SmartFinancial (SMBK) 8-K SmartFinancial Announces Results for the Second Quarter 2020

Exhibit 99.1

2Q 2020

SmartFinancial Announces Results for the Second Quarter 2020

KNOXVILLE, TN – July 21, 2020 - SmartFinancial, Inc. ("SmartFinancial" or the "Company"; NASDAQ: SMBK), today announced net income of $6.2 million, or $0.41 per diluted common share, for the second quarter of 2020, compared to net income of $2.7 million, or $0.19 per diluted common share for the first quarter of 2020.  Operating earnings (Non-GAAP), which excludes securities gains, merger related and restructuring expenses and non-operating items, totaled $7.3 million, or $0.48 per diluted common share, in the second quarter of 2020, compared to $4.3 million, or $0.30 per diluted common share, in the first quarter of 2020.

Highlights for the Second Quarter of 2020

● Net income of $6.2 million and operating earnings of $7.3 million (Non-GAAP)

● Diluted earnings per share increased 115.8% for the quarter and diluted operating earnings per share (Non-GAAP) increased 60.0% for the quarter

● Total assets grew to over $3 billion

● Completed the integration of Progressive Financial Group (“PFG”)

● Tangible book value (Non-GAAP) per share of $16.90, a 6.6% year-over-year increase

● Originated approximately 2,800 Paycheck Protection Program (“PPP”) loans totaling $292.8 million  

Billy Carroll, President & CEO, stated: "We are extremely pleased to report another very solid quarter.  While finalizing our Progressive Financial Group integration and conversion, we reported outstanding increases in revenue, in particular our non-interest income performance.  Our team also continues to focus on our tremendous asset quality and have worked with many new and existing clients to secure PPP funding, creating a number of great opportunities for our bank.  The outlook for our company remains very strong."

SmartFinancial's Chairman, Miller Welborn, concluded: “We have closed another great quarter for our company. Our team has continued to successfully execute our Strategic Plan. We have strengthened our Balance Sheet, served our clients and our shareholders well and continued to increase the book value of our stock.”

Net Interest Income and Net Interest Margin

Net interest income increased $3.1 million to $25.7 million for the second quarter of 2020, compared to $22.6 million for the first quarter of 2020, primarily attributable to the full quarter effects of the Company’s March 1, 2020 acquisition of PFG (the “PFG Acquisition”) and participation in the PPP. Average earning assets increased $532.0 million, which reflects a $376.1 million increase in average loans, a $21.1 million increase in securities and a $134.8 million increase in other earning assets. Average interest-bearing liabilities increased $353.8 million, driven by an increase of $168.5 million in average interest-bearing deposits and an increase of $185.2 million in borrowings.

The tax equivalent net interest margin was 3.63% for the second quarter of 2020, compared to 3.90% for the first quarter of 2020. The tax equivalent net interest margin was impacted by a 61 basis point decline in the average yield on interest-earning assets offset by a 43 basis point decline in the rate on interest-bearing liabilities over the last quarter. The tax equivalent net interest margin, less discount accretion was 3.50% for the second quarter of 2020, a decrease from 3.58% for the first quarter of 2020.

The tax equivalent average yield on interest-earning assets was 4.22% for the second quarter of 2020, a decrease from 4.83% for the first quarter of 2020. The yield on average loans was 4.87% for the second quarter of 2020, compared to 5.35% for the first quarter of 2020. Offsetting the effects of the Federal Reserve rate cuts included in yield on average loans for the second quarter of 2020 was $1.9 million of PPP fee accretion and $888 thousand of discount accretion on acquired loans, compared to $1.8 million of discount accretion recognized in the first quarter of 2020. Additionally, increases in liquidity positions negatively impacted the net interest margin with lower yields earned on the excess cash position.

The yield on interest-bearing liabilities decreased to 0.77% for the second quarter of 2020 from 1.20% for the first quarter of 2020. The cost of average interest-bearing deposits was 0.71% for the second quarter of 2020 compared to 1.10% for the first quarter of 2020, a decrease of 39 basis points. This decrease was a result of the Company’s efforts deployed to reduce deposit rates in reaction to the Federal Reserve rate cuts.

Provision for Loan Loss and Credit Quality

Provision for loan losses was $2.9 million in the second quarter of 2020, compared to $3.2 million in the first quarter of 2020.  At June 30, 2020, the allowance for loan losses was $16.3 million.  The allowance for loan losses to total loans was 0.67% as of June 30, 2020, compared to 0.63% as of March 31, 2020.  For the Company’s originated loans, the allowance for loan losses to originated loans, less PPP loans, was 0.89% as of June 30, 2020, compared to 0.77% as of March 31, 2020.  The remaining discounts on the acquired loan portfolio totaled $16.2 million, or 3.40% of acquired loans as of June 30, 2020.  The elevated provision for loan losses was due to the continued economic conditions facing the U.S. economy related to the challenges being faced with the worldwide COVID-19 pandemic.

The Company is not required to implement the provisions of the CECL accounting standard until January 1, 2023, and is continuing to account for the allowance for loan losses under the incurred loss model.

Nonperforming loans as a percentage of total loans was 0.16% as of June 30, 2020, an increase of two basis points from the 0.14% reported in the first quarter of 2020.  Total nonperforming assets (which include nonaccrual loans, loans past due 90 days or more and still accruing, and other real estate owned) as a percentage of total assets was 0.28% as of June 30, 2020, as compared to 0.31% as of March 31, 2020. 

