remaining	Average			Weighted- Average				Remaining	Average			Weighted- Average
Exercise	Exercise	Number	Contractual	Exercise		Number	Exercise		Exercise	Number	Contractual	Exercise		Number	Exercise
Prices	Prices	Outstanding	Life		Price	Exercisable	Price		Prices	Outstanding	Life		Price	Exercisable	Price
$	15.19	16,000	2.25 years	$	15.19	—	$	—	15.19	16,000	1.75 years	$	15.19	—	$	—
	18.12	19,000	1.25 years		18.12	—		—	18.12	14,500	0.75 years		18.12	14,500		18.12
	20.70	20,000	3.25 years		20.70	—		—	20.70	20,000	2.76 years		20.70	—		—
	21.61	10,500	0.25 years		21.61	10,500		21.61	Outstanding, end of period	50,500	1.86 years	$	18.21	14,500	$	18.12
	Outstanding, end of period	65,500	1.95 years	$	18.75	10,500	$	21.61

SARs compensation expense of ~~$49~~($26) thousand and ~~$162~~$49 thousand was recognized for the three month periods ended March 31, 2022 and ~~nine months ended September 30,~~ 2021, ~~respectively, and ($63) thousand and ($89) thousand for the three and nine months ended September 30, 2020.~~respectively. The credit in expense for the three ~~and nine months~~month period ended ~~September 30, 2020,~~March 31, 2022, 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 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):


	September 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
Commitments to extend credit	$	616,271	$	476,841	$	723,380	$	669,770
Standby letters of credit		10,439		5,261		17,919		17,868

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

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~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

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

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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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

necessary by the Company upon extension of credit, is based on 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 ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the carrying amount of liabilities related to the 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 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.

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.

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~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

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

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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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

~~Recurring Measurements of Fair Value:~~

The ~~tables below present~~following methodologies were used by the ~~recorded amount of assets and liabilities measured at~~Company in estimating fair value ~~on a recurring basis~~ ~~(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)
September 30, 2021:



Assets:



Securities available-for-sale:



U.S. Treasury

94,025

—

94,025

—
U.S. Government-sponsored enterprises (GSEs)

$
53,463

$
—

$
53,463

$
—
Municipal securities

95,570

—

95,570

—
Other debt securities

26,291

—

26,291

—
Mortgage-backed securities (GSEs)

69,994

—

69,994

—
Total securities available-for-sale

$
339,343

$
—

$
339,343

$
—

Liabilities:



Derivative financial instruments

$
4,180

$
—

$
4,180

$
—

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

—

~~During the nine months ending September 30, 2021, there were 0~~ ~~transfers~~ ~~between~~ ~~Level 1~~ ~~and~~ ~~Level 2~~ ~~in the fair value hierarchy.~~disclosures for financial instruments:

Securities available-for-sale - The fair value of U.S. Treasury, U.S. Government-sponsored enterprises, municipal securities, other debt securities and mortgage-backed securities, is estimated using a third party pricing service. The third party provider evaluates securities based on comparable investments with trades and market data and will utilize pricing models that use a variety of inputs, such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2.

Derivative financial instruments - The fair value for derivative financial instruments is determined based on market prices, broker-dealer quotations on similar products, or other related input parameters. The derivative financial instruments are generally classified Level 2.

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~Derivative financial instruments~~ - Recurring Measurements of Fair Value:

The tables below present the recorded amount of assets and liabilities measured at fair value ~~for derivative financial instruments is determined based~~ on ~~market prices, broker-dealer quotations on similar products, or other related input parameters. The derivative financial instruments are generally classified~~ a recurring basis (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, 2022:
Assets:
Securities available-for-sale:
U.S. Treasury	$	229,913	$	—	$	229,913	$	—
U.S. Government-sponsored enterprises (GSEs)		506		—		506		—
Municipal securities		55,241		—		55,241		—
Other debt securities		28,540		—		28,540		—
Mortgage-backed securities (GSEs)		226,283		—		226,283		—
Total securities available-for-sale		540,483		—		540,483		—

Interest rate swaps agreements for customer loans		1,334		—		1,334		—
Total assets at fair value	$	541,817	$	—	$	541,817	$	—

Liabilities:
Derivative financial instruments and interest rate swap agreements	$	2,552	$	—	$	2,552	$	—

December 31, 2021:
Assets:
Securities available-for-sale:						��
U.S. Treasury	$	137,758			$	137,758	$	—
U.S. Government-sponsored enterprises (GSEs)		21,801		—		21,801		—
Municipal securities		67,820		—		67,820		—
Other debt securities		27,220		—		27,220		—
Mortgage-backed securities (GSEs)		227,854		—		227,854		—
Total securities available-for-sale		482,453		—		482,453		—

Interest rate swaps agreements for customer loans		1,326		—		1,326		—
Total assets at fair value	$	483,779	$	—	$	483,779	$	—

Liabilities:
Derivative financial instruments	$	4,893	$	—	$	4,893	$	—

During the three months ending March 31, 2022, there were 0 transfers between Level 2.1 and Level 2 in the fair value hierarchy.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Assets Measured at Fair Value on a Nonrecurring Basis:

Under certain circumstances management adjusts 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				Quoted Prices in		Significant		Significant
			Active Markets		Other		Other				Active Markets		Other		Other
			for Identical		Observable		Unobservable				for Identical		Observable		Unobservable
			Assets		Inputs		Inputs				Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)		Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2021:
March 31, 2022:
Collateral dependent loans	$	2,868	$	—	$	—	$	2,868	$	2,412	$	—	$	—	$	2,412
Other real estate owned		2,415		—		—		2,415		696		—		—		696

December 31, 2020:
December 31, 2021:
Collateral dependent loans	$	2,455	$	—	$	—	$	2,455	$	2,280	$	—	$	—	$	2,280
Other real estate owned		4,619		—		—		4,619		367		—		—		367

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						Weighted
			Valuation	Significant Other	Average of				Valuation	Significant Other	Average of
	Fair Value		Technique	Unobservable Input	Input		Fair Value		Technique	Unobservable Input	Input
September 30, 2021:
March 31, 2022:
Collateral dependent loans	$	2,868	Appraisal	Appraisal discounts	26	%	$	2,412	Appraisal	Appraisal discounts	19	%
Other real estate owned		2,415	Appraisal	Appraisal discounts	10	%		696	Appraisal	Appraisal discounts	21	%

December 31, 2020:
December 31, 2021:
Collateral dependent loans	$	2,455	Appraisal	Appraisal discounts	9	%	$	2,280	Appraisal	Appraisal discounts	25	%
Other real estate owned		4,619	Appraisal	Appraisal discounts	22	%		367	Appraisal	Appraisal discounts	13	%

Collateral dependent loans: A collateral dependent loan is measured based on the fair value of the collateral securing these loans, less selling costs. Collateral dependent 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. Colleterial dependent 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. 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~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. 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, the difference is recognized in noninterest expense.

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										Fair Value Measurements Using
	Carrying								Estimated		Carrying								Estimated
	Amount		Level 1		Level 2		Level 3		Fair Value		Amount		Level 1		Level 2		Level 3		Fair Value
September 30, 2021:
March 31, 2022:
Assets:
Cash and cash equivalents	$	1,091,160	$	1,091,160	$	—	$	—	$	1,091,160	$	763,968	$	763,968	$	—	$	—	$	763,968
Securities available-for-sale		339,343		—		339,343		—		339,343		540,483		—		540,483		—		540,483
Securities held-to-maturity												289,532		—		277,734		—		277,734
Other investments		14,972		N/A		N/A		N/A		N/A		16,499		N/A		N/A		N/A		N/A
Loans and leases, net and loans held for sale		2,636,786		—		—		2,630,239		2,630,239		2,791,842		—		—		2,739,655		2,739,655
Interest rate swaps agreements for customer loans												1,334		—		1,334		—		1,334

Liabilities:
Noninterest-bearing demand deposits		977,180		—		977,180		—		977,180		1,093,933		—		1,093,933		—		1,093,933
Interest-bearing demand deposits		847,007		—		847,007		—		847,007		975,272		—		975,272		—		975,272
Money market and savings deposits		1,389,393		—		1,389,393		—		1,389,393		1,573,101		—		1,573,101		—		1,573,101
Time deposits		585,692		—		587,954		—		587,954		549,047		—		549,677		—		549,677
Borrowings		88,748		—		89,669		—		89,669		36,713		—		36,750		—		36,750
Subordinated debt		41,909		—		—		43,645		43,645		41,952		—		—		42,487		42,487
Derivative financial instruments		4,180		—		4,180		—		4,180
Derivative financial instruments and interest rate swap agreements												2,552		—		2,552		—		2,552

December 31, 2020:
December 31, 2021:
Assets:
Cash and cash equivalents	$	481,719	$	481,719	$	—	$	—	$	481,719	$	1,045,077	$	1,045,077	$	—	$	—	$	1,045,077
Securities available-for-sale		215,634		—		215,634		—		215,634		482,453		—		482,453		—		482,453
Securities held-to-maturity												76,969		—		76,946				76,946
Other investments		14,794		N/A		N/A		N/A		N/A		16,494		N/A		N/A		N/A		N/A
Loans and leases, net and loans held for sale		2,375,618		—		—		2,377,581		2,377,581		2,679,148		—		—		2,676,181		2,676,181
Interest rate swaps agreements for customer loans												1,326		—		1,326		—		1,326

Liabilities:
Noninterest-bearing demand deposits		685,957		—		685,957		—		685,957		1,055,125		—		1,055,125		—		1,055,125
Interest-bearing demand deposits		649,129		—		649,129		—		649,129		899,158		—		899,158		—		899,158
Money market and savings deposits		919,631		—		919,631		—		919,631		1,493,007		—		1,493,007		—		1,493,007
Time deposits		550,498		—		554,120		—		554,120		574,648		—		576,598		—		576,598
Borrowings		81,199		—		82,892		—		82,892		87,585		—		88,082		—		88,082
Subordinated debt		39,346		—		—		40,550		40,550		41,930		—		—		43,374		43,374
Derivative financial instruments		6,174		—		6,174		—		6,174
Derivative financial instruments and interest rate swap agreements												4,893		—		4,893		—		4,893

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.

