20 2 0 1 9 A N N U A L R E P O R T SmartBank, known for its progressiveness and innovative style of banking, was organized in 2006 and has been building a foundation of strong leadership, forward thinking and a sincere desire to provide incomparable client service. LETTER TO THE SHAREHOLDERS WE BEGIN our annual letter again with a thank you to our shareholders, clients, and associates for their support in helping our company accomplish another year of outstanding performance. Our performance for 2019 was the strongest in our company’s history. Net income for the year totaled $26.5 million, equating to an earnings per diluted share of $1.89. This strong, consistent earnings stream has allowed us to initiate the payment of our first quarterly dividend. We ended the year with assets in excess of $2.4 billion, ranking us as the 6th largest bank chartered in the state of Tennessee. We have also continued to grow our franchise in Alabama, opening a new facility in Fairhope, and in Florida, with a new branch in Panama City. In addition to $2.4 BILLION 29 399 Fortune Magazine’s 100 FASTEST-GROWING COMPANIES LIST those expansions, we continue to solidify our position in several Southeastern markets. We have made outstanding team additions in Murfreesboro, Chattanooga and Maryville in Tennessee, as well as Tuscaloosa and Huntsville in Alabama. These are some of the strongest markets in our region and we are investing in these areas for future growth. We continued our focus on franchise growth by taking advantage of the expanding markets where we operate. While the growth is exciting, the quality of the growth has been outstanding. Our continued focus on credit quality remains one of our top priorities. Balancing growth and credit quality is a key strength of our company. During 2019, we focused on efficiency gains and expense reduction initiatives to better leverage the acquisitions we have made over the past couple of Sincerely, years. This work will yield great results beyond just the current year. Our team remains diligent on growing the core earnings momentum of the company with a key focus on earnings per share. We now can leverage the foundation we have in place to accomplish those goals and look forward to watching this company become even stronger. As we look ahead, the future is very bright for SmartFinancial. Our markets, our associates and our clients make this an extremely unique organization. It is with great pride that we end this letter with a word on the outstanding culture we’re building. Our company is consistently getting recognized regionally as a “top workplace” and the energy within our team is tremendous. On behalf of our fellow board members, our management team and nearly 400 associates, thank you for your support and loyalty to SmartFinancial and SmartBank. Miller Welborn Chairman of the Board SmartFinancial, Inc. Billy Carroll President & CEO SmartFinancial, Inc. 3 VISION Our vision is to build exceptional value for our brand and for our SHAREHOLDERS, ASSOCIATES, CLIENTS, and COMMUNITIES by delivering more than they think possible. MISSION We build exceptional value for our SHAREHOLDERS by managing growth and maximizing profitability, return on investment, stock value, dividends, and liquidity. We build exceptional value for our ASSOCIATES by fostering a more fulfilling environment that respects individual needs, establishes high expectations and recognizes achievement. We build exceptional value for our CLIENTS by demonstrating incomparable care for their needs and increasing their financial wealth. We build exceptional value in our COMMUNITIES by providing lasting solutions to their problems and protecting their greatest assets. We’ve achieved this through the integrity and innovation of our Associates and Directors – it’s THE SMARTBANK WAY. 4 BOARD OF DIRECTORS MILLER WELBORN Chairman BILLY CARROLL President & CEO BILL CARROLL Vice-Chairman 5 VIC BARRETT Co-founder and Partner of The Track Recreation Center MONIQUE BERKE Vice President of Business Transformation at CBL Properties CLIFTON MILLER Managing Director of Henry, McCord, Bean, Miller, Gabriel & LaBar, P.L.L.C. TED MILLER Business Manager & Partner of Dolly Parton Productions DAVID OGLE President and Co-founder of Five Oaks Development Group STEVE TUCKER Principal in TriCo Resources and BTI Real Estate DR. KEITH WHALEY Founder of Whaley Family Eyecare BEAU WICKS President of Southeast Logistics, Inc. GEOFF WOLPERT Owner of The Park Grill and The Peddler Steakhouse 2019 HIGHLIGHTS Successfully