Noninterest Income

Noninterest income increased $693 thousand to $3.5 million for the second quarter of 2020 compared to $2.8 million for the first quarter of 2020.  During the second quarter of 2020, the primary components of the changes in noninterest income were as follows:

● Increase in mortgage banking income of $347 thousand, as volume increased during the second quarter;

● Increase in insurance commissions income of $204 thousand, due to a full quarter of revenue from the PFG Acquisition;

● Increase in interchange and debit card transaction fees of $232 thousand, related to a full quarter of activity from the PFG Acquisition; and

● Decrease in investment services income of $74 thousand.

Noninterest Expense

Noninterest expense was $18.8 million for the second and first quarters of 2020.  Even though noninterest expense remained constant between the second and first quarters of 2020, the primary changes within noninterest expense were as follows:

● Salaries and employee benefits increased $351 thousand. The increase is attributable to the full quarter of salaries and benefits from the PFG Acquisition, annual salary increases, and other employee benefit accruals.  These increases were offset by deferred salary cost related to the origination of PPP loans; and

● Decrease of $619 thousand in merger related and restructuring expenses relating to the PFG Acquisition.

2

Income Tax Expense

Income tax expense was $1.4 million for the second quarter of 2020, an increase of $763 thousand, compared to $664 thousand for the first quarter of 2020.

For the second quarter of 2020, the effective tax rate was 18.8% compared to 19.6% for the first quarter of 2020.

Balance Sheet Trends

Total assets at June 30, 2020, were $3.27 billion compared with $2.45 billion at December 31, 2019.  The increase of $816.9 million is primarily attributable to assets acquired from the PFG Acquisition of approximately $307.2 million, increase in cash and cash equivalents of $215.5 million and the origination of $292.8 million of PPP loans.

Total liabilities increased to $2.92 billion at June 30, 2020 from $2.14 billion at December 31, 2019.  The increase of $786.1 million was primarily from deposit growth of $220.5 million, acquired deposits from the PFG Acquisition in the amount of $272.0 million, and an increase in borrowings of $287.2 million.

Shareholders' equity at June 30, 2020, totaled $343.5 million, an increase of $30.7 million, from December 31, 2019.  The increase in shareholders' equity was primarily from the issuance of common stock for the acquisition of PFG of $24.5 million, net income of $8.9 million for the six months ended June 30, 2020 and a net change in accumulated other comprehensive income of $424 thousand, which was offset by the repurchase of the Company's common stock of $2.1 million and $1.5 million of dividends paid. Tangible book value per share (Non-GAAP) was $16.90 at June 30, 2020, an increase from $16.82 at December 31, 2019.  Tangible common equity (Non-GAAP) as a percentage of tangible assets (Non-GAAP) was 8.09% at June 30, 2020, compared with 9.93% at December 31, 2019.

Conference Call Information

SmartFinancial issued this earnings release for the second quarter of 2020 on Tuesday, July 21, 2020, and will host a conference call on Wednesday, July 22, 2020, at 10:00 a.m. ET.  To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 5925756.  A replay of the conference call will be available through July 22, 2021, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10146072.  Conference call materials (earnings release & conference call presentation) will be published on the Company’s webpage located at http://www.smartfinancialinc.com/CorporateProfile ), at 9:00 am ET prior to the conference call.

About SmartFinancial, Inc.

SmartFinancial, Inc., based in Knoxville, Tennessee, is the bank holding company for SmartBank. SmartBank is a full-service commercial bank founded in 2007, with 36 branches across East and Middle Tennessee, Alabama, and the Florida Panhandle.  Recruiting the best people, delivering exceptional client service, strategic branching, and a disciplined approach to lending have contributed to SmartBank’s success. More information about SmartFinancial can be found on its website: www.smartfinancialinc.com.

Source
SmartFinancial, Inc.
Investor Contacts
Billy Carroll	Ron Gorczynski
President & CEO	Executive Vice President, Chief Financial Officer
(865) 868-0613   billy.carroll@smartbank.com	(865) 437-5724 ron.gorczynski@smartbank.com
Media Contact
Kelley Fowler
Senior Vice President, Public Relations & Marketing
(865) 868-0611    kelley.fowler@smartbank.com

