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What changed in SMARTFINANCIAL INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SMARTFINANCIAL INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+270 added−302 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-16)

Top changes in SMARTFINANCIAL INC.'s 2023 10-K

270 paragraphs added · 302 removed · 196 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

54 edited+32 added−26 removed155 unchanged
Biggest changeFinancial Statements and Supplementary Data - Note 15 - Regulatory Matters.” On December 21, 2018, federal banking agencies issued a joint final rule to revise their regulatory capital rules to (i) address the upcoming implementation of the CECL accounting standard under GAAP; (ii) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations are expected to experience upon adopting CECL; and (iii) require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for certain banking organizations.
Biggest changeFinancial Statements and Supplementary Data - Note 15 - Regulatory Matters.” 15 Table of Contents In 2019, the federal banking agencies issued a final rule that, among other provisions, revised the agencies’ regulatory capital rule and included a transition option that allows institutions to phase in over a 3-year transition period the day-one effects of adopting the current expected credit losses methodology (CECL) on their regulatory capital ratios (“2019 CECL rule”).
The purchase of Sunbelt was consummated September 1, 2022, with an aggregate purchase price payable by Rains Agency of $6,500,000, of which $5,200,000 was paid in cash at the closing of the Acquisition, and the remainder of which will be payable in equal cash installments on September 1, 2023, and September 1, 2024 (the “ Deferred Payments ”).
The purchase of Sunbelt was consummated September 1, 2022, with an aggregate purchase price payable by Rains Agency of $6,500,000, of which $5,200,000 was paid in cash at the closing of the Acquisition, and the remainder of which, in equal cash installments, was paid on September 1, 2023, and will be payable on September 1, 2024 (the “ Deferred Payments ”).
The Deferred Payments are subject to acceleration in certain circumstances involving a change in control of Rains Agency and are subject to set-off for any indemnification or other obligations of the Sellers to Rains Agency under the terms of the Purchase Agreement.
The Deferred Payments are subject to acceleration in certain circumstances involving a change in control of Rains Agency and are subject to set-off for any indemnification or other obligations of the sellers under the Purchase Agreement to Rains Agency under the terms of the Purchase Agreement.
Within the Credit Policy, 7 Table of Contents procedures exist that elevate the approval requirements as credits become larger and more complex. All loans and leases are individually underwritten, risk-rated, approved, and monitored. Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lies in each portfolio segment.
Within the Credit Policy, procedures exist that elevate the approval requirements as credits become larger and more complex. All loans and leases are individually underwritten, risk-rated, approved, and monitored. 7 Table of Contents Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lies in each portfolio segment.
Detailed reports, by product, collateral, accrual status, etc., are reviewed by Director, Management and Loan Committees. Investment Activities ​ Our investment policy is designed to provide income from funds not needed to meet loan demand in a manner consistent with appropriate liquidity and risk management objectives.
Detailed reports, by product, collateral, accrual status, etc., are reviewed by Director and Management Loan Committees. Investment Activities ​ Our investment policy is designed to provide income from funds not needed to meet loan demand in a manner consistent with appropriate liquidity and risk management objectives.
(“Rains Agency”), an indirect wholly-owned subsidiary of SmartFinancial, Inc., entered into a Purchase Agreement with the sole member of Sunbelt Group, LLC (“Sunbelt”), a Tennessee limited liability company. Sunbelt, with an office in Chattanooga, Tennessee and formed in 1984, was an independent, full-service insurance agency providing personal and commercial property and casualty insurance as well as life and health.
(“Rains Agency”), an indirect wholly-owned subsidiary of SmartFinancial, entered into a Purchase Agreement with the sole member of Sunbelt Group, LLC (“Sunbelt”), a Tennessee limited liability company. Sunbelt, with an office in Chattanooga, Tennessee was formed in 1984, and was an independent, full-service insurance agency providing personal and commercial property and casualty insurance as well as life and health.
Tennessee has adopted the provisions of the Federal Reserve’s Regulation O with respect to restrictions on loans and other extensions of credit to bank “insiders.” Further, 17 Table of Contents under Tennessee law, state banks are prohibited from lending to any one person, firm, or corporation amounts more than 15% of the bank’s equity capital accounts, except, (i) in the case of certain loans secured by negotiable title documents covering readily marketable nonperishable staples or (ii) with the prior approval of the bank’s board of directors or finance committee (however titled), the bank may make a loan to any person, firm, or corporation of up to 25% of its equity capital accounts.
Tennessee has adopted the provisions of the Federal Reserve’s Regulation O with respect to restrictions on loans and other extensions of credit to bank “insiders.” Further, under Tennessee law, state banks are prohibited from lending to any one person, firm, or corporation amounts more than 15% of the bank’s equity capital accounts, except, (i) in the case of certain loans secured by negotiable title documents covering readily marketable nonperishable staples or (ii) with the prior approval of the bank’s board of directors or finance committee (however titled), the bank may make a loan to any person, firm, or corporation of up to 25% of its equity capital accounts.
Capital Requirements We and SmartBank are each required under federal law to maintain certain minimum capital levels based on ratios of capital to total assets and capital to risk-weighted assets.
Capital Requirements We and SmartBank are each required under federal law to maintain certain minimum capital levels based on ratios of capital to total average assets and capital to risk-weighted assets.
As a general matter, the Federal Reserve has indicated that the board of directors of a bank 16 Table of Contents holding company should consult with the Federal Reserve and eliminate, defer or significantly reduce the bank holding company’s dividends if: ● its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; ● its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or ● it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should consult with the Federal Reserve and eliminate, defer or significantly reduce the bank holding company’s dividends if: ● its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; ● its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or ● it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
We endeavor to compete successfully with our competitors, regardless of their size, through the selection of banking products and services offered, the level of service provided, the convenience and ability of services, and the degree of expertise and the personal manner in which services are offered. Supervision and Regulation We are extensively regulated under federal and state law.
