Table of Contents
.
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2025
☐
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 New York Stock Exchange
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).
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 03, 2025, there were 17,028,001 shares of common stock, $1.00 par value per share, issued and outstanding.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1.
Consolidated Financial Statements (Unaudited)
3
Consolidated Balance Sheets at September 30, 2025, and December 31, 2024
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2025, and 2024
4
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2025, and 2024
5
Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2025, and 2024
6
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2025, and 2024
7
Condensed Notes to Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
43
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
59
Item 4.
Controls and Procedures
PART II – OTHER INFORMATION
60
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
61
Item 5.
Other Information
Item 6.
Exhibits
2
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,
2025
2024*
ASSETS:
Cash and due from banks
$
60,313
96,508
Interest-bearing deposits with banks
462,766
277,005
Federal funds sold
34,048
14,057
Total cash and cash equivalents
557,127
387,570
Securities available-for-sale, at fair value
511,095
482,328
Securities held-to-maturity (fair value of $109.8 million at Sept.30, 2025 and $108.1 million at Dec. 31, 2024)
123,364
126,659
Other investments
14,888
14,740
Loans held for sale
9,855
5,996
Loans and leases
4,222,369
3,906,340
Less: Allowance for credit losses
(39,074)
(37,423)
Loans and leases, net
4,183,295
3,868,917
Premises and equipment, net
89,250
91,093
Other real estate owned
—
179
Goodwill and other intangibles, net
95,807
104,723
Bank owned life insurance
118,610
115,917
Other assets
81,692
77,782
Total assets
5,784,983
5,275,904
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand
931,477
965,552
Interest-bearing demand
929,454
836,731
Money market and savings
2,218,313
2,039,560
Time deposits
971,653
844,640
Total deposits
5,050,897
4,686,483
Borrowings
1,301
8,135
Subordinated debt
138,604
39,684
Other liabilities
55,699
50,141
Total liabilities
5,246,501
4,784,443
Commitments and contingent liabilities - see Note 8
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; 17,028,001 and 16,925,672 shares issued and outstanding, respectively
17,028
16,926
Additional paid-in capital
295,742
294,269
Retained earnings
236,380
203,824
Accumulated other comprehensive loss
(10,781)
(23,671)
Total shareholders' equity attributable to SmartFinancial Inc. and Subsidiary
538,369
491,348
Non-controlling interest - preferred stock of subsidiary
113
Total shareholders' equity
538,482
491,461
Total liabilities and shareholders' equity
* Derived from audited financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share and per share data)
Three Months Ended
Nine Months Ended
2024
Interest income:
Loans and leases, including fees
64,282
54,738
183,094
155,611
Securities:
Taxable
4,876
5,233
14,499
15,101
Tax-exempt
441
350
1,190
1,056
Federal funds sold and other earning assets
4,919
3,635
11,565
13,255
Total interest income
74,518
63,956
210,348
185,023
Interest expense:
Deposits
30,464
27,350
86,100
81,824
14
709
155
985
1,610
865
3,082
2,647
Total interest expense
32,088
28,924
89,337
85,456
Net interest income
42,430
35,032
121,011
99,567
Provision for credit losses
227
2,575
3,618
3,018
Net interest income after provision for credit losses
42,203
32,457
117,393
96,549
Noninterest income:
Service charges on deposit accounts
1,831
1,780
5,333
5,084
Loss on sale of securities, net
(3,715)
(3,719)
Mortgage banking
410
1,835
1,038
Investment services
1,690
1,881
4,899
4,563
Insurance commissions
1,049
1,477
4,016
3,865
Interchange and debit card transaction fees, net
1,338
1,349
3,900
3,945
Gain on sale of SBK Insurance ("SBKI")
3,955
Other
2,242
5,914
6,627
Total noninterest income
8,637
9,139
26,133
25,122
Noninterest expense:
Salaries and employee benefits
19,544
18,448
58,380
52,348
Occupancy and equipment
3,468
3,423
10,298
10,144
FDIC insurance
1,025
825
2,977
2,565
Other real estate and loan related expense
969
460
2,383
1,582
Advertising and marketing
454
327
1,226
924
Data processing and technology
2,594
2,519
7,903
7,435
Professional services
1,123
1,201
3,643
3,190
Amortization of intangibles
536
604
1,671
1,824
Restructuring expenses
1,310
2,846
3,039
8,945
8,587
Total noninterest expense
33,869
30,846
98,736
88,599
Income before income tax expense
16,971
10,750
44,790
33,072
Income tax expense
3,285
8,146
6,572
Net income
13,686
9,140
36,644
26,500
Earnings per common share:
Basic
0.82
0.55
2.18
1.58
Diluted
0.81
0.54
2.17
1.57
Weighted average common shares outstanding:
16,781,236
16,726,658
16,775,970
16,782,200
16,908,920
16,839,998
16,886,153
16,874,316
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Other comprehensive income (loss):
Investment securities:
Unrealized holding gains on securities available-for-sale
4,995
12,193
12,846
11,084
Tax effect
(1,290)
(3,150)
(3,318)
(2,863)
Reclassification adjustment for amortization of unrealized gains included in other comprehensive income on securities transferred from available-for-sale to held-to-maturity
28
33
88
101
(8)
(23)
(26)
Reclassification adjustment for realized losses, net included in net income
3,715
3,719
(960)
(961)
Unrealized gains on securities available-for-sale, net of tax
6,480
9,068
12,351
8,296
Fair value hedging activities:
Unrealized gains (losses) on fair value municipal security hedges
26
(928)
(141)
(30)
(7)
239
36
Reclassification adjustment for realized (gains) included in net income
(4)
(142)
(391)
1
38
102
Unrealized gains (losses) on fair value hedged instruments arising during the period, net of tax
16
(793)
(110)
(311)
Cash flow hedging activities:
Unrealized gains (losses) on cash flow hedges
258
636
886
(68)
(164)
(229)
Reclassification adjustment for realized losses (gains) included in net income
(24)
(114)
(62)
30
Unrealized gains (losses) on cash flow hedge instruments arising during the period, net of tax
(3)
174
649
573
Total other comprehensive income
6,493
8,449
12,890
8,558
Comprehensive income
20,179
17,589
49,534
35,058
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY – (Unaudited)
For the Three and Nine Months Ended September 30, 2025 and 2024
Accumulated
Non-controlling
Interest - Preferred
Common Stock
Additional
Retained
Comprehensive
Stock of
Shares
Amount
Paid-in Capital
Earnings
Income (Loss)
Subsidiary
Total
Balance, December 31, 2023
16,988,879
16,989
295,699
173,105
(25,907)
459,886
Other comprehensive income
Common stock issued pursuant to:
Stock options exercised
6,192
62
68
Restricted stock, net of forfeitures
78,757
79
(79)
Restricted stock, withheld for taxes
(11,259)
(12)
(208)
(220)
Stock compensation expense
1,266
Common stock dividend ($0.24 per share)
(4,068)
Repurchases of common stock
(136,195)
(136)
(2,831)
(2,967)
Balance, September 30, 2024
16,926,374
293,909
195,537
(17,349)
489,023
Balance, December 31, 2024
16,925,672
10,148
10
144
154
101,313
(101)
(9,132)
(9)
(282)
(291)
1,712
(4,088)
Balance, September 30, 2025
17,028,001
Balance, June 30, 2024
16,925,902
293,586
187,751
(25,798)
472,465
1,692
24
4,000
(5,220)
(6)
(69)
(75)
372
Common stock dividend ($0.08 per share)
(1,354)
Balance, June 30, 2025
17,017,547
17,018
295,209
224,061
(17,274)
519,127
5,945
84
90
5,192
(5)
(683)
(1)
(25)
478
Common stock dividends ($0.08 per share)
(1,367)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
6,277
6,900
Amortization of intangible assets
Loss on sale of securities available-for-sale
Deferred income tax (benefit) expense
(146)
628
Increase in cash surrender value of bank-owned life insurance
(2,693)
(1,591)
Net losses from sale and write-downs of other real estate owned and other repossessed assets
508
569
Net gains from mortgage banking
(1,753)
(950)
Origination of loans held for sale
(31,481)
(41,010)
Proceeds from sales of loans held for sale
29,375
40,574
Gain from sale of SBKI
(3,955)
Net loss (gain) from sale/disposal of fixed assets
(1,647)
Net change in:
Accrued interest receivable
(846)
(198)
Accrued interest payable
2,374
250
1,286
3,361
(1,130)
(3,478)
Net cash provided by operating activities
45,194
36,016
Cash flows from investing activities:
Available-for-sale:
Proceeds from sales
99,966
Proceeds from maturities, calls and paydowns
55,084
36,816
Purchases
(171,820)
(119,935)
Held-to-maturity:
1,756
151,881
Proceeds from sales of other investments
1,041
348
Purchases of other investments
(4,766)
(7,407)
Purchases of bank-owned life insurance
(20,000)
Proceeds from sale of SBKI, net of transaction cost
11,107
Net increase in loans and leases
(319,864)
(279,709)
Proceeds from sale of fixed assets
123
4,698
Purchases of premises and equipment
(2,035)
(5,072)
Proceeds from sale of other real estate owned and other repossessed assets
1,807
2,083
Net cash used in investing activities
(327,601)
(236,297)
Cash flows from financing activities:
Net increase in deposits
364,442
54,693
Net decrease in securities sold under agreements to repurchase
(2,833)
(1,082)
Proceeds from borrowings
1,000
155,000
Repayment of borrowings
(5,000)
(160,500)
Cash dividends paid
Issuance of subordinated debt, net of issuance costs
98,580
Issuance of common stock
Restricted shares withheld for taxes
Net cash provided by financing activities
451,964
40,924
Net change in cash and cash equivalents
169,557
(159,357)
Cash and cash equivalents, beginning of period
352,271
Cash and cash equivalents, end of period
192,914
Supplemental disclosures of cash flow information:
Cash paid during the period for interest
86,963
85,207
Net cash paid during the period for income taxes
9,116
6,724
Noncash investing and financing activities:
Recognition of operating lease assets in exchange for lease liabilities
790
2,959
Acquisition of real estate through foreclosure
Acquisition of other repossessed assets
2,544
3,896
Financed sales of other repossessed assets
1,101
618
Write-off of goodwill due to sale of SBKI
(5,773)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Presentation of Financial Information
Nature of Business:
SmartFinancial, Inc. (the “Company,” “SmartFinancial,” “we,” “our” or “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 Florida. 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 credit losses, the valuation of foreclosed assets and deferred taxes, 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 following unaudited condensed financial statement notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. 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, 2024.