3

Non-GAAP Financial Measures

Statements included in this earnings release include measures not recognized under U.S. generally accepted accounting principles (“GAAP”) and therefore are considered non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of Non-GAAP financial measures to GAAP financial measures. SmartFinancial management uses several Non-GAAP financial measures, including: (i) operating earnings, (ii) operating return on average assets, (iii) operating pre-tax pre-provision return on average assets (iv) operating return on average shareholder' equity, (v) return on average tangible common equity, (vi) operating return on average tangible common equity, (vii) operating efficiency ratio, (viii) operating noninterest income, (ix) operating pre-tax pre-provision income (x) operating noninterest expense, (xi) tangible common equity, (xii) average tangible common equity, (xiii) tangible book value, (xiv) tax equivalent net interest margin, (xv) tax equivalent yield in earning assets; and ratios derived therefrom, in its analysis of the company's performance. Operating earnings excludes the following from net income: securities gains and losses, expenses related to the termination of an Alabama Department of Economic and Community Affairs (“ADECA”) loan program, merger termination fee of $6.4 million in the second quarter of 2019, merger related and restructuring expenses.  Operating return on average assets is the annualized operating earnings divided by average assets.  Operating pre-tax pre-provision return on average assets is the annualized operating pre-tax pre-provision income divided by average assets. Operating return on average shareholders' equity is the annualized operating earnings divided by average equity. Return on average tangible common equity is the annualized net income divided by average tangible common equity. Operating return on average tangible common equity is the annualized operating earnings divided by average tangible common equity (Non-GAAP). The operating efficiency ratio includes an adjustment for taxable equivalent yields and excludes securities gains and losses and merger related and restructuring expenses from the efficiency ratio. Operating noninterest income excludes the following from noninterest income: securities gains and losses, expenses related to the termination of the ADECA loan program and the merger termination fee of $6.4 million in the second quarter of 2019.  Operating pre-tax pre-provision income is net interest expense plus operating noninterest income less operating noninterest expense.  Operating noninterest expense excludes the following from noninterest expense: prior year adjustments to salaries, merger related and restructuring expenses and certain franchise tax true-up expenses. Tangible common equity and average tangible common equity excludes goodwill and other intangible assets from shareholders' equity and average shareholders' equity, respectively.  Tangible book value is tangible common equity divided by common shares outstanding.  Tax equivalent net interest margin is the annualized net interest income plus tax equivalent income divided by average interest earning assets. Tax equivalent yield in earning assets is the annualized interest income plus tax equivalent income divided by average interest earning assets. Management believes that Non-GAAP financial measures provide additional useful information that allows investors to evaluate the ongoing performance of the company and provide meaningful comparisons to its peers.  Management believes these non-GAAP financial measures also enhance investors' ability to compare period-to-period financial results and allow investors and company management to view our operating results excluding the impact of items that are not reflective of the underlying operating performance.  Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider SmartFinancial's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

4

Forward-Looking Statements

This news release may contain statements that are based on management’s current estimates or expectations of future events or future results, and that may be deemed to constitute forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.  These statements, including statements regarding the potential effects of the COVID-19 pandemic on the Company’s business and financial results and conditions, are not historical in nature and can generally be identified by such words as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “may,” “estimate,” and similar expressions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results of SmartFinancial to differ materially from future results expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, among others, (1) risks associated with our growth strategy, including a failure to implement our growth plans or an inability to manage our growth effectively; (2) 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; (3) the risk that cost savings and revenue synergies from recently completed acquisitions may not be realized or may take longer than anticipated to realize; (4) disruption from recently completed acquisitions with customer, supplier, employee, or other business relationships; (6) our ability to successfully integrate the businesses acquired as part of previous acquisitions with the business of SmartBank; (6) risks related to the completed acquisition of PFG; (7) the risk that the anticipated benefits from the completed acquisition of PFG may not be realized in the time frame anticipated; (8) changes in management’s plans for the future; (9) prevailing, or changes in, economic or political conditions, particularly in our market areas; (10) credit risk associated with our lending activities; (11) changes in interest rates, loan demand, real estate values, or competition; (12) changes in accounting principles, policies, or guidelines; (13) changes in applicable laws, rules, or regulations, including changes to statutes, regulations or regulatory policies or practices as a result of, or in response to COVID-19; (14) 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; (15) the impact of the COVID-19 pandemic on the Company’s assets, business, cash flows, financial condition, liquidity, prospects and results of operations; (16) potential increases in the provision for loan losses resulting from the COVID-19 pandemic; and (17) other general competitive, economic, political, and market factors, including those affecting our business, operations, pricing, products, or services. These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found in SmartFinancial’s most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, in each case filed with or furnished to the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website (www.sec.gov). Undue reliance should not be placed on forward-looking statements.  SmartFinancial disclaims any obligation to update or revise any forward-looking statements contained in this release, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise.

5

SmartFinancial, Inc. and Subsidiary

Condensed Consolidated Financial Information - (unaudited)

(dollars in thousands except share and per share data)

