SMARTFINANCIAL INC

Previous wording

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

Current wording

The following is a summary of the Company’s financial highlights and significant events during the first quarter of 2025:

Previous wording

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

Current wording

The following is a summary of certain financial information for the three-month periods ended March 31, 2025, and 2024 and as of March 31, 2025, and December 31, 2024*(dollars in thousands, except per share data)*:

Previous wording

Net income was $9.1 million, or $0.54 per diluted common share, for the third quarter of 2024, compared to $2.1 million, or $0.12 per diluted common share, for the third quarter of 2023. For the three months ended September 30, 2024, when compared to the comparable period in 2023, the increase in net income of $7.1 million was due to an increase in noninterest income of $8.4 million and net interest income after provision for loan and lease losses of $2.2 million, offset by an increase in noninterest expense of $2.3 million and income tax expense of $1.3 million. The increase in noninterest income was associated with a $6.8 million pre-tax loss on the sale of available-for-sale securities, as a result of a balance sheet optimization transaction in September 2023. The tax equivalent net interest margin was 3.11% for the third quarter of 2024, compared to 2.81% for the third quarter of 2023. Noninterest income to average assets was 0.74% for the third quarter of 2024, increasing from 0.06% for the third quarter of 2023. Noninterest expense to average assets increased to 2.50% in the third quarter of 2024, from 2.37% in the third quarter of 2023.

Current wording

Net income was $11.3 million, or $0.67 per diluted common share, for the first quarter of 2025, compared to $9.4 million, or $0.55 per diluted common share, for the first quarter of 2024. For the three months ended March 31, 2025, when compared to the comparable period in 2024, the increase in net income of $1.9 million was due to an increase in net interest income after provision for loan and lease losses of $5.1 million and noninterest income of $217 thousand, offset by an increase in noninterest expense of $3.7 million and a decrease in income tax expense of $324 thousand. The tax equivalent net interest margin was 3.21% for the first quarter of 2025, compared to 2.85% for the first quarter of 2024. Noninterest income to average assets was 0.66% for the first quarter of 2025, decreasing from 0.69% for the first quarter of 2024. Noninterest expense to average assets increased to 2.48% in the first quarter of 2025, from 2.35% in the first quarter of 2024.

Previous wording

Net interest income, taxable equivalent, increased to $35.4 million for the third quarter of 2024, up from $31.1 million for the third quarter of 2023. Net interest income was positively impacted by the increase in balances of loans and leases and the increase in yield/rate on these interest-earning assets, offset by the increase in the cost of interest-bearing liabilities. Average interest-earning assets increased from $4.40 billion for the third quarter of 2023, to $4.53 billion for the third quarter of 2024, primarily from the increase in our average loan and lease balances and average cash balances, which was offset by decreases in average securities. Over this period, average loan and lease balances increased by $274.1 million, average federal funds sold and other interest-earning assets increased by $37.8 million, average interest-bearing deposits increased by $129.3 million, and average borrowing increased by $37.4 million. Average securities decreased by $179.2 million and noninterest-bearing deposits decreased by $66.2 million. The tax equivalent net interest margin increased to 3.11% for the third quarter of 2024, compared to 2.81% for the third quarter of 2023. The yield on earning assets increased from 4.99% for the third quarter of 2023, to 5.65% for the third quarter of 2024, primarily due to the deployment of excess cash and cash equivalents into loans and leases and the increase in rates by the Federal Reserve. The cost of average interest-bearing deposits increased from 2.84% for the third quarter of 2023, to 3.20% for the third quarter of 2024, primarily due to the increase in rates by the Federal Reserve and increased pricing competition.