We endeavor to compete successfully with our competitors, regardless of their size, through the selection of banking products and services offered, the level of service provided, the convenience and availability of services, and the degree of expertise and the personal manner in which services are offered. Supervision and Regulation We are extensively regulated under federal and state law.
The Bank remains responsible for various expenses associated with the program, including furnishings, equipment and promotional expenses and general personnel costs, including commissions paid to licensed brokers. ​ Additionally, Rain Insurance Agency, Inc., a subsidiary of the Bank, provides insurance products, in the property and casualty area, commercial, transportation, and life and health to their respective clients. ​ Human Capital Resources The Bank is committed to building a culture where associates thrive and are empowered to be leaders.
The Bank remains responsible for various expenses associated with the program, including furnishings, equipment and promotional expenses and general personnel costs, including commissions paid to licensed brokers. ​ Additionally, SBK Insurance, Inc., a subsidiary of the Bank, provides insurance products, in the property and casualty area, commercial, transportation, and life and health to their respective clients. ​ Human Capital Resources The Bank is committed to building a culture where associates thrive and are empowered to be leaders.
All of the federal bank regulatory agencies have adopted regulations establishing relevant capital measures and relevant capital levels for federally insured depository institutions. SmartBank was well capitalized at December 31, 2022, and brokered deposits are not restricted.
All of the federal bank regulatory agencies have adopted regulations establishing relevant capital measures and relevant capital levels for federally insured depository institutions. SmartBank was well capitalized at December 31, 2023, and brokered deposits are not restricted.
If the Federal Reserve were to apply the same or a very similar well-capitalized standard to bank holding companies as that applicable to SmartBank, the Company’s capital ratios as of December 31, 2022 would exceed such revised well-capitalized standard.
If the Federal Reserve were to apply the same or a very similar well-capitalized standard to bank holding companies as that applicable to SmartBank, the Company’s capital ratios as of December 31, 2023 would exceed such revised well-capitalized standard.
Department of the Treasury, requires financial institutions to establish anti-money laundering programs with minimum standards that include: ● the development of internal policies, procedures, and controls; ● the designation of a compliance officer; ● an ongoing employee training program; ● an independent audit function to test the programs; and ● identify and verify the identity of beneficial owners of legal entity customers .
Department of the Treasury, requires financial institutions to establish anti-money laundering programs with minimum standards that include: ● the development of internal policies, procedures, and controls; 18 Table of Contents ● the designation of a compliance officer; ● an ongoing employee training program; ● an independent audit function to test the programs; and ● identify and verify the identity of beneficial owners of legal entity customers .
These nontraditional financial service providers have been successful in developing digital and other products and services that effectively compete with traditional banking services, but are in some cases subject to fewer regulatory restrictions than banks and bank holding companies, allowing them to operate with greater flexibility and lower cost structures.
These nontraditional financial service providers have been successful in developing digital and other products and services that effectively compete with traditional banking services 10 Table of Contents but are in some cases subject to fewer regulatory restrictions than banks and bank holding companies, allowing them to operate with greater flexibility and lower cost structures.
Failure to be well-capitalized or to meet minimum capital requirements could also result in 14 Table of Contents restrictions on the Company’s or SmartBank’s ability to pay dividends or otherwise distribute capital or to receive regulatory approval of applications or other restrictions on its growth.
Failure to be well-capitalized or to meet minimum capital requirements could also result in restrictions on the Company’s or SmartBank’s ability to pay dividends or otherwise distribute capital or to receive regulatory approval of applications or other restrictions on its growth.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other things, requires the federal bank regulatory agencies to take “prompt corrective action” regarding depository institutions that do not meet minimum capital requirements.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other things, requires the federal bank regulatory agencies to take “prompt corrective action” regarding depository institutions that do not meet 14 Table of Contents minimum capital requirements.
Any future business combinations or purchases or series of business combinations or purchases that we might undertake may be material in terms of assets acquired, liabilities assumed, or equity issued. Sunbelt On September 1, 2022, Rains Agency Inc.
Any future business combinations or purchases or series of business combinations or purchases that we might undertake may be material in terms of assets acquired, liabilities assumed, or equity issued. ​ 5 Table of Contents Sunbelt On September 1, 2022, Rains Agency Inc.
As of June 30, 2020, the DIF reserve ratio fell to 1.30%, below the statutory minimum of 1.35%. The FDIC, as required under the Federal Deposit Insurance Act, established a plan on September 15, 2020 to restore the DIF reserve ratio to meet or exceed the statutory minimum of 1.35% within eight years.
The FDIC, as required under the Federal Deposit Insurance Act, established a plan on September 15, 2020 to restore the DIF reserve ratio to meet or exceed the statutory minimum of 1.35% within eight years.
Being trustworthy, loyal, and innovative are some of the characteristics exemplified by our associates. Our core values define our culture: Act with Integrity, Be Enthusiastic, Create Positivity, Demonstrate Accountability, and Embrace Change. ​ As of December 31, 2022, we employed 583 full-time and 13 part-time associates, primarily across our three-state footprint of Tennessee, Alabama, and Florida.
Being trustworthy, loyal, and innovative are some of the characteristics exemplified by our associates. Our core values define our culture: Act with Integrity, Be Enthusiastic, Create Positivity, Demonstrate Accountability, and Embrace Change. ​ As of December 31, 2023, we employed 570 full-time and 15 part-time associates, primarily across our three-state footprint of Tennessee, Alabama, and Florida.
