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PART I – FINANCIAL INFORMATION This section provides SmartFinancial, Inc.'s unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the reporting period [Item 1. Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents SmartFinancial, Inc.'s unaudited consolidated financial statements, including balance sheets, income, comprehensive income, equity, and cash flow statements, along with detailed notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) SmartFinancial, Inc. and Subsidiary's Consolidated Balance Sheets show total assets increased to $5.49 billion at June 30, 2025, from $5.28 billion at December 31, 2024, driven by increases in loans and leases, net, and total deposits Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------------ | :----------------------------- | :------------------------------- | | Total assets | $5,490,863 | $5,275,904 | | Loans and leases, net | $4,084,286 | $3,868,917 | | Total deposits | $4,872,120 | $4,686,483 | | Total liabilities | $4,971,736 | $4,784,443 | | Total shareholders' equity | $519,127 | $491,461 | [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) SmartFinancial, Inc. and Subsidiary reported increased net income for both the three and six months ended June 30, 2025, compared to the same periods in 2024, reaching $11.7 million and $23.0 million respectively Consolidated Statements of Income (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :---------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total interest income | $69,453 | $61,285 | $135,830 | $121,067 | | Total interest expense | $29,110 | $28,471 | $57,248 | $56,532 | | Net interest income | $40,343 | $32,814 | $78,582 | $64,535 | | Provision for credit losses | $2,411 | $883 | $3,391 | $443 | | Net income | $11,705 | $8,003 | $22,959 | $17,360 | | Basic earnings per common share | $0.70 | $0.48 | $1.37 | $1.03 | | Diluted earnings per common share | $0.69 | $0.48 | $1.36 | $1.03 | [Consolidated Statements of Comprehensive Income](index=8&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) SmartFinancial, Inc. and Subsidiary's comprehensive income significantly increased for both the three and six months ended June 30, 2025, primarily due to higher net income and substantial unrealized holding gains on available-for-sale securities, net of tax Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :---------------------------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income | $11,705 | $8,003 | $22,959 | $17,360 | | Unrealized gains (losses) on securities available-for-sale, net of tax | $2,168 | $1,506 | $5,871 | $(772) | | Total other comprehensive income | $2,373 | $1,627 | $6,397 | $109 | | Comprehensive income | $14,078 | $9,630 | $29,356 | $17,469 | [Consolidated Statements of Changes in Shareholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) SmartFinancial, Inc. and Subsidiary's total shareholders' equity increased to $519.1 million at June 30, 2025, from $491.5 million at December 31, 2024, driven by net income and other comprehensive income, partially offset by common stock dividends Consolidated Statements of Changes in Shareholders' Equity (in thousands) | Metric | December 31, 2024 (in thousands) | June 30, 2025 (in thousands) | | :--------------------------------------------------- | :------------------------------- | :--------------------------- | | Total shareholders' equity attributable to SmartFinancial Inc. and Subsidiary | $491,348 | $519,014 | | Total shareholders' equity | $491,461 | $519,127 | | Net income (six months ended June 30, 2025) | N/A | $22,959 | | Other comprehensive income (six months ended June 30, 2025) | N/A | $6,397 | | Common stock dividend (six months ended June 30, 2025) | N/A | $(2,722) | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) SmartFinancial, Inc. and Subsidiary experienced a net decrease in cash and cash equivalents of $22.5 million for the six months ended June 30, 2025, primarily due to significant cash used in investing activities, partially offset by cash provided by operating and financing activities Consolidated Statements of Cash Flows (in thousands) | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $28,309 | $23,619 | | Net cash used in investing activities | $(232,349) | $(75,765) | | Net cash provided by financing activities | $181,566 | $42,710 | | Net change in cash and cash equivalents | $(22,474) | $(9,436) | | Cash and cash equivalents, end of period | $365,096 | $342,835 | [Condensed Notes to Consolidated Financial Statements](index=11&type=section&id=Condensed%20Notes%20to%20Consolidated%20Financial%20Statements) The Condensed Notes provide detailed disclosures on SmartFinancial's financial reporting policies, accounting estimates, and specific financial statement line items [Note 1. Presentation of Financial Information](index=11&type=section&id=Note%201.%20Presentation%20of%20Financial%20Information) SmartFinancial, a bank holding company, presents unaudited interim financial statements under GAAP, noting no significant impact from recent or upcoming accounting pronouncements - SmartFinancial, Inc. is a bank holding company operating through SmartBank, providing financial services in East and Middle Tennessee, Alabama, and Florida, with primary products including various deposit types and commercial, residential, and consumer loans[20](index=20&type=chunk) - The company adopted ASU 2023-07 (Segment Reporting) on December 31, 2024, with **no impact** on its Consolidated Financial Statements[23](index=23&type=chunk) - The company is assessing ASU 2023-09 (Income Tax Disclosures) and ASU 2024-03 (Expense Disaggregation Disclosures), with adoption dates in 2025 and 2026/2027 respectively, neither of which are expected to have a **significant impact** on its Consolidated Financial Statements[26](index=26&type=chunk)[27](index=27&type=chunk) [Note 2. Earnings Per Share](index=13&type=section&id=Note%202.%20Earnings%20Per%20Share) Basic and diluted earnings per common share for SmartFinancial, Inc. increased significantly for both the three and six months ended June 30, 2025, compared to 2024, reflecting higher net income Earnings Per Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income available to common shareholders | $11,705 | $8,003 | $22,959 | $17,360 | | Average common shares outstanding – basic | 16,778,988 | 16,770,819 | 16,773,293 | 16,810,277 | | Basic earnings per share | $0.70 | $0.48 | $1.37 | $1.03 | | Average common shares outstanding - diluted | 16,878,736 | 16,850,250 | 16,875,608 | 16,887,374 | | Diluted earnings per common share | $0.69 | $0.48 | $1.36 | $1.03 | [Note 3. Securities](index=13&type=section&id=Note%203.%20Securities) SmartFinancial's securities portfolio includes available-for-sale (AFS) and held-to-maturity (HTM) securities, with AFS totaling $502.2 million and HTM $122.8 million at June 30, 2025, and no credit loss allowance deemed necessary Securities Portfolio (Fair Value, in thousands) | Category | June 30, 2025 (Fair Value, in thousands) | December 31, 2024 (Fair Value, in thousands) | | :----------------------------- | :------------------------------------- | :------------------------------------- | | Securities available-for-sale | $502,150 | $482,328 | | Securities held-to-maturity | $108,134 | $108,080 | - For the six months ended June 30, 2025, the Company recorded **$4 thousand in gross realized losses** on investments, with no gross realized gains[34](index=34&type=chunk) - Unrealized losses on AFS and HTM securities at June 30, 2025, are primarily due to changes in interest rates, not credit quality, and **no allowance for credit losses** was deemed necessary for these securities[40](index=40&type=chunk)[41](index=41&type=chunk)[44](index=44&type=chunk) - All debt securities classified as held-to-maturity with a published rating were rated **A+ or higher** by ratings agencies at June 30, 2025[42](index=42&type=chunk) Investment Type (in thousands) | Investment Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------------- | :--------------------------- | :------------------------------- | | Federal Reserve Bank stock | $9,604 | $9,045 | | Federal Home Loan Bank stock | $4,759 | $5,345 | | First National Bankers Bank stock | $350 | $350 | | Total | $14,713 | $14,740 | [Note 4. Loans and Leases and Allowance for Credit Losses](index=21&type=section&id=Note%204.%20Loans%20and%20Leases%20and%20Allowance%20for%20Credit%20Losses) SmartFinancial's total loans and leases increased to $4.12 billion at June 30, 2025, from $3.91 billion at December 31, 2024, with the allowance for credit losses (ACL) increasing to $39.8 million, maintaining a 0.96% ratio Loans and Leases (in thousands) | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------ | :--------------------------- | :------------------------------- | | Commercial real estate: Non-owner occupied | $1,114,133 | $1,080,404 | | Commercial real estate: Owner occupied | $958,989 | $867,678 | | Consumer real estate | $803,270 | $741,836 | | Construction and land development | $391,155 | $361,735 | | Commercial and industrial | $778,754 | $775,620 | | Leases | $62,495 | $64,878 | | Consumer and other | $15,266 | $14,189 | | Total loans and leases | $4,124,062 | $3,906,340 | | Less: Allowance for credit losses | $(39,776) | $(37,423) | | Loans and leases, net | $4,084,286 | $3,868,917 | - The provision for credit losses on loans and leases for the six months ended June 30, 2025, was **$2.6 million**, an increase of **$1.8 million** compared to $818 thousand in the same period of 2024, driven by increased loan and lease volume[57](index=57&type=chunk)[181](index=181&type=chunk) - The allowance for credit losses as a percentage of total loans and leases remained stable at **0.96%** at both June 30, 2025, and December 31, 2024[57](index=57&type=chunk)[181](index=181&type=chunk) Nonaccrual Loans (in thousands) | Category | June 30, 2025 (Amount, in thousands) | December 31, 2024 (Amount, in thousands) | | :------------------------------ | :----------------------------------- | :----------------------------------- | | Commercial real estate: Non-owner occupied | $572 | $514 | | Commercial real estate: Owner occupied | $915 | $906 | | Consumer real estate | $1,233 | $1,995 | | Construction and land development | $0 | $39 | | Commercial and industrial | $2,612 | $1,820 | | Leases | $2,556 | $2,433 | | Consumer and other | $1 | $2 | | Total Nonaccrual Loans | $7,889 | $7,709 | - Total collateral-dependent loans individually evaluated for expected credit losses were **$7.7 million** at June 30, 2025, down from $9.6 million at December 31, 2024[72](index=72&type=chunk) - Loan modifications to borrowers experiencing financial difficulty were minimal, totaling **$78 thousand** for the six months ended June 30, 2025, primarily involving term extensions for consumer real estate and commercial and industrial loans[73](index=73&type=chunk)[74](index=74&type=chunk) - No modified loans defaulted in the past twelve months[75](index=75&type=chunk) [Note 5. Goodwill and Intangible Assets](index=32&type=section&id=Note%205.