~~Table of Contents~~

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

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

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. 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.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 11.Derivatives Financial Instruments

Derivatives designated as fair value hedges:

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~~adopted 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 fair value hedge relationships for the periods presented are as follows (dollars in thousands):

Weighted

Average

Balance

Remaining

Weighted

Balance

Remaining

Weighted

Sheet

Maturity

Average

Receive

Notional

Estimated

Sheet

Maturity

Average

Receive

Notional

Estimated

Liability derivatives

Location

(In Years)

Pay Rate

Rate

Amount

Fair Value

Location

(In Years)

Pay Rate

Rate

Amount

Fair Value

September 30, 2021:

March 31, 2022:

Interest rate swap agreements - securities

Other liabilities

5.74

3.09

3 month LIBOR

36,000

(4,180)

Other liabilities

6.00

3.09

3 month LIBOR

36,000

(1,218)

December 31, 2020:

December 31, 2021:

Interest rate swap agreements - securities

Other liabilities

7.13

3.08

3 month LIBOR

36,000

(6,174)

Other liabilities

6.20

3.09

3 month LIBOR

36,000

(3,567)

The effects of the 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,
	2022		2021
Interest income on tax-exempt securities	$	393	$	564
Effects of fair value hedge relationships		(254)		(305)
Reported interest income on tax-exempt securities	$	139	$	259


	Three Months Ended
	March 31,
Gain (loss) on fair value hedging relationship	2022		2021
Interest rate swap agreements - securities:
Hedged items	$	(1,218)	$	(4,008)
Derivative designated as hedging instruments	$	1,218	$	4,008
Carry amount of hedged assets - securities available-for-sale	$	40,125	$	43,073

3536

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~The effects of the 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

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020
Interest income on tax-exempt securities

$
549

$
565

$
1,675

$
1,586
Effects of fair value hedge relationships

(218)

(201)

(781)

(522)
Reported interest income on tax-exempt securities

$
331

$
364

$
894

$
1,064

Three Months Ended

Nine Months Ended

September 30,

September 30,
Gain (loss) on fair value hedging relationship

2021

2020

2021

2020
Interest rate swap agreements - securities:








Hedged items

$
288

$
299

$
1,994

$
(3,345)
Derivative designated as hedging instruments

$
(288)

$
(299)

$
(1,994)

$
3,345

~~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
September 30, 2021:




Securities available-for-sale

$
43,258

$
448
December 31, 2020:




Securities available-for-sale

$
44,017

$
(1,063)

Non-hedged derivatives:

During the second quarter of 2021, the Company initiated a loan hedging program to certain loan customers. Through this program, the Company originates a variable rate loan with the customer. The Company and the customer will then enter into a fixed interest rate swap. Lastly, an identical offsetting swap is entered into by the Company with a dealer bank. These “back-to-back” swap arrangements are intended to offset each other and allow the Company to book a variable rate loan, while providing the customer with a contract for fixed interest payments. In these arrangements, the Company’s net cash flow is equal to the interest income received from the variable rate loan originated with the customer. These customer swaps are not designated as hedging instruments and are recorded at fair value in other assets and other liabilities. Since the income statement impact of the offsetting positions is limited, any changes in fair value is recognized as other noninterest income in the current period.

At ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, interest rate swaps related to the Company’s loan hedging program that were outstanding are presented in the following table (in thousands):

September 30, 2021

December 31, 2020

Notional

Estimated

Notional

Estimated

Amount

Fair Value

Amount

Fair Value
Interest rate swap agreements:

Assets

$
14,718

$
250

$
-

$
-
Liabilities

14,718

(250)

-

-
Total

$
29,436

$
-

$
-

$
-

~~Table of Contents~~

~~SMARTFINANCIAL, INC. AND SUBSIDIARY~~

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


	March 31, 2022				December 31, 2021
		Notional		Estimated		Notional		Estimated
		Amount		Fair Value		Amount		Fair Value
Interest rate swap agreements:
Assets	$	84,141	$	1,334	$	48,125	$	1,326
Liabilities		84,141		(1,334)		48,125		(1,326)

The Company establishes limits and monitors exposures for customer swap positions. Any fees received to enter the swap agreements at inception are recognized in earnings when received and is included in noninterest income. Such fees were as follows (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2021		2020		2021		2020		2022		2021
Interest rate swap agreements	$	479	$	—	$	489	$	—	$	520	$	—

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 follows the ~~Company adopted~~guidance of 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~~leases. 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.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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):


		September 30,		December 31,			March 31,		December 31,
	Classification	2021		2020		Classification	2022		2021
Assets:
Operating lease right-of-use assets	Other assets	$	6,104	$	4,797	Other assets	$	9,499	$	9,812
Liabilities:
Operating lease liabilities	Other liabilities	$	6,154	$	4,827	Other liabilities	$	9,586	$	9,881

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 ~~September 30, 2021,~~March 31, 2022, the weighted average remaining lease term was ~~10.80~~9.77 years and the weighted average discount rate was ~~2.39%~~2.10%.

The following table represents lease costs and other lease information. 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,
	2022		2021
Lease costs:
Operating lease costs	$	414	$	240
Variable lease costs		25		24
Total	$	439	$	264
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	396	$	233

Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2022, were as follows (in thousands):


	Amounts
March 31, 2023	$	1,142
March 31, 2024		1,290
March 31, 2025		1,079
March 31, 2026		1,047
March 31, 2027		946
Thereafter		5,249
Total future minimum lease payments		10,753
Amounts representing interest		(1,167)
Present value of net future minimum lease payments	$	9,586

3738

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,


2021

2020

2021

2020
Lease costs:








Operating lease costs

$
270

$
272

$
764

$
779
Variable lease costs

18

29

66

84
Total

$
288

$
301

$
830

$
863
Other information:








Cash paid for amounts included in the measurement of lease liabilities:








Operating cash flows from operating leases

$
257

$
264

$
740

$
759

~~Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2021, were as follows~~ ~~(in thousands)~~:

Amounts
September 30, 2022

$
253
September 30, 2023

985
September 30, 2024

744
September 30, 2025

528
September 30, 2026

515
Thereafter

4,059
Total future minimum lease payments

7,084
Amounts representing interest

(930)
Present value of net future minimum lease payments

$
6,154

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 currently sufficient to satisfy the fully phased-in conservation buffer. At ~~September 30, 2021,~~March 31, 2022, 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 (the “TDFI”), pay any dividends to the Company in a calendar year in excess of the total of the 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 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 to declare a dividend of any particular size, the Company’s board of directors must consider its and the Bank’s current and prospective capital, liquidity, and other needs. In addition to state law limitations on the Company’s ability to pay dividends, the Federal Reserve imposes limitations on the Company’s ability to pay dividends. Federal Reserve regulations limit dividends, stock repurchases and discretionary bonuses to executive officers if the Company’s regulatory capital is below the level of regulatory minimums plus the applicable capital conservation buffer.

During the three months ended March 31, 2022, the Bank did not pay a dividend to the Company and the Company paid a quarterly common stock dividend of $0.07 per share. The amount and timing of all future dividend payments by the Company, if any, is subject to discretion of the Company’s board of directors and will depend on the Company’s earnings, capital position, financial condition and other factors, including new regulatory capital requirements, as they become known to the Company.

3839

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SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

limitations on the Company’s ability to pay dividends. Federal Reserve regulations limit dividends, stock repurchases and discretionary bonuses to executive officers if the Company’s regulatory capital is below the level of regulatory minimums plus the applicable capital conservation buffer.

During the three months ended September 30, 2021, the Bank did not pay a dividend to the Company and the Company paid a quarterly common stock dividend of $0.06 per share. During the nine months ended September 30, 2021, the Bank paid $10.0 million in dividends to the Company. Since the first quarter of 2021, the Company has paid a quarterly common stock dividend of $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 board of directors and will depend on the Company’s earnings, capital position, financial condition and other factors, including new regulatory capital requirements, as they become known to the Company.

Regulatory Capital Levels:

Actual and required capital levels at ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020~~2021 are presented below (dollars in thousands):


									Minimum to be												Minimum to be
									well												well
									capitalized under												capitalized under
					Minimum for				prompt								Minimum for				prompt
					capital				corrective action								capital				corrective action
		Actual			adequacy purposes				provisions¹					Actual			adequacy purposes				provisions¹
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2021
March 31, 2022
SmartFinancial:
Total Capital (to Risk Weighted Assets)	$	381,766	12.92	%	$	236,367	8.00	%		N/A	N/A		$	395,523	12.22	%	$	258,996	8.00	%		N/A	N/A
Tier 1 Capital (to Risk Weighted Assets)		320,562	10.85	%		177,275	6.00	%		N/A	N/A			333,493	10.30	%		194,247	6.00	%		N/A	N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)		320,562	10.85	%		132,956	4.50	%		N/A	N/A			333,493	10.30	%		145,685	4.50	%		N/A	N/A
Tier 1 Capital (to Average Assets)²		320,562	8.36	%		153,417	4.00	%		N/A	N/A			333,493	7.41	%		180,085	4.00	%		N/A	N/A

SmartBank:
Total Capital (to Risk Weighted Assets)	$	371,740	12.59	%	$	236,244	8.00	%	$	295,304	10.00	%	$	390,953	12.08	%	$	258,990	8.00	%	$	323,737	10.00	%
Tier 1 Capital (to Risk Weighted Assets)		352,445	11.94	%		177,183	6.00	%		236,244	8.00	%		370,875	11.46	%		194,242	6.00	%		258,990	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		352,445	11.94	%		132,887	4.50	%		191,948	6.50	%		370,875	11.46	%		145,682	4.50	%		210,429	6.50	%
Tier 1 Capital (to Average Assets)²		352,445	9.20	%		153,185	4.00	%		191,481	5.00	%		370,875	8.24	%		180,011	4.00	%		225,013	5.00	%

December 31, 2020
December 31, 2021
SmartFinancial:
Total Capital (to Risk Weighted Assets)	$	329,431	14.07	%	$	187,303	8.00	%		N/A	N/A		$	386,627	12.55	%	$	246,483	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			325,345	10.56	%		184,862	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			325,345	10.56	%		138,647	4.50	%		N/A	N/A
Tier 1 Capital (to Average Assets)		271,739	8.70	%		125,002	4.00	%		N/A	N/A			325,345	7.45	%		174,578	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	%	$	378,055	12.29	%	$	246,053	8.00	%	$	307,566	10.00	%
Tier 1 Capital (to Risk Weighted Assets)		299,314	12.78	%		140,470	6.00	%		187,294	8.00	%		358,703	11.66	%		184,539	6.00	%		246,053	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		299,314	12.78	%		105,353	4.50	%		152,176	6.50	%		358,703	11.66	%		138,405	4.50	%		199,918	6.50	%
Tier 1 Capital (to Average Assets)		299,314	9.58	%		124,969	4.00	%		156,212	5.00	%		358,703	8.23	%		174,384	4.00	%		217,980	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 Income (Loss)