	As of and for The															As of and for The
	Three Months Ended															Six Months Ended
	Jun			Mar			Dec			Sep			Jun			Jun			Jun
	2020			2020			2019			2019			2019			2020			2019
Selected Performance Ratios (Annualized):
Return on average assets		0.79	%		0.43	%		1.12	%		1.01	%		1.56	%		0.63	%		1.21	%
Return on average shareholders' equity		7.31	%		3.33	%		8.65	%		7.80	%		12.34	%		5.41	%		9.59	%
Return on average tangible common equity¹		9.80	%		4.41	%		11.55	%		10.52	%		16.78	%		7.23	%		13.14	%
Noninterest income / average assets		0.45	%		0.44	%		0.47	%		0.37	%		1.44	%		0.45	%		0.88	%
Noninterest expense / average assets		2.41	%		2.96	%		2.68	%		2.48	%		2.88	%		2.66	%		2.82	%
Efficiency ratio		64.28	%		74.02	%		67.04	%		63.03	%		57.53	%		68.81	%		62.39	%
Operating Selected Performance Ratios (Annualized):
Operating return on average assets1		0.93	%		0.67	%		1.08	%		1.02	%		0.96	%		0.82	%		0.97	%
Operating PTPP return on average assets1	��	1.53	%		1.37	%		1.31	%		1.47	%		1.33	%		1.46	%		1.38	%
Operating return on average shareholders' equity1		8.58	%		5.22	%		8.34	%		7.87	%		7.58	%		7.00	%		7.69	%
Operating return on average tangible common equity1		11.51	%		6.90	%		11.12	%		10.61	%		10.31	%		9.36	%		10.54	%
Operating efficiency ratio1		58.95	%		65.46	%		64.95	%		62.42	%		65.56	%		61.98	%		64.91	%
Operating noninterest income / average assets1		0.45	%		0.44	%		0.35	%		0.37	%		0.34	%		0.45	%		0.32	%
Operating noninterest expense / average assets1		2.23	%		2.63	%		2.56	%		2.47	%		2.57	%		2.41	%		2.59	%
Selected Interest Rates and Yields:
Yield on loans		4.87	%		5.35	%		5.36	%		5.48	%		5.53	%		5.09	%		5.58	%
Yield on earning assets, FTE		4.22	%		4.83	%		4.92	%		5.05	%		5.17	%		4.50	%		5.23	%
Cost of interest-bearing deposits		0.71	%		1.10	%		1.29	%		1.37	%		1.42	%		0.90	%		1.37	%
Cost of total deposits		0.54	%		0.91	%		1.06	%		1.13	%		1.18	%		0.71	%		1.14	%
Cost of interest-bearing liabilities		0.77	%		1.20	%		1.39	%		1.47	%		1.54	%		0.97	%		1.49	%
Net interest margin, FTE		3.63	%		3.90	%		3.84	%		3.91	%		3.94	%		3.75	%		4.04	%
Per Common Share:
Net income, basic	$	0.41		$	0.19		$	0.48		$	0.43		$	0.65		$	0.60		$	0.99
Net income, diluted		0.41			0.19			0.48			0.42			0.65			0.60			0.99
Operating earnings, basic¹		0.48			0.30			0.46			0.43			0.40			0.78			0.80
Operating earnings, diluted¹		0.48			0.30			0.46			0.43			0.40			0.78			0.79
Book value		22.57			22.09			22.33			21.93			21.47			22.57			21.47
Tangible book value¹		16.90			16.40			16.82			16.37			15.86			16.90			15.86
Common shares outstanding		15,216,932			15,221,990			14,008,233			13,957,973			13,953,209			15,216,932			13,953,209

¹See reconciliation of Non-GAAP measures

6

SmartFinancial, Inc. and Subsidiary

Condensed Consolidated Financial Information - (unaudited)

(dollars in thousands)

	As of and for The Three Months Ended
	Jun			Mar			Dec			Sep			Jun
	2020			2020			2019			2019			2019
Composition of Loans:
Commercial real estate
owner occupied	$	464,073		$	473,398		$	429,269		$	422,363		$	415,502
non-owner occupied		552,958			535,637			476,038			468,099			464,160
Commercial real estate, total		1,017,031			1,009,035			905,307			890,462			879,662
Commercial & industrial		637,450			377,173			337,075			341,207			334,258
Construction & land development		279,216			253,445			227,626			219,751			204,731
Consumer real estate		459,861			482,728			417,481			402,463			402,270
Consumer and other		14,726			16,866			9,903			10,796			11,981
Total loans	$	2,408,284		$	2,139,247		$	1,897,392		$	1,864,679		$	1,832,902
Asset Quality and Additional Loan Data:
Nonperforming loans	$	3,776		$	3,069		$	3,350		$	3,166		$	2,838
Other real estate owned		5,524			5,894			1,757			1,561			1,814
Total nonperforming assets	$	9,300		$	8,963		$	5,107		$	4,727		$	4,652
Restructured loans not included in nonperforming loans	$	9		$	9		$	61		$	61		$	62
Net charge-offs to average loans (annualized)		—	%		—	%		0.01	%		0.01	%		—	%
Allowance for loan losses to loans		0.67	%		0.63	%		0.54	%		0.53	%		0.50	%
Nonperforming loans to total loans, gross		0.16	%		0.14	%		0.18	%		0.17	%		0.15	%
Nonperforming assets to total assets		0.28	%		0.31	%		0.21	%		0.20	%		0.19	%
Acquired loan fair value discount balance	$	16,187		$	17,237		$	15,348		$	16,784		$	18,571
Accretion income on acquired loans		888			1,841			1,375			1,246			1,374
PPP net fees deferred balance		8,582			—			—			—			—
PPP net fees recognized		1,909			—			—			—			—
Capital Ratios:
Equity to Assets		10.52	%		11.70	%		12.77	%		12.80	%		12.53	%
Tangible common equity to tangible assets (Non-GAAP)1		8.09	%		8.96	%		9.93	%		9.88	%		9.57	%
SmartFinancial, Inc.2
Tier 1 leverage		8.83	%		10.28	%		10.34	%		10.02	%		9.92	%
Common equity Tier 1		10.92	%		10.87	%		11.61	%		11.54	%		11.21	%
Tier 1 capital		10.92	%		10.87	%		11.61	%		11.54	%		11.21	%
Total capital		13.25	%		13.13	%		14.02	%		13.98	%		13.65	%
SmartBank		Estimated3
Tier 1 leverage		9.82	%		11.42	%		11.41	%		11.22	%		10.92	%
Common equity Tier 1		12.14	%		12.05	%		12.81	%		12.71	%		12.37	%
Tier 1 risk-based capital		12.14	%		12.05	%		12.81	%		12.71	%		12.37	%
Total risk-based capital		12.82	%		12.62	%		13.31	%		13.19	%		12.82	%

¹Total common equity less intangibles divided by total assets less intangibles. See reconciliation of Non-GAAP measures.