Recently Issued and Adopted Accounting Pronouncements:
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” ASU 2023-07 expands segment disclosure requirements for public entities to require disclosure of significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. The Company adopted ASU 2023-07 on December 31, 2024, and it did not have an impact on the Company’s 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, 2024, as filed in its Annual Report on Form 10-K with the 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 December 2023, FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 requires public business entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in certain categories if items meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose income
taxes paid, net of refunds, disaggregated by federal, state, and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. The guidance is effective for us the first annual period beginning after December 15, 2024, with first disclosure additions to be included in the 2025 Annual Report on Form 10K. The Company is assessing ASU 2023-09, and its adoption is not expected to have a significant impact on our Consolidated Financial Statements.
In November 2024, FASB issued ASU No. 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.”, and in January 2025, the FASB issued ASU 2025-01, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date.” ASU 2024-03 requires disaggregated disclosure of income statement expenses for public business entities. ASU 2024-03, as clarified by ASU 2025-01, requires new financial statement disclosures in tabular format, disaggregating information about prescribed categories underlying any relevant income statement expense caption. The prescribed categories include, among other things, employee compensation, depreciation, and intangible asset amortization. Additionally, entities must disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. ASU 2024-03 is effective for us fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027, though early adoption is permitted. The Company is assessing ASU 2024-03, and its adoption is not expected to have a significant impact on our Consolidated Financial Statements.
Note 2. 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 no antidilutive shares for the three and nine months ended September 30, 2025, and 2024, respectively.
The following is a summary of the basic and diluted earnings per share computation (dollars in thousands, except share and per share data):
Basic earnings per share computation:
Net income available to common shareholders
Average common shares outstanding – basic
Basic earnings per share
Diluted earnings per share computation:
Incremental shares from assumed conversions:
Stock options and restricted stock
127,684
113,340
110,183
92,116
Average common shares outstanding - diluted
Diluted earnings per common share
Note 3. Securities
Available-for-sale securities (“AFS”), which include any security for which the Company has no immediate plan to sell, but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically identified amortized cost of the individual security, are included in other income. Unrealized gains and losses are recorded, net of related income tax effects, in accumulated other comprehensive income (loss). Premiums and discounts are amortized and accreted, respectively, to interest income using the constant effective yield method over the estimated life of the security.
9
Prepayments are anticipated for mortgage-backed and Small Business Administration (“SBA”) securities. Premiums on callable securities are amortized to their earliest call date.
Held-to-maturity securities (“HTM”), which include any security for which the Company has both the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant effective yield method over the security’s estimated life. Prepayments are anticipated for mortgage-backed and SBA securities. Premiums on callable securities are amortized to their earliest call date.
The amortized cost, gross unrealized gains and losses and fair value of securities AFS and HTM are summarized as follows (in thousands):
September 30, 2025
Gross
Amortized
Unrealized
Fair
Cost
Gains
Losses
Value
U.S. Treasury
31,823
(2,231)
29,592
U.S. Government-sponsored enterprises (GSEs)
19,446
(130)
19,404
Municipal securities
34,403
316
(489)
34,230
Other debt securities
25,938
214
(1,221)
24,931
Mortgage-backed securities (GSEs)
413,054
2,973
(13,089)
402,938
524,664
3,591
(17,160)
47,181
(5,243)
41,938
50,866
(5,575)
45,291
25,317
(2,795)
22,522
(13,613)
109,751
December 31, 2024
83,330
(7,104)
76,226
38,917
453
(182)
39,188
18,277
(587)
17,690
41,321
252
(2,138)
39,435
330,839
515
(21,565)
309,789
512,684
1,220
(31,576)
48,112
(7,335)
40,777
51,652
(7,037)
44,615
26,895
(4,207)
22,688
(18,579)
108,080
At September 30, 2025 and December 31, 2024, securities with a carrying value totaling approximately $404.6 million and $432.6 million, respectively, were pledged to secure public funds and securities sold under agreements to repurchase.
On investments for the three and nine months ended September 30, 2025, the Company recorded gross realized gains of $210 thousand and gross realized losses of $3.9 million, respectively. For the three and nine months ended September 30, 2024, there were no realized gross gains or gross losses recorded, respectively.
The amortized cost and estimated fair value of securities at September 30, 2025, 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.
Due in one year or less
565
Due from one year to five years
42,394
40,137
Due from five years to ten years
44,204
43,102
Due after ten years
24,447
24,353
111,610
108,157
Mortgage-backed securities
7,793
7,280
54,371
48,334
35,883
31,615
98,047
87,229
The following tables present the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities AFS and HTM have been in a continuous unrealized loss position (in thousands):
Less than 12 Months
12 Months or Greater
Number
of
Securities
6,665
(22)
6,116
(108)
12,781
7,345
(286)
9,654
(203)
13
16,999
2,481
(10)
13,789
(1,211)
12
16,270
99,010
(705)
35
137,777
(12,384)
69
236,787
104
115,501
(1,023)
196,928
(16,137)
103
312,429
146
3,483
(289)
41,808
(5,286)
37
106,268
(13,324)
51
55
11
9,069
(80)
4,813
(102)
13,882
5,579
(59)
11,322
(528)
17
16,901
25
4,425
(36)
28,294
(2,102)
32,719
27
80,111
(939)
39
160,129
(20,626)
83
240,240
122
99,184
(1,114)
54
280,784
(30,462)
137
379,968
191
53
For any securities classified as AFS that are in an unrealized loss position at the balance sheet date, the Company assesses whether it intends to sell the security, or more likely than not will be required to sell the security before recovery of its amortized cost basis which would require a write-down to fair value through net income. Because the Company currently does not intend to sell those AFS securities that have an unrealized loss at September 30, 2025, and it is not likely that they will be required to sell the securities before recovery of their amortized cost bases, which may be maturity, the Company has determined that no write-down is necessary. In addition, the Company evaluates whether any portion of the decline in fair value of AFS securities is the result of credit deterioration, which would require the recognition of an allowance for credit losses. The unrealized losses associated with available-for-sale securities at September 30, 2025, are driven by changes in interest rates and are not due to the credit quality of the securities, and accordingly, no allowance for credit losses is considered necessary related to available-for-sale securities at September 30, 2025. Management evaluates the financial performance of the issuers on a quarterly basis to determine if it is probable that the issuers can make all contractual principal and interest payments.
The unrealized losses in the Company’s HTM portfolio were caused by changes in the interest rate environment. The Company has a zero-loss expectation for its U.S. Treasury securities in addition to U.S. Government-sponsored enterprises (GSEs) and mortgage-backed securities (GSEs), and accordingly, no allowance for credit losses is estimated for these securities. The HTM state and municipal securities are primarily general obligation bonds, which have a very low historical default rate due to issuers generally having unlimited taxing authority to service the debt. All debt securities in an unrealized loss position as of September 30, 2025, continue to perform as scheduled and we do not believe an allowance for credit losses is necessary.
