SMARTFINANCIAL INC

Previous wording

The following is a summary of the Company’s financial highlights and significant events during the first quarter of 2024:

Current wording

The following is a summary of the Company’s financial highlights and significant events during the second quarter and first six months of 2024:

Previous wording

The following is a summary of certain financial information for the three month periods ended March 31, 2024 and 2023 and as of March 31, 2024 and December 31, 2023*(dollars in thousands, except per share data)*:

Current wording

The following is a summary of certain financial information for the three and six month periods ended June 30, 2024 and 2023 and as of June 30, 2024 and December 31, 2023*(dollars in thousands, except per share data)*:

Previous wording

Net income was $9.4 million, or $0.55 per diluted common share, for the first quarter of 2024, compared to $11.5 million, or $0.68 per diluted common share, for the first quarter of 2023. For the three months ended March 31, 2024, when compared to the comparable period in 2023, the decrease in net income of $2.1 million was due to a decrease in net interest income after provision for loan and lease losses of $3.3 million, offset by an increase in noninterest income of $1.5 million and noninterest expense of $1.0 million and a decrease in income tax expense of $698 thousand. The tax equivalent net interest margin was 2.85% for the first quarter of 2024, compared to 3.31% for the first quarter of 2023. Noninterest income to average assets was 0.69% for the first quarter of 2024, increasing from 0.59% for the first quarter of 2023. Noninterest expense to average assets increased to 2.35% in the first quarter of 2024, from 2.33% in the first quarter of 2023.

Current wording

Net income was $8.0 million, or $0.48 per diluted common share, for the second quarter of 2024, compared to $8.8 million, or $0.52 per diluted common share, for the second quarter of 2023. For the three months ended June 30, 2024, when compared to the comparable period in 2023, the decrease in net income of $833 thousand was due to an increase in noninterest expense of $1.8 million, offset by an increase in net interest income after provision for loan and lease losses of $469 thousand and noninterest income of $474 thousand and a decrease in income tax expense of $15 thousand. The tax equivalent net interest margin was 2.97% for the second quarter of 2024, compared to 2.93% for the second quarter of 2023. Noninterest income to average assets was 0.63% for the second quarter of 2024, increasing from 0.61% for the second quarter of 2023. Noninterest expense to average assets increased to 2.41% in the second quarter of 2024, from 2.34% in the second quarter of 2023.

Previous wording

Net interest income, taxable equivalent, decreased to $31.8 million for the first quarter of 2024, down from $36.1 million for the first quarter of 2023. Net interest income was positively impacted by the increase in balances of loans and leases and the increase in yield/rate on these interest-earning assets, offset by the increase in the cost of interest-bearing liabilities. Average interest-earning assets increased from $4.43 billion for the first quarter of 2023, to $4.50 billion for the first quarter of 2024, primarily from the increase in our average loan and lease balances from the Company’s continued organic loan and lease growth, which was offset by decreases average securities and average cash balances. Over this period, average loan and lease balances increased by $200.0 million and average interest-bearing deposits increased by $208.8 million. Average securities decreased by $104.1 million, average federal funds sold and other interest earning assets decreased by $24.3 million, average borrowings decreased by $5.6 million and noninterest-bearing deposits decreased by

Current wording

Net interest income, taxable equivalent, increased to $33.2 million for the second quarter of 2024, up from $31.7 million for the second quarter of 2023. Net interest income was positively impacted by the increase in balances of loans and leases and the increase in yield/rate on these interest-earning assets, offset by the increase in the cost of interest-bearing liabilities. Average interest-earning assets increased from $4.34 billion for the second quarter of 2023, to $4.49 billion for the second quarter of 2024, primarily from the increase in our average loan and lease balances and average cash balances, which was offset by decreases in average securities. Over this period, average loan and lease balances increased by $195.7 million, average federal funds sold and other interest earning assets increased by $151.2 million, and average interest-bearing deposits increased by $229.7 million. Average securities decreased by $191.3 million, average borrowings decreased by $12.2 million and noninterest-bearing deposits decreased by $62.7 million. The tax equivalent net interest margin increased to 2.97% for the second quarter of 2024, compared to 2.93% for the second quarter of 2023. The yield on earning assets increased from 4.82% for the second quarter of 2023, to 5.52% for the second quarter of 2024, primarily due to the deployment of excess cash and cash equivalents into loans and leases and the increase in rates by the Federal Reserve. The cost of average interest-bearing deposits increased from 2.46% for the second quarter of 2023, to 3.23% for the second quarter of 2024, primarily due to the increase in rates by the Federal Reserve and increased pricing competition.