²All periods presented are estimated.

³ Current period capital ratios are estimated as of the date of this earnings release.

7

SmartFinancial, Inc. and Subsidiary

Condensed Consolidated Financial Information - (unaudited)

(dollars in thousands)

	Ending Balances
	Jun		Mar		Dec		Sep		Jun
	2020		2020		2019		2019		2019
Assets:
Cash and cash equivalents	$	399,467	$	309,089	$	183,971	$	170,934	$	199,534
Securities available-for-sale, at fair value		219,631		201,002		178,348		171,507		174,114
Other investments		14,829		14,113		12,913		12,913		12,905
Loans held for sale		6,330		6,045		5,856		3,068		4,087
Loans		2,408,284		2,139,247		1,897,392		1,864,679		1,832,902
Less: Allowance for loan losses		(16,254)		(13,431)		(10,243)		(9,792)		(9,097)
Loans, net		2,392,030		2,125,816		1,887,149		1,854,887		1,823,805
Premises and equipment, net		73,868		73,801		59,433		58,386		56,589
Other real estate owned		5,524		5,894		1,757		1,561		1,814
Goodwill and core deposit intangibles, net		86,327		86,503		77,193		77,534		78,348
Bank owned life insurance		30,853		30,671		24,949		24,796		24,695
Other assets		37,126		20,781		17,554		14,899		15,366
Total assets	$	3,265,985	$	2,873,715	$	2,449,123	$	2,390,485	$	2,391,257
Liabilities:
Deposits:
Noninterest-bearing demand	$	645,650	$	431,781	$	364,155	$	365,024	$	357,220
Interest-bearing demand		479,212		444,141		380,234		351,474		333,705
Money market and savings		762,246		730,392		623,284		634,934		648,132
Time deposits		652,581		735,616		679,541		646,641		673,243
Total deposits		2,539,689		2,341,930		2,047,214		1,998,073		2,012,300
Borrowings		318,855		131,603		31,623		29,828		23,679
Subordinated debt		39,304		39,283		39,261		39,240		39,219
Other liabilities		24,649		24,699		18,278		17,304		16,448
Total liabilities		2,922,497		2,537,515		2,136,376		2,084,445		2,091,646
Shareholders' Equity:
Common stock		15,217		15,222		14,008		13,958		13,953
Additional paid-in capital		254,396		254,356		232,732		232,573		232,386
Retained earnings		73,283		67,869		65,839		59,806		53,843
Accumulated other comprehensive income (loss)		592		(1,247)		168		(297)		(571)
Total shareholders' equity		343,488		336,200		312,747		306,040		299,611
Total liabilities & shareholders' equity	$	3,265,985	$	2,873,715	$	2,449,123	$	2,390,485	$	2,391,257

8

SmartFinancial, Inc. and Subsidiary

Condensed Consolidated Financial Information - (unaudited)

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

	Three Months Ended										Six Months Ended
	Jun		Mar		Dec		Sep		Jun		Jun		Jun
	2020		2020		2019		2019		2019		2020		2019
Interest income:
Loans, including fees	$	28,663	$	26,434	$	25,398	$	25,515	$	25,278	$	55,097	$	50,253
Securities available-for-sale:
Taxable		589		679		698		748		871		1,268		1,842
Tax-exempt		416		283		345		338		411		699		836
Federal funds sold and other earning assets		277		602		587		743		743		879		1,315
Total interest income		29,945		27,998		27,028		27,344		27,303		57,943		54,246
Interest expense:
Deposits		3,366		4,754		5,271		5,605		5,788		8,120		11,039
Borrowings		249		89		70		15		123		339		235
Subordinated debt		584		584		584		584		590		1,167		1,173
Total interest expense		4,199		5,427		5,924		6,204		6,501		9,626		12,447
Net interest income		25,746		22,571		21,104		21,140		20,802		48,317		41,799
Provision for loan losses		2,850		3,200		685		724		393		6,049		1,190
Net interest income after provision for loan losses		22,896		19,371		20,419		20,416		20,409		42,268		40,609
Noninterest income:
Service charges on deposit accounts		709		770		773		767		707		1,479		1,361
Gain on sale of securities, net		16		—		—		1		33		16		33
Mortgage banking		931		584		374		518		392		1,515		674
Investment services		363		437		261		260		255		801		424
Insurance commissions		473		269		—		—		—		742		—
Interchange and debit card transaction fees		508		276		163		148		143		784		318
Merger termination fee		—		—		—		—		6,400		—		6,400
Other		511		482		1,269		502		486		993		904
Total noninterest income		3,511		2,818		2,840		2,196		8,416		6,330		10,114
Noninterest expense:
Salaries and employee benefits		10,357		10,006		10,278		9,072		8,984		20,363		17,382
Occupancy and equipment		1,996		1,911		1,749		1,635		1,658		3,906		3,298
FDIC insurance		180		180		—		(219)		180		360		359
Other real estate and loan related expense		346		545		253		335		242		892		732
Advertising and marketing		202		198		166		263		259		400		554
Data processing		594		538		530		273		577		1,132		1,192
Professional services		868		711		652		573		489		1,578		1,151
Amortization of intangibles		405		362		340		341		342		767		686
Software as service contracts		561		470		500		560		568		1,031		1,136
Merger related and restructuring expenses		1,477		2,096		427		73		1,796		3,573		2,719
Other		1,820		1,776		1,157		1,802		1,714		3,598		3,179
Total noninterest expense		18,806		18,793		16,052		14,708		16,809		37,600		32,388
Income before income taxes		7,601		3,396		7,206		7,904		12,016		10,998		18,335
Income tax expense		1,427		664		473		1,941		2,895		2,091		4,483
Net income	$	6,174	$	2,732	$	6,733	$	5,963	$	9,121	$	8,907	$	13,852
Earnings per common share:
Basic	$	0.41	$	0.19	$	0.48	$	0.43	$	0.65	$	0.60	$	0.99
Diluted	$	0.41	$	0.19	$	0.48	$	0.42	$	0.65	$	0.60	$	0.99
Weighted average common shares outstanding:
Basic		15,152,768		14,395,103		13,965,877		13,955,859		13,951,643		14,773,935		13,946,856
Diluted		15,202,335		14,479,679		14,066,269		14,053,432		14,046,500		14,842,486		14,036,790