Public companies must give shareholders the opportunity to vote on the compensation at least every three years and the opportunity to vote on frequency at least every six years, indicating whether the say-on-pay vote should be held annually, biennially, or triennially.
Public companies must give shareholders the opportunity to vote on the compensation at least every three years and the opportunity to vote on frequency at least every six years, indicating whether the say-on-pay 13 Table of Contents vote should be held annually, biennially, or triennially.
The say-on-pay, the say-on-parachute and the say-on-frequency votes are explicitly nonbinding and cannot override a decision of our Board of Directors. Other Regulatory Matters We are subject to oversight by the SEC, the Public Company Accounting Oversight Board, NASDAQ and various state securities and insurance regulators.
The say-on-pay, the say-on-parachute and the say-on-frequency votes are explicitly nonbinding and cannot override a decision of our Board of Directors. Other Regulatory Matters We are subject to oversight by the SEC, the Public Company Accounting Oversight Board, New York Stock Exchange and various state securities and insurance regulators.
Incentive Compensation The Dodd-Frank Act required the banking agencies and the SEC to establish joint rules or guidelines for financial institutions with more than $1 billion in assets, such as us and SmartBank, which prohibit incentive compensation arrangements that the agencies determine to encourage inappropriate risks by the institution.
Incentive Compensation The Dodd-Frank Act required the banking agencies and the SEC to establish joint rules or guidelines for financial institutions with more than $1 billion in assets, such as us and SmartBank, which prohibit incentive compensation arrangements that the agencies determine to encourage inappropriate risks by the institution. The banking agencies have issued guidance on sound incentive compensation policies.
Governance and Financial Reporting Obligations We are required to comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the SEC, the Public Company Accounting Oversight Board, and NASDAQ.
Governance and Financial Reporting Obligations We are required to comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the SEC, the Public Company Accounting Oversight Board, and the New York Stock Exchange.
The excess of the purchase price over the net estimated fair values of the acquired assets and liabilities was allocated to identifiable intangible assets with the remaining excess allocated to goodwill, which was approximately $4.6 million.
The excess of the purchase price over the net estimated fair values of the acquired assets and liabilities was allocated to identifiable intangible assets with the remaining excess allocated to goodwill, which was approximately $17.2 million.
The DOJ has increased its efforts to prosecute what it regards as violations of the ECOA and FHA.
The DOJ has increased its efforts to prosecute what it regards as violations of the ECOA and FHA. 21 Table of Contents
A bank may, however, offer combined-balance products and may otherwise offer more favorable terms if a customer obtains two or more traditional bank products. The law also expressly permits banks to engage in other forms of tying and authorizes the Federal Reserve to grant additional exceptions by regulation or order.
A bank may, however, offer combined-balance products and may otherwise offer more favorable terms if a customer obtains two or more traditional bank products. The law also expressly permits banks to engage in other forms of tying and authorizes the Federal Reserve to grant additional exceptions by regulation or order. Also, certain foreign transactions are exempt from the general rule.
Federal CRA regulations require, among other things, that evidence of discrimination against applicants on a prohibited basis, and illegal or abusive lending practices be considered in the CRA evaluation. SmartBank has a rating of “Satisfactory” in its most recent CRA evaluation.
Federal CRA regulations require, among other things, that evidence of discrimination against applicants on a prohibited basis, and illegal or abusive lending practices be considered in the CRA evaluation.
Although digital products and services have been important 10 Table of Contents competitive features of financial institutions for some time, the COVID-19 pandemic accelerated the move toward digital financial services products and we expect that trend to continue. ​ We encounter strong pricing competition in providing our services.
Although digital products and services have been important competitive features of financial institutions for some time, the COVID-19 pandemic accelerated the move toward digital financial services products and we expect that trend to continue. ​ We encounter strong pricing competition in providing our services. Additionally, other banks offer different products or services from those that we provide.
The FDIC calculates quarterly deposit insurance assessments based on an institution’s average total consolidated assets less its average tangible equity, and applies one of four risk categories determined by reference to its capital levels, supervisory ratings, and certain other factors. The assessment rate schedule can change from time to time, at the discretion of the FDIC, subject to certain limits.
The FDIC calculates quarterly deposit insurance assessments based on an institution’s average 17 Table of Contents total consolidated assets less its average tangible equity, and applies one of four risk categories determined by reference to its capital levels, supervisory ratings, and certain other factors.
Additionally, other banks offer different products or services from those that we provide. The larger national and super-regional banks may have significantly greater lending limits and may offer additional products than we are capable of providing.
The larger national and super-regional banks may have significantly greater lending limits and may offer additional products than we are capable of providing.
In addition, Sunbelt has a dedicated transportation insurance department that focuses their attention solely on the insurance 5 Table of Contents needs of the transportation industry.
In addition, Sunbelt had a dedicated transportation insurance department that focused their attention solely on the insurance needs of the transportation industry.
None of these associates are represented by a collective bargaining agreement. During 2022, we successfully onboarded 147 new associates. Over 67% of the Company’s associates are women, and 8.5% are minorities. Among the Company’s 294-person banking officers, women make up approximately 52% of these associates, while minorities account for 5% of the banking officer members.
None of these associates are represented by a collective bargaining agreement. During 2023, we successfully onboarded 123 new associates. Over 66% of the Company’s associates are women, and 9.1% are minorities. Among the Company’s 302-person banking officers, women make up approximately 55.3% of these associates, while minorities account for 5.6% of the banking officer members.
These deposit accounts have a variety of interest rates and terms and consist of interest-bearing and noninterest-bearing accounts, including commercial and retail checking accounts, regular interest-bearing savings accounts, money market accounts, individual retirement accounts and certificates of deposit.