%20Goodwill%20and%20Intangible%20Assets) SmartFinancial's goodwill remained stable at $96.1 million at June 30, 2025, with other intangible assets decreasing slightly to $7.4 million net due to ongoing amortization - The carrying amount of goodwill was **$96.1 million** at June 30, 2025, and December 31, 2024, with **no impairment test conditions** present[79](index=79&type=chunk)[77](index=77&type=chunk) Other Intangible Assets (Net, in thousands) | Category | June 30, 2025 (Net, in thousands) | December 31, 2024 (Net, in thousands) | | :----------------------------- | :-------------------------------- | :------------------------------------ | | Core Deposit Intangibles | $5,218 | $6,035 | | Customer Relationships Intangibles | $2,225 | $2,543 | | Total | $7,443 | $8,578 | - Aggregate amortization expense for other intangible assets was **$566 thousand** for the three months and **$1.1 million** for the six months ended June 30, 2025[80](index=80&type=chunk) [Note 6. Borrowings, Line of Credit and Subordinated Debt](index=33&type=section&id=Note%206.%20Borrowings%2C%20Line%20of%20Credit%20and%20Subordinated%20Debt) SmartFinancial's total borrowings decreased to $7.0 million at June 30, 2025, from $8.1 million at December 31, 2024, primarily due to reduced securities sold under repurchase agreements, while subordinated debt remained stable at $40 million Borrowings (in thousands) | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------------- | :--------------------------- | :------------------------------- | | Securities sold under customer repurchase agreements | $2,966 | $4,135 | | Other borrowings | $4,000 | $4,000 | | Total | $6,966 | $8,135 | - The Company has **$40 million** of 5.625% fixed-to-floating rate subordinated notes outstanding, which qualify as Tier 2 capital[87](index=87&type=chunk)[88](index=88&type=chunk) - Unamortized debt issuance costs for subordinated debt were **$274 thousand** at June 30, 2025[87](index=87&type=chunk)[89](index=89&type=chunk) - The Company has a **$35 million** revolving line of credit, with **$4.0 million** outstanding at June 30, 2025[86](index=86&type=chunk) [Note 7. Employee Benefit Plans](index=34&type=section&id=Note%207.%20Employee%20Benefit%20Plans) SmartFinancial contributed $1.0 million to its 401(k) Plan for the six months ended June 30, 2025, with 1,690,000 Rights available for future grants under the Omnibus Incentive Plan and $3.8 million in unrecognized compensation cost for restricted stock awards - The Company's contribution to the 401(k) Plan for the six months ended June 30, 2025, was **$1.0 million**, up from $955 thousand in 2024[90](index=90&type=chunk) - The Omnibus Incentive Plan, approved May 22, 2025, has **1,690,000 Rights** available for future grants[91](index=91&type=chunk) Stock Options | Metric | Outstanding at Dec 31, 2024 | Exercised (6 months ended Jun 30, 2025) | Outstanding at Jun 30, 2025 | | :-------------------------- | :-------------------------- | :------------------------------------- | :-------------------------- | | Number of Options | 10,148 | (4,203) | 5,945 | | Weighted Average Exercise Price | $15.05 | $15.05 | $15.05 | - The aggregate intrinsic value of total options outstanding and exercisable at June 30, 2025, was **$111 thousand**[96](index=96&type=chunk) Restricted Stock Awards | Metric | Outstanding at Dec 31, 2024 | Granted (6 months ended Jun 30, 2025) | Vested (6 months ended Jun 30, 2025) | Outstanding at Jun 30, 2025 | | :-------------------------- | :-------------------------- | :------------------------------------ | :------------------------------------ | :-------------------------- | | Number of Awards | 195,859 | 97,408 | (53,996) | 237,984 | | Weighted Average Grant-Date Fair Value | $23.02 | $35.19 | $22.09 | $28.21 | - As of June 30, 2025, there was **$3.8 million** of unrecognized compensation cost related to non-vested restricted stock awards, expected to be recognized over a weighted average period of **2.61 years**[97](index=97&type=chunk) [Note 8. Commitments and Contingent Liabilities](index=37&type=section&id=Note%208.%20Commitments%20and%20Contingent%20Liabilities) SmartFinancial has significant off-balance sheet commitments, including $957.2 million in credit extensions and $19.5 million in standby letters of credit, with management not anticipating a material adverse impact from legal proceedings Commitments and Contingent Liabilities (in thousands) | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :--------------------------- | :------------------------------- | | Commitments to extend credit | $957,162 | $828,755 | | Standby letters of credit | $19,487 | $23,246 | - The allowance for credit losses for off-balance sheet commitments increased to **$3.3 million** at June 30, 2025, from $2.5 million at December 31, 2024[100](index=100&type=chunk) - Management does not anticipate that the aggregate ultimate liability arising from pending or threatened legal proceedings will be **material** to the Company's consolidated financial position[104](index=104&type=chunk) [Note 9. Fair Value Disclosures](index=39&type=section&id=Note%209.%20Fair%20Value%20Disclosures) SmartFinancial uses a three-level hierarchy for fair value measurements, classifying most recurring fair value assets as Level 2 and nonrecurring collateral-dependent loans as Level 3, with no transfers between levels during the period - The Company classifies financial assets and liabilities measured at fair value into three levels based on the observability of inputs: **Level 1** (quoted prices in active markets), **Level 2** (observable inputs other than Level 1 quoted prices), and **Level 3** (unobservable inputs)[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) - Securities available-for-sale and derivative financial instruments are generally classified as **Level 2** for recurring fair value measurements[111](index=111&type=chunk)[112](index=112&type=chunk)[114](index=114&type=chunk) - Collateral-dependent loans are measured at fair value on a non-recurring basis and are classified as **Level 3**, with fair value determined by independent appraisals and management discounts[116](index=116&type=chunk) - There were **no transfers** between Level 1 and Level 2 or into or out of Level 3 in the fair value hierarchy during the six months ending June 30, 2025[114](index=114&type=chunk) [Note 10. Derivatives Financial Instruments](index=46&type=section&id=Note%2010.%20Derivatives%20Financial%20Instruments) SmartFinancial uses derivatives for fair value and cash flow hedges, as well as non-hedged customer loan hedging programs, with $150 thousand in collateral pledged for derivative contracts at June 30, 2025 - The Company uses interest rate swaps designated as fair value hedges to mitigate interest rate risk on available-for-sale securities, converting fixed rates to SOFR-based variable rates[121](index=121&type=chunk) - Cash flow hedges are used to manage exposure to variability in expected future cash flows due to changes in contractual interest rates, with changes in fair value recorded in AOCI[123](index=123&type=chunk)[124](index=124&type=chunk) - The Company offers a loan hedging program to customers using "back-to-back" interest rate swaps, which are not designated as hedging instruments, and changes in their fair value are recognized in other noninterest income[127](index=127&type=chunk) - Collateral totaling **$150 thousand** was pledged to derivative counterparties at June 30, 2025, to comply with collateral requirements[129](index=129&type=chunk) [Note 11. Leases](index=49&type=section&id=Note%2011.%20Leases) SmartFinancial's leases are primarily operating leases for real estate, recognized as ROU assets of $11.8 million and operating lease liabilities of $12.5 million at June 30, 2025, with net lease costs of $919 thousand for the six months - Substantially all of the Company's leases are operating leases for real estate (branches and office space), recognized as right-of-use (ROU) assets and lease liabilities on the consolidated balance sheet[131](index=131&type=chunk) Lease Assets and Liabilities (in thousands) | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :--------------------------- | :------------------------------- | | Operating lease right-of-use assets | $11,820 | $11,951 | | Operating lease liabilities | $12,451 | $12,472 | - The weighted average remaining life of the lease term was **10.12 years**, and the weighted average discount rate was **3.55%** at June 30, 2025[132](index=132&type=chunk) Lease Costs (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :---------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Operating lease costs | $467 | $468 | $948 | $919 | | Variable lease costs | $20 | $26 | $36 | $56 | | Sublease income | $(41) | $0 | $(65) | $0 | | Net lease cost | $446 | $494 | $919 | $975 | [Note 12. Regulatory Matters](index=51&type=section&id=Note%2012.%20Regulatory%20Matters) SmartFinancial and SmartBank exceeded all minimum regulatory capital requirements and "well capitalized" thresholds at June 30, 2025, with regulatory restrictions limiting dividend payments based on financial conditions - At June 30, 2025, both SmartFinancial and SmartBank exceeded the minimum regulatory capital requirements and the threshold for the **"well capitalized"** regulatory classification, including the Basel III capital conservation buffer[136](index=136&type=chunk)[140](index=140&type=chunk) - The Company adopted ASU 2016-13 (Credit Losses Measurement) on January 1, 2023, and chose the **three-year phase-in option** for its day-one impact on earnings and Tier 1 capital[137](index=137&type=chunk) - During the six months ended June 30, 2025, the Bank paid **$3.0 million** in dividends to the Company, and the Company paid a quarterly common stock dividend of **$0.08 per share**[139](index=139&type=chunk) - Regulatory restrictions from Tennessee banking law and the Federal Reserve limit the Bank's and Company's ability to pay dividends, based on retained net income, capital levels, and other financial conditions[138](index=138&type=chunk) Capital Ratios (in thousands) | Capital Ratio | June 30, 2025 (Actual Amount, in thousands) | June 30, 2025 (Actual Ratio) | Dec 31, 2024 (Actual Amount, in thousands) | Dec 31, 2024 (Actual Ratio) | | :-------------------------------------- | :------------------------------------------ | :--------------------------- | :----------------------------------------- | :--------------------------- | | Total Capital (to Risk Weighted Assets) | $495,344 | 11.04% | $470,635 | 11.10% | | Tier 1 Capital (to Risk Weighted Assets) | $433,782 | 9.67% | $413,616 | 9.76% | | Common Equity Tier 1 Capital (to Risk Weighted Assets) | $433,782 | 9.67% | $413,616 | 9.76% | | Tier 1 Capital (to Average Assets) | $433,782 | 8.25% | $413,616 | 8.29% | [Note 13. Other Comprehensive Income (Loss)](index=54&type=section&id=Note%2013.