The Company utilizes bond credit ratings assigned by third party ratings agencies to monitor the credit quality of debt securities held-to-maturity. At September 30, 2025, all debt securities classified as held-to-maturity, with a published rating, were rated A+ or higher by the ratings agencies. Updated credit ratings are obtained as they become available from the ratings agencies.
Allowance for Credit Losses (“ACL”)
There were no past due or nonaccrual AFS or HTM securities at September 30, 2025, or December 31, 2024. Accrued interest receivable is excluded from the estimate of credit losses and based on the analysis of the underlying risk
characteristics of its AFS and HTM portfolios, including credit ratings and other qualitative factors, there was no provision for credit losses related to AFS or HTM securities recorded during the three and nine months ended September 30, 2025, and 2024, respectively, because the ACL was deemed immaterial.
Other Investments:
Our other 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, 2025, the Company determined that there was no impairment on its other investment securities.
The following is the amortized cost and carrying value of other investments (in thousands):
Federal Reserve Bank stock
9,618
9,045
Federal Home Loan Bank stock
4,920
5,345
First National Bankers Bank stock
Note 4. Loans and Leases and Allowance for Credit Losses
Portfolio Segmentation:
Major categories of loans and leases are summarized as follows (in thousands):
Commercial real estate:
Non-owner occupied
1,136,080
1,080,404
Owner occupied
1,012,088
867,678
Consumer real estate
811,150
741,836
Construction and land development
390,691
361,735
Commercial and industrial
794,751
775,620
Leases
60,301
64,878
Consumer and other
17,308
14,189
Total loans and leases
The loan and lease portfolio is disaggregated into segments. There are seven loan and lease portfolio segments which include commercial real estate non-owner occupied, commercial real estate owner occupied, consumer real estate, construction and land development, commercial and industrial, leases, and consumer and other.
The following describe risk characteristics relevant to each of the portfolio segments:
Commercial Real Estate – Non-Owner Occupied: Commercial 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.
Commercial Real Estate - Owner Occupied: Commercial real estate loans to operating businesses are long-term financing of land and buildings where the owner occupies the property. These loans are repaid by cash flow generated from the business operation.
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.
The following tables detail the changes in the allowance for credit losses by loan and lease classification (in thousands):
Three Months Ended September 30, 2025
Commercial
Real Estate
Consumer
Construction
Non-Owner
Owner
Real
and Land
and
Occupied
Estate
Development
Industrial
and Other
Beginning balance
7,254
8,862
8,887
4,450
9,330
868
125
39,776
Charged-off loans and leases
(930)
(83)
(126)
(1,145)
Recoveries of charge-offs
45
20
92
Provision charged to expense (1)
(13)
15
(297)
(358)
325
542
351
Ending balance
7,241
8,879
8,629
4,092
8,750
1,327
156
39,074
Three Months Ended September 30, 2024
7,018
8,612
7,543
3,496
7,234
670
117
34,690
(430)
(924)
(72)
(1,426)
40
23
72
Provision charged to expense (2)
(56)
(14)
222
785
1,291
46
2,273
7,017
8,557
7,529
3,718
7,629
1,045
114
35,609
Nine Months Ended September 30, 2025
6,972
8,341
8,355
4,168
8,552
919
116
37,423
(1,049)
(432)
(259)
(1,746)
200
147
455
269
533
235
(276)
1,100
837
244
2,942
Nine Months Ended September 30, 2024
6,846
8,418
7,249
4,874
6,924
640
115
35,066
(441)
(853)
(1,246)
(263)
(2,803)
34
136
73
255
171
105
276
(715)
1,422
1,643
189
3,091
We maintain the allowance for credit losses at a level that we deem appropriate to adequately cover the expected credit loss in the loan and lease portfolio. Our provision for credit losses on loan and lease for the three and nine months ended September 30, 2025, was $351 thousand and $2.9 million, respectively, and $2.3 million and $3.1 million, during the three and nine months ended September 30, 2024, respectively. As of September 30, 2025, and December 31, 2024, our
allowance for credit losses was $39.1 million and $37.4 million, respectively, which we deemed to be adequate at each of the respective dates. Our allowance for credit losses as a percentage of total loans and leases was 0.93% at September 30, 2025, and 0.96% at December 31, 2024.
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 credit 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.
The Company evaluates the loan risk grading system definitions and allowance for credit loss methodology on an ongoing basis.
The following tables outline the amount of each loan and lease classification and the amount categorized into each risk rating based on year of origination as of September 30, 2025, and December 31, 2024 (in thousands):
Loans Amortized Cost Basis by Origination Year
Revolving
Loans
Converted
2023
2022
2021
Prior
to Term
Commercial real estate - non-owner occupied
Pass
124,946
233,475
126,608
276,107
179,892
147,953
14,959
1,104,056
Watch
1,186
87
10,305
3,125
16,141
-
30,844
Special mention
Substandard
176
432
340
232
1,180
Doubtful
Total commercial real estate - non-owner occupied
126,308
233,994
136,913
279,232
196,373
148,185
YTD gross charge-offs
Commercial real estate - owner occupied
155,777
165,321
115,897
279,376
142,186
128,083
11,709
998,392
3,017
1,141
648
848
8,745
1,135
3,254
562
4,951
Total commercial real estate - owner occupied
156,912
168,412
118,914
280,517
145,440
129,293
12,557
107,691
138,512
95,138
154,512
72,839
83,742
153,429
652
806,515
550
1,344
1,998
47
169
2,010
2,590
Total consumer real estate
138,681
95,150
154,571
72,943
86,349
155,113
166,023
162,356
23,530
12,990
6,211
8,492
6,914
3,740
390,256
205
50
153
408
Total construction and land development
166,228
13,040
6,391
109,803
99,828
95,626
98,273
35,345
33,700
310,369
449
783,393
864
96
93
112
8,536
9,712
175
31
1,316
1,646
Total commercial and industrial
109,989
100,699
95,753
98,366
36,773
319,022
(52)
(623)
(200)
(174)
Pass(1)
17,713
18,265
11,641
10,676
1,586
420
Total leases
(218)
(194)
(16)
4,875
2,024
955
287
253
409
8,444
17,247
57
Total consumer and other
4,926
2,033
288
(19)
(87)
(33)
(31)
(70)
Total loans
686,828
819,781
469,395
832,221
438,312
402,799
505,824
5,000
4,160,160
1,402
4,046
13,418
4,409
16,510
1,198
10,728
51,711
1,537
613
4,937
2,804
457
10,451
689,767
824,440
482,856
836,690
459,759
406,848
517,009
Total YTD gross charge-offs
(305)
(279)
(657)
(260)
(1) Leases are not formally risk rated and classified as “Pass”. Balances include $3.3 million and $2.4 million of leases on nonaccrual as of September 30, 2025, and December 31, 2024, respectively.
2020
241,022
118,055
286,728
228,554
85,754
97,319
8,295
696
1,066,423
1,637
6,769
278
4,275
12,959
470
301
251
1,022
241,492
119,692
293,497
228,832
86,055
101,845
145,848
118,233
275,328
155,119
62,755
78,934
12,368
198
848,783
1,451
2,814
2,398
1,251
1,676
364
744
10,698
3,147
332
3,303
305
365
745
5,050
150,446
121,379
277,726
159,673
64,736
79,663
13,857
151,786
105,416
154,956
82,463
47,122
61,844
131,267
2,099
736,953
81
109
1,241
2,109
184
311
1,854
314
2,724
151,970
105,497
155,017
82,883
47,380
64,168
132,822
199,160
74,200
51,438
6,146
2,168
9,562
12,392
89
355,155
2,477
3,015
5,597
262
138
468
202,414
51,543
9,229
9,700
18
130,898
128,646
133,782
43,299
17,716
26,933
282,695
3,239
767,208
107
119
2,807
2,865
6,015
1,657
129
2,397
131,001
128,793
134,356
47,763
17,845
26,979
285,569
3,314
(618)
(235)
(29)
(46)
25,371
18,285
16,299
3,601
1,019
303
(74)
(619)
(589)
(28)
(1,312)
4,385
1,932
922
387
284
238
6,024
14,172
4,400
240
(84)
(61)
(37)
(53)
(77)
(336)
898,470
564,767
919,453
519,569
216,818
275,133
453,041
6,321
3,853,572
4,035
4,639
9,391
7,460
1,934
5,059
4,850
37,382
3,662
3,712
927
516
5,339
735
2,656
1,068
11,674
907,094
569,778
929,360
532,368
219,487
282,898
458,959
6,396
(98)
(1,321)
(885)
(38)
(495)
(105)
(3,017)
19
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.
