Smith Douglas Homes Corp.

Note 1 -Description of business and summary of significant accounting policies:

Nature of business

Smith Douglas Homes Corp. (the Company) was incorporated in the state of Delaware on June 20, 2023 (Date of Formation) for the purpose of facilitating an initial public offering (IPO) of its common stock and executing other related transactions in order to carry on the business of Smith Douglas Holdings LLC and its consolidated subsidiaries as a publicly-traded entity.

The Company is a builder of single-family homes in communities in certain markets in the southeastern and southern United States. The Company’s homes and communities are primarily targeted to first-time and empty-nest homebuyers. The Company currently operates in metropolitan Atlanta, Birmingham, Central Georgia, Charlotte, Chattanooga, Dallas-Fort Worth, Greenville, Houston, Huntsville, Nashville, Raleigh and the Alabama Gulf Coast. The Company operates a land-light business model whereby the Company typically purchases finished lots via lot-option contracts from various third-party land developers or land bankers. Additionally, the Company offers title insurance and mortgage brokerage services through unconsolidated joint ventures.

Initial Public Offering and Transactions

The Company successfully closed an IPO of 8,846,154 shares of Class A common stock at a public offering price of $21.00 per share on January 16, 2024, which included 1,153,846 shares of Class A common stock issued pursuant to the underwriters’ option to purchase additional shares of Class A common stock. The net proceeds from the IPO aggregated approximately $172.8 million. Shares of Class A common stock began trading on the New York Stock Exchange under the ticker symbol "SDHC" on January 11, 2024.

In connection with the IPO, Smith Douglas Holdings LLC amended and restated its existing limited liability company agreement to, among other things, (i) recapitalize all existing ownership interests in Smith Douglas Holdings LLC into 44,871,794 LLC Interests (before giving effect to the use of proceeds from the IPO, as described below), (ii) appoint Smith Douglas Homes Corp. as the sole managing member of Smith Douglas Holdings LLC upon its acquisition of LLC Interests in connection with the IPO, and (iii) provide certain redemption rights to the owners of the LLC Interests in Smith Douglas Holdings LLC, exclusive of the Company (the Continuing Equity Owners).

Simultaneously, Smith Douglas Homes Corp. amended and restated its certificate of incorporation to, among other things, provide (i) for Class A common stock, with each share of Class A common stock entitling its holder toone vote per share on all matters presented to the stockholders generally; (ii) for Class B common stock, with each share of Class B common stock entitling its holder toten votes per share on all matters presented to the stockholders generally, until the aggregate number of shares of Class B common stock then outstanding is less than 10% of the aggregate number of shares of Class A common stock and Class B common stock then outstanding (Sunset Date), and from and after the occurrence of the Sunset Date, each share of Class B common stock will entitle its holder toone vote per share on all matters presented to the stockholders generally; (iii) that shares of Class B common stock may only be held by the Continuing Equity Owners and their respective permitted transferees; and (iv) for preferred stock, which can be issued by the Company’s board of directors in one or more series without stockholder approval. As a result, Smith Douglas Homes Corp. became a holding company and the sole managing member of Smith Douglas Holdings LLC and controls the business and affairs of Smith Douglas Holdings LLC. After giving effect to the use of net proceeds as described below, Smith Douglas Homes Corp. issued 42,435,897 shares of Class B common stock to the Continuing Equity Owners, which is equal to the number of LLC Interests held by such Continuing Equity Owners, for nominal consideration.

Subsequent to the IPO, Smith Douglas Homes Corp. used the net proceeds to: (i) purchase 6,410,257 newly issued LLC Interests for approximately $125.2 million directly from Smith Douglas Holdings LLC at a price per unit equal to $21.00 per share (IPO price) of Class A common stock less the underwriting discount; and (ii) purchase 2,435,897 LLC Interests from the Continuing Equity Owners on a pro rata basis for $47.6 million in aggregate at a price per unit equal to the IPO price per share of Class A common stock less the underwriting discount.

Basis of presentation

In accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), since the Continuing Equity Owners continue to hold a controlling interest in Smith Douglas Holdings LLC after the IPO (i.e., there was no change in control of Smith Douglas Holdings LLC), the financial statements of the combined entity represent a continuation of the financial position and results of operations of Smith Douglas Holdings LLC. Accordingly, the historical cost basis of assets, liabilities, and equity of Smith Douglas Holdings LLC are carried over to the unaudited condensed consolidated financial statements of the combined company as a common control transaction.

The accompanying unaudited condensed consolidated financial statements for the periods prior to the Transactions and IPO have been presented to combine the previously separate entities. These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and the applicable rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. As such, these unaudited condensed consolidated financial statements do not include all information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position, results of operations and cash flows as of the dates and for the periods presented.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2025, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. Historically, the homebuilding industry has experienced seasonal fluctuations; therefore, interim results are not necessarily indicative of results for the full fiscal year.

Principles of consolidation and non-controlling interests

The accompanying unaudited condensed consolidated financial statements include the accounts of Smith Douglas Homes Corp. and Smith Douglas Holdings LLC and its wholly-owned subsidiaries. Smith Douglas Holdings LLC is considered a variable interest entity and Smith Douglas Homes Corp. is the primary beneficiary and sole managing member of Smith Douglas Holdings LLC and has decision making authority that significantly affects the performance of the entity. Accordingly, the Company consolidates Smith Douglas Holdings LLC and reports non-controlling interests representing the economic interest in Smith Douglas Holdings LLC held by the Continuing Equity Owners.