%20Other%20Comprehensive%20Income%20(Loss)) SmartFinancial's accumulated other comprehensive loss improved significantly to $(17.3) million at June 30, 2025, from $(23.7) million at December 31, 2024, driven by net other comprehensive income of $6.4 million Accumulated Other Comprehensive Income (Loss) (in thousands) | Component | Beginning Balance Dec 31, 2024 (in thousands) | Net OCI (Loss) Six Months Ended Jun 30, 2025 (in thousands) | Ending Balance Jun 30, 2025 (in thousands) | | :-------------------------------------- | :-------------------------------------------- | :---------------------------------------------------- | :--------------------------------- | | Securities Available-for-Sale | $(22,350) | $5,826 | $(16,524) | | Securities Transferred to Held-to-Maturity | $(534) | $45 | $(489) | | Fair Value Municipal Security Hedges | $(166) | $(126) | $(292) | | Cash Flow Hedges | $(621) | $652 | $31 | | Total Accumulated Other Comprehensive Income (Loss) | $(23,671) | $6,397 | $(17,274) | - Net other comprehensive income (loss) for the six months ended June 30, 2025, was **$6.4 million**, a significant improvement compared to $109 thousand in the same period of 2024[13](index=13&type=chunk)[142](index=142&type=chunk) [Note 14. Segment Information](index=55&type=section&id=Note%2014.%20Segment%20Information) SmartFinancial operates as a single reportable operating segment, the General Banking Unit, with performance primarily evaluated by net income and net interest income - The Company's operations are managed and evaluated as a **single reportable operating segment**, the "General Banking Unit," which offers a broad range of financial services[143](index=143&type=chunk) - The Chief Operating Decision Maker (Executive Committee) primarily utilizes **net income** and **net interest income** to make business decisions and monitor performance[144](index=144&type=chunk)[145](index=145&type=chunk) - The most significant expenses for the General Banking Unit are deposit and other borrowing interest expense, as well as employee compensation[146](index=146&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=56&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of SmartFinancial's financial performance, condition, and operational results, highlighting key financial metrics, asset quality, and risk management strategies [Executive Summary](index=60&type=section&id=Executive%20Summary) SmartFinancial reported strong financial performance for Q2 and the first six months of 2025, with net income significantly increasing year-over-year, alongside improved diluted EPS and substantial loan and deposit growth Executive Summary Financial Highlights | Metric | Q2 2025 | Q2 2024 | 6 Months 2025 | 6 Months 2024 | | :-------------------------------- | :------ | :------ | :------------ | :------------ | | Net income (in millions) | $11.7 | $8.0 | $23.0 | $17.4 | | Diluted income per common share | $0.69 | $0.48 | $1.36 | $1.03 | | Return on average assets (annualized) | 0.88% | 0.66% | 0.87% | 0.72% | | Return on average shareholders' equity (annualized) | 9.19% | 6.90% | 9.18% | 7.53% | - Net organic loans and leases increased by **$215.4 million** from December 31, 2024[155](index=155&type=chunk) - Deposit growth of **$185.6 million** from December 31, 2024[155](index=155&type=chunk) [Analysis of Results of Operations](index=61&type=section&id=Analysis%20of%20Results%20of%20Operations) SmartFinancial's results of operations for Q2 and the first six months of 2025 show significant year-over-year improvements in net income, driven by increased net interest income and higher noninterest income, partially offset by rising noninterest expenses [Net Interest Income and Yield Analysis](index=61&type=section&id=Net%20Interest%20Income%20and%20Yield%20Analysis) Net interest income, on a taxable equivalent basis, increased significantly for both the second quarter and first six months of 2025 compared to 2024, primarily due to higher loan balances and increased yields on earning assets Net Interest Income and Yield Analysis (in thousands) | Metric | Q2 2025 | Q2 2024 | 6 Months 2025 | 6 Months 2024 | | :-------------------------- | :------ | :------ | :------------ | :------------ | | Net interest income (in thousands) | $40,343 | $32,814 | $78,582 | $64,535 | | Tax equivalent net interest income (in thousands) | $40,693 | $33,165 | $79,272 | $64,979 | | Tax equivalent net interest margin | 3.29% | 2.97% | 3.25% | 2.91% | | Yield on earning assets | 5.65% | 5.52% | 5.61% | 5.44% | | Cost of average interest-bearing deposits | 2.95% | 3.23% | 2.93% | 3.19% | - Average loan and lease balances increased by **$546.2 million** for Q2 2025 YoY and **$515.0 million** for the first six months 2025 YoY[160](index=160&type=chunk)[165](index=165&type=chunk) - The decrease in the cost of average interest-bearing deposits was primarily due to the decrease in rates by the Federal Reserve[160](index=160&type=chunk)[165](index=165&type=chunk) [Noninterest Income](index=66&type=section&id=Noninterest%20Income) SmartFinancial's total noninterest income increased by $1.3 million in Q2 2025 and $1.5 million for the first six months of 2025, driven by growth in mortgage banking, investment services, and insurance commissions Noninterest Income (in thousands) | Category | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change (QoQ, in thousands) | 6 Months 2025 (in thousands) | 6 Months 2024 (in thousands) | Change (YoY, in thousands) | | :-------------------------------------- | :--------------------- | :--------------------- | :------------------------- | :--------------------------- | :--------------------------- | :------------------------- | | Service charges on deposit accounts | $1,766 | $1,692 | $74 | $3,502 | $3,304 | $198 | | Mortgage banking | $633 | $348 | $285 | $1,126 | $628 | $498 | | Investment services | $1,440 | $1,302 | $138 | $3,209 | $2,682 | $527 | | Insurance commissions | $1,554 | $1,284 | $270 | $2,967 | $2,387 | $580 | | Other | $2,167 | $1,635 | $532 | $4,133 | $4,387 | $(254) | | Total noninterest income | $8,898 | $7,604 | $1,294 | $17,495 | $15,984 | $1,511 | - The increase in noninterest income was driven by increased volume in mortgage banking, higher investment activity, and organic growth in insurance commissions[169](index=169&type=chunk)[172](index=172&type=chunk) [Noninterest Expense](index=66&type=section&id=Noninterest%20Expense) SmartFinancial's noninterest expense increased by $3.4 million in Q2 2025 and $7.1 million for the first six months of 2025, primarily due to increased salaries and employee benefits, professional services, and other franchise growth-related expenses Noninterest Expense (in thousands) | Category | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change (QoQ, in thousands) | 6 Months 2025 (in thousands) | 6 Months 2024 (in thousands) | Change (YoY, in thousands) | | :-------------------------------- | :--------------------- | :--------------------- | :------------------------- | :--------------------------- | :--------------------------- | :------------------------- | | Salaries and employee benefits | $19,602 | $17,261 | $2,341 | $38,836 | $33,900 | $4,936 | | Occupancy and equipment | $3,432 | $3,324 | $108 | $6,829 | $6,720 | $109 | | FDIC insurance | $992 | $825 | $167 | $1,952 | $1,740 | $212 | | Other real estate and loan-related expense | $757 | $538 | $219 | $1,415 | $1,123 | $292 | | Data processing and technology | $2,651 | $2,452 | $199 | $5,309 | $4,916 | $393 | | Professional services | $1,153 | $1,064 | $89 | $2,521 | $1,989 | $532 | | Other | $3,026 | $2,834 | $192 | $6,097 | $5,549 | $548 | | Total noninterest expense | $32,569 | $29,201 | $3,368 | $64,866 | $57,754 | $7,112 | - The increase in noninterest expense was primarily due to increased salaries from franchise growth, higher professional services expenses (audit fees, advisory board fees, consulting expenses), and other expenses related to overall franchise growth[171](index=171&type=chunk)[176](index=176&type=chunk) [Taxes](index=67&type=section&id=Taxes) SmartFinancial's income tax expense for Q2 2025 was $2.6 million, with an effective tax rate of 17.9%, and for the first six months was $4.9 million, with an effective tax rate of 17.5%, primarily related to the Bank's Real Estate Investment Trust Income Tax Expense and Effective Tax Rate (in thousands) | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | 6 Months 2025 (in thousands) | 6 Months 2024 (in thousands) | | :---------------------- | :--------------------- | :--------------------- | :--------------------------- | :--------------------------- | | Income tax expense | $2,556 | $2,331 | $4,861 | $4,962 | | Effective tax rate | 17.9% | 22.6% | 17.5% | 22.2% | - The decrease in the effective tax rate is primarily related to the Bank's Real Estate Investment Trust[173](index=173&type=chunk)[174](index=174&type=chunk) [Loan and Lease Portfolio](index=67&type=section&id=Loan%20and%20Lease%20Portfolio) SmartFinancial's total net loans and leases grew to $4.08 billion at June 30, 2025, from $3.87 billion at December 31, 2024, with real estate-secured loans as the principal component and a significant portion having floating interest rates Loan and Lease Portfolio (in thousands) | Category | June 30, 2025 (in thousands) | % of Gross Total | December 31, 2024 (in thousands) | % of Gross Total | | :------------------------------ | :--------------------------- | :--------------- | :------------------------------- | :--------------- | | Commercial real estate: Non-owner occupied | $1,114,133 | 26.9% | $1,080,404 | 27.5% | | Commercial real estate: Owner occupied | $958,989 | 23.3% | $867,678 | 22.2% | | Consumer real estate | $803,270 | 19.5% | $741,836 | 19.0% | | Construction and land development | $391,155 | 9.5% | $361,735 | 9.3% | | Commercial and industrial | $778,754 | 18.9% | $775,620 | 19.9% | | Leases | $62,495 | 1.5% | $64,878 | 1.7% | | Consumer and other | $15,266 | 0.4% | $14,189 | 0.4% | | Total loans and leases | $4,124,062 | 100.0% | $3,906,340 | 100.0% | | Less: Allowance for credit losses | $(39,776) | | $(37,423) | | | Loans and leases, net | $4,084,286 | | $3,868,917 | | Loan and Lease Maturity and Rate Distribution (in thousands) | Category | One Year or Less (in thousands) | One through Five Years (in thousands) | Five through Fifteen Years (in thousands) | Over Fifteen Years (in thousands) | Total (in thousands) | Fixed Rate (in thousands) | Floating Rate (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------------ | :---------------------------------------- | :-------------------------------- | :------------------- | :------------------------ | :------------------------- | | Commercial real estate: Non-owner occupied | $112,885 | $759,282 | $215,436 | $26,530 | $1,114,133 | $517,450 | $483,798 | | Owner occupied | $39,388 | $521,377 | $374,797 | $23,427 | $958,989 | $481,129 | $438,472 | | Consumer real estate-mortgage | $60,350 | $252,834 | $96,728 | $393,358 | $803,270 | $269,799 | $473,121 | | Construction and land development | $119,911 | $163,447 | $52,420 | $55,377 | $391,155 | $80,678 | $190,566 | | Commercial and industrial | $276,557 | $398,548 | $80,909 | $22,740 | $778,754 | $338,796 | $163,401 | | Leases | $2,841 | $59,654 | $0 | $0 | $62,495 | $59,654 | $0 | | Consumer and other | $9,902 | $5,032 | $301 | $31 | $15,266 | $4,768 | $596 | | Total loans and leases | $621,834 | $2,160,174 | $820,591 | $521,463 | $4,124,062 | $1,752,274 | $1,749,954 | [Nonaccrual, Past Due, and Restructured Loans and Leases](index=69&type=section&id=Nonaccrual%2C%20Past%20Due%2C%20and%20Restructured%20Loans%20and%20Leases) Nonperforming loans and leases as a percentage of total gross loans and leases remained stable at 0.19% at June 30, 2025, with total nonaccrual loans increasing slightly to $7.9 million, covered by a 504.20% allowance for credit losses - Nonperforming loans and leases as a percentage of total gross loans and leases was **0.19%** at June 30, 2025, a slight decrease from 0.20% at December 31, 2024[178](index=178&type=chunk) Nonaccrual Loans and Allowance Coverage (in thousands) | Category | June 30, 2025 (Amount, in thousands) | December 31, 2024 (Amount, in thousands) | | :------------------------------ | :----------------------------------- | :----------------------------------- | | Commercial real estate: Non-owner occupied | $572 | $514 | | Commercial real estate: Owner occupied | $915 | $906 | | Consumer real estate | $1,233 | $1,995 | | Construction and land development | $0 | $39 | | Commercial and industrial | $2,612 | $1,820 | | Leases | $2,556 | $2,433 | | Consumer and other | $1 | $2 | | Total Nonaccrual Loans | $7,889 | $7,709 | | Allowance for credit losses to nonaccrual loans | 504.20% | 485.45% | [Allocation of the Allowance for Credit Losses](index=70&type=section&id=Allocation%20of%20the%20Allowance%20for%20Credit%20Losses) SmartFinancial's allowance for credit losses (ACL) increased to $39.8 million at June 30, 2025, from $37.4 million at December 31, 2024, maintaining a consistent 0.96% of total loans and leases, with a provision of $2.6 million for the six months - The allowance for credit losses was **$39.8 million** at June 30, 2025, and **$37.4 million** at December 31, 2024, with the ratio of ACL to total loans and leases remaining at **0.96%** for both periods[181](index=181&type=chunk)[182](index=182&type=chunk) - The provision for credit losses for loans and leases for the six months ended June 30, 2025, was **$2.6 million**, an increase of $1.8 million compared to $818 thousand in the same period of 2024, driven by increased loan and lease volume[181](index=181&type=chunk) Allowance for Credit Losses Allocation (in thousands) | Category | Amount of Allowance Allocated (in thousands) | Total Loans (in thousands) | Ratio of Allowance to Loans in Each Category | | :------------------------------ | :----------------------------------- | :------------------------- | :------------------------------------------- | | Commercial real estate: Non-owner occupied | $7,254 | $1,114,133 | 0.65% | | Commercial real estate: Owner occupied | $8,862 | $958,989 | 0.92% | | Consumer real estate | $8,887 | $803,270 | 1.11% | | Construction and land development | $4,450 | $391,155 | 1.14% | | Commercial and industrial | $9,330 | $778,754 | 1.20% | | Leases | $868 | $62,495 | 1.39% | | Consumer and other | $125 | $15,266 | 0.82% | | Total | $39,776 | $4,124,062 | 0.96% | [Analysis of the Allowance for Credit Losses](index=72&type=section&id=Analysis%20of%20the%20Allowance%20for%20Credit%20Losses) The analysis of the allowance for credit losses shows a provision of $1.7 million for Q2 2025 and $2.6 million for the first six months of 2025, with net charge-offs of $(146) thousand and $(238) thousand, respectively, and the ACL to total loans remaining at 0.96% Allowance for Credit Losses Analysis (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | | :-------------------------- | :---------------------------------------------- | :-------------------------------------------- | | Provision for Credit Losses | $1,747 | $2,591 | | Net (charge-offs) Recoveries | $(146) | $(238) | - The ratio of the allowance for credit losses to total loans and leases was **0.96%** at June 30, 2025, and December 31, 2024[181](index=181&type=chunk) [Securities Portfolio](index=72&type=section&id=Securities%20Portfolio) SmartFinancial's securities portfolio increased to $626.7 million at June 30, 2025, from $609.0 million at December 31, 2024, primarily due to available-for-sale securities purchases, with a slight decrease in the securities to asset ratio to 11.4% - The securities portfolio increased from **$609.0 million** at December 31, 2024, to **$626.7 million** at June 30, 2025, primarily due to available-for-sale securities purchases[184](index=184&type=chunk) - The securities to asset ratio decreased slightly from 11.5% at December 31, 2024, to **11.4%** at June 30, 2025[184](index=184&type=chunk) - The portfolio primarily consists of Federal agency bonds, mortgage-backed securities, state and municipal securities, and other debt securities[184](index=184&type=chunk) [Deposits](index=73&type=section&id=Deposits) SmartFinancial's total deposits increased by $185.6 million to $4.87 billion at June 30, 2025, driven by increases in time, money market, and interest-bearing demand deposits, partially offset by a decline in noninterest-bearing demand deposits, with the average cost of interest-bearing deposits decreasing - Total deposits increased by **$185.6 million** to **$4.87 billion** at June 30, 2025, from December 31, 2024[191](index=191&type=chunk) - This increase was driven by increases in other time deposits (**$95.2 million**), money market deposits (**$85.1 million**), interest-bearing demand deposits (**$7.1 million**), and brokered deposits (**$56.9 million**), offset by a decline in noninterest demand deposits (**$58.6 million**)[191](index=191&type=chunk) - The average cost of interest-bearing deposits decreased from 3.23% to **2.95%** for the three months ended June 30, 2025, and from 3.19% to **2.93%** for the six months ended June 30, 2025, primarily due to Federal Reserve rate decreases[190](index=190&type=chunk) - Brokered deposits represented approximately **5.52%** of total deposits at June 30, 2025[187](index=187&type=chunk) [Borrowings](index=75&type=section&id=Borrowings) SmartFinancial's total borrowings were $7.0 million at June 30, 2025, consisting of $4.0 million in short-term borrowings and $3.0 million in securities sold under repurchase agreements, with long-term subordinated debt remaining at $39.7 million - Total borrowings were **$7.0 million** at June 30, 2025, comprising **$4.0 million** in short-term borrowings and **$3.0 million** in securities sold under repurchase agreements[194](index=194&type=chunk) - Long-term debt, consisting solely of subordinated debt, totaled **$39.7 million** at June 30, 2025[194](index=194&type=chunk) [Capital Resources](index=75&type=section&id=Capital%20Resources) SmartFinancial and SmartBank maintained capital ratios exceeding regulatory minimums and "well capitalized" thresholds at June 30, 2025, with the Company believing it has various capital-raising techniques available to support its bank subsidiary if needed - At June 30, 2025, SmartFinancial's and SmartBank's capital ratios exceeded regulatory minimum capital requirements and the **"well capitalized"** regulatory classification[195](index=195&type=chunk) - The Company believes it has various capital raising techniques available to provide for the capital needs of its bank subsidiary, if necessary[195](index=195&type=chunk) [Liquidity and Off-Balance Sheet Arrangements](index=75&type=section&id=Liquidity%20and%20Off-Balance%20Sheet%20Arrangements) SmartFinancial manages liquidity through asset maturities, core deposit growth, and internally generated funding, with $957.2 million in unused lines of credit and $1.22 billion in unused borrowing capacity at June 30, 2025 - At June 30, 2025, the Company had **$957.2 million** of pre-approved but unused lines of credit and **$19.5 million** of standby letters of credit[196](index=196&type=chunk) - The Bank has unused borrowing capacity of **$1.22 billion** available with the Federal Reserve, Federal Home Loan Bank, and correspondent banks, which can be used to fund outstanding commitments[207](index=207&type=chunk) [Market Risk and Liquidity Risk Management](index=77&type=section&id=Market%20Risk%20and%20Liquidity%20Risk%20Management) SmartFinancial's ALCO oversees market risk, particularly interest rate risk, using earnings simulation and economic value of equity models to manage the impact of fluctuating market rates on net interest income and ensure sufficient liquidity [Interest Rate Sensitivity](index=77&type=section&id=Interest%20Rate%20Sensitivity) SmartFinancial measures interest rate sensitivity using an earnings simulation model, indicating that a 100 basis point instantaneous increase in rates would result in a (1.65)% change in net interest income over 12 months, while a 100 basis point decrease would result in a 1.02% increase - The Company uses an earnings simulation model as the primary quantitative tool to measure interest rate risk, quantifying the effects of various interest rate scenarios on projected net interest income over **12-24 months**[198](index=198&type=chunk)[200](index=200&type=chunk) Estimated % Change in Net Interest Income Over 12 Months | Instantaneous, Parallel Change in Prevailing Interest Rates Equal to: | Estimated % Change in Net Interest Income Over 12 Months | | :---------------------------------------------------------------- | :------------------------------------------------------- | | 100 basis points increase | (1.65)% | | 200 basis points increase | (3.27)% | | 100 basis points decrease | 1.02% | | 200 basis points decrease | 1.91% | [Economic Value of Equity](index=79&type=section&id=Economic%20Value%20of%20Equity) SmartFinancial's economic value of equity model measures changes in asset, liability, and off-balance sheet item values due to interest rate fluctuations, indicating the company was within its policy limits at June 30, 2025 - The economic value of equity model measures the extent to which estimated economic values of assets, liabilities, and off-balance sheet items change due to interest rate changes[202](index=202&type=chunk) Estimated Instantaneous Rate Change on Economic Value of Equity | Instantaneous, Parallel Change in Prevailing Interest Rates Equal to: | Current Estimated Instantaneous Rate Change | | :---------------------------------------------------------------- | :------------------------------------------ | | 100 basis points increase | (1.22)% | | 200 basis points increase | (3.13)% | | 100 basis points decrease | 2.76% | | 200 basis points decrease | 3.97% | - At June 30, 2025, the model results indicated that the Company was within its policy limits for economic value of equity[203](index=203&type=chunk) [Liquidity Risk Management](index=79&type=section&id=Liquidity%20Risk%20Management) SmartFinancial's liquidity risk management ensures sufficient cash flows for loan demand, deposit withdrawals, and other needs, relying on asset maturities, core deposit growth, and $1.22 billion in unused borrowing capacity - The purpose of liquidity risk management is to ensure sufficient cash flows to satisfy loan and lease demand, deposit withdrawals, and other needs[204](index=204&type=chunk) - The Company has **$4.8 million** in securities that mature throughout the next 12 months[207](index=207&type=chunk) - The Company has unused borrowing capacity of **$1.22 billion** available with the Federal Reserve, Federal Home Loan Bank, and correspondent banks[207](index=207&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=80&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section incorporates by reference the detailed market risk and liquidity risk management disclosures provided in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations - The information regarding market risk and liquidity risk management is incorporated by reference from Item 2 of this report[209](index=209&type=chunk) [Item 4. Controls and Procedures](index=80&type=section&id=Item%204.