These deposit accounts have a variety of interest rates and terms and consist of interest-bearing and noninterest-bearing accounts, including commercial and retail checking accounts, regular interest-bearing savings accounts, money market accounts, individual retirement accounts and certificates of deposit. Our Bank obtains most of its deposits from individuals and businesses in its market areas.
The Company makes our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available free of charge on our website at www.smartbank.com as soon as reasonably practicable after we electronically file such material with the SEC.
In this Report on Form 10-K, the words “SmartFinancial,” “the Company,” “we,” “us,” and “our” refer to SmartFinancial, Inc. together with SmartBank and SmartFinancial’s other wholly-owned subsidiaries, except where the context requires otherwise. ​ The Company makes our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available free of charge on our website at www.smartbank.com as soon as reasonably practicable after we electronically file such material with the SEC.
We are continually evaluating business combination and purchase opportunities and may conduct due diligence activities in connection with these opportunities. As a result, business combination or purchase discussions and, in some cases, negotiations, may take place, and transactions involving cash, debt or equity securities could be expected.
As a result, business combination or purchase discussions and, in some cases, negotiations, may take place, and transactions involving cash, debt or equity securities could be expected.
Following the effective date of the new listing standards, public companies will have 60 days to adopt the required clawback policy. 13 Table of Contents Shareholder Say-On-Pay Votes The Dodd-Frank Act requires public companies to take shareholders’ votes on proposals addressing compensation (known as say-on-pay), the frequency of a say-on-pay vote, and the golden parachutes available to executives in connection with change-in-control transactions.
Shareholder Say-On-Pay Votes The Dodd-Frank Act requires public companies to take shareholders’ votes on proposals addressing compensation (known as say-on-pay), the frequency of a say-on-pay vote, and the golden parachutes available to executives in connection with change-in-control transactions.
On November 18, 2021, the federal banking agencies issued a new rule effective in 2022 that requires banks to notify their regulators within 36 hours of a “computer-security incident” that rises to the level of a “notification incident.” Anti-Tying Restrictions In general, a bank may not extend credit, lease, sell property, or furnish any services or fix or vary the consideration for them on the condition that (1) the customer obtain or provide some additional credit, property, or services from or to the bank or bank holding company or their subsidiaries or (2) the customer not obtain some other credit, property, or services from a competitor, except to the extent reasonable conditions are imposed to assure the soundness of the credit extended.
Anti-Tying Restrictions In general, a bank may not extend credit, lease, sell property, or furnish any services or fix or vary the consideration for them on the condition that (1) the customer obtain or provide some additional credit, property, or services from or to the bank or bank holding company or their subsidiaries or (2) the customer not obtain some other credit, property, or services from a competitor, except to the extent reasonable conditions are imposed to assure the soundness of the credit extended.
Under the regulations, if a regulator determines that a bank fails to meet any standards prescribed by the guidelines, the regulator may require the bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and soundness compliance plans. 18 Table of Contents Anti-Money Laundering Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (“USA PATRIOT”) Act of 2001, financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as enhanced due diligence and “know your customer” standards in their dealings with foreign financial institutions and foreign customers.
Anti-Money Laundering Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (“USA PATRIOT”) Act of 2001, financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as enhanced due diligence and “know your customer” standards in their dealings with foreign financial institutions and foreign customers.
The banking agencies issued proposed rules in 2011 and previously issued guidance on sound incentive compensation policies. In 2016, the banking agencies also proposed rules that would, depending upon the assets of the institution, directly regulate incentive compensation arrangements and would require enhanced oversight and recordkeeping.
In 2016, the banking agencies also proposed rules that would, depending upon the assets of the institution, directly regulate incentive compensation arrangements and would require enhanced oversight and recordkeeping. As of December 31, 2023, these rules have not been implemented by the banking agencies.
Under this authority, our bank regulators can require us or our subsidiaries to enter into informal or formal supervisory agreements, including board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders, pursuant to which we would be required to take identified corrective actions to address cited concerns and to refrain from taking certain actions.
Under this authority, our bank regulators can require us or our subsidiaries to enter into informal or formal supervisory agreements, including board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders, pursuant to which we would be required to take identified corrective actions to address cited concerns and to refrain from taking certain actions. 11 Table of Contents If we become subject to and are unable to comply with the terms of any future regulatory actions or directives, supervisory agreements, or orders, then we could become subject to additional, heightened supervisory actions and orders, possibly including consent orders, prompt corrective action restrictions and/or other regulatory actions, including prohibitions on the payment of dividends on our common stock and preferred stock.
The Bank has chosen not to opt into the CBLR at this time. 15 Table of Contents In 2022, our and SmartBank’s regulatory capital ratios were above the applicable well-capitalized standards and met the capital conservation buffer.
The Bank has chosen not to opt into the CBLR at this time. In 2023, our and SmartBank’s regulatory capital ratios were above the applicable well-capitalized standards and met the capital conservation buffer. Based on current estimates, we believe that we and SmartBank will continue to exceed all applicable well-capitalized regulatory capital requirements and the capital conservation buffer in 2024.
Also, certain foreign transactions are exempt from the general rule. 20 Table of Contents Consumer Regulation Activities of SmartBank are subject to a variety of statutes and regulations designed to protect consumers.
Consumer Regulation Activities of SmartBank are subject to a variety of statutes and regulations designed to protect consumers.
Following the enactment of the Gramm-Leach-Bliley Act (“GLB”), CRA agreements with private parties must be disclosed and annual CRA reports must be made to a bank’s primary federal regulator.