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


	Three Months Ended September 30, 2021						Three Months Ended March 31, 2022
					Accumulated							Accumulated
	Securities		Fair Value		Other		Securities		Securities	Fair Value		Other
	Available-for-		Municipal		Comprehensive		Available-for-		Transferred to	Municipal		Comprehensive
	Sale		Security Hedges		Income (Loss)		Sale		Held-to-Maturity	Security Hedges		Income (Loss)
Beginning balance, June 30, 2021	$	2,051	$	287	$	2,338
Beginning balance, December 31, 2021							$	25	665	$	753	$	1,443

Other comprehensive income		210		44		254
Other comprehensive income (loss)								(15,092)	(1,490)		(409)		(16,991)
Reclassification of amounts included in net income		(33)		—		(33)		—	(8)		—		(8)
Net other comprehensive income during period		177		44		221
Net other comprehensive income (loss) during period								(15,092)	(1,498)		(409)		(16,999)

Ending balance, September 30, 2021	$	2,228	$	331	$	2,559
Ending balance, March 31, 2022							$	(15,067)	(833)	$	344	$	(15,556)

	Three Months Ended September 30, 2020						Three Months Ended March 31, 2021
					Accumulated							Accumulated
	Securities		Fair Value		Other		Securities		Securities	Fair Value		Other
	Available-for-		Municipal		Comprehensive		Available-for-		Transferred to	Municipal		Comprehensive
	Sale		Security Hedges		Income (Loss)		Sale		Held-to-Maturity	Security Hedges		Income (Loss)
Beginning balance, June 30, 2020	$	2,668	$	(2,076)	$	592
Beginning balance, December 31, 2020							$	2,968	—	$	(785)	$	2,183

Other comprehensive income		(65)		492		427
Other comprehensive income (loss)								(2,070)	—		970		(1,100)
Reclassification of amounts included in net income		(7)		—		(7)		—	—		—		—
Net other comprehensive income during period		(72)		492		420
Net other comprehensive income (loss) during period								(2,070)	—		970		(1,100)

Ending balance, September 30, 2020	$	2,596	$	(1,584)	$	1,012
Ending balance, March 31, 2021							$	898	—	$	185	$	1,083

Nine Months Ended September 30, 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)

(707)

1,116

409
Reclassification of amounts included in net income

(33)

—

(33)
Net other comprehensive income (loss) during period

(740)

1,116

376

Ending balance, September 30, 2021

$
2,228

$
331

$
2,559

Nine Months Ended September 30, 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)

2,201

(1,361)

840
Reclassification of amounts included in net income

4

—

4
Net other comprehensive income (loss) during period

2,205

(1,361)

844

Ending balance, September 30, 2020

$
2,596

$
(1,584)

$
1,012

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

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 Statement

The Company 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 effects of the COVID-19 (and the variants thereof) 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 and lease 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, including the risk of inflation and interest rate increases resulting from monetary and fiscal stimulus responses, and the resulting effect of all of such items on our operations, liquidity and capital position, and on the financial condition of our borrowers and other customers;

●

governmental monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal Reserve, as well as legislative, tax and regulatory changes, including those that impact the money supply and inflation;

●

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;

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●

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;

~~Table of Contents~~

●

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

●

~~disruption from the acquisitions of SCB and Fountain with customers, suppliers or employees or other business partners’ relationships;~~

●

the ~~risk~~risks relating to the recently completed acquisitions including, without limitation: unexpected transaction costs, including the costs of ~~successful~~integrating operations; the risks that the businesses will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of ~~SCB’s and Fountain’s businesses with our business;~~

●

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

●

~~The Company’s ability to manage the combined company’s growth following the acquisitions of SCB and Fountain;~~

●

~~the dilution caused by the Company’s issuance of additional shares of its common stock in connection with the SCB acquisition;~~expected;

●

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 and lease portfolio;

●

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

●

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

●

unanticipated loan and lease 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 continued 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 and lease 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;

●

disruptions to the financial markets as a result of the current or anticipated impact of military conflict, including Russia’s military action in Ukraine, terrorism or other geopolitical events; and

●

risks associated with widespread inflation or deflation.

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. The Company 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.

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

Executive Summary

The following is a summary of the Company’s financial highlights and significant events during the ~~third~~first quarter ~~and first nine months~~ of ~~2021:~~2022:

●

~~Successfully completed the hiring of experienced banking teams in the Gulf Coast Region and Auburn, Dothan, Montgomery and Birmingham Alabama and Tallahassee, Florida.~~

●

~~Announced and completed the acquisition of SCB.~~

●

~~Announced and completed the acquisition of Fountain.~~

●

~~Originated 1,801 Paycheck Protection Program (“PPP”) loans totaling $138.4 million.~~

●

Net income totaled ~~$9.6~~$8.3 million, or ~~$0.61~~$0.49 per diluted common share, during the ~~third~~first quarter of ~~2021~~2022 compared to ~~$6.4~~$9.8 million, or ~~$0.42~~$0.65 per diluted common share, for the same period in ~~2020.~~

●

~~Net income totaled $28.1 million, or $1.84 per diluted common share, during the first nine months of 2021 compared to $15.3 million, or $1.02 per diluted common share, for the same period in 2020.~~2021.

●

Annualized return on average assets for the three months ended ~~September 30,~~March 31, 2022 and 2021 was 0.73% and ~~2020 was 0.97% and 0.76%~~1.18%, respectively.

●

~~Annualized return on average assets for the nine months ended September 30, 2021 and 2020 was 1.04% and 0.68%, respectively.~~

Selected Financial Information

The following is a summary of certain financial information for the three month periods ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021 (dollars in thousands, except per share data):


	Three Months Ended
	March 31,
	2022			2021				Change
Income Statement:
Interest income	$	32,915		$	29,292		$	3,623
Interest expense		2,797			3,032			(235)
Net interest income		30,118			26,260			3,858
Provision for loan and lease losses		1,006			67			939
Net interest income after provision for loan and lease losses		29,112			26,193			2,919
Noninterest income		7,111			5,691			1,420
Noninterest expense		25,718			19,464			6,254
Income before income taxes		10,505			12,420			(1,915)
Income tax expense		2,246			2,664			(418)
Net income	$	8,259		$	9,756		$	(1,497)

Per Share Data:
Basic income per common share	$	0.49		$	0.65		$	(0.16)
Diluted income per common share	$	0.49		$	0.65		$	(0.16)

Performance Ratios:
Return on average assets		0.73	%		1.18	%		(0.45)	%
Return on average shareholders' equity		7.83	%		10.96	%		(3.14)	%

	March 31,			December 31,
	2022			2021				Change
Balance Sheet:
Loans and leases, net	$	2,785,948		$	2,674,045		$	111,903
Deposits		4,191,353			4,021,938			169,415

Analysis of Results of Operations

~~Third~~First quarter of ~~2021~~2022 compared to ~~2020~~2021

Net income was ~~$9.6~~$8.3 million, or ~~$0.61~~$0.49 per diluted common share, for the ~~third~~first quarter of ~~2021,~~2022, compared to ~~$6.4~~$9.8 million, or ~~$0.42~~$0.65 per diluted common share, for the ~~third~~first quarter of ~~2020. The increase~~2021. For the three months ended March 31, 2022, when compared to the comparable period in 2021, the decline in net income ~~for this period~~of $1.5 million was ~~primarily from the~~largely due to an increase in noninterest expense of ~~$5.8~~$6.3 million, which was offset by an increase in net interest income after provision for loan and lease losses of $2.9 million and ~~$2.2 million~~growth in our noninterest income ~~offset by increases~~ of ~~$4.1 million in noninterest expense and $665 thousand in income tax expense.~~$1.4 million. The tax equivalent net interest margin was 3.35% for the third quarter of 2021, compared to 3.39% for the third quarter of 2020. Noninterest income to average assets was 0.64% for the third quarter of 2021, increasing from 0.49% for the third quarter of 2020. Noninterest expense to average assets increased to 2.35% in the third quarter of 2021, from 2.28% in the third quarter of 2020.

~~First nine months of 2021 compared to 2020~~

~~Net income was $28.1 million, or $1.84 per diluted common share,~~2.91% for the first ~~nine months~~quarter of ~~2021,~~2022, compared to ~~$15.3 million, or $1.02 per diluted common share,~~3.48% for the first ~~nine months~~quarter of 2020. The increase in net income for this period was primarily from the increase of $16.7 million in net interest income after provision for loan and lease losses and $6.7 million in noninterest income, offset by increases of $6.8 million in noninterest expense and $3.7 million in income tax expense. The tax equivalent net interest margin was 3.37% for the first nine months of 2021 compared to 3.62% for the first nine months of 2020.2021. Noninterest income to average assets was 0.63% for the first ~~nine months~~quarter of ~~2021, increasing~~2022, decreasing from ~~0.46%~~0.69% for the first ~~nine months~~quarter of ~~2020.~~2021. Noninterest expense to average assets decreased to ~~2.34%~~2.27% in the first ~~nine months~~quarter of ~~2021,~~2022, from ~~2.52%~~2.35% in the first ~~nine months~~quarter of ~~2020.~~2021.

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Net Interest Income and Yield Analysis

~~Third~~First quarter of ~~2021~~2022 compared to ~~2020~~2021

Net interest income, taxable equivalent, increased to ~~$30.5~~$30.3 million for the ~~third~~first quarter of ~~2021,~~2022, up from ~~$26.2~~$26.4 million for the ~~third~~first quarter of ~~2020.~~2021. Net interest income was positively impacted, compared to the prior year, primarily by the increase in loan and lease balances ~~PPP and loan fees accretion~~ and the reduction in interest expense on interest bearing liabilities. Average interest-earning assets increased from $3.08 billion for the ~~third~~first quarter of ~~2020,~~2021, to ~~$3.61~~$4.22 billion for the ~~third~~first quarter of ~~2021,~~2022, primarily because of the Company’s continued organic loan and lease growth, acquisition of Fountain completed on May 3, 2021, acquisition of SCB completed September 1, 2021 ~~participation in the PPP,~~ and the increase in our securities and overall liquidity position. Over this period, average loan and lease balances increased by ~~$122.4~~$295.7 million, average securities increased $491.2 million, average federal funds sold and other interest earning assets increased by ~~$363.9~~$358.7 million, average interest-bearing deposits increased

~~Table of Contents~~

by ~~$562.7~~$855.1 million, average noninterest-bearing deposits increased ~~$228.3~~$327.3 million and average borrowings decreased ~~$239.1~~$12.1 million. The tax equivalent net interest margin decreased to ~~3.35%~~2.91% for the ~~third~~first quarter of ~~2021,~~2022, compared to ~~3.39%~~3.48% for the ~~third~~first quarter of ~~2020.~~2021. The yield on earning assets decreased from 3.88% for the ~~third quarter of 2020, to 3.67% for the third~~first quarter of 2021, to 3.18% for the first quarter of 2022, primarily due to a reduction in PPP fees, loan discount accretion and lower yielding excess liquidity. The cost of average interest-bearing deposits decreased from ~~0.59%~~0.44% for the ~~third~~first quarter of ~~2020,~~2021, to ~~0.34%~~0.27% for the ~~third~~first quarter of ~~2021,~~2022, primarily due to a lower interest rate environment during the period.