%20Controls%20and%20Procedures) SmartFinancial's management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter - SmartFinancial's disclosure controls and procedures were evaluated and deemed **effective** as of June 30, 2025[210](index=210&type=chunk) - No material changes occurred in SmartFinancial's internal control over financial reporting during the quarter ended June 30, 2025[211](index=211&type=chunk) PART II – OTHER INFORMATION This section covers SmartFinancial's legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings](index=81&type=section&id=Item%201.%20Legal%20Proceedings) SmartFinancial and SmartBank are routinely involved in various legal actions, but management does not anticipate a material adverse impact on the Company's financial position - SmartFinancial and SmartBank are periodically involved in legal actions in the ordinary course of business[213](index=213&type=chunk) - Management does not anticipate that the ultimate liability from pending or threatened litigation will have a **material adverse impact** on the Company's financial position[213](index=213&type=chunk) [Item 1A. Risk Factors](index=81&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the comprehensive risk factors previously disclosed in SmartFinancial's Form 10-K for the year ended December 31, 2024, with no material changes during the current reporting period - The risk factors are incorporated by reference from the Company's Form 10-K for the year ended December 31, 2024[214](index=214&type=chunk) - There are **no material changes** to the previously disclosed risk factors during the period covered by this report[215](index=215&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=81&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) SmartFinancial has an authorized stock repurchase plan of $10.0 million, with $8.5 million utilized as of June 30, 2025, and no shares repurchased during the three months ended June 30, 2025 - The Company has an authorized stock repurchase plan of **$10.0 million**[216](index=216&type=chunk) - As of June 30, 2025, **$8.5 million** of the authorized amount has been purchased, with an additional **$1.5 million** remaining for repurchase[216](index=216&type=chunk)[218](index=218&type=chunk) - No shares were repurchased during the three months ended June 30, 2025[218](index=218&type=chunk) [Item 3. Defaults Upon Senior Securities](index=81&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) SmartFinancial reported no defaults upon senior securities during the period - There were **no defaults** upon senior securities[219](index=219&type=chunk) [Item 4. Mine Safety Disclosures](index=83&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to SmartFinancial, Inc - This item is **not applicable**[221](index=221&type=chunk) [Item 5. Other Information](index=83&type=section&id=Item%205.%20Other%20Information) None of the Company's directors or executive officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025 - None of the Company's directors or executive officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[223](index=223&type=chunk) [Item 6. Exhibits](index=83&type=section&id=Item%206.%20Exhibits) The exhibits include the Company's charter, bylaws, loan and security agreements, omnibus incentive plan, restricted stock award certificates, certifications, and Interactive Data Files (Inline XBRL) - The exhibits include the Company's charter, bylaws, loan and security agreements, omnibus incentive plan, restricted stock award certificates, certifications (Rule 13a-14(a)/15d-14(a) and Sarbanes-Oxley Act), and Interactive Data Files (Inline XBRL)[222](index=222&type=chunk)

Financial Data and Key Metrics Changes - The company reported net income of $11.7 million or $0.69 per diluted share for Q2 2025, indicating strong performance [6] - Tangible book value increased to $24.42 per share, representing over 13% annualized growth quarter over quarter [8] - Total revenue reached $49.2 million, with net interest income expanding as anticipated [10] - Noninterest expenses were recorded at $32.6 million, aligning with targets [11] Business Line Data and Key Metrics Changes - Loan growth was strong at an annualized pace of 13% for Q2, exceeding expectations [9] - Deposit growth was sound at 5% quarter over quarter annualized, with a loan to deposit ratio of 85% [9][14] - Noninterest income rose to $8.9 million, exceeding projections due to higher insurance and mortgage banking revenues [16] Market Data and Key Metrics Changes - The company maintained a solid credit quality with non-performing assets at just 0.19% of total assets [16] - The average rate on new loan production was 7.11%, contributing to a quarterly portfolio yield of 6.07% [15][45] Company Strategy and Development Direction - The company is focused on leveraging growth and deepening its market presence in existing regions rather than pursuing new market expansions [20][33] - Talent acquisition remains a priority, with plans to add new revenue-producing team members across various regions [21][62] - The company aims to maintain a balance between revenue growth and expense management, targeting continued operating leverage [49] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth, expecting to continue achieving mid to high single-digit growth rates [20][22] - The company is preparing for potential rate cuts, which could further enhance net interest margin [47] - Credit quality remains strong, with no significant signs of weakness observed in the portfolio [72] Other Important Information - The company’s consolidated TCE ratio increased to 7.7%, and total risk-based capital ratio remained well above regulatory standards at 11.1% [18] - The management emphasized the importance of maintaining a strong company culture, which has been recognized as a great place to work [22] Q&A Session Summary Question: Loan growth and future potential - Management believes maintaining a high single-digit growth rate is feasible, with potential for low double digits if new hires are effective [26][28] Question: Geographic focus for new hires - New hires are spread across various regions, including Tennessee, Alabama, and the Gulf Coast [29][30] Question: Future revenue targets and growth strategy - The company is focused on deepening its market presence rather than major market expansions, with plans for 2026 already in progress [32][34] Question: Margin expectations and deposit costs - The company anticipates a slight increase in deposit costs but expects net interest margin to expand naturally [47] Question: Credit quality and stress testing - Credit metrics remain strong, with no signs of weakness, and stress testing has been conducted on lower yielding loans maturing soon [72][75] Question: Recruitment strategy and market opportunities - The company is consistently recruiting top talent, focusing on markets with significant growth potential [61][64] Question: Average loan size trends - The average loan size has not significantly increased, as the company continues to focus on smaller, sustainable transactions [86][90]

Financial Data and Key Metrics Changes - The company reported a net income of $11.7 million or $0.69 per diluted share for Q2 2025, indicating strong performance [6] - Tangible book value increased to $24.42 per share, representing over 13% annualized growth quarter over quarter [7] - Total revenue for the quarter was $49.2 million, with net interest income expanding as anticipated [9] Business Line Data and Key Metrics Changes - Loan growth was at a 13% annualized pace for Q2, exceeding expectations, while deposit growth was 5% quarter over quarter annualized [8] - Noninterest income rose by $300,000 to $8.9 million, driven by higher insurance and mortgage banking revenues [16] Market Data and Key Metrics Changes - The average portfolio yield, including fees and accretion, was up to 6.07%, with new loan production contributing positively [12] - The loan to deposit ratio was maintained at 85%, with noninterest bearing deposits comprising 90% of total deposits [14] Company Strategy and Development Direction - The company aims to deepen its presence in existing markets rather than pursuing new market expansions, focusing on organic growth [33][81] - Talent acquisition remains a priority, with plans to add 10 new revenue-producing team members in commercial banking, private banking, and treasury management [21] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued growth in EPS and revenue, with solid pipelines and a focus on operational efficiency [20][22] - The company anticipates margin expansion of 2 to 3 basis points per quarter for the second half of 2025, despite expected increases in deposit costs [15][47] Other Important Information - The company maintained a strong credit quality with non-performing assets at just 0.19% of total assets [16] - Operating expenses were recorded at $32.6 million, at the low end of the guided range, with a modest increase attributed to merit increases and incentive compensation [17] Q&A Session Summary Question: Loan growth and future potential - Management believes maintaining a high single-digit growth rate is feasible, with potential for low double-digit growth if new hires are effective [25][28] Question: Geographic focus for new hires - New hires are spread across various regions, including Tennessee, Alabama, and the Gulf Coast, with no specific geographic concentration [29][30] Question: Future revenue targets and growth strategy - The company is focused on deepening its market presence and achieving set targets for 2025, with ongoing planning for 2026 [31][34] Question: Margin expectations and deposit costs - The company expects to see margin expansion despite rising deposit costs, with a forecasted margin of 3.3% to 3.35% for Q3 [15][47] Question: Credit quality and stress testing - Management reported no signs of weakness in credit quality and has conducted stress testing on lower-yielding loans maturing in Q4 [71][75] Question: Recruitment and market expansion - The company is focused on organic growth and recruitment within existing markets, with no immediate plans for major market expansions [81][82]