The following tables present an aging analysis of our loan and lease portfolio (in thousands):
90 Days
30-59 Days
60-89 Days
or More
Loans Not
Past Due
378
810
1,135,270
526
237
598
1,361
1,010,727
592
800
833
2,225
808,925
390,687
1,769
1,055
1,834
4,658
790,093
964
4,067
56,234
71
133
17,175
4,348
2,629
6,281
13,258
4,209,111
263
641
1,079,763
731
539
1,317
866,361
2,258
826
764
3,848
737,988
523
361,212
1,417
367
1,636
3,420
772,200
1,645
2,118
3,763
61,115
14,051
7,048
1,264
5,338
13,650
3,892,690
The table below presents the amortized cost basis of loans on nonaccrual status and loans past due 90 or more days and still accruing interest at September 30, 2025, and December 31, 2024. Also presented is the balance of loans on nonaccrual status at September 30, 2025, and December 31, 2024, for which there was no related allowance for credit losses recorded (in thousands):
Nonaccrual
Loans Past Due
With No Allowance
Over 90 Days
for Credit Losses
Still Accruing
719
514
1,929
1,409
906
1,965
1,995
752
1,994
1,820
3,311
2,433
52
9,970
1,971
7,709
1,554
162
The following table presents the amortized cost basis of collateral-dependent loans, which are individually evaluated to determine expected credit losses (in thousands):
4,394
2,469
1,270
5,663
3,739
9,402
733
4,636
1,139
2,286
534
6,770
2,820
9,590
Loan Modifications to Borrowers Experiencing Financial Difficulty:
The table below shows the amortized cost of loans and leases made to borrowers experiencing financial difficulty that were modified during the three and nine months ended September 30, 2025, and 2024, respectively. (dollars in thousands):
Payment Delay
Payment
Term
and Term
Delay
Extension
163
21
110
226
336
The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2025, and 2024, respectively. (dollars in thousands):
Weighted-Average
(in months)
118
22
64
The table below shows the amortized cost of loans and leases made to borrowers experiencing financial difficulty that defaulted during the three and nine months ended September 30, 2025, and were modified in the twelve months prior to that default. (dollars in thousands):
Commercial real estate
No loan modifications made to borrowers experiencing financial difficulty in the past twelve months defaulted during the three and nine months ended September 30, 2024.
The table below shows an age analysis of loans and leases made to borrowers experiencing financial difficulty that were modified in the last twelve months, (in thousands):
30-89 Days
Current
299
56
436
543
Foreclosure Proceedings and Balances:
As of September 30, 2025, there was no residential real estate property secured by real estate included in other real estate owned and there was one residential real estate loan in the process of foreclosure.
Note 5. Goodwill and Intangible Assets
In accordance with FASB ASC No. 2021-03, “Goodwill and Other (Topic 350),” 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, or more frequently if conditions warrant it. There were no conditions present to test goodwill at September 30, 2025.
The Company’s other intangible assets consist of core deposit intangibles and customer relationship intangibles. 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 and the leasing company’s client list is amortized over 8 years. During the third quarter of 2025, the Company sold SBKI (see Note 15 – Sale of Insurance Company for more information) and its customer relationship intangibles written off.
The carrying amount of goodwill at September 30, 2025, was $90.4 million and $96.1 million at December 31, 2024. The reduction was from the write-off of goodwill from the sale of SBKI.
Goodwill:
Balance, beginning of period
96,145
Write-off of goodwill from sale of SBKI
Balance, end of the period
90,372
Other intangible assets as of the dates indicated is summarized below (in thousands):
Core Deposit
Customer Relationships
Amortized other intangible assets:
Intangibles
September 30, 2025:
Beginning balance January 1, 2025, gross
17,470
5,670
23,140
Write-off of intangibles from sale of SBKI
(1,472)
Less: accumulated amortization
(12,655)
(3,578)
(16,233)
Balance, September 30, 2025, other intangible assets, net
4,815
620
5,435
December 31, 2024:
Beginning balance January 1, 2024, gross
(11,435)
(3,127)
(14,562)
Balance, December 31, 2024, other intangible assets, net
6,035
2,543
8,578
The aggregate amortization expense for other intangible assets for the three and nine months ended September 30, 2025, was $536 thousand and $1.7 million, respectively, and for the three and nine months ended September 30, 2024, was $604 thousand and $1.8 million, respectively.
As of September 30, 2025, the estimated aggregate amortization expense for future periods for other intangibles is as follows (in thousands):
Remainder of 2025
2026
2027
1,664
2028
936
2029
505
Thereafter
Note 6. Borrowings, Line of Credit and Subordinated Debt
Borrowings:
At September 30, 2025, total borrowings were $1.3 million compared to $8.1 million at December 31, 2024. Borrowings consist of the following (in thousands):
Securities sold under customer repurchase agreements
4,135
Other borrowings
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 $6.1 million and $6.5 million at September 30, 2025, and December 31, 2024, respectively. The average balance of repurchase agreements during the nine-month period ended September 30, 2025, and 2024 was
$3.3 million and $4.8 million, respectively. The maximum month-end outstanding balance for the nine-month period ended September 30, 2025, and 2024 was $4.5 million and $5.8 million, respectively.
Other Borrowings:
The Company has a revolving line of credit for an aggregate amount of $35 million. The maturity of the line of credit is May 1, 2027. At September 30, 2025, and December 31, 2024, $0 and $4.0 million, respectively, was outstanding under the line of credit.
Subordinated Debt:
On August 20, 2025, the Company issued $100 million of 7.25% fixed-to-floating rate subordinated notes (the "2025 Notes"), which were outstanding as of September 30, 2025. Unamortized debt issuance cost was $1.4 million at September 30, 2025.
The 2025 Notes have a stated maturity of September 1, 2035, are redeemable by the Company (i) in whole or in part, on or after September 1, 2030, and (ii) in full, at any time upon the occurrence of certain events. The 2025 Notes will bear interest at a fixed rate of 7.25% per year, from and including August 20, 2025, to, but excluding September 1, 2030, or earlier redemption date. From and including September 1, 2030, to, but excluding the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term secured overnight financing rate (“SOFR”), plus 385 basis points. As provided in the 2025 Notes, the interest rate on the 2025 Notes during the applicable floating rate period may be determined based on a rate other than three-month term SOFR.
The unamortized debt issuance costs for the 2025 Notes totaled $1.4 million at September 30, 2025, and will be amortized through September 1, 2030. Amortization expense totaled $24 thousand for the three and nine months ended September 30, 2025.
On September 28, 2018, the Company issued $40 million of 5.625% fixed-to-floating rate subordinated notes (the "2018 Notes"), which were outstanding as of September 30, 2025 and December 31, 2024. Unamortized debt issuance cost was $0 and $316 thousand at September 30, 2025 and December 31, 2024, respectively. The unamortized debt issuance cost was written off as of September 30, 2025, and subsequently the 2018 Notes were retired on October 2, 2025.
Note 7. 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 and nine month periods ending September 30, 2025, was $545 thousand and $1.6 million, respectively. The Company’s contribution to the Plan for the three and nine months ended September 30, 2024, was $504 thousand and $1.5 million, respectively.
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, 2025, the Company had one active equity incentive plan available for future grants, the Omnibus Incentive Plan, which was approved on May 22, 2025, and has 1,682,333 Rights available for future grants or awards.
The Company’s 2015 Stock Incentive Plan expired on March 23, 2025, and has no rights issued or outstanding at September 30, 2025.
Stock Options:
A summary of the status of stock option plans is presented in the following table:
Weighted
Average
Exercisable
Price
Outstanding at December 31, 2024
15.05
Granted
Exercised
(10,148)
Forfeited
Outstanding at September 30, 2025
At September 30, 2025, there are no outstanding stock options.
The Company did not recognize any stock option-based compensation expense during the three and nine months ended September 30, 2025, and 2024, respectively, as all stock options issued are fully vested, and no future compensation cost will be recognized related to nonvested stock-based compensation arrangements granted under the Plan.
Stock options of 5,945 and 10,148 shares were exercised during the three and nine month periods ended September 30, 2025, respectively. Stock options of 1,692 and 6,192 shares were exercised during the three and nine month periods ended September 30, 2024, respectively. The income tax benefit recognized for the exercise of options during the three and nine months ended September 30, 2025, was a benefit of $10 and $14 thousand, and for the three and nine months ended September 30, 2024, was a benefit of $0 and $14 thousand.