Further, a less than satisfactory CRA rating will slow, if not preclude, expansion of banking activities and prevent a company from becoming or remaining a financial holding company. Following the enactment of the Gramm-Leach-Bliley Act (“GLB”), CRA agreements with private parties must be disclosed and annual CRA reports must be made to a bank’s primary federal regulator.
The deposits of SmartBank are insured by the FDIC up to applicable limits, and, accordingly, SmartBank is also subject to certain FDIC regulations and the FDIC has backup examination authority and some enforcement powers over SmartBank.
Member banks do not have any control over the Federal Reserve System as a result of owning the stock and the stock cannot be sold or traded. 16 Table of Contents The deposits of SmartBank are insured by the FDIC up to applicable limits, and, accordingly, SmartBank is also subject to certain FDIC regulations and the FDIC has backup examination authority and some enforcement powers over SmartBank.
The excess of the purchase price over the net estimated fair values of the acquired assets and liabilities was allocated to identifiable intangible assets 6 Table of Contents with the remaining excess allocated to goodwill, which was approximately $8.8 million. As a result of the merger, the Company assets increased approximately $301 million, and liabilities increased approximately $272 million.
The excess of the purchase price over the net estimated fair values of the acquired assets and liabilities was allocated to identifiable intangible assets with the remaining excess allocated to goodwill, which was approximately $4.6 million. Rains Agency subsequently changed its name to SBK Insurance, Inc. in 2023.
The survey results mold our initiatives so that we can focus on being a great place to work and do business with.
The survey results mold our initiatives so that we can focus on being a great place to work and do business with. In 2017, 2018, 2019, 2020, 2021, 2022 and 2023, we were nominated as a Top Workplace USA by USA Today and Top Workplace by the Tennessean and the Knoxville News Sentinel.
Payment of Dividends We are a legal entity separate and distinct from SmartBank and our other subsidiaries. The primary sources of funds for our payment of dividends to our shareholders are cash on hand and dividends from SmartBank. Various federal and state statutory provisions and regulations limit the amount of dividends that SmartBank may pay.
The Company adopted ASU 2016-13 on January 1, 2023, and has chosen the three-year phase in option. Payment of Dividends We are a legal entity separate and distinct from SmartBank and our other subsidiaries. The primary sources of funds for our payment of dividends to our shareholders are cash on hand and dividends from SmartBank.
We believe our long term experience in CRE lending, underwriting policies, internal controls, and other policies currently in place, as well as our loan and credit monitoring and administration procedures, are generally appropriate to managing our concentrations as required under the Guidance. 19 Table of Contents Community Reinvestment Act SmartBank is subject to the provisions of the CRA, which imposes a continuing and affirmative obligation, consistent with their safe and sound operation, to help meet the credit needs of entire communities where the bank accepts deposits, including low- and moderate-income neighborhoods.
Community Reinvestment Act SmartBank is subject to the provisions of the CRA, which imposes a continuing and affirmative obligation, consistent with their safe and sound operation, to help meet the credit needs of entire communities where the bank accepts deposits, including low- and moderate-income neighborhoods. The Federal Reserve’s assessment of SmartBank’s CRA record is made available to the public.
Banking Services Lending Activities General: The Company maintains a diversified loan portfolio by providing a broad range of commercial and retail lending services to business entities and individuals. We provide commercial business loans, commercial and residential real estate construction and mortgage loans, agriculture loans, leases, consumer loans, revolving lines of credit and letters of credit.
As a result of the merger, the Company assets increased approximately $485 million, and liabilities increased approximately $443 million. ​ 6 Table of Contents Banking Services Lending Activities General: The Company maintains a diversified loan portfolio by providing a broad range of commercial and retail lending services to business entities and individuals.
Our board of directors recognizes the importance of succession planning for our chief executive officer and other key executives.
We received culture excellence awards on leadership, innovation, compensation and benefits, employee appreciation, employee wellbeing, purpose and values, work-life flexibility, and professional development based on the feedback from our associates. Our board of directors recognizes the importance of succession planning for our chief executive officer and other key executives.
The Company also originates one to four family residential mortgage loans and generally enters into a commitment to sell these loans in the secondary market. At December 31, 2022, our net loan and lease portfolio totaled approximately $3.2 billion, representing approximately 70.0% of our total assets.
We provide commercial business loans, commercial and residential real estate construction and mortgage loans, agriculture loans, leases, consumer loans, revolving lines of credit and letters of credit. The Company also originates one to four family residential mortgage loans and generally enters into a commitment to sell these loans in the secondary market.
As of March 1, 2023, SmartBank has 41 full-service bank branches and one loan production office in select markets in East and Middle Tennessee, Alabama and the Florida Panhandle. Merger and Acquisition Strategy Our strategic plan involves growing a high performing community bank through organic loan and lease and deposit growth, as well as disciplined merger and acquisition activity.
Merger and Acquisition Strategy Our strategic plan involves growing a high performing community bank through organic loan and lease and deposit growth, as well as disciplined merger and acquisition activity. We are continually evaluating business combination and purchase opportunities and may conduct due diligence activities in connection with these opportunities.
Based on current estimates, we believe that we and SmartBank will continue to exceed all applicable well-capitalized regulatory capital requirements and the capital conservation buffer in 2023. For more information regarding our capital, leverage and total capital ratios, see “Part II - Item 8.
For more information regarding our capital, leverage and total capital ratios, see “Part II - Item 8.
Removed
The excess of the purchase price over the net estimated fair values of the acquired assets and liabilities was allocated to identifiable intangible assets with the remaining excess allocated to goodwill, which was approximately $17.2 million. As a result of the merger, the Company assets increased approximately $485 million, and liabilities increased approximately $443 million.