completed the acquisition and integration of Maryville, TN-based Foothills Bank & Trust Opened a Loan Production Office in Tallahassee, FL Named to Fortune Magazine’s Annual 100 Fastest-Growing Companies list Constructed and relocated our Fairhope Branch Team into a brand-new office in Fairhope, AL Constructed and relocated our Panama City Branch and Mortgage Teams into a brand-new office in Panama City, FL Renovated SmartFinancial corporate headquarters and Bearden branch in Knoxville, TN Awarded a Top Workplace designation for the third year in a row Announced the company’s 7th acquisition of Progressive Savings Bank based in the Upper Cumberland region of Tennessee Announced the company’s first cash dividend for shareholders 6 7 FROM THE START SmartBank organized in 2006 with the goal to build an innovative and dynamic bank with unmatched client service. SmartBank opened its first office in January 2007 in Pigeon Forge, Tennessee and has expanded its footprint to total 29 branches across Tennessee, Alabama, the Florida Panhandle and growing. Pairing these strong and dynamic markets with the best people, advanced technology and innovative products will continue to drive the company’s expansion and future growth opportunities. 2006 Organization of SmartBank 2007 2008 2009 2010 2011 2012 Formation of SmartFinancial, Inc. holding company SmartBank opened its corporate office in Pigeon Forge, TN and a second branch four months later in Sevierville, TN. SmartBank expanded into the Knoxville market with its fourth branch. SmartBank acquired Destin-based Gulf- South Private Bank, adding branches in the Florida Panhandle. SmartBank opened its third branch in Gatlinburg, TN. Assets grew to over $325 million through organic growth. 8 2013 2014 2015 2016 2017 2018 2019 SmartBank opened the Panama City, FL loan production office and relocated the Pensacola, FL branch. SmartBank also opened its newly designed and second location in Knoxville, TN. SmartFinancial, Inc. announced trading on the Nasdaq Capital Market under the tick- er symbol: SMBK. SmartBank successfully completed the acquisition and integration of an FSG Bank branch in Cleveland, TN. SmartFinancial, Inc. closed the acquisition of Tuscaloosa, AL-based Capstone Bank. Successfully completed the integration of Maryville, TN-based Foothills Bank & Trust. Opened a Loan Production Office in Tallahassee, FL. Named to Fortune’s annual 100 Fastest-Growing Companies List. SmartFinancial, Inc., parent company of SmartBank, and Cornerstone Bancshares, Inc., parent company of Cornerstone Community Bank, jointly announced a definitive agreement to merge, creating a combined company that will operate under the name SmartFinancial, Inc. SmartBank successfully completed the merger and integration with Chattanooga-based Cor- nerstone Community Bank, becoming a $1 billion combined company. SmartBank successfully completed the acquisition and integration of Tuscaloosa- based Capstone Bank, and Tullahoma-based Southern Community Bank. SmartFinancial, Inc. closed the acquisition of Maryville-based Foothills Bank and Trust. 9 CULTURE C O R E V A L U E S “SmartBank associates work hard to achieve our goals within the company. We love to see accomplishment and growth.” ACT WITH INTEGRITY BE ENTHUSIASTIC CREATE POSITIVITY DEMONSTRATE ACCOUNTABILITY EMBRACE CHANGE “My managers do a great job of being available and having an open door policy when it comes to their associate’s needs. I have received support from my managers on multiple occasions both professionally and personally and this makes a world of difference. I truly feel supported and appreciated both as a person and an associate.” “Client service is second to none at SmartBank. All SmartBank associates work to provide the best service for our clients.” 2017 2018 2019 “I work with great people everyday that I enjoy being around. SmartBank really cares about you as a person, and not just as an associate.” We will achieve our desired position to be the Southeast’s next great community bank by: CREATING “WOW” EXPERIENCES EXHIBITING OVER-THE-TOP ENTHUSIASM AND POSITIVITY DELIVERING EXCEPTIONAL, PROFESSIONAL & KNOWLEDGEABLE SERVICE “We are dedicated to making our clients feel like this is home. For example, we [try not to] miss the small opportunities. I was working in the drive-thru when someone broke down at our ATM and he pushed his truck to the side. It was a hot day, and I brought out some waters for him and made sure he knew he could come inside to get out of the hot sun.” 10 BILLY