All intercompany balances and transactions have been eliminated in consolidation. Investments in unconsolidated entities in which the Company has less than a controlling financial interest are accounted for using the equity method.

The non-controlling interests in the unaudited condensed consolidated statements of income represent the portion of earnings attributable to the economic interest in Smith Douglas Holdings LLC held by the Continuing Equity Owners. The non-controlling interests in the unaudited condensed consolidated balance sheets represent the portion of the net assets of the Company attributable to the Continuing Equity Owners, based on the portion of the LLC Interests owned by such unit holders. As of June 30, 2026 and December 31, 2025, the non-controlling interests were 82.3% and 82.5%, respectively.

Use of estimates in the preparation of unaudited condensed consolidated financial statements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition

The Company recognizes revenue when a home closes with a homebuyer, which is the time at which title and poss ession of the property are transferred to that homebuyer and all cash consideration due from the homebuyer is received. The Company’s performance obligation, to deliver the home, is generally satisfied in less than one year from the original contract date.

When the Company executes sales contracts with its homebuyers, or when it requires advance payment from homebuyers for custom changes, upgrades or options related to their homes, the cash deposits received are recorded as contract liabilities until the homes are closed or the contracts are canceled. The Company either retains or refunds to the customer deposits on canceled sales contracts, depending upon the applicable provisions of the contract or other circumstances. As of June 30, 2026 and December 31, 2025, customer deposits totaled $6.0 million and $3.1 million, respectively. Substantially all customer deposits are recognized in revenue within one year of being received from homebuyers.

Income taxes

Smith Douglas Homes Corp. is subject to U.S. federal, state, and local income taxes with respect to its allocable share of taxable income of Smith Douglas Holdings LLC assessed at the prevailing corporate tax rates. Smith Douglas Holdings LLC operates as a limited liability company and is treated as a partnership for income tax purposes. Accordingly, it incurs no significant liability for federal or state income taxes since the taxable income or loss is passed through to its members. Smith Douglas Holdings LLC incurs liabilities for certain state taxes payable directly by it, which are not significant and for which the expense is included in the provision for income taxes in the accompanying unaudited condensed consolidated statements of income.

In calculating the provision for interim income taxes, in accordance with ASC Topic 740, Income Taxes, an estimated annual effective tax rate is applied to year-to-date ordinary income. At the end of each interim period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year. This differs from the method utilized at the end of an annual period.

For annual periods, income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that the deferred tax assets will be realized. Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authority, based on the technical merits of the position. As of June 30, 2026 and December 31, 2025, there wereno known items which would result in a significant accrual for uncertain tax positions. The Company’s 2024 and 2025 tax years remain subject to examination.

Recent rules and accounting pronouncements

In December 2023, FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (ASU 2023-09), which requires expanded disclosure of the Company’s income tax rate reconciliation and income taxes paid. The Company adopted ASU 2023-09 for the annual period beginning January 1, 2025 and for interim periods beginning January 1, 2026. ASU 2023-09 is applied retrospectively to all prior periods presented.

In November 2024, FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures” (ASU 2024-03), which requires disclosure of disaggregated information about certain income statement expense line items in the notes to the financial statements on an interim and annual basis. ASU 2024-03 will be effective for the annual reporting periods in fiscal years beginning after December 15, 2026 and for interim reporting periods within fiscal years beginning after December 15, 2027, with early adoption permitted. ASU 2024-03 may be adopted on either a prospective or retrospective basis. The Company is currently evaluating the impact ASU 2024-03 will have on its consolidated financial statements and disclosures, including the transition method to be applied upon adoption.

In September 2025, FASB issued ASU 2025-06, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software” (ASU 2025-06), which modernizes the accounting for the costs of internal-use software by removing all references to software development project stages so that the guidance is neutral to different software development methods. ASU 2025-06 is effective for our annual and interim reports within the fiscal year beginning January 1, 2028, and may be applied on a retrospective, modified transition or prospective basis. The Company is currently evaluating the impact adopting this guidance will have on its consolidated financial statements and disclosures.

In December 2025, FASB issued ASU 2025-11, “Interim Reporting (Topic 270): Narrow-Scope Improvements“ (ASU 2025-11), to clarify interim disclosure requirements and the applicability of Topic 270, Interim Reporting. ASU 2025-11 is effective for our interim reports covering the fiscal year beginning January 1, 2028, and may be applied on a retrospective or prospective basis. The Company is currently evaluating the impact adopting this guidance will have on its interim financial statements and disclosures.

Note 2 ‑Real estate inventory and capitalized interest:

A summary of real estate inventory is as follows as of June 30, 2026 and December 31, 2025 (in thousands):

Real estate inventory consists primarily of the capitalized costs of finished homes, homes under construction, and residential lots. The Company includes the costs of lot acquisitions, development, direct home construction, capitalized interest, closing costs and direct and certain indirect overhead costs incurred during home construction in real estate inventory.