Added
As of March 1, 2024, SmartBank has 42 full-service bank branches in select markets in East and Middle Tennessee, Alabama and Florida.
Removed
Progressive Merger On October 29, 2019, the Company along with the Bank entered into an agreement and plan of merger with Progressive Financial Group, Inc. (“PFG”), a Tennessee corporation. The merger was consummated on March 1, 2020, with PFG stockholders receiving stock of the Company.
Added
In addition to our banking services, Fountain Equipment Finance, LLC offers loans and leases for heavy equipment, semis, and trailers to small and medium sized businesses throughout the Southeast, and maintain offices offering such services in Knoxville, Atlanta, Charlotte, Memphis, Nashville, and Birmingham, and we offer insurance products through SBK Insurance, Inc., formally Rains Insurance Agency, Inc., within our full-service branches.
Removed
After the merger, original stockholders of SmartFinancial owned approximately 92% of the outstanding common stock of the combined entity on a fully diluted basis while the previous PFG stockholders owned approximately 8%.
Added
At December 31, 2023, our net loan and lease portfolio totaled approximately $3.4 billion, representing approximately 71% of our total assets.
Removed
The assets and liabilities of PFG, as of the effective date of the merger, were recorded at their respective estimated fair values and combined with those of the Company.
Added
Additionally, the bank has the ability to provide insured deposit accounts above the FDIC threshold via either an Insured Cash Sweep (“ICS”) or a Certificate of Deposit Account Registry Service (“CDARS”) program. ​ Brokered deposits are deposits obtained by utilizing an outside broker that is paid a fee.
Removed
Our Bank obtains most of its deposits from individuals and businesses in its market areas. ​ Brokered deposits are deposits obtained by utilizing an outside broker that is paid a fee.
Added
Various federal and state statutory provisions and regulations limit the amount of dividends that SmartBank may pay.
Removed
In 2017, 2018, 2019, 2020, 2021, and 2022 we were nominated as a Top Workplace by the Knoxville News Sentinel and received culture excellence awards on compensation and benefits, appreciation, employee wellbeing, work-life flexibility, and top management based on the feedback from our associates.
Added
The assessment rate schedule can change from time to time, at the discretion of the FDIC, subject to certain limits. As of June 30, 2020, the DIF reserve ratio fell to 1.30%, below the statutory minimum of 1.35%.
Removed
If we become subject to and are unable to comply with the terms of any future regulatory actions or directives, supervisory agreements, or orders, then we could become subject to additional, heightened supervisory actions and orders, possibly 11 Table of Contents including consent orders, prompt corrective action restrictions and/or other regulatory actions, including prohibitions on the payment of dividends on our common stock and preferred stock.
Added
In November 2023, the FDIC issued a final rule to implement a special assessment to recover losses to the Deposit Insurance Fund ("DIF") incurred as a result of bank failures that occurred during the first half of 2023 and the FDIC's use of the systemic risk exception to cover certain deposits that were otherwise uninsured.
Removed
As of December 31, 2022, these rules have not been implemented by the banking agencies.
Added
The special assessment was based on estimated uninsured deposits as of December 31, 2022, (excluding the first $5.0 billion) and will be assessed at a quarterly rate of 3.36 basis points, over eight quarterly assessment periods, beginning in the first quarter of 2024.
Removed
On October 26, 2022, the SEC adopted final rules to implement Section 954 of the Dodd-Frank Act that require public companies to adopt and disclose a policy for the recovery of incentive-based compensation received by current or former executive officers that is based on erroneously reported financial information in the event of a required accounting restatement.
Added
SmartBank is not required to accrue for this assessment given our uninsured deposits, as of December 31, 2022, was under $5.0 billion.
Removed
The rules also require disclosure of the policy, including filing the policy as an exhibit to annual reports on Form 10-K and additional disclosure in the event an accounting restatement is required and recovery is triggered under the policy.
Added
Under the final rule, the estimated loss pursuant to the systemic risk determination will be periodically adjusted, and the FDIC has retained the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis.
Removed
The stock exchanges have up to 90 days after publication of the rules in the Federal Register to submit proposed listing standards to the SEC for approval, and the proposed listing standards must be effective no later than one year after the publication date.
Added
The extent to which any such additional future assessments will impact our future deposit insurance expense is currently uncertain.
Removed
In June 2016, the FASB issued ASU 2016-13, which introduced CECL as the methodology to replace the current “incurred loss” methodology for financial assets measured at amortized cost, and changed the approaches for recognizing and recording credit losses on available-for-sale debt securities and purchased credit impaired financial assets.
Added
Under the regulations, if a regulator determines that a bank fails to meet any standards prescribed by the guidelines, the regulator may require the bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and soundness compliance plans.
Removed
Under the incurred loss methodology, credit losses are recognized only when the losses are probable or have been incurred; under CECL, companies are required to recognize the full amount of expected credit losses for the lifetime of the financial assets, based on historical experience, current conditions and reasonable and supportable forecasts.
Added
We believe our long term experience in CRE lending, underwriting policies, internal controls, and other policies currently in place, as well as our loan and credit monitoring and administration procedures, are generally appropriate to managing our concentrations as required under the Guidance.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

50 edited+15 added−33 removed153 unchanged
Biggest changeThe Federal 22 Table of Contents Reserve reduced rates five times during 2019 through 2021. However, in response to the significant increase in the domestic inflation rate in the U.S, the Federal Reserve increased the federal funds target rate seven times in 2022 for a total increase of 4.25%, and indicated additional increases would be forthcoming in 2023.