The intrinsic value of options exercised during the three and nine months ended September 30, 2025, was $129 thousand and $206 thousand, respectively. The intrinsic value of options exercised during the three and nine months ended September 30, 2024, was $15 thousand and $69 thousand, respectively. No stock options are outstanding or exercisable at September 30, 2025. Cash received from options exercised under all share-based payment arrangements for the nine months ended September 30, 2025, was $154 thousand.
Restricted Stock Awards:
A summary of the activity of the Company’s unvested restricted stock awards for the period ended September 30, 2025, is presented below:
Grant-Date
Fair Value
195,859
23.02
105,075
35.29
Vested
(56,932)
22.37
Forfeited/expired
(3,762)
27.38
28.47
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, 2025, was $404 thousand and $1.6 million, respectively, and was $372 thousand and $1.3 million, during the three and nine months ended September 30, 2024, respectively. As of September 30, 2025, there was $3.5 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 2.35 years. The grant-date fair value of restricted stock awards vested was $1.3 million for the nine months ended September 30, 2025.
Stock Appreciation Rights (“SARs”):
At September 30, 2025, there are no outstanding SARs.
There was no SARs compensation expense for the three and nine months ended September 30, 2025, and $41 thousand and $7 thousand for the three and nine months ended September 30, 2024.
Note 8. 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):
Commitments to extend credit
1,010,392
828,755
Standby letters of credit
14,393
23,246
At September 30, 2025, and December 31, 2024, the allowance for credit losses for these off-balance sheet commitments was $3.2 million and $2.5 million, respectively. The provision expense (credit) related to the allowance for off-balance sheet commitments during the three and nine months ended September 30, 2025, was ($124) thousand and $676 thousand, respectively, and was $302 thousand and ($73) thousand, respectively, during the three and nine months ended September 30, 2024, respectively.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed 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, 2025 and December 31, 2024, 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.
29
Note 9. Fair Value Disclosures
Determination of Fair Value:
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the “Fair Value Measurements and Disclosures” ASC Topic 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
ASC Topic 820 provides a consistent definition of fair value, which focuses on exit price in an orderly transaction between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact business at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy:
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 – Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted 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.
The following methodologies were used by the Company in estimating fair value disclosures for financial instruments measured on a recurring basis:
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 and interest rate swap agreements – The fair value for derivative financial instruments and interest rate swap agreements 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.
Recurring Measurements of Fair Value:
The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis (in thousands):
Quoted Prices in
Significant
Active Markets
for Identical
Observable
Unobservable
Assets
Inputs
Description
(Level 1)
(Level 2)
(Level 3)
Assets:
Securities available-for-sale:
Total securities available-for-sale
Derivative financial instruments and interest rate swap agreements
13,296
Total assets at fair value
524,391
Liabilities:
13,633
12,135
494,463
13,198
During the nine months ending September 30, 2025, and twelve months ended December 31, 2024, there were no transfers between Level 1 and Level 2 or into or out of Level 3 in the fair value hierarchy.
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):
Collateral-dependent loans
1,840
1,813
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):
Valuation
Significant Other
Average of
Technique
Unobservable Input
Input
Appraisal
Appraisal discounts
70
%
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. Collateral-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. The amount of valuation allowance on all collateral-dependent loans was $4.4 million as of September 30, 2025, and $3.9 million at December 31, 2024.
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
32
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
Carrying
Estimated
Level 1
Level 2
Level 3
Cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity
N/A
Loans and leases, net and loans held for sale
4,193,150
4,129,313
Noninterest-bearing demand deposits
Interest-bearing demand deposits
Money market and savings deposits
973,984
137,666
3,874,913
3,768,452
844,694
38,043
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.
Note 10.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 certain fixed rate securities designated as available-for-sale. The hedging strategy converts the fixed interest rates to SOFR-based variable interest rates. These derivatives are designated as partial term hedges covering specified periods of time prior to the maturity date of the hedged securities. The Company adopted ASU 2017-12, “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities” in 2018, 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):
Balance
Remaining
Sheet
Maturity
Receive
Notional
Asset/Liability derivatives
Location
(In Years)
Pay Rate
Rate
Interest rate swap agreements - securities
0.95
4.31
SOFR
51,507
(373)
1.70
(224)
The effects of the Company’s fair value hedge relationships reported in interest income on taxable securities on the consolidated income statement were as follows (in thousands):
Interest income on taxable securities
4,872
5,091
14,492
14,710
Effects of fair value hedge relationships
142
391
Reported interest income on taxable securities
Gain (loss) on fair value hedging relationship
Interest rate swap agreements - securities:
Hedged items
(1,069)
148
(955)
Derivative designated as hedging instruments
1,069
(148)
Carry amount of hedged assets - mortgage-backed securities
49,328
48,886
Derivatives Designated as Cash Flow Hedges:
The Company enters into interest rate derivative contracts on assets and liabilities that are designated as qualifying cash flow hedges. The Company hedges the exposure to variability in expected future cash flows attributable to changes in contractual specified interest rates. To qualify for hedge accounting, a formal assessment is prepared to determine whether
the hedging relationship, both at inception and on an ongoing basis, is expected to be highly effective in offsetting cash flows attributable to the hedged risk. At inception, a statistical regression analysis is prepared to determine hedge effectiveness. At each reporting period thereafter, a statistical regression or qualitative analysis is performed. If it is determined that hedge effectiveness has not been or will not continue to be highly effective, then hedge accounting ceases and any gain or loss in accumulated other comprehensive income (“AOCI”) is recognized in earnings immediately. The cash flow hedges are recorded at fair value in other assets and liabilities on the consolidated balance sheets with changes in fair value recorded in AOCI, net of tax, see – Consolidated Statements of Comprehensive Income (Loss). Amounts recorded to AOCI are reclassified into earnings in the same period in which the hedged asset or liability affects earnings and are presented in the same income statement line item as the earnings effect of the hedged asset or liability, as future interest payments are made on the underlying assets. At September 30, 2025, the Company estimates that there will not be any reclassifications into interest income or interest expense over the next 12 months.
At September 30, 2025 and December 31, 2024, cash flow hedges are as follows (in thousands):
Balance Sheet
Cash flow hedges:
100,000
(559)
Liabilities
150,000
(280)
The following table presents the effect of fair value and cash flow hedge accounting on AOCI (in thousands):
Derivatives in cash flow hedging relationships:
Amount of Gain (Loss) Recognized on OCI on Derivative
Location of Gain or (Loss) Recognized from AOCI into Income
Amount of Gain or (Loss) Reclassified from AOCI into Income
Interest rate swaps - Assets
Interest income
Interest rate swaps - Liabilities
Interest expense
1,177
(943)
595
(2)
280
(237)
532
(610)
724
The following table presents the effect of fair value and cash flow hedge accounting on the income statement (in thousands):
64,159
210,350
185,633
Effects of cash flow hedge relationships
Reported total interest income
29,151
89,100
86,180
(227)
(724)
Reported total interest expense
Non-hedged derivatives:
The Company provides 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 are recognized as other noninterest income in the current period.
At September 30, 2025, and December 31, 2024, interest rate swaps related to the Company’s loan hedging program that were outstanding are presented in the following table (in thousands):
Interest rate swap agreements:
511,076
13,261
393,268
(13,261)
(12,135)
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):
Interest rate swap agreements
254
1,103
1,252
1,378
Collateral requirements:
These derivative rate contracts have collateral requirements, both at inception of the trade and as the value of each derivative position changes. At September 30, 2025, and December 31, 2024, collateral totaling $150 thousand was pledged to the derivative counterparties to comply with collateral requirements.
Note 11. 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. The Company follows the guidance of ASU Topic 842.
Substantially all the leases in which the Company is the lessee are comprised of real estate for branches and office space and all of our leases are classified as 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.
The lease agreements have maturity dates ranging from October 2025 to May 2044, some of which include options for multiple five-year extensions. The weighted average remaining life of the lease term and weighted average discount rate for these leases was 9.85 years and 3.58% at September 30, 2025, and 10.41 years 3.53% at December 31, 2024.
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):
Operating lease right-of-use assets
11,547
11,951
Operating lease liabilities
12,128
12,472
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 of 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.
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):
Lease costs:
Operating lease costs
500
1,448
Variable lease costs
66
Sublease income
(49)
Net lease cost
481
494
1,400
975
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
547
439
1,384
860
Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2025, were as follows (in thousands):
Amounts
474
1,802
1,545
1,499
8,041
Total future minimum lease payments
14,809
Amounts representing interest
(2,681)
Present value of net future minimum lease payments
Note 12. 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 Basel III 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 (“CET1”), 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, 2025, the Company and the Bank exceeded the minimum regulatory requirements and exceeded the threshold for the “well capitalized” regulatory classification.