Real estate inventory is stated at cost unless a community is determined to be impaired, at which point the inventory is written down to fair value as required by ASC Topic 360-10, Property, Plant, and Equipment. The Company reviews its real estate inventory for indicators of potential impairment on a quarterly basis at the community level considering market and economic conditions, current sales absorption rates and recent profitability of new home sales. When an indicator of impairment is identified, the Company prepares and analyzes cash flows at the community level on an undiscounted basis. If the undiscounted cash flows are less than the community's carrying value, the Company generally estimates the fair value using the estimated future discounted cash flows of the respective community. A community with a fair value less than its carrying value is written down to such fair value and resulting losses are reported within cost of home closings in the accompanying consolidated statements of income.

As of June 30, 2026 and December 31, 2025, the Company evaluated seven andtwo active communities with carrying values of $24.4 million and $10.1 million, respectively.

During the three and six months ended June 30, 2026, the Company recognized inventory impairment charges in the Southeast reporting segment of $2.6 million and $3.5 million, respectively, related totwo andthree communities, respectively. During both the three and six months ended June 30, 2026, inventory impairment charges in the Central reporting segment were $0.5 million, related toone community. An impairment charge of $0.6 million was recognized in the Central reporting segment during the six months ended June 30, 2025 related toone community. No impairment charges were recognized during the three months ended June 30, 2025.

The below table summarizes the significant quantitative unobservable inputs used in the Company’s discounted cash flow model to determine the fair value of its communities for which the Company recorded impairment charges as of June 30, 2026 and December 31, 2025:

The Company capitalizes into real estate inventory interest costs incurred on homes under construction during theconstruction period until substantial completion. The Company does not capitalize interest on homes where construction has been suspended.

A summary of capitalized interest is as follows (in thousands):

Note 3 ‑Variable interest entities:

The Company enters into lot option agreements to procure finished lots for the construction of homes in the future. Pursuant to these option agreements, the Company generally provides a deposit to the seller as consideration for the right to purchase lots at different times in the future at predetermined prices. Such contracts enable the Company to defer acquiring portions of properties owned by third parties or unconsolidated entities until the Company has determined whether and when to exercise the option, which may serve to reduce the Company’s financial risks associated with long‑term land holdings.

Based on the provisions of the relevant accounting guidance, the Company has concluded that when it enters into an option or purchase agreement to acquire lots from an entity, a variable interest entity (VIE) may be created. The Company evaluates all option and purchase agreements and amendments for land to determine if the related entity is a VIE. As required by ASC Topic 810, Consolidation, the Company assesses whether it is the primary beneficiary for each VIE. In order to determine if the Company is the primary beneficiary, the Company must first assess whether it has the ability to control the activities of the VIE that most significantly impact its economic performance. Such activities include, but are not limited to, the ability to determine the budget and scope of land development work, if any; the ability to control financing decisions for the VIE; the ability to acquire additional land into the VIE or dispose of land in the VIE not under contract with the Company; and the ability to change or amend the existing option contract with the VIE. If the Company does not control such activities, the Company is not considered the primary beneficiary of the VIE. If the Company has the ability to control such activities, the Company would be the primary beneficiary of the VIE if it has an obligation to absorb losses or has the right to receive benefits that could potentially be significant to the VIE. As of June 30, 2026 and December 31, 2025, the Company was not identified as the primary beneficiary of any VIEs associated with option and purchase agreements. Therefore, no such VIEs required consolidation under ASC Topic 810.

In all cases, creditors of the entities with which the Company has option agreements have no recourse against the Company and the maximum exposure to loss in option agreements is limited to the Company’s option deposits, any capitalized pre‑acquisition costs, and any termination fees (which approximated$58.4 million as of June 30, 2026).

In certain instances where the Company has entered into option agreements to purchase finished lots from a land banker, the Company may also enter into an agreement to complete the development of the lots on behalf of the land banker at a fixed cost. The Company may be at risk for items over budget related to the development of the property under option. Any unpaid amounts under these development agreements are recorded as development reimbursement receivables from land bankers and are included within other assets in the accompanying unaudited condensed consolidated balance sheets.

The following provides a summary of the Company's interests in land option agreements (in thousands):

For lot option contracts where the lot seller entity is not required to be consolidated under the variable interest model, the Company considers whether such contracts should be accounted for as financing arrangements. Lot option contracts that may be considered financing arrangements include those entered into with third‑party land banks or developers in conjunction with such third parties acquiring a specific land parcel(s) on the Company’s behalf, at the Company’s direction, and those with other landowners where the Company or its designee makes improvements to the optioned land parcel(s) during the applicable option period. For these lot option contracts, the Company records the remaining purchase price of the associated land parcel(s) in inventory in its consolidated balance sheets with a corresponding financing obligation if the Company determines that it is effectively compelled to exercise the option to purchase the land parcel(s). In making this determination with respect to land option contracts, the Company considers the non‑refundable deposit(s), any capitalized pre‑acquisition costs and additional costs associated with abandoning the contract. As a result of such evaluations of lot option contracts, no lot option contracts were determined to be financing arrangements for which the remaining purchase price should be recorded as a financing obligation in the accompanying unaudited condensed consolidated balance sheets.