Financial Performance Highlights - The company's GAAP Earnings Per Share (EPS) increased from $0.48 in 2Q24 to $0.69 in 2Q25[10] - The company's Operating EPS increased from $0.46 in 2Q24 to $0.69 in 2Q25[10] - The company's Operating Return on Average Assets (ROAA) was 0.88% in 2Q25[10] - The company's Operating Return on Average Tangible Common Equity (ROATCE) was 11.5% in 2Q25[10] - The company's Tangible Book Value (TBV) per share increased from $21.66 in 2Q24 to $24.42 in 2Q25[10] Balance Sheet and Loan Portfolio - Total assets reached $5.5 billion[10] - Total loans amounted to $4.1 billion[39] - Total deposits reached $4.9 billion[39] - The loan-to-deposit ratio was 85%[10] - Non-Performing Assets (NPAs) to total assets ratio was 0.19%[10]

Financial Performance - For the quarter ended June 2025, SmarFinancial (SMBK) reported revenue of $49.24 million, up 21.8% year-over-year [1] - EPS for the quarter was $0.69, compared to $0.46 in the same quarter last year [1] - The reported revenue exceeded the Zacks Consensus Estimate of $48.71 million by +1.09% [1] - EPS also surpassed the consensus estimate of $0.66 by +4.55% [1] Key Metrics - Efficiency Ratio was 66.1%, better than the three-analyst average estimate of 67% [4] - Net Interest Margin was reported at 3.3%, matching the average estimate [4] - Net charge-offs to average loans were 0%, compared to the two-analyst average estimate of 0.1% [4] - Average Balance of Total interest earning assets was $4.96 billion, in line with estimates [4] - Total noninterest income was $8.9 million, exceeding the average estimate of $8.61 million [4] - Interchange and debit card transaction fees were $1.34 million, slightly above the average estimate of $1.32 million [4] - Service charges on deposit accounts were $1.77 million, slightly below the average estimate of $1.79 million [4] - Other noninterest income was $2.17 million, significantly above the two-analyst average estimate of $1.85 million [4] - Investment services revenue was $1.44 million, below the average estimate of $1.55 million [4] - Insurance commissions were $1.55 million, exceeding the average estimate of $1.33 million [4] - Net interest income (FTE) was $40.69 million, above the two-analyst average estimate of $40.19 million [4] Stock Performance - Shares of SmarFinancial have returned +14.7% over the past month, outperforming the Zacks S&P 500 composite's +5.4% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market [3]

Core Viewpoint - SmarFinancial (SMBK) reported quarterly earnings of $0.69 per share, exceeding the Zacks Consensus Estimate of $0.66 per share, and showing an increase from $0.46 per share a year ago, indicating a positive earnings surprise of +4.55% [1] Financial Performance - The company achieved revenues of $49.24 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 1.09%, and up from $40.42 million in the same quarter last year [2] - Over the last four quarters, SmarFinancial has consistently exceeded consensus EPS estimates [2] Stock Performance - SmarFinancial shares have increased approximately 17.1% since the beginning of the year, outperforming the S&P 500's gain of 7.1% [3] Future Outlook - The company's earnings outlook is crucial for assessing future stock performance, with current consensus EPS estimates at $0.72 for the coming quarter and $2.77 for the current fiscal year [7] - The Zacks Rank for SmarFinancial is currently 3 (Hold), indicating expected performance in line with the market in the near future [6] Industry Context - The Banks - Northeast industry, to which SmarFinancial belongs, is currently ranked in the top 30% of over 250 Zacks industries, suggesting a favorable environment for performance [8]

Executive Summary & Financial Highlights [Overall Performance](index=1&type=section&id=Overall%20Performance) SmartFinancial, Inc. reported strong financial results for Q2 2025, with significant increases in net income and diluted EPS compared to both the prior quarter and the same quarter last year, demonstrating sustained growth and positive operating leverage Q2 2025 Financial Performance Overview | Metric | Q2 2025 | Q1 2025 | Q2 2024 | YoY Change (Q2 2025 vs Q2 2024) | QoQ Change (Q2 2025 vs Q1 2025) | | :----------------------- | :-------- | :-------- | :-------- | :-------------------------------- | :-------------------------------- | | Net Income | $11.7M | $11.3M | $8.0M | +46.25% | +3.54% | | Diluted EPS | $0.69 | $0.67 | $0.48 | +43.75% | +2.99% | | Operating Earnings | $11.7M | $11.3M | $7.8M | +50.00% | +3.54% | | Operating Diluted EPS | $0.69 | $0.67 | $0.46 | +50.00% | +2.99% | - The Company delivered **five consecutive quarters** of positive operating leverage, indicating efficient growth[3](index=3&type=chunk) - Asset quality remains solid with non-performing assets at **0.19%** of total assets[3](index=3&type=chunk) [Key Highlights for Q2 2025](index=1&type=section&id=Key%20Highlights%20for%20Q2%202025) Key achievements for the second quarter of 2025 include strong loan growth, improved tangible book value, and continued recognition for its workplace culture - Net organic loan and lease growth of **$132 million**, representing a **13%** annualized quarter-over-quarter increase[6](index=6&type=chunk) - Quarter-over-quarter tangible book value per share growth of **13.7%**[6](index=6&type=chunk) - Recertified as a Great Place to Work by over **92%** of SmartBank associates[6](index=6&type=chunk) - Three business production team members added to Commercial and Private Banking teams[6](index=6&type=chunk) Financial Performance Analysis [Net Interest Income and Net Interest Margin](index=1&type=section&id=Net%20Interest%20Income%20and%20Net%20Interest%20Margin) Net interest income increased to $40.3 million in Q2 2025, driven by growth in average earning assets, particularly loans and leases, and an improved tax equivalent net interest margin of 3.29% Net Interest Income and Margin Trends | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :-------------------------- | :-------- | :-------- | :----------- | | Net Interest Income | $40.3M | $38.2M | +$2.1M | | Average Earning Assets | $4.96B | $4.87B | +$87.8M | | Tax Equivalent Net Interest Margin | 3.29% | 3.21% | +0.08% | | Yield on Loans and Leases (FTE, excl. fees) | 5.99% | 5.88% | +0.11% | | Cost of Total Deposits | 2.39% | 2.37% | +0.02% | | Cost of Interest-Bearing Liabilities | 2.99% | 2.97% | +0.02% | - The increase in average earning assets was primarily due to a **$109.2 million** increase in average loans and leases and **$9.9 million** in securities, partially offset by a decrease in interest-earning cash[4](index=4&type=chunk) - The net interest margin was positively impacted by increased yield on interest-earning assets, despite an increase in the cost of interest-bearing liabilities[5](index=5&type=chunk) [Selected Interest Rates and Yields](index=3&type=section&id=Selected%20Interest%20Rates%20and%20Yields) Yields on earning assets and loans increased quarter-over-quarter, while the cost of deposits and interest-bearing liabilities also saw slight increases Selected Interest Rates and Yields (QoQ) | Selected Interest Rates and Yields | Jun 2025 | Mar 2025 | Increase (Decrease) | | :--------------------------------- | :------- | :------- | :------------------ | | Yield on loans and leases, excluding loan fees, FTE | 5.99 % | 5.88 % | 0.11 % | | Yield on loans and leases, FTE | 6.07 % | 5.97 % | 0.10 % | | Yield on earning assets, FTE | 5.65 % | 5.56 % | 0.09 % | | Cost of interest-bearing deposits | 2.95 % | 2.92 % | 0.03 % | | Cost of total deposits | 2.39 % | 2.37 % | 0.02 % | | Cost of interest-bearing liabilities | 2.99 % | 2.97 % | 0.02 % | | Net interest margin, FTE | 3.29 % | 3.21 % | 0.08 % | [Provision for Credit Losses and Credit Quality](index=3&type=section&id=Provision%20for%20Credit%20Losses%20and%20Credit%20Quality) The allowance for credit losses remained stable at 0.96% of total loans and leases, while the provision for credit losses increased significantly quarter-over-quarter. Credit quality metrics, including nonperforming assets, remained solid Provision for Credit Losses Rollforward (QoQ, $ thousands) | Provision for Credit Losses on Loans and Leases Rollforward | Jun 2025 | Mar 2025 | Increase (Decrease) | | :-------------------------------------------------- | :------- | :------- | :------------------ | | Beginning balance | $38,175 | $37,423 | $752 | | Net charge-offs | $(146) | $(91) | $(55) | | Provision for credit losses | $1,747 | $843 | $904 | | Ending balance | $39,776 | $38,175 | $1,601 | | Allowance for credit losses to total loans and leases, gross | 0.96 % | 0.96 % | - % | - Nonperforming loans and leases as a percentage of total loans and leases slightly decreased to **0.19%** from **0.20%** in the prior quarter[11](index=11&type=chunk) - Total nonperforming assets as a percentage of total assets remained stable at **0.19%** quarter-over-quarter[11](index=11&type=chunk) [Credit Quality Details](index=3&type=section&id=Credit%20Quality%20Details) Detailed credit quality metrics show a slight increase in nonaccrual loans and leases, but an overall stable nonperforming asset ratio Credit Quality (QoQ, $ thousands) | Credit Quality | Jun 2025 | Mar 2025 | Increase (Decrease) | | :--------------------------------------- | :------- | :------- | :------------------ | | Nonaccrual loans and leases | $7,889 | $7,624 | $265 | | Loans and leases past due 90 days or more and still accruing | $32 | $183 | $(151) | | Total nonperforming loans and leases | $7,921 | $7,807 | $114 | | Total nonperforming assets | $10,462 | $10,365 | $97 | | Nonperforming loans and leases to total loans and leases, gross | 0.19 % | 0.20 % | (0.01)% | | Nonperforming assets to total assets | 0.19 % | 0.19 % | - % | [Noninterest Income](index=5&type=section&id=Noninterest%20Income) Noninterest income increased by $301 thousand to $8.9 million in Q2 2025, primarily driven by increases in mortgage banking income, insurance commissions, and interchange and debit card transactions Noninterest Income (QoQ, $ thousands) | Noninterest Income | Jun 2025 | Mar 2025 | Increase (Decrease) | | :-------------------------------- | :------- | :------- | :------------------ | | Service charges on deposit accounts | $1,766 | $1,736 | $30 | | Mortgage banking income | $633 | $493 | $140 | | Investment services | $1,440 | $1,769 | $(329) | | Insurance commissions | $1,554 | $1,412 | $142 | | Interchange and debit card transaction fees | $1,342 | $1,220 | $122 | | Other | $2,167 | $1,967 | $200 | | Total noninterest income | $8,898 | $8,597 | $301 | [Noninterest Expense](index=5&type=section&id=Noninterest%20Expense) Total noninterest expense increased slightly to $32.6 million in Q2 2025, mainly due to higher salaries and employee benefits, partially offset by a decrease in professional services Noninterest Expense (QoQ, $ thousands) | Noninterest Expense | Jun 2025 | Mar 2025 | Increase (Decrease) | | :-------------------------------- | :------- | :------- | :------------------ | | Salaries and employee benefits | $19,602 | $19,234 | $368 | | Occupancy and equipment | $3,432 | $3,397 | $35 | | FDIC insurance | $992 | $960 | $32 | | Other real estate and loan related expenses | $757 | $658 | $99 | | Professional services | $1,153 | $1,368 | $(215) | | Total noninterest expense | $32,569 | $32,296 | $273 | - The increase in salaries and employee benefits was attributed to additional incentive accruals[14](index=14&type=chunk) [Income Tax Expense](index=5&type=section&id=Income%20Tax%20Expense) Income tax expense for Q2 2025 was $2.6 million, an increase of $250 thousand from the prior quarter Income Tax Expense (QoQ) | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :------------- | :-------- | :-------- | :----------- | | Income Tax Expense | $2.6M | $2.3M | +$0.25M | Balance Sheet Overview [Balance Sheet Trends](index=5&type=section&id=Balance%20Sheet%20Trends) Total assets and liabilities showed growth at June 30, 2025, primarily driven by increases in loans and leases and total deposits Balance Sheet Trends (YoY) | Metric | Jun 30, 2025 | Dec 31, 2024 | Increase | | :---------------- | :----------- | :----------- | :------- | | Total Assets | $5.49B | $5.28B | $215.0M | | Total Liabilities | $4.97B | $4.78B | $187.3M | - The increase in total assets was mainly due to a **$217.7 million** increase in loans and leases and **$17.7 million** in securities, partially offset by a **$22.5 million** decrease in cash and cash equivalents[17](index=17&type=chunk) - Total deposits increased by **$185.6 million**, driven by increases in other time deposits, money market deposits, interest-bearing demand deposits, and brokered deposits, partially offset by a decline in noninterest demand deposits[18](index=18&type=chunk) [Shareholders' Equity](index=7&type=section&id=Shareholders'%20Equity) Shareholders' equity increased by $27.7 million from December 31, 2024, primarily due to net income and a positive change in accumulated other comprehensive loss Shareholders' Equity Metrics | Metric | Jun 30, 2025 | Dec 31, 2024 | Increase | | :------------------------------------ | :----------- | :----------- | :------- | | Total Shareholders' Equity | $519.1M | $491.461M | $27.7M | | Tangible Book Value per Share | $24.42 | $22.85 | +$1.57 | | Tangible Common Equity to Tangible Assets | 7.71% | 7.48% | +0.23% | - The increase in equity was driven by **$23.0 million** in net income for the six months ended June 30, 2025, and a **$6.4 million** positive change in accumulated other comprehensive loss, offset by **$2.7 million** in dividends paid[19](index=19&type=chunk) [Selected Balance Sheet Information](index=7&type=section&id=Selected%20Balance%20Sheet%20Information) The table provides a snapshot of key balance sheet items, showing growth in total assets, liabilities, equity, loans, and deposits from December 2024 to June 2025 Selected Balance Sheet Information (YoY, $ thousands) | Selected Balance Sheet Information | Jun 2025 | Dec 2024 | Increase (Decrease) | | :--------------------------------- | :------- | :------- | :------------------ | | Total assets | $5,490,863 | $5,275,904 | $214,959 | | Total liabilities | $4,971,736 | $4,784,443 | $187,293 | | Total equity | $519,127 | $491,461 | $27,666 | | Securities | $626,670 | $608,987 | $17,683 | | Loans and leases | $4,124,062 | $3,906,340 | $217,722 | | Deposits | $4,872,120 | $4,686,483 | $185,637 | | Borrowings | $6,966 | $8,135 | $(1,169) | [Composition of Loans and Leases](index=14&type=section&id=Composition%20of%20Loans%20and%20Leases) The loan portfolio shows continued growth across most categories, with commercial real estate (non-owner occupied and owner occupied) and consumer real estate being the largest segments Composition of Loans and Leases ($ thousands) | Composition of Loans and Leases | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :-------------------------------- | :------- | :------- | :------- | :------- | :------- | | Commercial real estate, total | $2,073,122 | $2,002,788 | $1,948,082 | $1,899,785 | $1,815,363 | | Consumer real estate | $803,270 | $784,602 | $741,836 | $690,504 | $678,331 | | Construction & land development | $391,155 | $357,393 | $361,735 | $315,006 | $294,575 | | Commercial & industrial | $778,754 | $768,454 | $775,620 | $731,600 | $701,460 | | Leases | $62,495 | $64,208 | $64,878 | $67,052 | $70,299 | | Consumer and other | $15,266 | $14,762 | $14,189 | $13,531 | $14,130 | | Total loans and leases | $4,124,062 | $3,992,207 | $3,906,340 | $3,717,478 | $3,574,158 | [Capital Ratios](index=14&type=section&id=Capital%20Ratios) SmartFinancial Inc. and SmartBank maintained strong capital ratios, with Tier 1 leverage and total capital ratios well above regulatory minimums, indicating a solid capital base Capital Ratios (Estimated) | Capital Ratios (Estimated) | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :------------------------- | :------- | :------- | :------- | :------- | :------- | | **SmartFinancial, Inc.** | | | | | | | Tier 1 leverage | 8.25 % | 8.16 % | 8.29 % | 8.44 % | 8.32 % | | Common equity Tier 1 | 9.68 % | 9.79 % | 9.76 % | 10.06 % | 10.06 % | | Tier 1 capital | 9.68 % | 9.79 % | 9.76 % | 10.06 % | 10.06 % | | Total capital | 11.05 % | 11.18 % | 11.10 % | 11.62 % | 11.68 % | | **SmartBank** | | | | | | | Tier 1 leverage | 8.88 % | 8.76 % | 8.94 % | 9.17 % | 9.11 % | | Common equity Tier 1 | 10.43 % | 10.51 % | 10.51 % | 10.92 % | 11.02 % | | Tier 1 capital | 10.43 % | 10.51 % | 10.51 % | 10.92 % | 11.02 % | | Total capital | 11.27 % | 11.35 % | 11.30 % | 11.69 % | 11.79 % | Company Information [Conference Call Details](index=7&type=section&id=Conference%20Call%20Details) SmartFinancial hosted a conference call on July 22, 2025, to discuss Q2 2025 earnings, with replay available until September 20, 2025 - Conference call held on Tuesday, July 22, 2025, at 10:00 a.m. ET[21](index=21&type=chunk) - Access dial-in: (833) 470-1428 or (404) 975-4839, access code: 342904[21](index=21&type=chunk) - Replay available through September 20, 2025, dial-in: (866) 813-9403 or (929) 458-6194, access code: 216208[21](index=21&type=chunk) [About SmartFinancial, Inc.](index=7&type=section&id=About%20SmartFinancial%2C%20Inc.) SmartFinancial, Inc. is a Knoxville, Tennessee-based bank holding company for SmartBank, a full-service commercial bank operating across Tennessee, Alabama, and Florida, known for its strategic growth and client service - SmartFinancial, Inc. is the bank holding company for SmartBank, a full-service commercial bank founded in 2007[22](index=22&type=chunk) - SmartBank operates branches across Tennessee, Alabama, and Florida[22](index=22&type=chunk) - Success is attributed to recruiting top talent, exceptional client service, strategic branching, and disciplined lending[22](index=22&type=chunk) [Investor Contacts](index=7&type=section&id=Investor%20Contacts) Key investor contacts are Billy Carroll, President & CEO, and Nathan Strall, VP and Director of Strategy & Corporate Development - Billy Carroll, President & Chief Executive Officer: Phone (865) 868-0613, Email billy.carroll@smartbank.com[24](index=24&type=chunk) - Nathan Strall, Vice President and Director of Strategy & Corporate Development: Phone (865) 868-2604, Email nathan.strall@smartbank.com[24](index=24&type=chunk) Non-GAAP Financial Measures [Definition and Purpose](index=8&type=section&id=Definition%20and%20Purpose) SmartFinancial uses Non-GAAP financial measures to provide additional insights into its performance, excluding non-operating items and the impact of goodwill and other intangibles, to facilitate comparisons with peers and period-to-period results - Non-GAAP measures are used by management to evaluate ongoing performance and provide meaningful comparisons to peers[27](index=27&type=chunk) - These measures exclude non-operating related income and expense items, as well as goodwill and other intangible assets, from GAAP figures[26](index=26&type=chunk) - Non-GAAP measures should not be considered an alternative to GAAP measures and have limitations as analytical tools[28](index=28&type=chunk) [Non-GAAP Reconciliations](index=16&type=section&id=Non-GAAP%20Reconciliations) The report provides detailed reconciliations for various Non-GAAP measures, including operating earnings, operating noninterest income and expense, operating PPNR earnings, tangible common equity, and tangible book value per common share, to their most directly comparable GAAP financial measures Operating Earnings Reconciliation (QoQ, $ thousands) | Operating Earnings | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :----------------- | :------- | :------- | :------- | :------- | :------- | | Net income (GAAP) | $11,705 | $11,254 | $9,640 | $9,140 | $8,003 | | Operating earnings (Non-GAAP) | $11,708 | $11,254 | $9,593 | $9,140 | $7,793 | Tangible Common Equity Reconciliation (QoQ, $ thousands) | Tangible Common Equity | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :--------------------- | :------- | :------- | :------- | :------- | :------- | | Shareholders' equity (GAAP) | $519,127 | $505,941 | $491,461 | $489,023 | $472,465 | | Less goodwill and other intangible assets | $103,588 | $104,154 | $104,723 | $105,324 | $105,929 | | Tangible common equity (Non-GAAP) | $415,539 | $401,787 | $386,738 | $383,699 | $366,536 | Operating Efficiency Ratio Reconciliation (QoQ) | Operating Efficiency Ratio | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :------------------------- | :------- | :------- | :------- | :------- | :------- | | Efficiency ratio (GAAP) | 66.14 % | 68.96 % | 68.98 % | 69.83 % | 72.25 % | | Operating efficiency ratio (Non-GAAP) | 65.66 % | 68.46 % | 68.58 % | 69.28 % | 72.13 % | Forward-Looking Statements [Disclaimer and Risk Factors](index=9&type=section&id=Disclaimer%20and%20Risk%20Factors) The report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially from expectations. These risks include those related to growth strategy, litigation, M&A, economic conditions, interest rate changes, technology, credit risk, and regulatory actions - Forward-looking statements are based on management's current estimates and expectations and are subject to risks and uncertainties[30](index=30&type=chunk) - Key risk factors include: risks associated with growth strategy, claims and