Current wording

Net interest income, taxable equivalent, increased to $38.6 million for the first quarter of 2025, up from $31.8 million for the first 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 libailities. Average interest-earning assets increased from $4.50 billion for the first quarter of 2024, to $4.87 billion for the first quarter of 2025, primarily from the increase in our average loan and lease balances, which was offset by decreases in average securities and average cash balances. Over this period, average loan and lease balances increased by $483.2 million and average interest-bearing deposits increased by $349.1 million. Average securities decreased by $66.0 million, average federal funds sold and other interest earning assets decreased by $46.9 million, average borrowings decreased by $3.0 million and noninterest-bearing deposits increased by $11.2 million. The tax equivalent net interest margin increased to 3.21% for the first quarter of 2025, compared to 2.85% for the first quarter of 2024. The yield on earning assets increased from 5.36% for the first quarter of 2024, to 5.56% for the first quarter of

Previous wording

1 Yields 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 $255 thousand for the three months ended September 30, 2024, and $0 thousand for the three months ended September 30, 2023.

Current wording

1 Yields 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 $246 thousand and $0 thousand for the three months ended March 31, 2025, and 2024, respectively.

Previous wording

2 Yields related to investment securities exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 21.0%. The taxable-equivalent adjustment was $93 thousand and $95 thousand for the three months ended September 30, 2024, and 2023, respectively.

Current wording

2 Yields related to investment securities exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 21.0%. The taxable-equivalent adjustment was $94 thousand and $93 thousand for the three months ended March 31, 2025, and 2024, respectively.

Previous wording

Noninterest income increased by $8.4 million during the third quarter of 2024 compared to the same period in 2023. This quarterly change in total noninterest income primarily resulted from the following:

Current wording

Noninterest income increased by $217 thousand during the first quarter of 2025 compared to the same period in 2024. This quarterly change in total noninterest income primarily resulted from the following:

Previous wording

Noninterest expense increased by $2.3 million in the third quarter of 2024 as compared to the same period in 2023. The quarterly increase in total noninterest expense primarily resulted from the following:

Current wording

Noninterest expense increased by $3.7 million in the first quarter of 2025 as compared to the same period in 2024. The quarterly increase in total noninterest expense primarily resulted from the following:

Previous wording

In the third quarter of 2024 income tax expense totaled $1.6 million as compared to $319 thousand in same period of 2023. The effective tax rate was approximately 15.0% in the third quarter of 2024 compared to 13.4% in the second quarter of 2023. During the third quarter of 2024 the Bank established a Real Estate Investment Trust (“REIT”) subsidiary. The REIT subsidiary is expected to result in a lower effective tax rate during future periods by lowering the Bank’s state income tax expense.

Current wording

In the first quarter of 2025 income tax expense totaled $2.3 million compared to $2.6 million in the first quarter of 2024. The effective tax rate was approximately 17.01% in the first quarter of 2025 compared to 21.94% in the first quarter of 2024. The decrease is primarily related to the Banks’s Real Estate Investment Trust.

Previous wording

The Company had total net loans and leases outstanding of approximately $3.68 billion at September 30, 2024, compared to $3.41 billion at December 31, 2023. Loans secured by real estate, consisting of commercial and residential property, are the principal component of our loan and lease portfolio.

Current wording

The Company had total net loans and leases outstanding of approximately $3.95 billion at March 31, 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.

Previous wording

Nonperforming loans and leases, as a percentage of total gross loans and leases, net of deferred fees, was 0.26% as of September 30, 2024, and 0.24% December 31, 2023, respectively. Total nonperforming assets, as a percentage of total assets, was 0.26% as of September 30, 2024, and 0.20% as of December 31, 2023, respectively.

Current wording

Nonperforming loans and leases, as a percentage of total gross loans and leases, net of deferred fees, was 0.20% as of March 31, 2025, and December 31, 2024, respectively. Total nonperforming assets, as a percentage of total assets, was 0.19% as of March 31, 2025, and December 31, 2024, respectively.

Previous wording

We maintain the allowance at a level that we deem appropriate to adequately cover change in the loan and lease portfolio. Our provision for credit losses for loans and leases for the nine months ended September 30, 2024, is $3.1 million compared to $2.3 million in the same period of 2023, an increase of $837 thousand. As of September 30, 2024, and December 31, 2023, our allowance for credit losses was $35.6 million and $35.1 million, respectively, which we deemed to be adequate at each of the respective dates. Our allowance for credit loss as a percentage of total loans and leases was 0.96% at September 30, 2024 and 1.02% at December 31, 2023, respectively.