The following 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 September 30,												Three Months Ended March 31,
	2021						2020						2022						2021
	Average				Yield/		Average				Yield/		Average				Yield/		Average				Yield/
	Balance		Interest		Rate		Balance		Interest		Rate		Balance		Interest		Rate		Balance		Interest		Rate
Assets:
Loans and leases, including fees¹	$	2,532,604		31,623	4.95	%	$	2,410,173		28,508	4.71	%	$	2,724,206	$	29,570	4.40	%	$	2,428,499	$	27,943	4.67	%
Loans held for sale		3,987		51	5.09	%		8,048		113	5.57	%		3,890		73	7.62	%		7,913		75	3.82	%
Taxable securities		187,032		832	1.77	%		132,642		546	1.64	%		612,980		2,418	1.60	%		136,492		724	2.15	%
Tax-exempt securities²		87,621		477	2.16	%		88,129		515	2.32	%		105,516		533	2.05	%		90,849		409	1.82	%
Federal funds sold and other earning assets		802,712		474	0.23	%		438,785		327	0.30	%		775,834		486	0.25	%		417,144		291	0.28	%
Total interest-earning assets		3,613,956		33,457	3.67	%		3,077,777		30,009	3.88	%		4,222,426		33,080	3.18	%		3,080,897		29,442	3.88	%
Noninterest-earning assets		323,067						262,764						381,807						275,272
Total assets	$	3,937,023					$	3,340,541					$	4,604,233					$	3,356,169

Liabilities and Shareholders' Equity:
Interest-bearing demand deposits	$	763,613	$	414	0.21	%	$	509,999	$	199	0.16	%	$	921,835		446	0.20	%	$	641,214		256	0.16	%
Money market and savings deposits		1,233,533		854	0.27	%		833,022		704	0.34	%		1,523,188		859	0.23	%		983,893		821	0.34	%
Time deposits		524,327		885	0.67	%		615,714		1,994	1.29	%		561,207		709	0.51	%		526,062		1,254	0.97	%
Total interest-bearing deposits		2,521,473		2,153	0.34	%		1,958,735		2,897	0.59	%		3,006,230		2,014	0.27	%		2,151,169		2,331	0.44	%
Borrowings³		80,188		121	0.60	%		319,265		334	0.42	%
Borrowings														69,769		157	0.91	%		81,837		117	0.58	%
Subordinated debt		40,211		654	6.47	%		39,311		584	5.91	%		41,938		626	6.05	%		39,354		584	6.01	%
Total interest-bearing liabilities		2,641,872		2,928	0.44	%		2,317,311		3,815	0.65	%		3,117,937		2,797	0.36	%		2,272,360		3,032	0.54	%
Noninterest-bearing deposits		877,831						649,489						1,028,298						700,962
Other liabilities		24,522						25,834						30,053						21,928
Total liabilities		3,544,225						2,992,634						4,176,288						2,995,250
Shareholders' equity		392,798						347,907						427,945						360,919
Total liabilities and shareholders’ equity	$	3,937,023					$	3,340,541					$	4,604,233					$	3,356,169
Net interest income, taxable equivalent			$	30,529					$	26,194					$	30,283					$	26,410
Interest rate spread					3.23	%					3.22	%					2.82	%					3.33	%
Tax equivalent net interest margin					3.35	%					3.39	%					2.91	%					3.48	%

Percentage of average interest-earning assets to average interest-bearing liabilities					136.80	%					132.82	%					135.42	%					135.58	%
Percentage of average equity to average assets					9.98	%					10.41	%					9.29	%					10.75	%

¹Loans and leases include PPP loans with an average balance of ~~$128.4~~$54.0 million and ~~$295.0~~$312.6 million for the three months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020,~~ respectively. Loan and lease fees included in loan and lease income was ~~$3.5~~$1.6 million and ~~$2.7~~$2.9 million for the three months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020,~~ respectively. Loan and lease fee income for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ includes ~~$2.9~~$1.1 million and ~~$1.8~~$2.4 million accretion of loan fees on PPP loans, respectively.

Table of Contents

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%. The taxable-equivalent adjustment was ~~$146~~$165 thousand for the three months ended ~~September 30, 2021~~March 31, 2022 and ~~$151~~$150 thousand for the three months ended ~~September 30, 2020.~~

³Includes average balance of $237.8 million in Paycheck Protection Liquidity Facility (“PPPLF”) funding for the quarter ended September 30, 2020. No PPPLF funding was used for the quarter ended September 30, 2021.

~~First nine months of 2021 compared to 2020~~

Net interest income, taxable equivalent, increased to $84.0 million for the first nine months of 2021, up from $74.8 million for the first nine months of 2020. Net interest income was positively impacted, compared to the prior year, primarily due to increases in loan and lease balances, PPP and loan fees accretion and reduction in interest expense on interest-bearing liabilities. Average interest-earning assets increased from $2.76 billion for the first nine months of 2020, to $3.33 billion for the first nine months of 2021, primarily as a result of the acquisition of PFG completed March ~~1, 2020, the acquisition of Fountain completed on May 3, 2021, acquisition of SCB completed September 1, 2021, participation in the PPP and~~

~~Table of Contents~~

continued organic growth. Over this period, average loan and lease balances increased by $237.8 million, average interest-bearing deposits increased by $460.4 million, average noninterest-bearing deposits increased $245.1 million and average borrowings decreased $122.0 million. The tax equivalent net interest margin decreased to 3.37% for the first nine months of 2021, compared to 3.62% for the first nine months of 2020. The yield on earning assets decreased from 4.27% for the first nine months of 2020, to 3.73% for the first nine months of 2021, primarily due to rate cuts by the Federal Reserve during the first quarter of 2020, to a lesser extent loan and lease yields declining from market competition and lower yielding excess liquidity, offset by PPP and loan fees accretion. The cost of average interest-bearing deposits decreased from 0.79% for the first nine months of 2020, to 0.39% for the first nine months of 2021, primarily due to a lower interest rate environment during the period.

Nine Months Ended September 30,

2021

2020


Average




Yield/

Average




Yield/


Balance

Interest

Cost

Balance

Interest

Cost

Assets:













Loans and leases, including fees¹

$
2,489,843

$
87,823

4.72
%
$
2,252,075

$
83,487

4.95
%
Loans held for sale

5,724

192

4.49
%

6,409

231

4.81
%
Taxable Securities

163,005

2,472

2.03
%

123,895

1,813

1.95
%
Tax-exempt securities²

89,244

1,339

2.01
%

81,604

1,486

2.43
%
Federal funds and other earning assets

584,970

1,074

0.25
%

296,449

1,206

0.54
%
Total interest-earning assets

3,332,786

92,900

3.73
%

2,760,432

88,223

4.27
%
Noninterest-earning assets

295,074





248,293





Total assets

$
3,627,860





$
3,008,725





Liabilities and Stockholders’ Equity:













Interest-bearing demand deposits

$
698,148

974

0.19
%
$
451,074

782

0.23
%
Money market and savings deposits

1,112,342

2,580

0.31
%

749,316

2,707

0.48
%
Time deposits

517,566

3,179

0.82
%

667,303

7,527

1.51
%
Total interest-bearing deposits

2,328,056

6,733

0.39
%

1,867,693

11,016

0.79
%
Borrowings³

81,177

360

0.59
%

203,202

674

0.44
%
Subordinated debt

39,650

1,823

6.15
%

39,290

1,751

5.95
%
Total interest-bearing liabilities

2,448,883

8,916

0.49
%

2,110,185

13,441

0.85
%
Noninterest-bearing deposits

782,960





537,860





Other liabilities

21,553





23,826





Total liabilities

3,253,396





2,671,871





Stockholders’ equity

374,464





336,854





Total liabilities and stockholders’ equity

$
3,627,860





$
3,008,725





Net interest income, taxable equivalent



$
83,984





$
74,782



Interest rate spread





3.24
%





3.42
%
Tax equivalent net interest margin





3.37
%





3.62
%

Percentage of average interest-earning assets to average interest-bearing liabilities



136.09
%





130.81
%
Percentage of average equity to average assets





10.32
%





11.20
%

¹Loans and leases include PPP loans with an average balance of $235.0 million and $169.6 million for the nine months ended September 30, 2021, and 2020, respectively. Loan and lease fees included in loan and lease income was $9.0 million and $6.3 million for the nine months ended September 30, 2021, and 2020, respectively. Loan lease fee income for the nine months ended September 30, 2021 and 2020, includes $7.4 million and $3.7 million accretion of loan fees on PPP loans, respectively.

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%. The taxable-equivalent adjustment was $445 thousand for the nine months ended September 30, 2021 and $422 thousand for the nine months ended September 30, 2020.

³~~Includes average balance of $115.7 million in PPPLF funding for the nine months ended September 30, 2020. No PPPLF funding was used for the nine months ended September 30,~~31, 2021.

~~Table of Contents~~

Noninterest Income

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


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2021		2020			Change	2021		2020			Change	2022		2021			Change
Service charges on deposit accounts	$	1,220	$	892	$	328	$	3,278	$	2,370	$	908	$	1,319	$	1,009	$	310
Gain (loss) on sale of securities		45		(9)		54		45		6		39
Mortgage banking		994		1,029		(35)		3,238		2,544		694		834		1,139		(305)
Investment services		448		359		89		1,546		1,159		387		1,070		531		539
Insurance commissions		745		560		185		2,768		1,302		1,466		901		1,466		(565)
Interchange and debit card transaction fees, net		1,078		868		210		2,839		1,652		1,187		1,284		839		445
Other		1,779		422		1,357		3,429		1,417		2,012		1,703		707		996
Total noninterest income	$	6,309	$	4,121	$	2,188	$	17,143	$	10,450	$	6,693	$	7,111	$	5,691	$	1,420

~~Third~~First quarter of ~~2021~~2022 compared to ~~2020~~2021

Noninterest income increased by ~~$2.2~~$1.4 million, or ~~53.1%~~25.0%, during the ~~third~~first quarter of ~~2021~~2022 compared to the same period in ~~2020.~~2021. This quarterly change in total noninterest income primarily resulted from the following:

●

Increase in service charges on deposit accounts, related to the SCB acquisition, deposit growth and transaction volume;

●

~~Increase insurance commissions due to increased activity;~~

●

~~Increase in interchange and debit card transaction fees, related to increased volume, deposit growth and the SCB acquisitions: and~~

●

Increase in other, primarily from new fee income from the acquisition of Fountain, cash surrender value of bank owned life insurance (“BOLI”) from the additional BOLI purchased during the first quarter of 2021 and SWAP fee income from the newly created capital markets program in the second quarter of 2021.