During the three and six months ended June 30, 2026, the Company recognized a lot option contract abandonment charge of $3.9 million in the Southeast reporting segment and $0.6 million in the Central reporting segment, which is included within other expense (income), net in the accompanying unaudited condensed consolidated statements of income. During the six months ended June 30, 2025, a lot option contract abandonment charge of $0.7 million was recognized in the Central reporting segment. No lot option contract abandonment charges were recognized during the three months ended June 30, 2025.

Note 4 ‑Investments in unconsolidated entities:

The Company has non‑controlling equity interests in various entities for which the Company applies the equity method of accounting. As of June 30, 2026, the Company had equity method investments in two entities engaged in the development and sale of lots, one entity engaged in providing mortgage broker services to our homebuyers, and three entities engaged in providing title insurance services to our homebuyers. The Company’s proportionate share of the entities’ income was approximately $0.8 million and $1.3 million during the three and six months ended June 30, 2026, respectively, and $0.6 million and $0.8 million during the three and six months ended June 30, 2025, respectively. The entities distributed approximately $0.7 million and $1.3 million during the three and six months ended June 30, 2026, respectively, and $0.4 million and $0.7 million to the Company during the three and six months ended June 30, 2025, respectively. The Company contributedno and $25,000 during the three and six months ended June 30, 2026, respectively, andno and $1.1 million during the three and six months ended June 30, 2025. Investments in unconsolidated entities totaled approximately $2.3 million as of both June 30, 2026 and December 31, 2025, which are included within other assets in the accompanying unaudited condensed consolidated balance sheets.

Note 5 ‑Notes payable:

As of June 30, 2026, the Company has a $325.0 million unsecured revolving credit facility under the Amended Credit Facility. On May 15, 2025, the Company entered into that certain Lender Addition and Acknowledgment Agreement and First Amendment to the Amended and Restated Credit Agreement (the First Amendment; the Credit Facility as amended by the First Amendment, the First Amendment and Amended Credit Facility) to, among other things, (i) increase the total revolving commitments from $250.0 million to $325.0 million, (ii) increase certain thresholds and sublimits in the borrowing base to allow for additional borrowing flexibility, (iii) extend the revolving loan maturity date from January 2027 to May 2029, and (iv) revise certain financial covenants. The Amended Credit Facility matures in May 2029, except that the Company may request aone-year extension of such maturity date. The Amended Credit Facility also includes a $100.0 million accordion feature, subject to additional commitments. The Amended Credit Facility provides that up to $20.0 million of the commitments may be used for letters of credit.

The borrowings and letters of credit outstanding under the Amended Credit Facility may not exceed the borrowing base as defined in the Amended Credit Facility. The borrowing base primarily consists of a percentage of commercial land, land held for development, lots under development and finished lots held by the Company.

Borrowings under the Amended Credit Facility bear interest, at the borrower’s option, at either a base rate or Secured Overnight Financing Rate (which may be a daily simple rate or based on 1-, 3- or 6-month interest periods, in each case at the borrower’s option), plus an applicable margin. The applicable margin ranges from 2.35% to 3.00% based on the Company’s leverage ratio as determined in accordance with a pricing grid defined in the Amended Credit Facility and is subject to a floor of 0.00%. Interest is payable in arrears on the last business day of each month or at the end of each 1-, 3- or 6-month interest period, as applicable. As of June 30, 2026, the interest rate on outstanding borrowings under the Amended Credit Facility was 6.07%.

The Amended Credit Facility contains certain financial covenants, including requirements to maintain (i) a minimum tangible net worth equal to the sum of (a) $286.1 million, (b)32.5% of pre‑tax income earned in any fiscal quarter after March 31, 2025, and (c)50% of any new equity proceeds of Smith Douglas Homes Corp. and its subsidiaries after March 31, 2025, (ii) a maximum leverage ratio of 60%, (iii) a minimum ratio of EBITDA to interest incurred of 2.00 to 1.00, and (iv) a minimum liquidity requirement of $15.0 million. The Amended Credit Facility also contains various covenants that, among other restrictions, limit the ability of Smith Douglas Holdings LLC and the other borrowers to incur additional debt and to make certain investments and distributions. Additionally, the Amended Credit Facility contains certain covenants that restrict certain activities of Smith Douglas Homes Corp. The Amended Credit Facility also contains customary events of default relating to, among other things, failure to make payments, breach of covenants and breach of representations. If an event of default occurs and is continuing, the borrowers may be required to immediately repay all amounts outstanding under the Amended Credit Facility. As of June 30, 2026, the Company was in compliance with all covenants related to the Amended Credit Facility.

As of June 30, 2026 and December 31, 2025, there were $63.0 million and $40.0 million of outstanding borrowings under the Amended Credit Facility, respectively. As of June 30, 2026 and December 31, 2025, there were $0.8 million and $0.5 million of outstanding letters of credit, respectively. Availability as determined in accordance with the Borrowing Base, as defined, totaled approximately $199.7 million as of June 30, 2026.

On July 31, 2023, the Company entered into athree-year seller note payable of $5.0 million as part of the consideration for the acquisition of Devon Street which bears interest at 8% per annum. The seller note is payable inquarterly installments of principal and accrued interest beginning September 30, 2023 through maturity on September 30, 2026. The seller was previously employed as the division president of the Houston division until December 31, 2024. As of June 30, 2026 and December 31, 2025, the balance on the seller note payable was $0.5 million and $1.4 million, respectively, which is included in notes payable in the accompanying unaudited condensed consolidated balance sheets.