Previous wording

1 Yields 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 $93 thousand and $94 thousands for the three months ended March 31, 2024, and 2023, respectively.

Current wording

2 Yields 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 $94 thousand and $95 thousand for the three months ended June 30, 2024, and 2023, respectively.

Previous wording

$142.8 million. The tax equivalent net interest margin decreased to 2.85% for the first quarter of 2024, compared to 3.31% for the first quarter of 2023. The yield on earning assets increased from 4.88% for the first quarter of 2023, to 5.36% for the first quarter of 2024, primarily due the deployment of excess cash and cash equivalents into loans and leases and the increase in rates by the Federal Reserve. The cost of average interest-bearing deposits increased from 2.05% for the first quarter of 2023, to 3.16% for the first quarter of 2024, primarily due to the increase in rates by the Federal Reserve and increased pricing competition.

Current wording

Net interest income, taxable equivalent, decreased to $65.0 million for the first six months of 2024, down from $67.7 million for the first six months of 2023. Net interest income was positively impacted, compared to the prior year, primarily by the increase in balances of loans and leases and the increase in yield/rate on interest-earning assets, offset by the increase in the cost of interest-bearing liabilities. Average interest-earning assets increased from $4.38 billion for the first six months of 2023, to $4.50 billion for the first six months of 2024, primarily because of the Company’s continued organic loan and lease growth and the increase in our average cash balances, offset by a decrease in our securities. Over this period, average loan and lease balances increased by $197.5 million, federal funds sold and other interest earning assets increased by $63.9 million and average interest-bearing deposits increased by $219.4 million. Average securities decreased by $147.9 million, average borrowings decreased $8.9 million and noninterest-bearing deposits decreased by $102.6 million. The tax equivalent net interest margin decreased to 2.91% for the first six months of 2024, compared to 3.12% for the first six months of 2023. The yield on earning assets increased from 4.85% for the first six months of 2023, to 5.44% for the first six months of 2024, primarily due the deployment of excess cash and cash equivalents into loans and leases and the increase in rates by the Federal Reserve. The cost of average interest-bearing deposits increased from 2.25% for the first six months of 2023 to 3.19% for the first six months of 2024, primarily due to the increase in rates by the Federal Reserve and increased pricing competition.

Previous wording

Noninterest income increased by $1.5 million during the first quarter of 2024 compared to the same period in 2023. This quarterly change in total noninterest income primarily resulted from the following:

Current wording

Noninterest income increased by $474 thousand during the second quarter of 2024 compared to the same period in 2023. This quarterly change in total noninterest income primarily resulted from the following:

Previous wording

Noninterest expense increased by $1.0 million in the first quarter of 2024 as compared to the same period in 2023. The quarterly increase in total noninterest expense primarily resulted from the following:

Current wording

Noninterest expense increased by $1.8 million in the second quarter of 2024 as compared to the same period in 2023. The quarterly increase in total noninterest expense primarily resulted from the following:

Previous wording

In the first quarter of 2024 income tax expense totaled $2.6 million compared to $3.3 million in the first quarter of 2023. The effective tax rate was approximately 21.9% in the first quarter of 2024 compared to 22.4% in the first quarter of 2023.

Current wording

In the second quarter of 2024 and 2023, income tax expense totaled $2.3 million, respectively. The effective tax rate was approximately 22.6% in the second quarter of 2024 compared to 21.0% in the second quarter of 2023.

Previous wording

The Company had total net loans and leases outstanding of approximately $3.44 billion at March 31, 2024, compared to $3.41 billion at December 31, 2023. Loans secured by real estate, consisting of commercial and residential property, are the principal component of our loan and lease portfolio.

Current wording

The Company had total net loans and leases outstanding of approximately $3.54 billion at June 30, 2024, compared to $3.41 billion at December 31, 2023. Loans secured by real estate, consisting of commercial and residential property, are the principal component of our loan and lease portfolio.