~~First nine months of 2021 compared to 2020~~

Noninterest income increased by $6.7 million, or 64.0%, during the first nine months of 2021 compared to the same period in 2020. This change in total noninterest income primarily resulted from the following:

●

~~Increase in service charges on deposit accounts, related to the PFG and SCB acquisitions, deposit growth and transaction volume;~~

●

~~Increase~~Decrease in mortgage banking, ~~from increased volume due~~related to ~~low rate environment;~~decreased volume;

●

Increase in investment services, ~~stemming from increased production;~~related to the addition of a new wealth management team hired during the fourth quarter of 2021;

●

~~Increase in~~Decrease insurance commissions, ~~primarily~~related to the commissions from ~~a full nine months of insurance commissions in 2021 and~~the placement of life ~~insurance~~insurances policies ~~during~~in the first quarter of 2021;

●

Increase in interchange and debit card transaction fees, related to increased volume, deposit growth and the ~~PFG and~~ SCB ~~acquisitions;~~acquisition: and

●

Increase in other, primarily from new fee income from the acquisition of Fountain ~~cash surrender value of bank owned life insurance from the additional BOLI purchased during the first quarter of 2021~~ and SWAP fee income from the newly created capital markets program in the second quarter of 2021.

~~Table of Contents~~

Noninterest Expense

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


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2021		2020			Change	2021		2020			Change	2022		2021			Change
Salaries and employee benefits	$	13,594	$	11,032	$	2,562	$	36,666	$	31,395	$	5,271	$	15,046	$	10,869	$	4,177
Occupancy and equipment		2,536		2,186		350		7,170		6,093		1,077		3,059		2,341		718
FDIC insurance		525		534		(9)		1,266		894		372		641		371		270
Other real estate and loan related expense		407		643		(236)		1,514		1,535		(21)		729		602		127
Advertising and marketing		235		253		(18)		654		653		1		369		190		179
Data processing and technology		1,753		1,131		622		4,642		3,293		1,349		1,586		1,379		207
Professional services		810		594		216		2,300		2,172		128		1,242		641		601
Amortization of intangibles		711		402		309		1,597		1,169		428		637		444		193
Merger related and restructuring expenses		464		290		174		939		3,863		(2,924)		439		103		336
Other		2,274		2,102		172		6,822		5,699		1,123		1,970		2,524		(554)
Total noninterest expense	$	23,309	$	19,167	$	4,142	$	63,570	$	56,766	$	6,804	$	25,718	$	19,464	$	6,254

Table of Contents

~~Third~~First quarter of ~~2021~~2022 compared to ~~2020~~2021

Noninterest expense increased by ~~$4.1~~$6.3 million, or ~~21.6%~~32.1%, in the ~~third~~first quarter of ~~2021~~2022 as compared to the same period in ~~2020.~~2021. The quarterly increase in total noninterest expense primarily resulted from the following:

●

Increase in salary and employee benefits, related to the Fountain acquisition completed May 3, 2021, SCB acquisition completed September 1, 2021, and overall franchise growth from talent hired in Auburn, Dothan, Montgomery and Birmingham, Alabama and Tallahassee, ~~Florida;~~

●

~~Increase~~Florida in ~~occupancy and equipment, due to ongoing infrastructure and facilities added to accommodate growth in operations; and~~

●

~~Increase in data processing and technology, primarily from continued infrastructure build and overall growth.~~

~~First nine months of 2021 compared to 2020~~

Noninterest expense increased by $6.8 million, or 12.0%, in the first nine months of 2021 as compared to the same period in 2020. The change in total noninterest expense primarily resulted from the following:

●

Increase in salary and employee benefits, related to the PFG acquisition, Fountain acquisition completed May 3, 2021, SCB acquisition completed September 1, 2021, and overall franchise growth from talent hired in Auburn, Dothan, Montgomery and Birmingham Alabama, and Tallahassee, Florida;2021;

●

Increase in occupancy and equipment, due to ongoing infrastructure and facilities added to accommodate growth in operations;

●

Increase in ~~FDIC insurance, related~~professional services, due to ~~continued asset growth;~~

●

~~Increase in data processing and technology, primarily from continued infrastructure build and overall growth;~~additional services performed; and

●

~~Other increased,~~Decrease in other, primarily from an equity method investment in a start-up fintech company ~~and other expenses related to continued franchise growth.~~in the first quarter of 2021.

~~Table of Contents~~

Taxes

~~Third~~First quarter of ~~2021~~2022 compared to ~~2020~~2021

In the ~~third~~first quarter of ~~2021~~2022 income tax expense totaled ~~$2.6~~$2.2 million compared to ~~$2.0~~$2.7 million in the ~~third~~first quarter of ~~2020.~~2021. The effective tax rate was approximately 22.0% in the third quarter of 2021 compared to 23.5% third quarter of 2020. The lower effective tax rate for the third quarter of 2021 compared to same quarter in 2020 was due to a proportional higher amount of non-taxable income in relation to income taxes.

~~First nine months of 2021 compared to 2020~~

~~In the first nine months of 2021 income tax expense totaled $7.8 million compared to $4.1 million~~21.4% in the first ~~nine months~~quarter of ~~2020. The effective tax rate was approximately 21.6% for first nine months of 2021~~2022 compared to ~~21.0% a year ago. The higher effective tax rate for the~~21.5% first ~~nine months~~quarter of 2021 compared to same period in 2020 was due to 2020 having a proportionately higher amount of non-taxable income in relation to income before taxes and, as part of the CARES Act legislation, a tax benefit realized from the recognition of net operating loss carryforwards from past acquisitions.2021.

Loan and Lease Portfolio

The Company had total net loans and leases outstanding, including organic and acquired loans and leases, of approximately ~~$2.63~~$2.79 billion at ~~September 30, 2021~~March 31, 2022 compared to ~~$2.36~~$2.67 billion at December 31, ~~2020.~~2021. Loans secured by real estate, consisting of commercial and residential property, are the principal component of our loan and lease portfolio.

Organic Loans and Leases

Our organic net loans and leases, which excludes loans and leases purchased through acquisitions, increased by ~~$132.2~~$155.1 million, or ~~6.7%~~7.0%, from December 31, ~~2020,~~2021, to ~~$2.11~~$2.38 billion at ~~September 30, 2021. Included in~~March 31, 2022. Decreasing the growth was ~~$138.4~~$24.4 million of forgiven PPP loans ~~that were originated and funded~~ during the first ~~nine months~~quarter of ~~2021 and offset by $341.5 million in forgiven PPP loans originated in 2020 and 2021.~~2022. Total net deferred fees ~~associated~~remaining with the PPP loans ~~originated during the first nine months of 2021~~at March 31, 2022, was ~~approximately $7.0 million with $3.2 million accreted into income.~~$972 thousand.

Acquired Loans and Leases

~~Purchased~~Net purchased non-credit impaired loans and leases of ~~$476.5~~$369.3 million at ~~September 30, 2021 increased~~March 31, 2022 decreased by ~~$125.8~~$39.3 million from December 31, ~~2020.~~2021. Since December 31, ~~2020,~~2021, our net purchased credit impaired (“PCI”) loans and leases, ~~net increased~~decreased by ~~$11.4~~$3.9 million to ~~$43.2~~$37.3 million at ~~September 30, 2021.~~March 31, 2022. The ~~increase~~decrease in purchased non-credit impaired loans and leases and PCI loans and leases is related to ~~the acquisition of Fountain and SCB and offset by~~ maturities, paydowns and payoffs.

Table of Contents

The following tables summarize the composition of our loan and lease portfolio for the periods presented (dollars in thousands):


	September 30, 2021										March 31, 2022
			Purchased		Purchased				% of				Purchased		Purchased				% of
			Non-Credit		Credit		Total		Gross				Non-Credit		Credit		Total		Gross
	Organic		Impaired		Impaired		Amount		Total		Organic		Impaired		Impaired		Amount		Total
Commercial real estate-mortgage	$	1,038,286	$	251,805	$	23,156	$	1,313,247	49.5	%	$	1,265,008	$	190,578	$	20,270	$	1,475,856	52.6	%
Consumer real estate-mortgage		339,503		127,795		10,863		478,161	18.0	%		364,840		108,598		9,791		483,229	17.2	%
Construction and land development		303,540		19,930		2,904		326,374	12.3	%		296,213		15,779		2,662		314,654	11.2	%
Commercial and industrial		426,168		40,700		2,871		469,739	17.7	%		429,972		28,702		2,479		461,153	16.4	%
Leases		11,625		38,023		3,748		53,396	2.0	%		30,240		27,422		2,230		59,892	2.1	%
Consumer and other		9,980		1,679		87		11,746	0.4	%		10,300		925		17		11,242	0.4	%
Total gross loans and leases receivable, net of deferred fees		2,129,102		479,932		43,629		2,652,663	100.0	%		2,396,573		372,004		37,449		2,806,026	100.0	%
Allowance for loan and leases losses		(15,443)	$	(3,425)		(427)		(19,295)				(17,159)	$	(2,732)		(187)		(20,078)
Total loans and leases, net	$	2,113,659	$	476,507	$	43,202	$	2,633,368			$	2,379,414	$	369,272	$	37,262	$	2,785,948