CARROLL President Chief Executive Officer BEVERLY ATCHLEY Senior Vice President Senior Deposit Operations & Administrative Officer GREG DAVIS Executive Vice President Chief Lending Officer KELLEY FOWLER Senior Vice President Director of Marketing and Public Relations RON GORCZYNSKI Executive Vice President Chief Financial Officer RHETT JORDAN Executive Vice President Chief Credit Officer GARY PETTY Executive Vice President Chief Risk Officer DIANE SHORT Executive Vice President Chief Human Resources Officer EXECUTIVE TEAM REGIONAL PRESIDENTS MIKE HONEYCUTT Northeast Tennessee ROBERT KUHN Alabama and Florida BARRY WATSON Southeast Tennessee 11 FINANCIAL HIGHLIGHTS 0.21% Asset quality was outstanding with nonperforming assets to total assets of just 0.21% 1.12% Return on average assets of 1.12% $2.4B Record high total assets of $2.4 billion, net loans of $1.9 billion, and deposits of $2.0 billion 6.87% Annual loan growth of $122 million, or 6.87% 57% Increase in pre-tax income year over year $22.33 Book value of common stock, up 9.95% in 2019 12 2019 FINANCIAL SUMMARY 13 SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF SMARTFINANCIAL The following selected historical consolidated financial data as of and for the years ended December 31, 2019 and 2018 is derived from the audited consolidated financial statements of the company. (Amounts are in thousands, except ratios, per share data, and other data.) SUMMARY OF OPERATIONS Total interest income Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Non interest income Non interest expense Income before income taxes Income tax expense Net income available to shareholders SHARE AND PER SHARE DATA: Basic earnings per share Diluted earnings per share Equity per share outstanding Tangible book value per share1 Dividends per share Actual shares outstanding Weighted average shares outstanding Diluted weighted average shares outstanding Years Ended December 31, 2018 2019 $108,455 24,575 83,880 2,599 81,281 15,315 63,151 33,445 6,897 $26,548 $ 1.90 1.89 22.33 16.82 0.05 14,008 13,953 14,046 $ 92,210 15,566 76,644 2,936 73,708 6,584 58,957 21,335 3,233 $18,102 $ 1.46 1.45 20.31 14.64 N/A 13,934 12,424 12,518 14 1 Tangible book value per share equals stockholders’ equity minus goodwill and other intangible assets divided by common shares outstanding. BALANCE SHEET DATA: Average total assets Average gross loans, net of deferred loan fees Average interest-earning assets Average deposits Average interest-bearing deposits Average interest-bearing liabilities Average total shareholders’ equity SELECTED FINANCIAL RATIOS: Return on average assets Return on average equity Average equity to average total assets Efficiency ratio Net interest margin1 Net interest spread2 CAPITAL RATIOS:3 Total Capital (to Risk-Weighted Assets) Tier 1 Capital (to Risk-Weighted Assets) Common Equity Tier 1 Capital (to Risk-Weighted Assets) Tier 1 Capital (to Average Assets) ASSET QUALITY RATIOS: Net charge-offs to average loans Allowance for loan losses to loans Allowance for loan losses to non-performing loans Non-performing assets to total assets OTHER DATA: Branches Loan production offices Operation centers Full-time equivalent employees Years Ended December 31, 2018 2019 $ 2,339,340 1,840,821 2,137,364 1,964,017 1,620,406 1,681,148 298,729 $ 1,962,717 1,511,724 1,739,983 1,667,360 1,381,631 1,424,365 242,451 1.13% 8.89% 12.77% 63.66% 3.95% 3.64% 13.31% 12.81% 12.81% 11.41% (0.03)% 0.54% 305.76% 0.21% 29 2 2 399 0.92% 7.47% 12.35% 70.84% 4.43% 4.22% 12.74% 12.31% 12.31% 11.17% (0.03)% 0.47% 252.29% 0.25% 29 4 2 387 Table Assumptions 1 Net interest margin is the result of net interest income calculated on a tax-equivalent basis divided by average interest earning assets for the period. 2 Net interest spread is calculated as the yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities. 3 For SmartBank 15 BLOUNT COUNTY CHATTANOOGA CLEVELAND KNOX COUNTY MURFREESBORO SEVIER COUNTY TULLAHOMA TENNESSEE A true Tennessee native, veteran banking executive Bill Carroll, and son, Billy Carroll, along with several other local and successful business entrepreneurs decided to organize a bank in 2006 with a vision to build an innovative and dynamic bank with the image, values and service level unlike any other community bank in the market. SmartBank opened its first office in January 2007 in Pigeon Forge, Tennessee and has since expanded its footprint across several of the Southeast’s strongest and most desired markets. SmartBank now operates 29 branches across Tennessee, Alabama