9

SmartFinancial, Inc. and Subsidiary

Condensed Consolidated Financial Information - (unaudited)

(dollars in thousands)

YIELD ANALYSIS

	Three Months Ended
	June 30, 2020						March 31, 2020						June 30, 2019
	Average				Yield/		Average				Yield/		Average				Yield/
	Balance		Interest1		Cost1		Balance		Interest1		Cost1		Balance		Interest1		Cost1
Assets:
Loans, including fees2	$	2,359,101	$	28,590	4.87	%	$	1,982,997	$	26,389	5.35	%	$	1,828,884	$	25,233	5.53	%
Loans held for sale		6,868		73	4.28	%		4,294		45	4.24	%		3,755		45	4.81	%
Taxable securities		122,135		589	1.94	%		116,837		679	2.34	%		136,859		871	2.55	%
Tax-exempt securities		86,227		570	2.66	%		70,397		400	2.28	%		56,475		527	3.75	%
Federal funds sold and other earning assets		297,696		277	0.37	%		165,512		602	1.46	%		102,253		743	2.91	%
Total interest-earning assets		2,872,027		30,099	4.22	%		2,340,037		28,115	4.83	%		2,128,226		27,419	5.17	%
Noninterest-earning assets		260,089						216,498						215,010
Total assets	$	3,132,116					$	2,556,535					$	2,343,236
Liabilities and Stockholders’ Equity:
Interest-bearing demand deposits	$	453,795		148	0.13	%	$	389,500		434	0.45	%	$	329,556		464	0.57	%
Money market and savings deposits		748,673		614	0.33	%		664,983		1,389	0.84	%		673,502		2,272	1.35	%
Time deposits		701,390		2,604	1.49	%		680,830		2,931	1.73	%		629,480		3,052	1.94	%
Total interest-bearing deposits		1,903,858		3,366	0.71	%		1,735,313		4,754	1.10	%		1,632,538		5,788	1.42	%
Borrowings3		237,143		249	0.42	%		51,921		89	0.69	%		23,685		123	2.08	%
Subordinated debt		39,290		584	5.98	%		39,269		584	5.98	%		39,205		590	6.03	%
Total interest-bearing liabilities		2,180,291		4,199	0.77	%		1,826,503		5,427	1.20	%		1,695,428		6,501	1.54	%
Noninterest-bearing deposits		587,322						373,125						336,871
Other liabilities		24,642						27,215						14,367
Total liabilities		2,792,255						2,226,843						2,046,666
Shareholders' equity		339,861						329,692						296,570
Total liabilities and shareholders' equity	$	3,132,116					$	2,556,535					$	2,343,236
Net interest income, taxable equivalent			$	25,900					$	22,688					$	20,918
Interest rate spread					3.44	%					3.63	%					3.63	%
Tax equivalent net interest margin					3.63	%					3.90	%					3.94	%
Percentage of average interest-earning assets to average interest-bearing liabilities					131.73	%					128.12	%					125.53	%
Percentage of average equity to average assets					10.85	%					12.90	%					12.66	%

¹ Taxable equivalent

² Includes average balance of $208,814 in PPP loans for the quarter ended June 30, 2020

³ Includes average balance of $108,082 in Paycheck Protection Program Liquidity Facility (“PPPLF”) funding for the quarter ended June 30, 2020

10

SmartFinancial, Inc. and Subsidiary

Condensed Consolidated Financial Information - (unaudited)

(dollars in thousands)