Current wording

We maintain the allowance at a level that we deem appropriate to adequately cover change in the loan and lease portfolio. Our provision for credit losses for loans and leases for the three months ended March 31, 2025, is $843 thousand compared to ($78) thousand in the same period of 2024, an increase of $921 thousand. As of March 31, 2025, and December 31, 2024, our allowance for credit losses was $38.2 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 0.96% at March 31, 2025, and December 31, 2024.

Previous wording

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

Current wording

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

Previous wording

The allowance associated with the individually evaluated loans and leases were approximately $3.2 million at September 30, 2024, compared to $3.5 million at December 31, 2023.

Current wording

The allowance associated with the individually evaluated loans and leases were approximately $3.8 million at March 31, 2025, compared to $3.9 million at December 31, 2024.

Previous wording

Our available-for-sale securities portfolio is carried at fair market value and our held-to-maturity securities portfolio is carried at amortized cost, and consists primarily of Federal agency bonds, mortgage-backed securities, state and municipal securities and other debt securities. Our securities portfolio decreased from $689.6 million at December 31, 2023, to $629.1 million at September 30, 2024, primarily as a result of Treasury securities maturities. Our securities to asset ratio has decreased from 14.3% at December 31, 2023, to 12.8% at September 30, 2024.

Current wording

Our available-for-sale securities portfolio is carried at fair market value and our held-to-maturity securities portfolio is carried at amortized cost, and consists primarily of Federal agency bonds, mortgage-backed securities, state and municipal securities and other debt securities. Our securities portfolio increased from $609.0 million at December 31, 2024, to $625.0 million at March 31, 2025, primarily as a result of available-for-sale securities purchases Our securities to asset ratio increased from 11.5% at December 31, 2024, to 11.6% at March 31, 2025.

Previous wording

The following table presents the contractual maturity of the Company’s securities by contractual maturity date and average yields based on amortized cost (for all obligations on a fully taxable basis) at September 30, 2024*(dollars in thousands)*.

Current wording

The following table presents the contractual maturity of the Company’s securities by contractual maturity date and average yields based on amortized cost (for all obligations on a fully taxable basis) at March 31, 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.

Previous wording

Deposits are the primary source of funds for the Company’s lending and investing activities. The Company provides a range of deposit services to businesses and individuals, including noninterest-bearing checking accounts, interest-bearing checking accounts, savings accounts, money market accounts, IRAs and CDs. These accounts generally earn interest at rates the Company establishes based on market factors and the anticipated amount and timing of funding needs. The establishment or continuity of a core deposit relationship can be a factor in loan pricing decisions. While the Company’s primary focus is on establishing customer relationships to attract core deposits, at times, the Company uses brokered deposits and other wholesale deposits to supplement its funding sources. As of September 30, 2024, brokered deposits represented approximately 4.55% of total deposits.

Current wording

Deposits are the primary source of funds for the Company’s lending and investing activities. The Company provides a range of deposit services to businesses and individuals, including noninterest-bearing checking accounts, interest-bearing checking accounts, savings accounts, money market accounts, Individual Retirement Accounts and Certificates of Deposits. These accounts generally earn interest at rates the Company establishes based on market factors and the anticipated amount and timing of funding needs. The establishment or continuity of a core deposit relationship can be a factor in loan pricing decisions. While the Company’s primary focus is on establishing customer relationships to attract core deposits, at times, the Company uses brokered deposits and other wholesale deposits to supplement its funding sources. As of March 31, 2025, brokered deposits represented approximately 4.57% of total deposits.

Previous wording

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

Current wording

The following tables summarize the average balances outstanding and average interest rates for each major category of deposits for the three month periods ending March 31, 2025, and 2024, respectively (dollars in thousands):

Previous wording

The Company believes its deposit product offerings are properly structured to attract and retain core deposit relationships. The average cost of interest-bearing deposits for the three months ended September 30, 2024, and 2023, was 3.20% and 2.84%, respectively. The cost increase was primarily attributable to the rate increases. The average cost of interest-bearing deposits for the nine months ended September 30, 2024, and 2023, was 3.19% and 2.45%, respectively. The cost increase was primarily attributable to the increases in rates and increased pricing competition.