and the Florida Panhandle. BALDWIN COUNTY HUNTSVILLE SOUTHWEST ALABAMA TUSCALOOSA ALABAMA SmartBank completed the integration of Tuscaloosa-based Capstone Bank in early 2018, adding eight branches, including three in Tuscaloosa, Northport and Indian Hills, and five spanning throughout Southwest Alabama to the coast with a new branch in Fairhope. Alabama is a great banking market and the pairing with Capstone Bank and SmartBank was a perfect match as both banks have deep roots in their communities, cultural alignment and a disciplined client-first focus. FLORIDA PANHANDLE FLORIDA SmartBank’s expansion into the Florida Panhandle by way of its first acquisition (2012) of GulfSouth Private Bank has proven that growth in this thriving market continues to be strong with lots of opportunities for continued success. SmartBank operates Smartbank operated full services branches in Pensacola, Destin and Panama City, and a Loan Production Office in Tallahassee. 16 MARKETS KNOX COUNTY 3 Locations SEVIER COUNTY 4 Locations BLOUNT COUNTY 2 Locations CLEVELAND 1 Location CHATTANOOGA 5 Locations FLORIDA PANHANDLE 3 Locations BALDWIN COUNTY 1 Location SOUTHWEST ALABAMA 4 Locations TUSCALOOSA 3 Locations HUNTSVILLE 1 Location TULLAHOMA 1 Location MURFREESBORO 1 Location 17 CORPORATE SOCIAL RESPONSIBILITY 3107 Events attended by SmartBank Associates to support our communities in 2019 $184,782 Donations since 2010 to organizations that support local National Parks through SmartBank’s Park Partners Program 9900+ Volunteer hours logged by SmartBank Associates in 2019 18 INVESTOR RELATIONS SmartFinancial, Inc. Annual Shareholders’ Meeting Thursday, May 28, 2020 at 3:00 pm SmartBank - Pigeon Forge Branch 2430 Teaster Lane Pigeon Forge, TN 37863 Meeting contact: Frank Hughes at frank.hughes@smartbank.com Electronic Voting To vote electronically, please go to www.smartfinancialinc.com You may also download a copy of the 2019 SmartFinancial, Inc. Annual Report. Forward-Looking Statements This document may contain forward-looking statements about SmartFinancial which are within the meaning of the Private Securities Litigation Reform Act of 1995, and such statements are subject to numerous risks and uncertainties. These forward-looking statements include, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities, interest rates, and cost savings anticipated to be realized by management. Words such as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify these forward-looking statements. Forward-looking statements by SmartFinancial and its management are based on beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and are not guarantees of future performance. No assurances can be given that any of the events anticipated by the forward-looking statements will occur, or if any of them do so, what impact they will have on our results of operations or financial condition. We disclaim any obligation to update or revise any forward- looking statements based on the occurrence of future events, the receipt of new information, or otherwise. The factors we discuss in our annual report on Form 10-K for the year ended December 31, 2019 and other filings with the Securities and Exchange Commission, which are available online at www.sec.gov, and those presented elsewhere by our management from time to time, could cause actual results to differ materially from those indicated by the forward-looking statements made in this document. Non-GAAP Financial Measures We report our results in accordance with United States generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP performance measures used in managing the business may provide meaningful information about underlying trends in its business. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. www.smartbank.com Investor Relations Contact Frank Hughes Executive Vice President 6413 Lee Hwy #107 Chattanooga, TN 37421 423.385.3009 frank.hughes@smartbank.com Market Makers Virtu Financial USB AG Keefe, Bruyette & Woods Inc. Raymond James & Associates Credit Swiss 1st Boston Piper Sandler Companies Merrill Lynch Citi Group J.P. Morgan Securities Inc. Stock Symbol Nasdaq Capital Market: SMBK SmartFinancial, Inc. 5401 Kingston Pike #600 Knoxville, TN 37919 866.290.2554 Stock Transfer Agent Info American Stock Transfer & Trust Company, LLC 6201 15th Avenue Brooklyn, NY 11219 800.937.5449 Analyst Coverage Keefe, Bruyette & Woods, Inc Raymond James & Associates Hovde Group Stephens Inc. Piper Sandler Companies Janney Montgomery Scott LLC D.A. Davidson & Co. 19