~~Table of Contents~~


	December 31, 2020										December 31, 2021
			Purchased		Purchased				% of				Purchased		Purchased				% of
			Non-Credit		Credit		Total		Gross				Non-Credit		Credit		Total		Gross
	Organic		Impaired		Impaired		Amount		Total		Organic		Impaired		Impaired		Amount		Total
Commercial real estate-mortgage	$	807,913	$	188,940	$	16,123	$	1,012,976	42.5	%	$	1,157,702	$	205,579	$	20,875	$	1,384,156	51.4	%
Consumer real estate-mortgage		313,582		120,090		10,258		443,930	18.6	%		346,322		119,117		11,833		477,272	17.7	%
Construction and land development		259,622		13,105		5,348		278,075	11.7	%		258,196		17,308		2,882		278,386	10.3	%
Commercial and industrial		607,212		26,926		308		634,446	26.6	%		449,909		35,599		2,516		488,024	18.1	%
Leases		—		—		—		—	—	%		18,067		32,471		3,170		53,708	2.0	%
Consumer and other		9,250		3,539		27		12,816	0.5	%		10,536		1,244		71		11,851	0.4	%
Total gross loans and leases receivable, net of deferred fees		1,997,579		352,600		32,064		2,382,243	100.0	%		2,240,732		411,318		41,347		2,693,397	100.0	%
Allowance for loan and lease losses		(16,154)		(1,883)		(309)		(18,346)				(16,441)		(2,732)		(179)		(19,352)
Total loans and leases, net	$	1,981,425	$	350,717	$	31,755	$	2,363,897			$	2,224,291	$	408,586	$	41,168	$	2,674,045

Loan and Lease Portfolio Maturities

The following table sets forth the maturity distribution of our loans and leases at ~~September 30, 2021,~~March 31, 2022, including the interest rate sensitivity for loans and leases maturing after one year (in thousands):


									Rate Structure for Loans and Leases														Rate Structure for Loans and Leases
									Maturing Over One Year														Maturing Over One Year
	One Year		One through		Over Five				Fixed		Floating		One Year		One through			Five through	Over Fifteen				Fixed		Floating
	or Less		Five Years		Years		Total		Rate		Rate		or Less		Five Years			Fifteen Years	Years		Total		Rate		Rate
Commercial real estate-mortgage	$	112,664	$	487,065	$	713,518	$	1,313,247	$	833,575	$	367,008	$	143,675	$	618,010	$	689,534	$	24,637	$	1,475,856	$	855,133	$	477,048
Consumer real estate-mortgage		32,951		171,718		273,492		478,161		214,867		230,343		34,070		180,858		180,452		87,849		483,229		238,791		210,368
Construction and land development		73,654		153,507		99,213		326,374		120,573		132,147		82,920		148,696		61,531		21,507		314,654		124,370		107,364
Commercial and industrial		103,351		267,296		99,092		469,739		303,865		62,523		116,539		232,606		103,517		8,491		461,153		277,064		67,550
Leases		2,248		51,148		—		53,396		51,148		—		1,912		57,980		—		—		59,892		57,980		—
Consumer and other		4,656		6,481		609		11,746		6,921		169		4,948		5,767		477		50		11,242		6,043		251
Total loans and leases	$	329,524	$	1,137,215	$	1,185,924	$	2,652,663	$	1,530,949	$	792,190	$	384,064	$	1,243,917	$	1,035,511	$	142,534	$	2,806,026	$	1,559,381	$	862,581

Nonaccrual, Past Due, and Restructured Loans and Leases

Nonperforming loans and leases as a percentage of total gross loans and leases, net of deferred fees, was ~~0.13%~~0.12% as of ~~September 30, 2021,~~March 31, 2022, and ~~0.24% as of~~ December 31, ~~2020,~~2021, respectively. Total nonperforming assets as a percentage of total assets was 0.11% as of ~~September 30, 2021, totaled 0.14% compared to 0.31% as of~~March 31, 2022, and December 31, ~~2020.~~2021, respectively. Acquired PCI loans and leases that are included in loan pools are reclassified at acquisition to accrual status and thus are not included as nonperforming assets.

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

September 30,

December 31,

2021

2020
Nonaccrual loans and leases

$
3,567

$
5,633
Accruing loans and leases past due 90 days or more

—

149
Total nonperforming loans and leases

3,567

5,782
Other real estate owned

2,415

4,619
Other repossessed property

77

—
Total nonperforming assets

$
6,059

$
10,401
Restructured loans not included above

$
212

$
257

~~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 September 30, 2021, the Company had no loans remaining under COVID-19 modifications.

4948

Table of Contents

The following table is a summary of our loans and leases that were past due at least 30 days but less than 89 days and 90 days or more past due for the periods presented (dollars in thousands):


			Accruing Loans				Accruing Loans
			30-89 Days				90 Days or More				Total Accruing
			Past Due				Past Due				Past Due Loans
					Percentage of				Percentage of				Percentage of
		Total			Loans in				Loans in				Loans in
		Loans		Amount	Category			Amount	Category			Amount	Category
March 31, 2022
Commercial real estate	$	1,475,856	$	118	0.01	%	$	-	-	%	$	118	0.01	%
Consumer real estate		483,229		846	0.18			-	-			846	0.18
Construction and land development		314,654		-	-			-	-			-	-
Commercial and industrial		461,153		158	0.03			-	-			158	0.03
Leases		59,892		336	0.56			-	-			336	0.56
Consumer and other		11,242		308	2.74			-	-			308	2.74
Total	$	2,806,026	$	1,766	0.06		$	-	-		$	1,766	0.06

December 31, 2021
Commercial real estate	$	1,384,156	$	172	0.01	%	$	-	-	%	$	172	0.01	%
Consumer real estate		477,272		894	0.19			-	-			894	0.19
Construction and land development		278,386		91	0.03			-	-			91	0.03
Commercial and industrial		488,024		1,310	0.27			45	0.01			1,355	0.28
Leases		53,708		361	0.67			-	-			361	0.67
Consumer and other		11,851		103	0.87			19	0.16			122	1.03
Total	$	2,693,397	$	2,931	0.11		$	64	-		$	2,995	0.11

The following table is a summary of our nonaccrual loans and leases for the periods presented (dollars in thousands):


	March 31, 2022						December 31, 2021
			Nonaccrual Loans						Nonaccrual Loans
					Percentage of						Percentage of
		Total			Loans in			Total			Loans in
		Loans		Amount	Category			Loans		Amount	Category
Commercial real estate	$	1,475,856	$	858	0.06	%	$	1,384,156	$	858	0.06	%
Consumer real estate		483,229		2,383	0.49			477,272		2,139	0.45
Construction and land development		314,654		-	-			278,386		-	-
Commercial and industrial		461,153		92	0.02			488,024		116	0.02
Leases		59,892		-	-			53,708		-	-
Consumer and other		11,242		9	0.08			11,851		11	0.09
Total	$	2,806,026	$	3,342	0.12		$	2,693,397	$	3,124	0.12

Allowance for loans and leases to nonaccrual loans				600.78%						619.46%

Allocation of the Allowance for Loan and Lease Losses

We maintain the allowance at a level that we deem appropriate to adequately cover the probable losses inherent in the loan and lease portfolio. Our provision for loan and lease losses for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, is ~~$1.2~~$1.0 million compared to ~~$8.7 million~~$67 thousand in the same period of ~~2020, a decrease~~2021, an increase of ~~$7.5 million. The allowance for loan and lease loss provision for the nine months ended September 30, 2020, increased due to the onset of the COVID-19 pandemic and related economic uncertainty.~~$939 thousand. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, our allowance for loan and lease losses was ~~$19.3~~$20.1 million and ~~$18.3~~$19.4 million, respectively, which we deemed to be adequate at each of the respective dates. Our allowance for loan and lease loss as a percentage of total loans and leases was ~~0.73%~~0.72% at ~~September 30, 2021~~March 31, 2022 and ~~0.77% at~~ December 31, ~~2020.~~2021, respectively.

Our purchased loans and leases were recorded at fair value upon acquisition. The fair value adjustments on the performing purchased loans and leases will be accreted into income over the life of the loans and leases. A provision for loan and lease losses is recorded for any deterioration in these loans and leases subsequent to the acquisition. As of ~~September 30, 2021,~~March 31, 2022, the ~~notional balances~~outstanding principal balance on PCI ~~loans~~loan and leases was ~~$56.6~~$52.1 million ~~while~~and the carrying value was ~~$43.6 million.~~$37.4 million, for a net difference of $14.7 million in discounts. At ~~September 30, 2021,~~March 31, 2022, there was an allowance on PCI loans and leases of ~~$427~~$187 thousand.

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The following table sets forth, based on ~~our~~management's best estimate, the allocation of the allowance for credit losses on loans and leases to ~~types~~categories of loans and leases ~~for the periods presented,~~and loan and lease balances by category and the percentage of loans and leases in each category to total loans and leases ~~(dollars in~~and allowance for credit losses as a percentage of total loans and leases within each loan and lease category for each period presented (in thousands):


	September 30, 2021				December 31, 2020				Amount of		Percentage of Loans in Each			Total		Ratio of Allowance Allocated to
	Amount		Percent		Amount		Percent		Allowance Allocated		Category to Total Loans			Loans		Loans in Each Category
Commercial real estate-mortgage	$	9,405	49.5	%	$	7,579	42.5	%
Consumer real estate-mortgage		3,541	18.0	%		3,471	18.6	%
March 31, 2022
Commercial real estate									$	10,405		52.6	%	$	1,475,856		0.71	%
Consumer real estate										3,388		17.2			483,229		0.70
Construction and land development		2,218	12.3	%		2,076	11.7	%		2,120		11.2			314,654		0.67
Commercial and industrial		3,801	17.7	%		5,107	26.6	%		3,501		16.4			461,153		0.76
Leases		225	2.0	%		—	—	%		548		2.1			59,892		0.91
Consumer and other		105	0.4	%		113	0.5	%		116		0.4			11,242		1.03
Total allowance for loan and lease losses	$	19,295	100.0	%	$	18,346	100.0	%
Total									$	20,078		100.0	%	$	2,806,026		0.72

December 31, 2021
Commercial real estate									$	9,781		51.4	%	$	1,384,156		0.71	%
Consumer real estate										3,454		17.7			477,272		0.72
Construction and land development										1,882		10.3			278,386		0.68
Commercial and industrial										3,781		18.1			488,024		0.77
Leases										330		2.0			53,708		0.61
Consumer and other										124		0.4			11,851		1.05
Total									$	19,352		100.0	%	$	2,693,397		0.72

The allocation by category is determined based on the loans and leases individually assigned risk rating, if applicable, and environmental factors applicable to each category of loan and lease. For impaired loans and leases, those loans and leases are reviewed for a specific allowance allocation. Specific valuation allowances related to impaired, non PCI loans and leases were approximately ~~$586~~$395 thousand at ~~September 30, 2021,~~March 31, 2022, compared to ~~$237~~$561 thousand at December 31, ~~2020.~~2021.