YIELD ANALYSIS

	Six Months Ended
	June 30, 2020							June 30, 2019
	Average				Yield/			Average				Yield/
	Balance		Interest1		Cost1			Balance		Interest1		Cost1
Assets:
Loans, including fees2	$	2,172,158	$	54,979		5.09	%	$	1,814,127	$	50,174	5.58	%
Loans held for sale		5,581		118		4.26	%		3,284		79	4.85	%
Taxable securities		119,474		1,268		2.13	%		141,994		1,842	2.62	%
Tax-exempt securities		78,306		970		2.49	%		55,070		1,065	3.90	%
Federal funds sold and other earning assets		226,726		879		0.78	%		85,798		1,315	3.09	%
Total interest-earning assets		2,602,245		58,214		4.50	%		2,100,273		54,475	5.23	%
Noninterest-earning assets		238,749							213,122
Total assets	$	2,840,994						$	2,313,395
Liabilities and Stockholders’ Equity:
Interest-bearing demand deposits	$	421,288		583		0.28	%	$	318,091		887	0.56	%
Money market and savings deposits		707,003		2,003		0.57	%		669,067		4,302	1.30	%
Time deposits		693,382		5,534		1.61	%		633,601		5,850	1.86	%
Total interest-bearing deposits		1,821,673		8,120		0.90	%		1,620,759		11,039	1.37	%
Borrowings3		144,532		339		0.47	%		20,951		235	2.26	%
Subordinated debt		39,279		1,167		5.97	%		39,195		1,173	6.04	%
Total interest-bearing liabilities		2,005,484		9,626		0.97	%		1,680,905		12,447	1.49	%
Noninterest-bearing deposits		481,432							328,549
Other liabilities		22,812							12,589
Total liabilities		2,509,728							2,022,043
Shareholders' equity		331,266							291,352
Total liabilities and shareholders' equity	$	2,840,994						$	2,313,395
Net interest income, taxable equivalent			$	48,588						$	42,028
Interest rate spread						3.53	%					3.74	%
Tax equivalent net interest margin						3.75	%					4.04	%
Percentage of average interest-earning assets to average interest-bearing liabilities						129.76	%					124.95	%
Percentage of average equity to average assets						11.66	%					12.59	%

¹ Taxable equivalent

² Includes average balance of $106,213 in PPP loans for the six months ended June 30, 2020

³ Includes average balance of $54,041in PPPLF funding for the six months ended June 30, 2020

11

SmartFinancial, Inc. and Subsidiary

Condensed Consolidated Financial Information - (unaudited)

(dollars in thousands)

NON-GAAP RECONCILIATIONS

	Three Months Ended															Six Months Ended
	Jun			Mar			Dec			Sep			Jun			Jun			Jun
	2020			2020			2019			2019			2019			2020			2019
Operating Earnings:
Net income (GAAP)	$	6,174		$	2,732		$	6,733		$	5,963		$	9,121		$	8,907		$	13,852
Noninterest income:
Securities gains		(16)			—			—			(1)			(33)			(16)			(33)
ADECA termination proceeds		—			—			(720)			—			—			—			—
Merger termination fee		—			—			—			—			(6,400)			—			(6,400)
Noninterest expenses:
Salaries - prior year adjustment		—			—			603			—			—			—			—
Merger related and restructuring expenses		1,477			2,096			427			73			1,796			3,573			2,719
Other - prior year franchise tax true-up		—			—			(312)			—			—			—			—
Income taxes:
Tax benefit - prior year amended return		—			—			(304)			—			—			—			—
Income tax effect of adjustments		(382)			(548)			60			(19)			1,119			(931)			974
Operating earnings (Non-GAAP)	$	7,253		$	4,280		$	6,487		$	6,016		$	5,603		$	11,533		$	11,112
Operating earnings per common share (Non-GAAP):
Basic	$	0.48		$	0.30		$	0.46		$	0.43		$	0.40		$	0.78		$	0.80
Diluted		0.48			0.30			0.46			0.43			0.40			0.78			0.79
Operating Noninterest Income:
Noninterest income (GAAP)	$	3,511		$	2,818		$	2,840		$	2,196		$	8,416		$	6,330		$	10,114
Securities gains		(16)			—			—			(1)			(33)			(16)			(33)
ADECA termination proceeds		—			—			(720)			—			—			—			—
Merger termination fee		—			—			—			—			(6,400)			—			(6,400)
Operating noninterest income (Non-GAAP)	$	3,495		$	2,818		$	2,120		$	2,195		$	1,983		$	6,314		$	3,681
Operating noninterest income (Non-GAAP)/average assets1		0.45	%		0.44	%		0.35	%		0.37	%		0.34	%		0.45	%		0.32	%
Operating Noninterest Expense:
Noninterest expense (GAAP)	$	18,806		$	18,793		$	16,052		$	14,708		$	16,809		$	37,600		$	32,388
Salaries - prior year adjustment		—			—			(603)			—			—			—			—
Merger related and restructuring expenses		(1,477)			(2,096)			(427)			(73)			(1,796)			(3,573)			(2,719)
Other - prior year franchise tax true-up		—			—			312			—			—			—			—
Operating noninterest expense (Non-GAAP)	$	17,329		$	16,697		$	15,334		$	14,635		$	15,013		$	34,027		$	29,669
Operating noninterest expense (Non-GAAP)/average assets2		2.23	%		2.63	%		2.56	%		2.47	%		2.57	%		2.41	%		2.59	%
Operating Pre-tax Pre-provision ("PTPP") Earnings:
Net interest income (GAAP)	$	25,746		$	22,571		$	21,104		$	21,140		$	20,802		$	48,317		$	41,799
Operating noninterest income		3,495			2,818			2,120			2,195			1,983			6,314			3,681
Operating noninterest expense		(17,329)			(16,697)			(15,334)			(14,635)			(15,013)			(34,027)			(29,669)
Operating PTPP earnings (Non-GAAP)	$	11,912		$	8,692		$	7,890		$	8,700		$	7,772		$	20,604		$	15,811
Non-GAAP Return Ratios:
Operating return on average assets (Non-GAAP)3		0.93	%		0.67	%		1.08	%		1.02	%		0.96	%		0.82	%		0.97	%
Operating PTPP return on average assets (Non-GAAP)4		1.53	%		1.37	%		1.31	%		1.47	%		1.33	%		1.46	%		1.38	%
Return on average tangible common equity (Non-GAAP)5		9.80	%		4.41	%		11.55	%		10.52	%		16.78	%		7.23	%		13.14	%
Operating return on average shareholder equity (Non-GAAP)6		8.58	%		5.22	%		8.34	%		7.87	%		7.58	%		7.00	%		7.69	%
Operating return on average tangible common equity (Non-GAAP)7		11.51	%		6.90	%		11.12	%		10.61	%		10.31	%		9.36	%		10.54	%
Operating Efficiency Ratio:
Efficiency ratio (GAAP)		64.28	%		74.02	%		67.04	%		63.03	%		57.53	%		68.81	%		62.39	%
Adjustment for taxable equivalent yields		(0.34)	%		(0.34)	%		(0.33)	%		(0.30)	%		(0.23)	%		(0.34)	%		(0.28)	%
Adjustment for securities gains (losses)		(0.04)	%		—	%		—	%		—	%		(0.07)	%		(0.02)	%		(0.04)	%
Adjustment for merger related income and costs		(4.95)	%		(8.21)	%		(1.76)	%		(0.31)	%		8.32	%		(6.46)	%		2.84	%
Operating efficiency ratio (Non-GAAP)		58.95	%		65.46	%		64.95	%		62.42	%		65.56	%		61.98	%		64.91	%