Biggest changeSeveral of these have emphasized so-called quantitative easing strategies and decreases to the Federal funds target rate. The Federal Reserve reduced rates five times during 2019 through 2021. However, i nterest rates increased significantly in 2022 and 2023 as the Federal Reserve attempted to slow economic growth and counteract rising inflation.
Several U.S. financial institutions have experienced significant distributed denial-of-service attacks, some of which involved sophisticated and targeted attacks intended to disable or degrade service, or sabotage systems. Other attacks have attempted to obtain unauthorized access to confidential information or destroy data, often through the introduction of computer viruses or malware, cyber-attacks and other means.
U.S. financial institutions have experienced significant distributed denial-of-service attacks, some of which involved sophisticated and targeted attacks intended to disable or degrade service, or sabotage systems. Other attacks have attempted to obtain unauthorized access to confidential information or destroy data, often through the introduction of computer viruses or malware, cyber-attacks and other means.
Although there are currently no shares of our preferred stock issued and outstanding, our board of directors has the power, without shareholder approval (subject to Nasdaq shareholder approval rules), to set the terms of any series of preferred stock that may be issued, including voting rights, dividend rights, preferences over our common stock with respect to dividends or in the event of a dissolution, liquidation or winding up and other terms.
Although there are currently no shares of our preferred stock issued and outstanding, our board of directors has the power, without shareholder approval (subject to NYSE shareholder approval rules), to set the terms of any series of preferred stock that may be issued, including voting rights, dividend rights, preferences over our common stock with respect to dividends or in the event of a dissolution, liquidation or winding up and other terms.
These actions include the power to enjoin “unsafe or unsound” practices, to require 24 Table of Contents affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil money penalties, to fine or remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship.
These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil money penalties, to fine or remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship.
At the end of 2022 our loan portfolio was below both the 100 and 300 ratios as laid out in the guidance, but given the guidance our ability to grow those loan types could be constrained by the amount we are also able to grow capital.
At the end of 2023 our loan portfolio was below both the 100 and 300 ratios as laid out in the guidance but given the guidance, our ability to grow those loan types could be constrained by the amount we are also able to grow capital.
If we are able to identify attractive acquisition opportunities, we must generally satisfy a number of conditions prior to completing any such transaction, including certain bank regulatory approvals, which have become substantially more difficult, time-consuming and unpredictable as a result of the recent financial crisis. Additionally, any future acquisitions may not produce the revenue, earnings or synergies that we anticipated.
If we are able to identify attractive acquisition opportunities, we must generally satisfy a number of conditions prior to completing any such transaction, including certain bank regulatory approvals, which have become substantially more difficult, time-consuming and unpredictable as a result of the 2007-2008 financial crisis. Additionally, any future acquisitions may not produce the revenue, earnings or synergies that we anticipated.
In addition, the ability of our board of directors to issue shares of preferred stock without any action on the part of our shareholders (subject to Nasdaq shareholder approval rules) may impede a takeover of us and prevent a transaction perceived to be favorable to our shareholders.
In addition, the ability of our board of directors to issue shares of preferred stock without any action on the part of our shareholders (subject to NYSE shareholder approval rules) may impede a takeover of us and prevent a transaction perceived to be favorable to our shareholders.
The small to medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, including the continued elevated inflationary and interest rate environment, which may impair a borrower’s 29 Table of Contents ability to repay a loan or lease, and such impairment could have an adverse effect on our business, financial condition and results of operations.
The small to medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, including the continued elevated inflationary and interest rate environment, which may impair a borrower’s ability to repay a loan or lease, and such impairment could have an adverse effect on our business, financial condition and results of operations.
Thus, any borrowing that must be incurred by us to make a required capital injection to the Bank becomes more difficult and expensive and could have an adverse effect on our business, financial condition and results of operations. Federal and state regulators periodically examine our business, and we may be required to remediate adverse examination findings.
Thus, any borrowing that must be incurred by us to make a required capital injection to the Bank becomes more difficult and expensive and could have an adverse effect on our business, financial condition and results of operations. 24 Table of Contents Federal and state regulators periodically examine our business, and we may be required to remediate adverse examination findings.
As of December 31, 2022, SmartFinancial is considered to be in a slightly liability-sensitive position, meaning income is generally expected to decrease with an increase in short-term interest rates and, conversely, to increase with a decrease in short-term interest rates.
As of December 31, 2023, SmartFinancial is considered to be in a slightly liability-sensitive position, meaning income is generally expected to decrease with an increase in short-term interest rates and, conversely, to increase with a decrease in short-term interest rates.
Our network could be vulnerable to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches. We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses.
Our network could be vulnerable to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches. We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security 23 Table of Contents breaches or viruses.
A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control.
A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This presence depends on the individual 33 Table of Contents decisions of investors and general economic and market conditions over which we have no control.
Subject to NASDAQ rules, our board of directors generally has the authority to issue all or part of any authorized but unissued shares of common stock or preferred stock for any corporate purpose.
Subject to NYSE rules, our board of directors generally has the authority to issue all or part of any authorized but unissued shares of common stock or preferred stock for any corporate purpose.
Additionally, we may face pressure to not do business in certain industries that are viewed as harmful to the environment or are otherwise negatively perceived, which could impact our growth. ​ Additionally, investors and shareholder advocates are placing ever increasing emphasis on how corporations address ESG issues in their business strategy when making investment decisions and when developing their investment theses and proxy recommendations.
Additionally, we may face pressure to not do business in certain industries that are viewed as harmful to the environment or are otherwise negatively perceived, which could impact our growth. ​ Additionally, investors and shareholder advocates are placing ever increasing emphasis on how corporations address ESG issues in their business strategy when making investment decisions and when developing their investment theses and proxy 34 Table of Contents recommendations.