On May 13, 2025, the Company borrowed$3.0 million in the form of a secured promissory note from The BF Holding Trust, an entity affiliated with the Founder Fund, which bears interest at 8.5% per annum. The promissory note was used to partially fundthe purchase of an office building located in Woodstock, Georgia from JBB Cherokee Holdings LLC, an entity affiliated with the Founder Fund (see Note 13). The promissory note is payable in monthly installments of principal and interest through maturity on May 13, 2030. As of June 30, 2026 and December 31, 2025, the balance on the related party promissory note was $2.5 million and $2.7 million, respectively, which is included in notes payable in the accompanying unaudited condensed consolidated balance sheets.

On February 20, 2026, the Company entered into a$0.1 million equipment finance agreement, which bears interest at 7.5% per annum. The equipment finance agreement is payable in monthly installments of principal and interest through maturity on March 25, 2029. As of June 30, 2026, the balance on the equipment finance agreement was$0.1 million, which is included in notes payable in the accompanying unaudited condensed consolidated balance sheets.

Future maturities of notes payable to third parties, including borrowings under the Amended Credit Facility, are as follows as of June 30, 2026 (in thousands):

(1)Remaining payments are for the six months ending December 31, 2026.

Note 6 ‑Fair value of financial instruments:

ASC Topic 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value and disclosing fair value measurements. ASC Topic 820 establishes a three‑level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

•Level 1 ‑ Valuation is based on quoted prices in active markets for identical assets and liabilities;

•Level 2 ‑ Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, or by model‑based techniques in which all significant inputs are observable in the market;

•Level 3 ‑ Valuation is derived from model‑based techniques in which at least one significant input is unobservable and based on the Company’s own estimates about the assumptions that market participants would use to value the asset or liability.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company’s assessment of the significance of particular inputs to those fair value measurements requires judgment and considers factors specific to each asset or liability.

The Company’s financial instruments measured or disclosed at fair value are summarized below. The summary excludes cash and cash equivalents, receivables and accounts payable, all of which had fair values approximating their carrying values due to the liquid nature and short maturities of these instruments.

Certain assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value may not be recoverable. The non-recurring fair values included in the above table represent only those assets whose carrying values were adjusted to fair value during the quarterly period ended as of the respective balance sheet dates. See Note 2 for more detailed discussion of the valuation methods used for real estate inventory.

The carrying value of the borrowings under the Amended Credit Facility approximates fair value due to variable rate terms that approximate market rates.

The carrying value of the seller note payable and related party note payable approximate fair value because the interest rates on the notes approximate market rates as of June 30, 2026 and December 31, 2025.

Note 7 ‑Warranty reserves:

A summary of the activity in the Company’s warranty liability account is as follows (in thousands):

Note 8 ‑Leases:

The Company leases certain office space and equipment for use in its operations. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Some leases contain renewal options and, in accordance with ASC Topic 842, Leases, the lease term includes those renewals only to the extent that they are reasonably certain to be exercised.

Lease cost included in the accompanying unaudited condensed consolidated statements of income as a component of selling, general and administrative costs is presented in the table below (in thousands).

The following table presents additional information about the Company’s leases (dollars in thousands):

ROU assets are included within other assets and lease liabilities are included within accrued expenses and other liabilities in the accompanying unaudited condensed consolidated balance sheets.

As of June 30, 2026, the Company hadtwo additional operating leases for division office space that had not yet commenced with total undiscounted fixed lease payments of approximately$0.8 million. The operating leases will both commence in 2026 with lease terms of approximately 5 years.

Note 9 ‑Commitments and contingencies:

The Company is subject to certain contingent liabilities resulting from litigation, claims, and other commitments which arise in the ordinary course of business. Management and legal counsel believe that the probable resolution of such contingencies will not materially affect the financial position, results of operations, or cash flows of the Company. In the normal course of business, the Company posts letters of credit and performance and other surety bonds related to certain development obligations with local municipalities, government agencies and developers. As of June 30, 2026 and December 31, 2025, performance and surety bonds totaled $56.6 million and $47.4 million, respectively. As of June 30, 2026 and December 31, 2025, there were $0.8 million and $0.5 million outstanding letters of credit, respectively.

Note 10 -Equity:

The following table summarizes the capitalization and voting rights of the Company’s classes of stock as of June 30, 2026:

(1)Each share of Class B common stock entitles its holders toten votes per share on all matters presented to the stockholders and on which the holders of the Class B common stock are entitled to vote; provided, that each share of Class B common stock will only be entitled toone vote per share on all matters presented to the stockholders generally upon the Sunset Date.

The following table summarizes Class A common stock reserved for issuances as of June 30, 2026:

The Company’s board of directors is authorized to direct the Company to issue shares of preferred stock in one or more series and the discretion to determine the number and designation of such series and the powers, rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. Through June 30, 2026, no series of preferred stock have been issued.

Holders of shares of Class A common stock are entitled to receive dividends when and if declared by the board of directors out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock. Upon dissolution or liquidation, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of Class A common stock will be entitled to receive pro rata the remaining assets available for distribution. Holders of shares of Class A common stock do not have preemptive, subscription, redemption, or conversion rights. There are no redemption or sinking fund provisions applicable to the Class A common stock.