Current wording

The Company believes its deposit product offerings are properly structured to attract and retain core deposit relationships. The average cost of interest-bearing deposits for the three months ended March 31, 2025, and 2024, was 2.92% and 3.16%, respectively. The cost decrease was primarily attributable to the rate decreases by the Federal Reserve.

Previous wording

Total deposits as of September 30, 2024, were $4.32 billion, which was an increase of $54.6 million from December 31, 2023. This overall increase was driven primarily by the issuance of brokered deposits of $174.8 million, increase in other time deposits of $44.3 million and savings deposits of $42.4 million, offset by a decline in interest-bearing demand deposits of $172.7 million and noninterest bearing deposits of $34 million. During the quarter, the Bank elected not to pursue a higher cost public funds depository relationship and utilized Federal Home Loan Advances temporarily, which was replaced with brokered deposits. As of September 30, 2024, the Company had outstanding time deposits under $250,000 with balances of $516.9 million and time deposits over $250,000 with balances of $252.7 million.

Current wording

Total deposits as of March 31, 2025, were $4.81 billion, which was an increase of $122.2 million from December 31, 2024. This overall increase was driven primarily by increases in money market deposits of $92.3 million, other time deposits of $54.9 million, interest-bearing demand deposits of $48.3 million and the issuance of additional brokered deposits of $7.9 million, offset by a decline in noninterest demand deposits of $81.3 million. As of March 31, 2025, the Company had outstanding time deposits under $250,000 with balances of $561.8 million and time deposits over $250,000 with balances of $345.7 million.

Previous wording

The Company uses short-term borrowings and long-term debt to provide both funding and, to a lesser extent, regulatory capital using debt at the Company level which can be down-streamed as Tier 1 capital to the Bank. Borrowings totaled $9.0 million at September 30, 2024, and consisted of short-term borrowings of $5.0 million, and $4.0 million of securities sold under repurchase agreements. Long-term debt totaled $39.7 million and $42.1 million at September 30, 2024, and December 31, 2023, respectively, and consisted entirely of subordinated debt. For more information regarding our borrowings, see “Part I - Item 1. Consolidated Financial Statements – Note 6 –Borrowings, Line of Credit and Subordinated Debt” of this report.

Current wording

The Company uses short-term borrowings and long-term debt to provide both funding and, to a lesser extent, regulatory capital using debt at the Company level which can be down-streamed as Tier 1 capital to the Bank. Borrowings totaled $7.6 million at March 31, 2025, and consisted of short-term borrowings of $4.0 million, and $3.6 million of securities sold under repurchase agreements. Long-term debt totaled $39.7 million at March 31, 2025, and December 31, 2024, respectively, and consisted entirely of subordinated debt. For more information regarding our borrowings, see “Part I - Item 1. Consolidated Financial Statements – Note 6 –Borrowings, Line of Credit and Subordinated Debt” of this report.

Previous wording

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.

Current wording

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing and depository needs of its customers. At March 31, 2025, we had $844.5 million of pre-approved but unused lines of credit and $23.6 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.

Previous wording

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 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:

Current wording

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:

Previous wording

The Company has $1.5 million in securities that mature throughout the next 12 months. The Company also has unused borrowing capacity in the amount of $917.7 million available with the Federal Reserve, Federal Home Loan Bank, several correspondent banks and a line of credit. With these sources of funds, the Company currently anticipates adequate liquidity to meet the expected obligations of its customers.

Current wording

The Company has $1.5 million in securities that mature throughout the next 12 months. The Company also has unused borrowing capacity in the amount of $808.4 million available with the Federal Reserve, Federal Home Loan Bank, several correspondent banks and a line of credit. With these sources of funds, the Company currently anticipates adequate liquidity to meet the expected obligations of its customers.