Previous wording

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

Current wording

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

Previous wording

Nonperforming loans and leases as a percentage of total gross loans and leases, net of deferred fees, was 0.18% as of March 31, 2024, and 0.24% December 31, 2023, respectively. Total nonperforming assets as a percentage of total assets was 0.18% as of March 31, 2024, and 0.20% as of December 31, 2023, respectively.

Current wording

Nonperforming loans and leases as a percentage of total gross loans and leases, net of deferred fees, was 0.19% as of June 30, 2024, and 0.24% December 31, 2023, respectively. Total nonperforming assets as a percentage of total assets was 0.20% as of June 30, 2024, and December 31, 2023, respectively.

Previous wording

We maintain the allowance at a level that we deem appropriate to adequately cover change in the loan and lease portfolio. Our provision for credit losses for loans and leases for the three months ended March 31, 2024, is ($78) thousand compared to $550 thousand in the same period of 2023, a decrease of $628 thousand. As of March 31, 2024, and December 31, 2023, our allowance for credit losses was $34.2 million and $35.1 million, respectively, which we deemed to be adequate at each of the respective dates. Our allowance for credit loss as a percentage of total loans and leases was 0.98% at March 31, 2024 and 1.02% at December 31, 2023, respectively.

Current wording

We maintain the allowance at a level that we deem appropriate to adequately cover change in the loan and lease portfolio. Our provision for credit losses for loans and leases for the six months ended June 30, 2024, is $818 thousand compared to $970 thousand in the same period of 2023, a decrease of $152 thousand. As of June 30, 2024, and December 31, 2023, our allowance for credit losses was $34.7 million and $35.1 million, respectively, which we deemed to be adequate at each of the respective dates. Our allowance for credit loss as a percentage of total loans and leases was 0.97% at June 30, 2024 and 1.02% at December 31, 2023, respectively.

Previous wording

The following table sets forth, based on management's best estimate, the allocation of the allowance for credit losses on loans and leases to categories of loans and leases and loan and lease balances by category and the percentage of loans and

Current wording

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

Previous wording

Our available-for-sale securities portfolio is carried at fair market value and our held-to-maturity securities portfolio is carried at amortized cost, and consists primarily of Federal agency bonds, mortgage-backed securities, state and municipal securities and other debt securities. Our securities portfolio decreased from $689.6 million at December 31, 2023, to $654.5

Current wording

Our available-for-sale securities portfolio is carried at fair market value and our held-to-maturity securities portfolio is carried at amortized cost, and consists primarily of Federal agency bonds, mortgage-backed securities, state and municipal securities and other debt securities. Our securities portfolio decreased from $689.6 million at December 31, 2023, to $629.8 million at June 30, 2024, primarily as a result of Treasury securities maturities. Our securities to asset ratio has decreased from 14.3% at December 31, 2023, to 12.9% at June 30, 2024.

Previous wording

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 March 31, 2024*(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.

Current wording

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 June 30, 2024*(dollars in thousands)*. The

Previous wording

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 March 31, 2024, brokered deposits represented approximately 0.39% of total deposits.

Current wording

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 June 30, 2024, brokered deposits represented approximately 0.05% of total deposits.

Previous wording

The following tables summarize the average balances outstanding and average interest rates for each major category of deposits for the three month periods ending March 31, 2024 and 2023, respectively (dollars in thousands):

Current wording

The following tables summarize the average balances outstanding and average interest rates for each major category of deposits for the three and six month periods ending June 30, 2024, and 2023, respectively (dollars in thousands):

Previous wording

The Company believes its deposit product offerings are properly structured to attract and retain core deposit relationships. The average cost of interest-bearing deposits for the three months ended March 31, 2024, and 2023, was 3.16% and 2.05%, respectively. The cost increase was primarily attributable to the rate increases.

Current wording

The Company believes its deposit product offerings are properly structured to attract and retain core deposit relationships. The average cost of interest-bearing deposits for the three months ended June 30, 2024, and 2023, was 3.23% and 2.46%, respectively. The cost increase was primarily attributable to the rate increases. The average cost of interest-bearing deposits for the six months ended June 30, 2024, and 2023, was 3.19% and 2.25%, respectively. The cost increase was primarily attributable to the increases in rates.

Previous wording

Total deposits as of March 31, 2024, were $4.39 billion, which was an increase of $126.3 million from December 31, 2023. This increase was primarily from organic deposit growth. As of March 31, 2024, the Company had outstanding time deposits under $250,000 with balances of $318.4 million and time deposits over $250,000 with balances of $219.7 million.