litigation, general risks related to merger and acquisition activity, changes in economic or political conditions (including inflation and interest rates), ability to anticipate interest rate changes, increased technology and cybersecurity risks, credit risk, and changes in applicable laws or regulations[32](index=32&type=chunk) - SmartFinancial disclaims any obligation to update or revise any forward-looking statements[31](index=31&type=chunk) Condensed Consolidated Financial Information (Tables) [Balance Sheet](index=10&type=section&id=Balance%20Sheet) This section presents the condensed consolidated balance sheet, detailing assets, liabilities, and shareholders' equity over several quarters, highlighting the company's financial position Condensed Consolidated Balance Sheet (Selected Quarters, $ thousands) | | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :------------------------------------ | :------- | :------- | :------- | :------- | :------- | | Total assets | $5,490,863 | $5,411,217 | $5,275,904 | $4,908,934 | $4,891,009 | | Loans and leases, net | $4,084,286 | $3,954,032 | $3,868,917 | $3,681,869 | $3,539,468 | | Total deposits | $4,872,120 | $4,808,659 | $4,686,483 | $4,322,491 | $4,316,656 | | Total liabilities | $4,971,736 | $4,905,276 | $4,784,443 | $4,419,911 | $4,418,544 | | Total shareholders' equity | $519,127 | $505,941 | $491,461 | $489,023 | $472,465 | [Income Statement](index=11&type=section&id=Income%20Statement) This section provides the condensed consolidated income statement, detailing revenues, expenses, and net income for the three and six months ended June 30, 2025, and comparable periods Condensed Consolidated Income Statement (Selected Quarters, $ thousands) | | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :------------------------------------ | :------- | :------- | :------- | :------- | :------- | | Total interest income | $69,453 | $66,376 | $66,096 | $63,956 | $61,285 | | Total interest expense | $29,110 | $28,138 | $28,313 | $28,924 | $28,471 | | Net interest income | $40,343 | $38,238 | $37,783 | $35,032 | $32,814 | | Provision for credit losses | $2,411 | $979 | $2,135 | $2,575 | $883 | | Total noninterest income | $8,898 | $8,597 | $9,030 | $9,139 | $7,604 | | Total noninterest expense | $32,569 | $32,296 | $32,291 | $30,846 | $29,201 | | Net income | $11,705 | $11,254 | $9,640 | $9,140 | $8,003 | | Diluted EPS | $0.69 | $0.67 | $0.57 | $0.54 | $0.48 | [Yield Analysis (Quarterly)](index=12&type=section&id=Yield%20Analysis%20%28Quarterly%29) This table provides a detailed yield analysis for interest-earning assets and interest-bearing liabilities for the three months ended June 30, 2025, March 31, 2025, and June 30, 2024, showing trends in yields, costs, and net interest margin Yield Analysis (Three Months Ended, $ thousands) | | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------------------------ | :------------ | :------------- | :------------ | | Yield/Cost - Loans and leases, including fees | 6.07 % | 5.97 % | 5.87 % | | Yield/Cost - Total interest-earning assets | 5.65 % | 5.56 % | 5.52 % | | Yield/Cost - Total interest-bearing deposits | 2.95 % | 2.92 % | 3.23 % | | Yield/Cost - Total interest-bearing liabilities | 2.99 % | 2.97 % | 3.29 % | | Net interest income, taxable equivalent | $40,693 | $38,578 | $33,165 | | Tax equivalent net interest margin | 3.29 % | 3.21 % | 2.97 % | [Yield Analysis (Six Months)](index=13&type=section&id=Yield%20Analysis%20%28Six%20Months%29) This table presents the yield analysis for interest-earning assets and interest-bearing liabilities for the six months ended June 30, 2025, and June 30, 2024, offering a broader view of interest rate trends Yield Analysis (Six Months Ended, $ thousands) | | June 30, 2025 | June 30, 2024 | | :------------------------------------ | :------------ | :------------ | | Yield/Cost - Loans and leases, including fees | 6.02 % | 5.84 % | | Yield/Cost - Total interest-earning assets | 5.61 % | 5.44 % | | Yield/Cost - Total interest-bearing deposits | 2.93 % | 3.19 % | | Yield/Cost - Total interest-bearing liabilities | 2.98 % | 3.26 % | | Net interest income, taxable equivalent | $79,272 | $64,979 | | Tax equivalent net interest margin | 3.25 % | 2.91 % | [Asset Quality and Performance Ratios](index=14&type=section&id=Asset%20Quality%20and%20Performance%20Ratios) This section provides detailed asset quality metrics and key performance ratios, both GAAP and Non-GAAP, offering insights into the company's operational efficiency and profitability Asset Quality and Additional Loan Data (Selected Quarters, $ thousands) | Asset Quality and Additional Loan Data | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :------------------------------------- | :------- | :------- | :------- | :------- | :------- | | Nonperforming loans and leases | $7,921 | $7,807 | $7,872 | $9,491 | $6,642 | | Total nonperforming assets | $10,462 | $10,365 | $10,088 | $12,619 | $9,975 | | Net charge-offs to average loans and leases (annualized) | 0.01 % | 0.01 % | 0.02 % | 0.15 % | 0.05 % | | Allowance for credit losses to loans and leases | 0.96 % | 0.96 % | 0.96 % | 0.96 % | 0.97 % | | Nonperforming assets to total assets | 0.19 % | 0.19 % | 0.19 % | 0.26 % | 0.20 % | Selected Performance Ratios (Annualized) | Selected Performance Ratios (Annualized) | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :--------------------------------------- | :------- | :------- | :------- | :------- | :------- | | Return on average assets | 0.88 % | 0.87 % | 0.75 % | 0.74 % | 0.66 % | | Return on average shareholders' equity | 9.19 % | 9.17 % | 7.84 % | 7.60 % | 6.90 % | | Efficiency ratio | 66.14 % | 68.96 % | 68.98 % | 69.83 % | 72.25 % | | Operating return on average assets | 0.88 % | 0.87 % | 0.75 % | 0.74 % | 0.64 % | | Operating efficiency ratio | 65.66 % | 68.46 % | 68.58 % | 69.28 % | 72.13 % | | Net interest margin, FTE | 3.29 % | 3.21 % | 3.24 % | 3.11 % | 2.97 % | | Net income, diluted | $0.69 | $0.67 | $0.57 | $0.54 | $0.48 |

Financial Performance - Net income for Q1 2025 was $11.3 million, or $0.67 per diluted common share, compared to $9.4 million, or $0.55 per diluted common share in Q1 2024, representing an increase of 20.2%[151] - Net interest income rose to $38.6 million in Q1 2025, up from $31.8 million in Q1 2024, driven by higher loan and lease balances[154] - Noninterest income was $8.6 million in Q1 2025, a slight increase from $8.4 million in Q1 2024[152] - Noninterest expense increased to $32.3 million in Q1 2025 from $28.6 million in Q1 2024, reflecting higher operational costs[152] - The effective tax rate decreased to approximately 17.01% in Q1 2025 from 21.94% in Q1 2024, with income tax expense totaling $2.3 million compared to $2.6 million[162] Asset and Loan Growth - Net loans and leases increased by $85.1 million from December 31, 2024, reflecting strong organic growth[151] - Total net loans and leases outstanding reached approximately $3.95 billion as of March 31, 2025, up from $3.87 billion at December 31, 2024[163] - The composition of the loan portfolio included 27.9% in non-owner occupied commercial real estate and 22.2% in owner-occupied commercial real estate as of March 31, 2025[163] - Total accruing loans past due (30-89 days) amounted to $7,667 thousand, representing 0.19% of total loans as of March 31, 2025, while total loans past due for 90 days or more were $183 thousand[166] Deposit Growth - Total deposits grew by $122.2 million from December 31, 2024, indicating robust customer confidence[151] - Total deposits as of March 31, 2025, were $4.81 billion, an increase of $122.2 million from December 31, 2024[179] - The average balance of noninterest-bearing demand deposits was $884.1 million, accounting for 18.9% of total deposits[176] - Money market and savings accounts had an average balance of $2.06 billion, representing 44.1% of total deposits with an average interest rate of 2.96%[176] Interest Income and Margin - The tax equivalent net interest margin increased to 3.21% in Q1 2025, compared to 2.85% in Q1 2024[153] - Total interest-earning assets increased to $4,867,260 thousand in Q1 2025, compared to $4,496,988 thousand in Q1 2024, reflecting a yield increase from 5.36% to 5.56%[155] - The interest rate spread improved to 2.59% in Q1 2025 from 2.13% in Q1 2024, indicating better net interest margin performance[155] Credit Quality - The provision for credit losses was $979 thousand in Q1 2025, compared to a reversal of $440 thousand in Q1 2024, indicating a shift in credit quality outlook[152] - Nonperforming loans and leases remained stable at 0.20% of total gross loans and leases as of March 31, 2025, consistent with December 31, 2024[165] - The allowance for credit losses was $38.2 million as of March 31, 2025, compared to $37.4 million as of December 31, 2024, maintaining a ratio of 0.96% of total loans and leases[167] Securities and Borrowings - The securities portfolio increased from $609.0 million at December 31, 2024, to $625.0 million at March 31, 2025, primarily due to purchases of available-for-sale securities[172] - Short-term borrowings totaled $4.0 million, and long-term debt was $39.7 million as of March 31, 2025[182] - The Company had $844.5 million of pre-approved but unused lines of credit and $23.6 million of standby letters of credit as of March 31, 2025[184] Liquidity and Risk Management - The Company anticipates adequate liquidity to meet expected customer obligations[192] - The Market Risk and Liquidity Risk Management information is referenced in the Management's Discussion and Analysis section[194]

Core Viewpoint - SmarFinancial (SMBK) is experiencing solid improvements in earnings estimates, which is likely to positively impact its stock price in the near term [1][2]. Earnings Estimates - Analysts are increasingly optimistic about SmarFinancial's earnings prospects, leading to higher estimates that should reflect in the stock price [2]. - The consensus earnings estimate for the current quarter is $0.63 per share, indicating a year-over-year increase of +36.96% [6]. - For the full year, the earnings estimate stands at $2.58 per share, representing a change of +24.64% from the previous year [7]. Estimate Revisions - Over the past month, two estimates for the current year have moved higher, while no negative revisions have occurred, resulting in a 5.42% increase in the consensus estimate [8]. - The Zacks Consensus Estimate for the current quarter has increased by 6.82% due to one upward revision and one downward revision in the last 30 days [6]. Zacks Rank - SmarFinancial currently holds a Zacks Rank 1 (Strong Buy), which is based on the positive estimate revisions and has a proven track record of outperforming the market [9]. - Stocks with a Zacks Rank 1 and 2 significantly outperform the S&P 500, indicating strong investment potential [9]. Stock Performance - The stock has gained 6.8% over the past four weeks, reflecting investor confidence driven by solid estimate revisions [10].