Except in certain limited circumstances, holders of Class B common stock do not have any right to receive dividends or to receive a distribution upon dissolution or liquidation. Additionally, holders of shares of Class B common stock do not have preemptive, subscription or redemption rights. There are no redemption or sinking fund provisions applicable to the Class B common stock. Any amendment of the Company’s amended and restated certificate of incorporation that gives holders of Class B common stock (1) any rights to receive dividends or any other kind of distribution, (2) any right to convert into or be exchanged for shares of Class A common stock, or (3) any other economic rights (except for payments in cash in lieu of receipt of fractional stock) will require, in addition to any stockholder approval required by applicable law, the affirmative vote of holders of a majority of the voting power of the outstanding shares of Class A common stock voting separately as a class. The Company must, at all times, maintain (i) aone-to-one ratio between the number of shares of Class A common stock issued by Smith Douglas Homes Corp. and the number of LLC Interests owned by Smith Douglas Homes Corp., and (ii) maintain aone-to-one ratio between the number of shares of Class B common stock owned by the Continuing Equity Owners and the number of LLC Interests owned by them.

Shares of Class B common stock will be issued in the future only to the extent necessary to maintain aone-to-one ratio between the number of LLC Interests held by the Continuing Equity Owners and the number of shares of Class B common stock issued to the Continuing Equity Owners. Shares of Class B common stock are transferable only together with an equal number of LLC Interests. Only permitted transferees of LLC Interests held by the Continuing Equity Owners will be permitted transferees of Class B common stock. Shares of Class B common stock automatically transferred to Smith Douglas Homes Corp. upon the redemption or exchange of their LLC Interests pursuant to the terms of the Smith Douglas LLC Agreement will be canceled and may not be reissued.

As of June 30, 2026, Smith Douglas Homes Corp. holds a 17.7% economic interest in Smith Douglas Holdings LLC through its ownership of 9,109,212 LLC Interests but consolidates Smith Douglas Holdings LLC as sole managing member. The remaining 42,435,897 LLC Interests representing an 82.3% economic interest are held by the Continuing Equity Owners and presented in the unaudited condensed consolidated financial statements as non-controlling interests.

The LLC Interests held by Continuing Equity Owners include a redemption right which may be settled by the Company, at the Company’s election, through the (1) issuance of a new share of Class A Common Stock for each LLC Interest redeemed or (2) settled by cash proceeds received from a qualifying offering of Class A Common Stock. The LLC Interests are not classified as temporary equity as the cash settlement is limited to the proceeds from a new offering of Class A Common Stock which is equity-classified.

Distributions to Members Related to Their Income Tax Liabilities

As a limited liability company treated as a partnership for income tax purposes, Smith Douglas Holdings LLC does not incur significant federal, state or local income taxes, as these taxes are primarily the obligations of its members. Under the LLC Agreement, Smith Douglas Holdings LLC is required to distribute cash, to the extent that Smith Douglas Holdings

LLC has cash available, on a pro rata basis to its members to the extent necessary to cover the members’ tax liabilities, if any, with respect to each member’s share of Smith Douglas Holdings LLC taxable earnings. Smith Douglas Holdings LLC makes such tax distributions to its members quarterly, based on an estimated tax rate and projected year-to-date taxable income, with a final accounting once actual taxable income or loss has been determined. Smith Douglas Holdings LLC made tax distributions to the Continuing Equity Owners totaling approximately $1.9 million and $8.9 million for the three and six months ended June 30, 2026, respectively, and $9.5 million and $23.3 million for the three and six months ended June 30, 2025, respectively.

Stock Repurchase Program

In May 2025, the Company’s Board of Directors authorized a stock repurchase program for up to$50.0 million of the Company’s Class A common stock. Under the program, the Company may make repurchases through open market purchases, block trades, in privately negotiated transactions, accelerated stock repurchase transactions, or by other means. During thethree and six months ended June 30, 2026, the Company repurchased 312,351 and 761,955 shares, respectively, of its Class A Common Stock at a total cost, including commissions and excise taxes, of $4.4 million and $10.1 million, respectively, or an average repurchase price of$14.13 per share and $13.28 per share, respectively, to be held as treasury stock. The Company didnot repurchase any stock during the three and six months ended June 30, 2025. As of June 30, 2026, the remaining authorization for stock repurchases was $40.0 million.

Note 11 -Share-based payments:

The Company maintains the 2024 Incentive Award Plan (the 2024 Plan). The 2024 Plan generally is administered by the Company’s board of directors with respect to awards to non-employee directors and by its compensation committee with respect to other participants and authorizes the Company to grant incentive stock-based awards, including, but not limited to, time-based and performance-based restricted stock units.

Time-based Restricted Stock Units

The following table summarizes information about our time-based restricted stock units (RSUs):

Generally, the RSUs granted during the three and six months ended June 30, 2026 and 2025 vest inthree equal installments on each of the first three anniversaries of the grant date, subject to the employee’s continued employment through the applicable vesting date. Vesting of the awards granted during the three and six months ended June 30, 2026 and 2025 is subject to certain change in control and qualifying termination provisions as provided in the award agreements.