Current wording

Total deposits as of June 30, 2024, were $4.32 billion, which was an increase of $48.8 million from December 31, 2023. This increase was primarily from organic deposit growth. As of June 30, 2024, the Company had outstanding time deposits under $250,000 with balances of $315.3 million and time deposits over $250,000 with balances of $208.7 million.

Previous wording

The Company's estimated uninsured deposits totaled $1.92 billion at March 31, 2024, compared to $1.76 billion at December 31, 2023, representing 43.7% and 41.3% of total deposits at March 31, 2024, and December 31, 2023, respectively. These estimates were derived using the same methodologies and assumptions used for the Bank's regulatory reporting.

Current wording

The Company's estimated uninsured deposits totaled $1.86 billion at June 30, 2024, compared to $1.76 billion at December 31, 2023, representing 43.1% and 41.3% of total deposits at June 30, 2024, and December 31, 2023, respectively. These estimates were derived using the same methodologies and assumptions used for the Bank's regulatory reporting.

Previous wording

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 down-streamed as Tier 1 capital to the Bank. Borrowings totaled $9.8 million at March 31, 2024, and consisted of short-term borrowings of $6.0 million, and $3.8 million of securities sold under repurchase agreements. Long-term debt totaled $42.1 million at March 31, 2024, and December 31, 2023, respectively, and consisted entirely of subordinated debt. For more information regarding our borrowings, see "Part I - Item 1. Consolidated Financial Statements – Note 6 –Borrowings, Line of Credit and Subordinated Debt.”

Current wording

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 down-streamed as Tier 1 capital to the Bank. Borrowings totaled $12.7 million at June 30, 2024, and consisted of short-term borrowings of $8.0 million, and $4.7 million of securities sold under repurchase agreements. Long-term debt totaled $42.1 million at June 30, 2024, and December 31, 2023, respectively, and consisted entirely of subordinated debt. For more information regarding our borrowings, see "Part I - Item 1. Consolidated Financial Statements – Note 6 –Borrowings, Line of Credit and Subordinated Debt.”

Previous wording

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing and depository needs of its customers. At March 31, 2024, we had $696.8 million of pre-approved but unused lines of credit and $17.9 million of standby letters of credit. These commitments generally have fixed expiration dates and many will expire without being drawn upon. The total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Bank has the ability to liquidate Federal funds sold or securities available-for-sale, or on a short-term basis to borrow and purchase Federal funds from other financial institutions. For more information regarding our off-balance sheet arrangements, see “Part I - Item 1. Consolidated Financial Statements – Note 8 –Commitments and Contingent Liabilities.”

Current wording

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 June 30, 2024, we had $720.0 million of pre-approved but unused lines of credit and $18.4 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 8 –Commitments and Contingent Liabilities.”

Previous wording

interest rate risk, the distribution of risk, the level of risk over time and the exposure to changes in 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 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 meetings of ALCO to provide feedback regarding future balance sheet structure, earnings and liquidity strategies. ALCO continuously monitors and manages the balance between interest rate-sensitive assets and liabilities. The objective is to manage the impact of fluctuating market rates on net interest income within acceptable levels. In order to meet this objective, management may lengthen or shorten the duration of assets or liabilities.

Current wording

The Bank’s Asset Liability Management Committee (“ALCO”) oversees market risk management and establishes risk measures, limits on policy guidelines for managing the amount of interest rate risk and 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, the distribution of risk, the level of risk over time and the exposure to changes in 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 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 meetings of ALCO to provide feedback regarding future balance sheet structure, earnings and liquidity strategies. ALCO continuously monitors and manages the balance between interest rate-sensitive assets and liabilities. The objective is to manage the impact of fluctuating market rates on net interest income within acceptable levels. In order to meet this objective, management may lengthen or shorten the duration of assets or liabilities.

Previous wording

The Company has $51.3 million in securities that mature throughout the next 12 months. The Company also has unused borrowing capacity in the amount of $906.5 million available with the Federal Reserve, Federal Home Loan Bank, 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.

Current wording

The Company has $2.8 million in securities that mature throughout the next 12 months. The Company also has unused borrowing capacity in the amount of $933.8 million available with the Federal Reserve, Federal Home Loan Bank, 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.