In December 2018, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation (“FDIC”) issued a final rule revising regulatory capital rules in anticipation of the adoption of ASU 2016-13, Financial Instruments—Credit Losses Measurement of Credit Losses on Financial Instruments (Topic 326), that provided an option to phase in over a three-year period on a straight line basis the day-one impact of the adoption on earnings and tier one capital. The Company adopted ASU 2016-13 on January 1, 2023, and has chosen the three-year phase in option.
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 nine months ended September 30, 2025, the Bank paid $8.0 million in dividends to the Company, and the Company has paid a quarterly common stock dividend of $0.08 per share. In addition, the Company made a $45 million contribution to the Bank from the proceeds received in the issuance of subordinated debt during the third quarter of 2025. 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, 2025, and December 31, 2024 are presented below (dollars in thousands):
Minimum to be
well
capitalized under
Minimum for
prompt
capital
corrective action
Actual
adequacy purposes
provisions1
Ratio
SmartFinancial:
Total Capital (to Risk Weighted Assets)
614,298
13.31
369,144
8.00
Tier 1 Capital (to Risk Weighted Assets)
454,671
9.85
276,858
6.00
Common Equity Tier 1 Capital (to Risk Weighted Assets)
207,644
4.50
Tier 1 Capital (to Average Assets)2
8.21
221,619
4.00
SmartBank:
567,837
12.37
367,372
459,215
10.00
530,814
11.56
275,529
206,647
298,490
6.50
9.59
221,414
276,767
5.00
470,635
11.10
339,044
413,616
9.76
254,283
190,712
Tier 1 Capital (to Average Assets)
8.29
199,585
478,368
11.30
338,774
423,467
445,159
10.51
254,080
190,560
275,253
8.94
199,214
249,017
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.
Note 13. Other Comprehensive Income (Loss)
The changes in each component of accumulated other comprehensive income (loss), presented net of tax, were as follows (in thousands):
Available-for-
Transferred to
Cash Flow
Sale
Held-to-Maturity
Hedges
Beginning balance, June 30, 2025
(16,524)
(292)
Other comprehensive income (loss)
3,708
3,724
Amounts reclassified from other comprehensive income
2,752
2,769
Net other comprehensive income (loss) during period
6,460
Ending balance, September 30, 2025
(10,064)
(469)
Beginning balance, June 30, 2024
(24,640)
(582)
85
(661)
9,043
(689)
190
8,544
(104)
(95)
Ending balance, September 30, 2024
(15,597)
(557)
(708)
(487)
Beginning balance, December 31, 2024
(22,350)
(534)
(166)
(621)
9,531
472
9,898
2,755
65
177
2,992
12,286
Beginning balance, December 31, 2023
(23,818)
(632)
(397)
(1,060)
8,221
657
8,856
75
(298)
Note 14. Segment Information
The Company, through the Bank, provides a broad range of financial services to individuals and companies through its offices in East and Middle Tennessee, Alabama and Florida. These services include, but are not limited to, primary deposit products are interest-bearing demand deposits, savings and money market deposits, and time deposits. Its primary lending products are commercial, residential, and consumer loans. The Company’s operations are managed, and financial performance is evaluated on an organization-wide basis. Accordingly, the Company’s banking and finance operations are not considered by management to constitute more than one reportable operating segment. This single segment is the General Banking Unit.
The Company’s chief operating decision maker (“CODM”) is the Executive Committee. The CODM includes the senior executive management team including the Chief Executive Officer, Chief Financial Officer, Chief Credit Officer, Chief Accounting Officer, Chief People Officer, Chief Risk Officer, and Chief Banking Officer.
The CODM assesses the performance of the General Banking Unit using a variety of figures, metrics and key performance indicators. However, the CODM primarily utilizes net income and net interest income to make business decisions. The CODM monitors these profitability measures at each meeting, and is regularly featured in various investor presentations, earnings releases, and other internal management reports. These performance and profitability measures influence business decisions and the allocation of resources within the General Banking Unit.
The table below provides information about the General Banking Unit. The most significant expenses to the General Banking Unit are deposit and other borrowing interest expense as well as employee compensation (in thousands):
Banking Segment
Three Months Ended September 30,
Loss on sale of securities
Gain on sale of SBKI
41
Note 15. Sale of Insurance Company
On September 5, 2025, SmartBank, a wholly-owned subsidiary of the Company, sold 100% of the equity interests of SBKI and ceased to provide insurance-related activities for the Company. The sales price totaled $11.5 million and resulted in an after-tax gain, net of transaction cost, of approximately $2.9 million.,
Gross purchase price pursuant to purchase agreement
11,500
Write-off of goodwill and intangibles
(7,245)
Working capital adjustment settled at closing
Net purchase price
4,288
Transaction cost
(333)
Based on management’s review of ASC 205-20-45, the sale of SBKI was determined not to have met all the necessary criteria to be considered discontinued operations at, or prior to, the time of the sale.
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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 time deposits. 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 Quarterly Report on Form 10-Q (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 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:
44
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.
Critical Accounting Estimates
Our Consolidated Financial Statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and follow general practices within the industries in which we operate. The most significant accounting policies we follow are presented in Note 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the Consolidated Financial Statements. These factors include among other things, whether the policy requires management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. The accounting policies which we believe to be most critical in preparing our Consolidated Financial Statements are presented in the section titled “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. There have been no other significant changes in the Company’s application of critical accounting policies since December 31, 2024.
Executive Summary
The following is a summary of the Company’s financial highlights and significant events during the third quarter and first nine months of 2025:
Selected Financial Information
The following is a summary of certain financial information for the three and nine month periods ended September 30, 2025 and 2024 and as of September 30, 2025, and December 31, 2024 (dollars in thousands, except per share data):
Change
Income Statement:
10,562
25,325
3,164
3,881
7,398
21,444
(2,348)
600
9,746
20,844
Noninterest income
(502)
1,011
Noninterest expense
3,023
10,137
Income before income taxes
6,221
11,718
1,675
1,574
4,546
Per Share Data:
Basic income per common share
0.27
0.61
Diluted income per common share
0.26
0.60
Performance Ratios:
Return on average assets
0.96
0.74
0.22
0.90
0.72
0.17
Return on average shareholders' equity
10.33
7.60
2.74
9.57
7.55
2.02
Balance Sheet:
314,378
364,414
Analysis of Results of Operations
Third quarter of 2025 compared to 2024
Net income was $13.7 million, or $0.81 per diluted common share, for the third quarter of 2025, compared to $9.1 million, or $0.54 per diluted common share, for the third quarter of 2024. For the three months ended September 30, 2025, when compared to the comparable period in 2024, the increase in net income of $4.5 million was due to an increase in net interest income after provision for loan and lease losses of $9.7 million, offset by a decrease in noninterest income of $502 thousand, an increase in noninterest expense of $3.0 million and an increase in income tax expense of $1.7 million. The tax equivalent net interest margin was 3.25% for the third quarter of 2025, compared to 3.11% for the third quarter of 2024. Noninterest income to average assets was 0.61% for the third quarter of 2025, decreasing from 0.74% for the third quarter of 2024. Noninterest expense to average assets decreased to 2.38% in the third quarter of 2025, from 2.50% in the third quarter of 2024.
First nine months of 2025 compared to 2024
Net income totaled $36.6 million, or $2.17 per diluted common share, for the nine months ended September 30, 2025, compared to $26.5 million, or $1.57 per diluted common share, for the nine months ended September 30, 2024. The increase in net income of $10.1 million for this period was primarily from the increases in net interest income after provision for loan and lease losses of $20.8 million and noninterest income of $1.0 million, offset by an increase of $10.1 million in noninterest expense and $1.6 million in income tax expense. The tax equivalent net interest margin was 3.25% for the first nine months of 2025, compared to 2.97% for the first nine months of 2024. Noninterest income to average
assets was 0.64% for the first nine months of 2025, compared to 0.69% for the first nine months of 2024. Noninterest expense to average assets increased to 2.43% in the first nine months of 2025, from 2.42% in the first nine months of 2024.
Net Interest Income and Yield Analysis
Net interest income, taxable equivalent, increased to $42.8 million for the third quarter of 2025, up from $35.4 million for the third quarter of 2024. Net interest income increased due to higher loan and lease balances, higher yields on these assets, and lower cost of interest-bearing liabilities. Average interest-earning assets increased from $4.53 billion for the third quarter of 2024, to $5.23 billion for the third quarter of 2025, primarily from the increase in our average loan and lease balances and average cash balances, which was offset by decreases in average securities balances. Over this period, average loan and lease balances increased by $536.6 million and average interest-bearing deposits increased by $658.4 million. Average federal funds sold and other interest earning assets increased by $161.0 million, average securities decreased by $1.8 million, average borrowings decreased by $49.2 million, average subordinated debt increased by $44.3 million and noninterest-bearing deposits increased by $15.1 million. The tax equivalent net interest margin increased to 3.25% for the third quarter of 2025, compared to 3.11% for the third quarter of 2024. The yield on earning assets increased from 5.65% for the third quarter of 2024, to 5.68% for the third quarter of 2025, primarily due the deployment of excess cash and cash equivalents into loans and leases. The cost of average interest-bearing deposits decreased from 3.20% for the third quarter of 2024, to 2.98% for the third quarter of 2025, primarily due to the decrease in rates by the Federal Reserve.