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Analysis of the Allowance for Loan and Lease Losses

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

Three Months Ended September 30,

Nine Months Ended September 30,


2021

2020

2021

2020
Balance at beginning of period

$
18,310

$
16,254

$
18,346

$
10,243
Provision for loan and lease losses

1,149

2,634

1,211

8,683
Charged-off loans and leases:




Commercial real estate-mortgage

—

—

—

—
Consumer real estate-mortgage

—

(21)

(60)

(23)
Construction and land development

—

—

—

—
Commercial and industrial

(41)

(60)

(45)

(77)
Leases

(68)

—

(68)

—
Consumer and other

(132)

(89)

(341)

(231)
Total charged-off loans and leases

(241)

(170)

(514)

(331)
Recoveries of previously charged-off loans and leases:








Commercial real estate-mortgage

23

11

29

16
Consumer real estate-mortgage

13

17

34

34
Construction and land development

—

—

—

2
Commercial and industrial

3

55

13

103
Leases

5

—

5

—
Consumer and other

33

16

171

67
Total recoveries of previously charged-off loans and leases

77

99

252

222
Net loan and lease charge-offs

(164)

(71)

(262)

(109)
Balance at end of period

$
19,295

$
18,817

$
19,295

$
18,817
Ratio of allowance for loan and lease losses to total loans and leases outstanding at end of period

0.73
%
��
0.78
%

0.73
%

0.78
Ratio of net loan and lease charge-offs to average loans and leases outstanding for the period

0.03
%

—
%

0.01
%

—


	Provision for		Net (charge-offs)		Average		Ratio of Net (charge-offs)
	Credit Losses		Recoveries		Loans		Recoveries to Average Loans
Three Months Ended March 31, 2022
Commercial real estate	$	623	$	1	$	1,432,822		-	%
Consumer real estate		(40)		(26)		447,706		(0.01)
Construction and land development		238		-		305,479		-
Commercial and industrial		(109)		(171)		469,139		(0.04)
Leases		146		72		58,146		0.12
Consumer and other		148		(156)		10,914		(1.43)
Total	$	1,006	$	(280)	$	2,724,206		(0.01)


Three Months Ended March 31, 2021
Commercial real estate	$	55		3	$	1,045,402		-	%
Consumer real estate		(179)		16		422,291		-
Construction and land development		(108)		-		279,232		-
Commercial and industrial		237		3		669,838		-
Leases		-		-		-		-
Consumer and other		62		(65)		11,736		(0.55)
Total	$	67	$	(43)	$	2,428,499		-

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 and lease portfolio, past loan and lease loss experience, known and inherent risks in the portfolio, the views of the Bank’s regulators, adverse situations that may affect borrowers’ ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan and lease portfolio, economic conditions, industry and peer bank loan and lease quality indications and other pertinent factors. This

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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 and leases that may be susceptible to significant change.

Securities Portfolio

Our ~~securities~~available-for-sale investment portfolio ~~consisting~~is carried at fair market value and our held-to-maturity investment portfolio is carried at amortized cost, and consists primarily of Federal agency bonds, mortgage-backed securities, state and municipal securities and ~~mortgage-backed securities, amounted to fair values of $339.3 million and $215.6 million at September 30, 2021 and December 31, 2020, respectively.~~other debt securities. Our ~~investments to assets ratio~~investment portfolio increased from ~~6.5%~~$559.4 million at December 31, ~~2020~~2021, to ~~7.7%~~$830.0 million at ~~September 30, 2021.~~March 31, 2022, primarily as a result of strategically deploying a portion of the Bank’s cash position. New purchases were focused on U.S. Treasuries to provide cash flow and liquidity. Our investment to asset ratio has increased from 12.1% at December 31, 2021, to 17.6% at March 31, 2022. Over the past three months the bank has increased its 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~~to strategically invest in higher yielding assets compared to the ~~Company’s securities are designated as available-for-sale.~~bank’s yield on cash.

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

September 30,

December 31,

2021

2020
U.S. Treasury

$
93,910

$
—
U.S. Government-sponsored enterprises (GSEs)

54,175

30,526
Municipal securities

93,422

89,644
Other debt securities

25,996

25,019
Mortgage-backed securities

68,837

66,425
Total securities

$
336,340

$
211,614

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The following table presents the contractual maturity of the Company’s securities by contractual maturity date and average yields based on amortized cost (for all obligations on a fully taxable basis) at ~~September 30, 2021.~~March 31, 2022 (dollars in thousands). 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):~~needs.


	Maturity By Years															1 or Less				1 to 5				5 to 10				Over 10				Total
	1 or Less			1 to 5			5 to 10			Over 10			Total					Weighted				Weighted				Weighted				Weighted				Weighted
																		Average				Average				Average				Average				Average
Available-for-sale:																	Amount	Yield ⁽¹⁾			Amount	Yield ⁽¹⁾			Amount	Yield ⁽¹⁾			Amount	Yield ⁽¹⁾			Amount	Yield ⁽¹⁾
U.S. Treasury	$	59,999		$	—		$	33,911		$	—		$	93,910		$	—	-	%	$	173,953	1.26	%	$	65,103	1.70	%	$	—	-	%	$	239,056	1.38	%
U.S. Government agencies		—			—			25,590			28,585			54,175			—	-			—	-			512	1.92			—	-			512	1.92
State and political subdivisions		1,261			2,830			6,677			82,654			93,422			902	1.80			3,352	1.62			6,493	2.45			44,571	4.04			55,318	3.67
Other debt securities		—			987			24,509			500			25,996			—	-			989	2.12			27,493	4.48			500	4.50			28,982	4.40
Mortgage-backed securities		—			2,653			11,173			55,011			68,837			40	1.99			4,763	1.49			81,893	1.33			150,233	1.63			236,929	1.52
Total securities	$	61,260		$	6,470		$	101,860		$	166,750		$	336,340		$	942	1.81		$	183,057	1.27		$	181,494	1.98		$	195,304	2.19		$	560,797	1.82
Weighted average yield⁽¹⁾		0.08	%		1.56	%		2.25	%		2.51	%		1.97	%

Held-to-maturity:
U.S. Treasury																$	—	-	%	$	150,471	1.48	%	$	—	-	%	$	—	-	%	$	150,471	1.48	%
U.S. Government agencies																	—	-			—	-			23,926	1.90			27,499	1.82			51,425	1.86
State and political subdivisions																	—	-			—	-			4,324	2.20			50,135	2.13			54,459	2.14
Other debt securities																	—	-			—	-			—	-			—	-			—	-
Mortgage-backed securities																	—	-			—	-			4,892	2.14			28,285	2.15			33,177	2.15
Total securities																$	—	-		$	150,471	1.48		$	33,142	1.98		$	105,919	2.05		$	289,532	1.75

~~(1)~~

~~Based on amortized cost, taxable equivalent basis~~

⁽¹⁾Based on amortized cost, taxable equivalent basis

Deposits

Deposits are the primary source of funds for the 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 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 ~~September 30, 2021,~~March 31, 2022, brokered deposits represented approximately ~~1.4%~~1.2% of total deposits.

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The following table summarizes the average balances outstanding and average interest rates for each major category of deposits (dollars in thousands):


	Three Months Ended						Three Months Ended
	March 31, 2022						March 31, 2021
	Average		% of		Average		Average		% of		Average
	Balance		Total		Rate		Balance		Total		Rate
Noninterest-bearing demand	$	1,028,298	25.5	%	—	%	$	700,962	24.6	%	—	%
Interest-bearing demand		921,835	22.8	%	0.20	%		641,214	22.5	%	0.16	%
Money market and savings		1,523,188	37.8	%	0.23	%		983,893	34.5	%	0.34	%
Time deposits		561,207	13.9	%	0.51	%		526,062	18.4	%	0.97	%
Total average deposits	$	4,034,528	100.0	%	0.20	%	$	2,852,131	100.0	%	0.33	%

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 ~~September 30,~~March 31, 2022 and 2021, was 0.27% and ~~2020, was 0.34% and 0.59%~~0.44%, respectively. The decrease cost was primarily due to maturing and repricing of time deposits, which decreased by 6246 basis points. The average cost of interest-bearing deposits for the nine months ended September 30, 2021 and 2020, was 0.39% and 0.79%, respectively. The decreased cost of interest-bearing deposits was due to the maturing and changes in rates caused by federal rate-changes during the periods.

Total deposits as of ~~September 30, 2021,~~March 31, 2022, were ~~$3.80~~$4.19 billion, which was an increase of ~~$994.1~~$169.4 million from December 31, ~~2020.~~2021. This increase was primarily from organic deposit ~~growth and the acquisition of SCB.~~growth. As of ~~September 30, 2021,~~March 31, 2022, the Company had outstanding time deposits under $250,000 with balances of ~~$432.8~~$396.0 million and time deposits over $250,000 with balances of ~~$152.9~~$153.1 million.

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


	September 30,		March 31,
	2021		2022
Three months or less	$	39,165	$	30,753
Three to six months		30,888		42,371
Six to twelve months		42,425		52,345
More than twelve months		40,427		27,628
Total	$	152,905	$	153,097

~~Table of Contents~~

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 ~~$88.7~~$36.7 million at ~~September 30, 2021,~~March 31, 2022, and consisted of ~~$75.0~~$25.0 million in FHLB borrowing and short-term borrowings totaled ~~$13.7~~$11.7 million and consisted of $7.5 million with ServisFirst Bank and ~~$6.3~~$4.2 million of securities sold under repurchase agreements. Long-term debt totaled ~~$41.9~~$42.0 million at ~~September 30, 2021,~~March 31, 2022, and ~~$39.3~~$41.9 million at December 31, ~~2020,~~2021, and consisted entirely of subordinated debt. For more information regarding our borrowings, see "Part I - Item 1. Consolidated Financial Statements - Note 7 – Borrowings, ~~and~~ Line of Credit and Subordinated Debt."

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 ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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. For more information regarding our capital, leverage and total capital ratios, see “Part I - Item 1. Consolidated Financial Statements - Note 13 - Regulatory Matters.”