The Company recognized compensation expense for RSUs of approximately $1.3 million and $2.3 million during the three and six months ended June 30, 2026, respectively, and $0.9 million and $1.5 million during the three and six months ended June 30, 2025, respectively, which is included in selling, general and administrative costs in the accompanying unaudited condensed consolidated statements of income.

The unamortized compensation cost related to RSUs of approximately $11.4 million as of June 30, 2026 is expected to be recognized over a weighted-average period of approximately 1.61 years.

Market-based Performance Restricted Stock Units

During thesix months ended June 30, 2026 and 2025, the compensation committee granted awards of market-based performance RSUs (PSUs) under the 2024 Plan to certain members of senior management. The PSUs vest based on the Company’s total shareholder return (TSR) relative to a selected peer group over athree-year performance period and will be settled in shares of the Company’s Class A common stock. The number of PSUs that may vest and be settled ranges from 0% to 200% of the target amount of PSUs for each award, based on actual Company TSR results as compared to the selected peer group for the performance period. Since the PSUs constitute market awards as defined by ASC 718, compensation expense associated with the PSU grants is determined using the grant date fair value, based on a third-party valuation analysis, and is expensed over the applicable period. To the extent earned based on actual performance, the PSUs vest on the last day of thethree-year performance period, subject to the employee's continued service through the vesting date. Additionally, vesting is subject to certain change in control and qualifying termination provisions as provided in the award agreements.

The following table summarizes information about our PSUs during thesix months ended June 30, 2026 and 2025:

During the three and six months ended June 30, 2026, the Company recognized compensation expense for PSUs of approximately $0.2 million and $0.4 million, respectively, and during both the three and six months ended June 30, 2025, the Company recognized compensation expense for PSUs of approximately $0.1 million, which is included in selling, general and administrative costs in the accompanying unaudited condensed consolidated statements of income. The unamortized compensation cost related to PSUs of approximately $2.2 million as of June 30, 2026 is expected to be recognized over a weighted-average period of approximately 2.39 years.

Note 12 -Income taxes and tax receivable agreement:

Smith Douglas Homes Corp. is taxed as a subchapter C corporation and is subject to federal and state income taxes. Smith Douglas Homes Corp.’s sole material asset is its ownership interest in Smith Douglas Holdings LLC, which is a limited liability company that is taxed as a partnership for U.S. federal and certain state and local income tax purposes. Smith Douglas Holdings LLC’s net taxable income and related tax credits, if any, are passed through to its members and included in the members’ tax returns. The income tax burden on the earnings taxed to the non-controlling interest holders is not reported by the Company in its unaudited condensed consolidated financial statements under U.S. GAAP.

The estimated annual effective tax rate for the year ending December 31, 2026 is 5.4%. The difference between the estimated annual effective income tax rate and the U.S. federal statutory rate is primarily due to: (1) income attributable to non-controlling interests which is not taxable to Smith Douglas Homes Corp., (2) Smith Douglas Holdings LLC’s election to be taxed at the entity level, and (3) state income taxes.

The Company’s income tax provision was $0.1 million and $0.4 million for the three and six months ended June 30, 2026, respectively, and $0.7 million and $1.6 million for the three and six months ended June 30, 2025, respectively.

The Company recognizes deferred tax assets to the extent it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. After considering all those factors, as of June 30, 2026, the Company has recorded a valuation allowance of $12.3 million for certain deferred tax assets the Company has determined are not more likely than not to be realized.

As each of the Continuing Equity Owners elects to convert their LLC Interests into Class A common stock, Smith Douglas Homes Corp. will succeed to their aggregate historical tax basis which will create a net tax benefit to the Company. These tax benefits are expected to be amortized over 15.0 years pursuant to Sections 743(b) and 197 of the Code. The Company will only recognize a deferred tax asset for financial reporting purposes when it is more likely than not that the tax benefit will be realized.

In connection with the IPO and related transactions, the Company entered into a tax receivable agreement (TRA) with Smith Douglas Holdings LLC and the Continuing Equity Owners that will provide for the payment by Smith Douglas Homes Corp. to the Continuing Equity Owners of 85% of the amount of tax benefits, if any, that Smith Douglas Homes Corp. realizes (or in some circumstances is deemed to realize) related to the tax basis adjustments as such savings are realized. As of June 30, 2026, the Company has recorded a TRA liability of $9.4 million. During the three and six months ended June 30, 2026, the Company made payments under the TRA to the Continuing Equity Owners totaling zero and $0.5 million, respectively. No payments were made under the TRA during the three and six months ended June 30, 2025.

Note 13 ‑Transactions with related parties:

The Company rented office space under a lease with JBB Cherokee Holdings LLC, an entity affiliated by common ownership through May 2025, at which time the Company purchased the associated office building, as described below.

Related party lease cost included in the accompanying unaudited condensed consolidated statements of income as a component of selling, general and administrative costs is presented in the table below (in thousands).

Payments under the office lease agreement, along with costs associated with the office space, totaled approximately $0.1 million and $0.1 million during the three and six months ended June 30, 2025, respectively.