¹Operating noninterest income (Non-GAAP) is annualized and divided by average assets.

²Operating noninterest expense (Non-GAAP) is annualized and divided by average assets.

³Operating return on average assets (Non-GAAP) is the annualized operating earnings (Non-GAAP) divided by average assets.

⁴Operating PTPP return on average assets (Non-GAAP) is the annualized operating PTPP earnings (Non-GAAP) divided by average assets.

⁵Return on average tangible common equity (Non-GAAP) is the annualized net income divided by average tangible common equity (Non-GAAP).

⁶Operating return on average equity (Non-GAAP) is the annualized operating earnings (Non-GAAP) divided by average equity.

⁷Operating return on average tangible common equity (Non-GAAP) is the annualized operating earnings (Non-GAAP) divided by average tangible common equity (Non-GAAP).

12

SmartFinancial, Inc. and Subsidiary

Condensed Consolidated Financial Information - (unaudited)

(dollars in thousands)

NON-GAAP RECONCILIATIONS

	Three Months Ended										Six Months Ended
	Jun		Mar		Dec		Sep		Jun		Jun		Jun
	2020		2020		2019		2019		2019		2020		2019
Tangible Common Equity:
Shareholders' equity (GAAP)	$	343,488	$	336,200	$	312,747	$	306,040	$	299,611	$	343,488	$	299,611
Less goodwill and other intangible assets		86,327		86,503		77,193		77,534		78,348		86,327		78,348
Tangible common equity (Non-GAAP)	$	257,161	$	249,697	$	235,554	$	228,506	$	221,263	$	257,161	$	221,263
Average Tangible Common Equity:
Average shareholders' equity (GAAP)	$	339,861	$	329,692	$	308,772	$	303,200	$	296,570	$	331,266	$	291,352
Less average goodwill and other intangible assets		86,484		80,370		77,400		78,222		78,564		83,427		78,738
Average tangible common equity (Non-GAAP)	$	253,377	$	249,322	$	231,372	$	224,978	$	218,006	$	247,839	$	212,614
Tangible Book Value per Common Share:
Book value per common share (GAAP)	$	22.57	$	22.09	$	22.33	$	21.93	$	21.47	$	22.57	$	21.47
Adjustment due to goodwill and other intangible assets		(5.67)		(5.69)		(5.51)		(5.56)		(5.61)		(5.67)		(5.61)
Tangible book value per common share (Non-GAAP)1	$	16.90	$	16.40	$	16.82	$	16.37	$	15.86	$	16.90	$	15.86
Tangible Common Equity to Tangible Assets:
Total Assets	$	3,265,985	$	2,873,715	$	2,449,123	$	2,390,485	$	2,391,257	$	3,265,985	$	2,391,257
Less goodwill and other intangibles		86,327		86,503		77,193		77,534		78,348		86,327		78,348
Tangible Assets (Non-GAAP):	$	3,179,658	$	2,787,212	$	2,371,930	$	2,312,951	$	2,312,909	$	3,179,658	$	2,312,909
Tangible common equity to tangible assets (Non-GAAP)		8.09%		8.96%		9.93%		9.88%		9.57%		8.09%		9.57%

¹Tangible book value per share is computed by dividing total stockholder's equity, less goodwill and other intangible assets by common shares outstanding.

13