The following tables summarizes the major components of net interest income and the related yields and costs for the periods presented (dollars in thousands):
Yield/
Interest
Loans and leases, including fees1
4,171,444
64,526
6.14
3,634,808
54,993
6.02
Taxable securities
556,894
3.47
564,978
3.68
Tax-exempt securities2
69,843
558
3.17
63,561
443
2.77
428,209
4.56
267,252
3,634
5.41
Total interest-earning assets
5,226,390
74,879
5.68
4,530,599
64,303
5.65
Noninterest-earning assets
408,560
381,306
5,634,950
4,911,905
Liabilities and Shareholders' Equity:
869,690
4,048
1.85
925,307
5,289
2.27
2,186,245
16,693
3.03
1,917,301
16,608
3.45
1,005,800
9,723
3.84
560,699
5,453
3.87
Total interest-bearing deposits
4,061,735
2.98
3,403,307
3.20
4,351
1.28
53,592
5.26
85,113
7.50
40,846
8.42
Total interest-bearing liabilities
4,151,199
3.07
3,497,745
3.29
Noninterest-bearing deposits
900,079
884,938
57,843
50,580
5,109,121
4,433,263
Shareholders' equity
525,829
478,642
Total liabilities and shareholders’ equity
Net interest income, taxable equivalent
42,791
35,379
Interest rate spread
2.62
2.36
Tax equivalent net interest margin
3.25
3.11
Percentage of average interest-earning assets to average interest-bearing liabilities
125.90
129.53
Percentage of average equity to average assets
9.33
9.74
1Yields related to tax-exempt loans 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 $244 thousand and $255 thousand for the three months ended September 30, 2025, and 2024, 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 $117 thousand and $93 thousand for the three months ended September 30, 2025, and 2024, respectively.
Net interest income, taxable equivalent, increased to $122.1 million for the first nine months of 2025, up from $100.4 million for the first nine months of 2024. 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 and the decrease in the cost of interest-bearing liabilities. Average interest-earning assets increased from $4.51 billion for the first nine months of 2024 to $5.02 billion for the first nine months of 2025, primarily because of the Company’s continued organic loan and lease growth and average cash balances, offset by decreases in our average securities balances. Over this period, average loan and lease balances increased by $522.5 million and average interest-bearing deposits increased by $481.1 million. Comparing the first nine months of 2025 to the first nine months of 2024, average federal funds sold and other interest earning assets increased by $15.0 million, average securities decreased by $27.6 million, average borrowings decreased by $19.2 million, average subordinated debt increased by $13.3 million and noninterest-bearing deposits increased by $12.1 million The tax equivalent net interest margin increased to 3.25% for the first nine months of 2025, compared to 2.97% for the first nine months of 2024. The yield on earning assets increased from 5.51% for the first nine months of 2024, to 5.63% for the first nine months of 2025, primarily due to the deployment of excess cash and cash equivalents into loans and leases. The cost of average interest-bearing deposits decreased from 3.19% for the first nine months of 2024 to 2.95% for the first nine months of 2025, primarily due to the decrease in rates by the Federal Reserve.
Loans and leases, including fees1,2
4,055,251
183,829
6.06
3,532,768
156,123
5.90
Taxable Securities
558,493
588,679
3.43
Tax-exempt securities3
66,408
1,506
63,804
1,336
2.80
Federal funds and other earning assets
337,385
11,566
4.58
322,339
5.49
5,017,537
211,400
5.63
4,507,590
185,815
5.51
406,751
381,743
5,424,288
4,889,333
850,720
11,577
1.82
968,139
17,299
2.39
2,118,652
47,518
3.00
1,910,452
49,285
934,255
27,005
3.86
543,887
15,240
3.74
3,903,627
2.95
3,422,478
3.19
3.06
25,941
5.07
55,006
7.49
41,691
8.48
3,965,402
3.01
3,490,110
3.27
894,254
882,168
52,905
48,299
4,912,561
4,420,577
511,727
468,756
122,063
100,359
2.24
2.97
126.53
129.15
9.43
1Yields related to tax-exempt loans 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 $735 thousand and $512 thousand for the nine months ended September 30, 2025, and 2024, 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 $316 thousand and $280 thousand for the nine months ended September 30, 2025, and 2024, respectively.
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Noninterest Income
The following table summarizes noninterest income by category (in thousands):
249
797
(191)
(428)
151
(11)
(45)
(462)
(713)
Noninterest income decreased by $502 thousand during the third quarter of 2025 compared to the same period in 2024. This quarterly change in total noninterest income primarily resulted from the following:
Noninterest income increased by $1.0 million during the first nine months of 2025 compared to the same period in 2024. This change in total noninterest income primarily resulted from the following:
Noninterest Expense
The following table summarizes noninterest expense by category (in thousands):
1,096
6,032
412
Other real estate and loan-related expense
509
801
127
302
(78)
(153)
(193)
358
49
Noninterest expense increased by $3.0 million in the third quarter of 2025 as compared to the same period in 2024. The quarterly increase in total noninterest expense primarily resulted from the following:
Noninterest expense increased by $10.1 million in the first nine months of 2025 as compared to the same period in 2024. The change in total noninterest expense primarily resulted from the following:
Taxes
In the third quarter of 2025 income tax expense totaled $3.3 million as compared to $1.6 million in same period of 2024. The effective tax rate was approximately 19.4% in the third quarter of 2025 compared to 15.0% in the third quarter of 2024. The increase is primarily related to the increase in taxable income between these periods and the establishment of the Bank’s Real Estate Investment Trust in the third quarter of 2024.
In the first nine months of 2025 income tax expense totaled $8.1 million compared to $6.6 million in the first nine months of 2024. The effective tax rate was approximately 18.2% for first nine months of 2025 compared to 19.9% for the nine months ended 2024. The decrease is primarily related to a full year’s benefit from the Bank’s Real Estate Investment Trust.
Loan and Lease Portfolio
The Company had total net loans and leases outstanding of approximately $4.18 billion at September 30, 2025, compared to $3.87 billion at December 31, 2024. Loans secured by real estate, consisting of commercial and residential property, are the principal component of our loan and lease portfolio.
The following table summarizes the composition of our loan and lease portfolio for the periods presented (dollars in thousands):
% of
26.9
27.5
24.0
22.2
19.2
19.0
9.3
18.8
19.9
1.4
1.7
0.4
100.0
Loan and Lease Portfolio Maturities
The following table sets forth the maturity distribution of our loans and leases at September 30, 2025, including the interest rate sensitivity for loans and leases maturing after one year (in thousands):
Rate Structure for Loans and Leases
Maturing Over One Year
One Year
One through
Five through
Over Fifteen
Fixed
Floating
or Less
Five Years
Fifteen Years
Years
130,579
778,890
203,241
23,370
498,148
507,353
71,431
588,710
331,493
20,454
472,186
468,471
Consumer real estate-mortgage
54,386
258,966
96,647
401,151
264,409
492,355
118,208
175,090
38,630
58,763
50,205
222,278
293,292
407,822
70,881
22,756
328,424
173,035
2,580
57,721
11,762
5,245
272
4,916
630
682,238
2,272,444
741,164
526,523
1,676,009
1,864,122
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 0.24% as of September 30, 2025, and 0.20% December 31, 2024. Total nonperforming assets, as a percentage of total assets, was 0.22% at September 30, 2025, and 0.19% at December 31, 2024.
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, excluding nonaccrual loans for the periods presented (dollars in thousands):
Accruing Loans
90 Days or More
Total Accruing
Past Due Loans
Percentage of
Loans in
Category
0.04
567
0.06
694
0.09
0.00
2,799
0.35
0.02
2,928
0.37
1,052
1.74
0.47
5,629
0.13
5,758
0.14
0.03
411
0.05
2,748
1,745
1,889
0.24
1,453
0.83
7,376
0.19
7,538
The following table is a summary of our nonaccrual loans and leases for the periods presented (dollars in thousands):
Nonaccrual Loans
0.10
0.01
0.25
0.23
3.75
0.30
0.20
Allowance for credit losses to nonaccrual loans
391.92%
485.45%
Allocation of the Allowance for Credit Losses
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 nine months ended September 30, 2025, was $2.9 million compared to $3.1 million in the same period of 2024, a decrease of $149 thousand. As of September 30, 2025, and December 31, 2024, our allowance for credit losses was $39.1 million and $37.4 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 0.93% at September 30, 2025, and 0.96% at December 31, 2024.