In May 2025, the Company purchased the office building located in Woodstock, Georgia for a total purchase price of $4.0 million from JBB Cherokee Holdings LLC, an entity affiliated with the Founder Fund. Concurrently with closing of the building purchase, the Company borrowed $3.0 million in the form of a secured promissory note from The BF Holding Trust, an entity affiliated with the Founder Fund. The promissory note was used to partially fund the building purchase, bears interest at 8.5% per annum, and matures in May 2030. During the three and six months ended June 30, 2026, the Company incurred and paid interest on the related party note payable totaling $54,000 and$111,000, respectively. During the three and six months ended June 30, 2025, the Company incurred and paid interest on the related party note payable totaling $21,000. Subsequent to the purchase of the office building, there are no longer any leasing arrangements with JBB Cherokee Holdings LLC.

During the three and six months ended June 30, 2026, the Company incurred fees of $1,000 and $6,000, respectively, in the aggregate from certain entities affiliated by common ownership for use of facilities related to business development and vendor relations, which is included in selling, general and administrative costs in the accompanying unaudited condensed consolidated statements of income. During the three and six months ended June 30, 2025, the Company incurredno fees and $0.4 million, respectively, for the use of these facilities. The Company paid fees of $1,000 and $6,000 for use of these facilities during the three and six months ended June 30, 2026. The Company didnot pay fees for use of these facilities during the three and six months ended June 30, 2025.

The Company charters aircraft services from companies that are controlled by a related entity of the Founder Fund. Expenses incurred and paid to these companies under a dry lease agreement for the use of the aircraft for business travel totaled approximately $8,000 for the three and six months ended June 30, 2026, andno expenses and $2,000 for the three and six months ended June 30, 2025, respectively, which are included in selling, general and administrative costs in the accompanying unaudited condensed consolidated statements of income.

The Company had related party receivables totaling approximately $0.1 million as of December 31, 2025 for various expenses paid by the Company on behalf of the related party, which are included in other assets in the accompanying unaudited condensed consolidated balance sheets. There wereno outstanding related party receivables as of June 30, 2026.

Note 14 ‑Segment information:

The Company operatesone principal homebuilding business that is organized, managed and reported by geographic division. Management of theeleven geographic divisions report to the Company’s chief operating decision maker (CODM), which consists of the Chief Executive Officer and Chief Financial Officer of the Company. The CODM is regularly provided operating results of individual operating segments, which comprise the Company’s reportable segments. These operating results include key operating metrics which inform the CODM’s decisions regarding the allocation of resources and the assessment of the Company’s overall operational performance. These operating results are reviewed against actual and budgeted figures, with income before income taxes (segment profit) being the key operating metric used to measure segment profit or loss. The Company’s operating segments are aggregated intotwo reportable segments: Southeast and Central. The Southeast segment consists of the Atlanta, Central Georgia, Charlotte, Chattanooga, Greenville, and Raleigh divisions. The Central segment consists of the Alabama, Dallas-Fort Worth, Houston, Nashville, and Alabama Gulf Coast divisions. Each reportable segment follows the accounting policies described in Note 1. As the Dallas-Fort Worth and Alabama Gulf Coast divisions were formed in the second half of 2025, segment information disclosed forthe three and six months ended June 30, 2025 does not include these divisions.

The following tables summarize financial information by segment (in thousands):

(1)The significant segment expense categories and amounts align with the segment-level information that is regularly provided to the CODM.

(2) Selling, general, and administrative expenses consists of internal and external commissions, marketing expense, sales expense, indirect and warranty overhead, marketing department overhead, sales department overhead, general and administrative overhead, and depreciation and amortization expense.

(3)Other segment items includes interest expense, interest income, gain (loss) on sale of assets, and miscellaneous income.

(4)Corporate primarily includes corporate overhead costs, such as payroll and benefits, business insurance, information technology, office costs, outside professional services and travel costs, depreciation and amortization expense, and certain other amounts that are not allocated to the reportable segments.

(5)Other corporate items includes equity in income from unconsolidated entities, interest expense, interest income, gain (loss) on sale of assets, and miscellaneous income that are not allocated to the reportable segments.

(1)Balance includes goodwill of approximately $25.7 million resulting from the acquisition of Devon Street Homes, L.P.

(2)Corporate primarily includes cash and cash equivalents, property and equipment, and other assets that are not allocated to the segments.

Note 15 -Earnings per share:

Basic earnings per share is computed by dividing net income attributable to Smith Douglas Homes Corp. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted earnings per share is computed by adjusting the net income available to Smith Douglas Homes Corp. and the weighted average shares outstanding to give effect to potentially dilutive securities. Shares of Class B common stock are not entitled to receive any distributions or dividends and are therefore excluded from this presentation since they are not participating securities.

Basic and diluted earnings per share of common stock have been computed as follows (in thousands, except share and per share amounts):

The dilutive impact of unvested RSUs in the fully dilutive computation for the six months ended June 30, 2025 has been adjusted for income taxes which would have been expensed had the income been recognized by Smith Douglas Homes Corp., a taxable entity. The dilutive impact of unvested RSUs was included using the treasury stock method. For the six months ended June 30, 2026, the dilutive impact of 180,526 unvested RSUs is not included in the calculation of diluted earnings per share as the effect would be anti-dilutive. For the three and six months ended June 30, 2026 and 2025, the dilutive impact of 42,435,897 LLC Interests that are exchangeable for Class A common stock is not included in the calculation of diluted earnings per share as the effect would be anti-dilutive.