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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 ~~September 30, 2021,~~March 31, 2022, we had ~~$616.3~~$723.4 million of pre-approved but unused lines of credit and ~~$10.4~~$18.0 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~~, oversees market risk management and establishes risk measures, limits on policy guidelines for ~~making decisions regarding liquidity and funding solutions based upon approved liquidity, loan and lease, capital and investment policies. The ALCO must consider~~managing the amount of interest rate ~~sensitivity~~risk and ~~liquidity~~its effect on net interest income and capital. A variety of measures are used to provide for a comprehensive overview of the Company’s magnitude of interest rate risk, ~~management when rendering a decision on funding solutions~~the distribution of risk, the level of risk over time and ~~loan and lease pricing. To assist~~the exposure to changes in ~~this process the Bank has contracted with~~certain interest rate relationships. We utilize an independent third party earnings simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. The model quantifies the effects of various interest rate scenarios on projected net interest income and net income over the next 12-24 months. The model measures the impact on net interest income relative to ~~prepare quarterly reports that summarize several key asset-liability measurements.~~a flat-rate case scenario of hypothetical fluctuations in interest rates over the next 12-24 months. These simulations incorporate assumptions regarding balance sheet growth and mix, pricing and the repricing and maturity characteristics of the existing and projected balance sheet. The impact of interest rate, caps and floors, is also included in the model. Other interest rate-related risks such as prepayment, basis and option risk are also considered. In addition, third parties will join the ~~third party will also~~meetings of ALCO to provide ~~recommendations to the Bank’s ALCO~~feedback regarding future balance sheet structure, earnings and liquidity strategies. ~~Two critical areas~~ALCO continuously monitors and manages the balance between interest rate-sensitive assets and liabilities. The objective is to manage the impact of ~~focus for ALCO are~~fluctuating market rates on net interest ~~rate sensitivity and liquidity risk management.~~income within acceptable levels. In order to meet this objective, management may lengthen or shorten the duration of assets or liabilities.

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 leases 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

~~Table of Contents~~

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~~static interest rate forecast over the next 12 ~~and 24~~ months, limits in the decline in net interest income are as follows:

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
September 30, 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

7.57%

(0.69)%

8%
± 200 basis points

15.37%

(1.40)%

14%


		Estimated % Change in Net Interest Income Over 12 Months
March 31, 2022:
Instantaneous, Parallel Change in Prevailing Interest Rates Equal to:
100 basis points increase		4.27%
200 basis points increase		8.37%
100 basis points decrease		(3.29)%

~~At September 30, 2021, our model results indicated that we were within our policy limits, except for the increase~~53

Table of ~~plus 200 basis points, due to excess cash on the balance sheet.~~Contents

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:

Maximum

Percentage

Decline in

Economic Value

of Equity from

the Economic

Value of Equity

Current Estimated Instantaneous

at Currently

Rate Change

Prevailing
September 30, 2021:

Increase +

Decrease -

Interest Rates
Instantaneous, Parallel Change in Prevailing Interest Rates Equal to:




±100 basis points

5.36%

(8.98)%

10%
±200 basis points

10.79%

(10.69)%

15%


		Current Estimated Instantaneous Rate Change
March 31, 2022:
Instantaneous, Parallel Change in Prevailing Interest Rates Equal to:
100 basis points increase		2.41%
200 basis points increase		4.05%
100 basis points decrease		(7.65)%

~~At September 30, 2021, our model results indicated that we were within our policy limits.~~

Liquidity Risk Management

The purpose of liquidity risk management is to ensure that there are sufficient cash flows to satisfy loan and lease 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.

~~Table of Contents~~

Scheduled loan and lease payments are a relatively stable source of funds, but loan and lease 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.

The Company has ~~$61.3 million~~$942 thousand in investments that mature throughout the next 12 months. The Company also anticipates ~~$11.2~~$34.4 million of principal payments from mortgage-backed securities over the same period. The Company also has unused borrowing capacity in the amount of ~~$263.8~~$417.6 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~~The information presented in the Market Risk and Liquidity Risk Management section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this report is ~~not required for a Smaller Reporting Company.~~incorporated herein by reference.

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 ~~June 30, 2021~~March 31, 2022 (the “Evaluation Date”). Based on such evaluation, 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 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 rules and forms.

There were no changes in SmartFinancial’s internal control over financial reporting during SmartFinancial’s fiscal quarter ended ~~September 30, 2021~~March 31, 2022 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.

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 our Form 10-K for the year ended December 31, ~~2020.~~2021. These factors could materially and adversely affect our business, financial condition, liquidity, results of operations and capital position, and 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 other risks may prove to be important in the future. In addition, these risks may be heightened by the continued disruption and uncertainty resulting from COVID-19. There have been no material changes from the risk factors described in our Form 10-K for the year ended December 31, ~~2020.~~2021.

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

(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 ~~September 30, 2021,~~March 31, 2022, we have purchased $5.5 million of the authorized $10.0 million and may purchase up to an additional $4.5 million in the Company’s outstanding common stock.

The following table summarizes the Company’s repurchase activity during the three months ended ~~September 30, 2021.~~March 31, 2022.


					Maximum						Maximum
					Number (or						Number (or
					Approximate						Approximate
					Dollar Value) of						Dollar Value) of
					Shares That May						Shares That May
				Total Number of Shares	Yet Be Purchased					Total Number of Shares	Yet Be Purchased
	Total Number of	Weighted		Purchased as Part of	Under the Plans		Total Number of	Weighted		Purchased as Part of	Under the Plans
	Shares	Average Price Paid		Publicly Announced	or Programs (in		Shares	Average Price Paid		Publicly Announced	or Programs (in
Period	Repurchased	Per Share		Plans or Programs	thousands)		Repurchased	Per Share		Plans or Programs	thousands)
July 1, 2021 to July 31, 2021	—	$	—	—	$	4,484
August 1, 2021 to August 31, 2021	—		—	—		4,484
September 1, 2021 to September 30, 2021	—		—	—		4,484
January 1, 2022 to January 31, 2022							—	$	—	—	$	4,484
February 1, 2022 to February 28, 2022							—		—	—		4,484
March 1, 2022 to March 31, 2022							—		—	—		4,484
Total	—	$	—	—	$	4,484	—	$	—	—	$	4,484

Item 3. Defaults Upon Senior Securities.

None.

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Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits


Exhibit No.	Description	Location
~~2.1~~	~~Agreement and Plan of Merger, dated April 13, 2021, by and between SmartFinancial, Inc. and Sevier County Bancshares, Inc.~~	~~Incorporated by reference to Exhibit 2.1 to Form 8-K filed April 14, 2021~~
~~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.	Incorporated by reference to Exhibit 3.3 to Form 8-K filed September 2, 2015
3.2	Second Amended and Restated Bylaws of SmartFinancial, Inc.	Incorporated by reference to Exhibit 3.1 to Form 8-K filed October 26, 2015
~~10.1~~	~~First Amendment to Loan and Security Agreement, dated as of September 23, 2021, by and between SmartFinancial, Inc. and ServisFirst Bank~~	~~Incorporated by reference to Exhibit 10.1 to Form 8-K filed September 28, 2021~~
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:	~~November 9, 2021~~May 10, 2022	/s/ William Y. Carroll, Jr.
		William Y. Carroll, Jr.
		President and Chief Executive Officer
		(principal executive officer)

Date:	~~November 9, 2021~~May 10, 2022	/s/ Ronald J. Gorczynski
		Ronald J. Gorczynski
		Executive Vice President and Chief Financial Officer
		(principal financial officer and accounting officer)

6059


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	28,134	$	15,302
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,739		4,437
Accretion of fair value purchase accounting adjustments, net		(4,086)		(3,689)
Provision for loan and lease losses		1,211		8,683
Stock compensation expense		521		365
Gain from redemption and sale of securities available-for-sale		(45)		(6)
Deferred income tax expense (benefit)		731		(37)
Increase in cash surrender value of bank owned life insurance		(1,240)		(526)
Net losses from sale and write downs of other real estate owned		176		142
Net gains from mortgage banking		(3,238)		(2,544)
Origination of loans held for sale		(97,360)		(99,223)
Proceeds from sales of loans held for sale		108,901		96,330
Net (gain) from sale of branch		(137)		—
Net change in:
Accrued interest receivable		2,074		(3,221)
Accrued interest payable		(125)		807
Other assets		(414)		1,850
Other liabilities		5,709		3,556
Net cash provided by operating activities		45,551		22,226
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale		16,771		11,759
Proceeds from maturities and calls of securities available-for-sale		43,551		45,800
Proceeds from paydowns of securities available-for-sale		21,550		18,622
Proceeds from sales of other investments		436		—
Purchases of securities available-for-sale		(145,316)		(81,893)
Purchases of other investments		(80)		(1,223)
Purchases of bank owned life insurance		(40,000)		—
Proceeds from bank owned life insurance benefits		427		—
Net (increase) decrease in loans and leases		4,444		(316,075)
Purchases of premises and equipment		(603)		(4,450)
Proceeds from sale of other real estate owned		2,171		875
Proceeds received from branch sale		83,745		—
Net cash received from business combinations		15,364		46,132
Net cash provided by (used in) investing activities		2,460		(280,453)
Cash flows from financing activities:
Net increase in deposits		558,410		332,319
Net (increase) decrease in securities sold under agreements to repurchase		(351)		9
Proceeds from borrowings		7,500		338,340
Repayment borrowings		(396)		(50,581)
Cash dividends paid		(2,719)		(2,223)
Issuance of common stock		194		282
Repurchases of common stock		(1,208)		(2,075)
Net cash provided by financing activities		561,430		616,071
Net change in cash and cash equivalents		609,441		357,844
Cash and cash equivalents, beginning of period		481,719		183,971
Cash and cash equivalents, end of period	$	1,091,160	$	541,815
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	8,745	$	12,633
Cash paid during the period for income taxes		8,223		5,778
Noncash investing and financing activities:
Acquisition of real estate through foreclosure		580		971
Change in goodwill due to acquisitions and sale of a portfolio of loans		15,849		9,316


	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


			Cumulative Amount of Fair
			Value Hedging Adjustment
	Carrying Amount		Included in Other Comprehensive
Line item on the balance sheet	of the Hedged Assets		Income
September 30, 2021:
Securities available-for-sale	$	43,258	$	448
December 31, 2020:
Securities available-for-sale	$	44,017	$	(1,063)


	Amounts
September 30, 2022	$	253
September 30, 2023		985
September 30, 2024		744
September 30, 2025		528
September 30, 2026		515
Thereafter		4,059
Total future minimum lease payments		7,084
Amounts representing interest		(930)
Present value of net future minimum lease payments	$	6,154


			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
September 30, 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	7.57%	(0.69)%	8%
± 200 basis points	15.37%	(1.40)%	14%


			Maximum
			Percentage
			Decline in
			Economic Value
			of Equity from
			the Economic
			Value of Equity
	Current Estimated Instantaneous		at Currently
	Rate Change		Prevailing
September 30, 2021:	Increase +	Decrease -	Interest Rates

Instantaneous, Parallel Change in Prevailing Interest Rates Equal to:
±100 basis points	5.36%	(8.98)%	10%
±200 basis points	10.79%	(10.69)%	15%