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):
Percentage of Loans
Ratio of Allowance
Amount of
in Each Category
Allocated to Loans in
Allowance Allocated
to Total Loans
Each Category
0.64
0.88
1.06
1.05
1.10
2.20
0.93
0.65
1.13
1.15
1.42
The allowance associated with the individually evaluated loans and leases was approximately $4.4 million at September 30, 2025, and $3.9 million at December 31, 2024.
Analysis of the Allowance for Credit Losses
The following is a summary of changes in the allowance for credit losses for the periods presented including the ratio of the allowance for credit losses to total loans and leases as of the end of each period (dollars in thousands):
Ratio of Net (charge-offs)
Provision for
Net (charge-offs)
Recoveries to
Credit Losses
Recoveries
Average Loans
1,138,519
965,716
811,061
385,154
(905)
791,769
(0.11)
63,222
(0.13)
(106)
16,003
(0.66)
(1,053)
(0.03)
993,803
846,573
681,852
321,734
(390)
707,005
(0.06)
(916)
70,201
(1.30)
13,640
(0.36)
(0.04)
1,106,807
938,816
788,469
374,425
(902)
769,715
(0.12)
(429)
61,461
(0.70)
(204)
15,558
(1.31)
(1,291)
969,906
820,674
665,288
305,554
(0.14)
(717)
689,208
(0.10)
(1,238)
68,646
(1.80)
(190)
13,492
(1.41)
(2,548)
(0.07)
Securities Portfolio
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 increased from $609.0 million at December 31, 2024, to $634.5 million at September 30, 2025, primarily as a result of available-for-sale securities purchases and positive adjustments in market value of available-for-sale securities. Our securities to asset ratio has decreased from 11.5% at December 31, 2024, to 11.0% at September 30, 2025.
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, 2025 (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.
Over Ten
Ten Years
Yield (1)
U.S. Government agencies
3.70
19,428
5.09
State and political subdivisions
3.80
3,853
5,538
3.60
5.08
6,700
7.11
19,238
5.21
5.70
28,605
4.24
74,516
4.37
309,933
4.21
Total securities
70,999
3.12
118,720
4.59
334,380
4.27
4.19
40,133
1.86
1.33
14,238
2.28
2.14
4,703
20,614
2.13
1.38
59,074
1.87
56,497
2.22
2.03
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, Individual Retirement Accounts and certificates of deposit.. 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, 2025, brokered deposits represented approximately 3.26% of total deposits.
The following tables summarize the average balances outstanding and average interest rates for each major category of deposits for the three and nine month periods ending September 30, 2025, and 2024, respectively (dollars in thousands):
September 30, 2024
18.1
20.6
17.5
21.6
44.1
44.7
20.3
13.1
Total average deposits
4,961,814
2.44
4,288,245
2.54
18.6
20.5
17.7
22.5
44.2
44.4
19.5
12.6
4,797,881
2.40
4,304,646
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 September 30, 2025, and 2024, was 2.98% and 3.20%, respectively. The cost decrease was primarily attributable to the rate decreases by the Federal Reserve. The average cost of interest-bearing deposits for the nine months ended September 30, 2025, and 2024, was 2.95% and 3.19%, respectively. The cost decrease was primarily attributable to rate decreases by the Federal Reserve.
Total deposits as of September 30, 2025, were $5.05 billion, which was an increase of $364.4 million from December 31, 2024. This overall increase was driven primarily by increases in money market deposits of $178.8 million, other time deposits of $174.4 million, and interest-bearing demand deposits of $92.7 million, offset by a decline in brokered deposits of $47.4 million and noninterest demand deposits of $34.1 million. As of September 30, 2025, the Company had outstanding time deposits under $250,000 with balances of $536.0 million and time deposits over $250,000 with balances of $435.7 million.
The following table summarizes the maturities of time deposits $250,000 or more (in thousands).
Three months or less
85,750
Three to six months
184,585
Six to twelve months
131,954
More than twelve months
33,363
435,652
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 $1.3 million at September 30, 2025, and consisted entirely of securities sold under repurchase agreements. Long-term debt totaled $138.6 million at September 30, 2025, and $39.7 million at December 31, 2024, respectively, and consisted entirely of subordinated debt. During the third quarter of 2025 the Company issued new subordinated debt of $98.9 million, net of issuance cost, and on October 2, 2025, the Company retired $40 million of existing 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” of this report.
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, 2025 and December 31, 2024, 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 12 – Regulatory Matters” of this report.
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, 2025, we had $1.01 billion of pre-approved but unused lines of credit and $14.4 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” of this report.
Market Risk and Liquidity Risk Management
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.
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. To limit interest rate risk, we have guidelines for our earnings at risk which seek to limit the variance of net interest income in instantaneous changes to interest rates. We also periodically monitor simulations based on various rate scenarios such as non-parallel shifts or 12-month ramp in market interest rates over time. For changes up or down in rates from our static interest rate forecast over the next 12 months, limits in the decline in net interest income are as follows:
Estimated % Change in Net Interest Income Over 12 Months
Instantaneous, Parallel Change in Prevailing Interest Rates Equal to:
100 basis points increase
0.08%
200 basis points increase
(0.01)%
100 basis points decrease
(1.46)%
200 basis points decrease
(0.72)%
12-month RAMP, Parallel Change in Prevailing Interest Rates Equal to:
0.31%
0.49%
(0.52)%
(1.04)%
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:
Current Estimated Instantaneous Rate Change
(0.69)%
(2.06)%
2.16%
2.51%
At September 30, 2025, 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.
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 securities 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 $565 thousand in securities that mature throughout the next 12 months. The Company also has unused borrowing capacity in the amount of $1.16 billion 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.
58
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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 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 September 30, 2025 (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, 2025, that have materially affected, or are reasonably likely to materially affect, SmartFinancial’s internal control over financial reporting.
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, 2024. 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.
There are no material changes during the period covered by this report to the risk factors previously disclosed in our Form 10-K for the year ended December 31, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On November 20, 2018, the Company announced that its board of directors had 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, 2025, we have purchased $8.5 million of the authorized $10.0 million and may purchase up to an additional $1.5 million in the Company’s outstanding common stock.
The following table summarizes the Company’s repurchase activity during the three months ended September 30, 2025.
Maximum
Number (or
Approximate
Dollar Value) of
Shares That May
Total Number of Shares
Yet Be Purchased
Total Number of
Purchased as Part of
Under the Plans
Average Price Paid
Publicly Announced
or Programs (in
Period
Repurchased
Per Share
Plans or Programs
thousands)
July 1, 2025 to July 31, 2025
1,546
August 1, 2025 to August 31, 2025
September 1, 2025 to September 30, 2025
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
Item 6. Exhibits
ExhibitNo.
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
4.1
Indenture, dated as of August 20, 2025, by and between SmartFinancial, Inc. and U.S. Bank Trust Company, National Association, as trustee.
Incorporated by reference to Exhibit 4.1 to Form 8-K filed August 20, 2025.
4.2
Form 7.25% Fixed-to-Floating Subordinated Note due 2035 (including as Exhibit A-1 and Exhibit A-2 to the Indenture filed as Exhibit 4.1 hereto).
Incorporated by reference to Exhibit 4.2 to Form 8-K filed August 20, 2025.
10.1
Form of Subordinated Note Purchase Agreement, dated as of August 20, 2025, by and among SmartFinancial, Inc. and the Purchasers
Incorporated by reference to Exhibit 10.1 to Form 8 K filed August 20, 2025.
10.2
Form of Registration Rights Agreement, dated as of August 20, 2025, by and among SmartFinancial, Inc. and the Purchasers.
Incorporated by reference to Exhibit 10.2 to Form 8 K filed August 20, 2025.
31.1
Certification pursuant to Rule 13a -14(a)/15d-14(a)
Filed herewith.
31.2
32.1
Certification pursuant to 18 USC Section 1350 -Sarbanes-Oxley Act of 2002
Furnished herewith.
32.2
Interactive Data Files (formatted as Inline XBRL)
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.
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 7, 2025
/s/ William Y. Carroll, Jr.
William Y. Carroll, Jr.
President and Chief Executive Officer
(principal executive officer)
/s/ Ronald J. Gorczynski
Ronald J. Gorczynski
Executive Vice President and Chief Financial Officer
(principal financial officer and accounting officer)