Our access to liquidity could also be impaired by factors that are not specific to us, such as severe volatility or disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole.
Our access to liquidity could also be impaired by factors that are not specific to us, such as severe volatility or disruption of the financial markets or negative views and expectations about the 30 Table of Contents prospects for the financial services industry as a whole.
In addition, to attract and retain personnel with appropriate skills and knowledge to support our business, we may offer a variety of benefits, which could reduce our earnings. Employee misconduct could expose us to significant legal liability and reputational harm.
In addition, to attract and retain personnel with appropriate skills and knowledge to support our business, we may offer a variety of benefits, which could reduce our earnings. 32 Table of Contents Employee misconduct could expose us to significant legal liability and reputational harm.
Failure to realize the expected revenue increases, cost savings, increases in product presence and/or other 28 Table of Contents projected benefits from an acquisition could have a material adverse effect on our financial condition and results of operations.
Failure to realize the expected revenue increases, cost savings, increases in product presence and/or other projected benefits from an acquisition could have a material adverse effect on our financial condition and results of operations.
If the Company chooses not to take such actions, we may be at a competitive disadvantage in attracting customers for certain fee producing products. 26 Table of Contents ​ Increased competition could require us to increase the rates that we pay on deposits or lower the rates that we offer on loans, which could reduce our profitability.
If the Company chooses not to take such actions, we may be at a competitive disadvantage in attracting customers for certain fee producing products. ​ Increased competition could require us to increase the rates that we pay on deposits or lower the rates that we offer on loans, which could reduce our profitability.
Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in our systems and could adversely affect our 23 Table of Contents reputation, results of operations and ability to attract and maintain customers and businesses.
Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in our systems and could adversely affect our reputation, results of operations and ability to attract and maintain customers and businesses.
If we are unable to replace our purchased credit impaired loans and leases and the related accretion with a significantly higher level of new performing loans and leases and other earning assets due to our inability to identify attractive acquisition opportunities, a decline in loan demand, competition from other financial institutions in our markets, stagnation or continued deterioration of economic conditions, or other conditions, our financial condition and earnings may be adversely affected. 27 Table of Contents Our recent acquisition and future expansion may result in additional risks.
If we are unable to replace our purchased credit impaired loans and leases and the related accretion with a significantly higher level of new performing loans and leases and other earning assets due to 27 Table of Contents our inability to identify attractive acquisition opportunities, a decline in loan demand, competition from other financial institutions in our markets, stagnation or continued deterioration of economic conditions, or other conditions, our financial condition and earnings may be adversely affected.
Based on the results of this simulation model, which assumed a static environment with no contemplated asset growth or changes in our balance sheet management strategies, if short-term interest rates immediately increased by 200 basis points, we could expect net interest income to decrease by approximately $1.3 million over a 12-month period.
Based on the results of this simulation model, which assumed a static environment with no contemplated asset growth or changes in our balance sheet management strategies, if interest rates immediately increased by 200 basis points, we could expect net interest income to decrease by approximately $9.5 million over a 12-month period.
As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market- 33 Table of Contents wide liquidity problems and could lead to losses or defaults by us or by other institutions.
As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.
As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving cash or equity securities and related capital raising transactions may occur at any time.
As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving cash or equity securities and related capital raising transactions may occur at any 28 Table of Contents time.
During higher and rising interest rate environments, the demand for mortgage loans and the level of refinancing activity tends to decline, which can lead to reduced volumes of business and lower revenues, which could negatively impact our earnings. Beginning in early 2022, in response to growing signs of inflation, the Federal Reserve increased interest rates rapidly.
During higher and rising interest rate environments, the demand for mortgage loans and the level of refinancing activity tends to decline, which can lead to reduced volumes of business and lower revenues, which 31 Table of Contents could negatively impact our earnings. In 2022 and 2023, in response to growing signs of inflation, the Federal Reserve increased interest rates rapidly.
We expect to continue to expand in our current markets and in other select markets through additional branches or through acquisitions of all or part of other financial institutions. These types of expansions involve various risks, including the risks detailed below.
Our recent acquisition and future expansion may result in additional risks. We expect to continue to expand in our current markets and in other select markets through additional branches or through acquisitions of all or part of other financial institutions. These types of expansions involve various risks, including the risks detailed below.
Even though our common stock is currently traded on the Nasdaq Capital Market, it has less liquidity than many other stocks quoted on a national securities exchange. The trading volume in our common stock on the Nasdaq Capital Market has been relatively low when compared with larger companies listed on the Nasdaq Capital Market or other stock exchanges.
Even though our common stock is currently traded on the New York Stock Exchange (“NYSE”), it has less liquidity than many other stocks quoted on a national securities exchange. The trading volume in our common stock on the NYSE has been relatively low when compared with larger companies listed on the NYSE or other stock exchanges.
Our ability to compete successfully will depend on a number of factors, including, among other things, our ability to recruit and retain experienced and talented bankers at competitive compensation levels, build and maintain long-term client relationships while ensuring high ethical standards and safe and sound banking practices, compete with the scope, relevance and pricing of the products and services we provide, maintain a competitive level of client satisfaction with our products and services, keep pace with technological advances and invest in new technology, and depend on general economic trend and trends within our industry.
Our ability to compete successfully will depend on a number of factors, including, among other things, our ability to recruit and retain experienced and talented bankers at competitive compensation levels, build and maintain long-term client relationships while ensuring high ethical standards and safe and sound banking practices, compete with the scope, relevance and pricing of the products and services we provide, maintain a competitive level of client satisfaction with our products and services, keep pace with technological advances and invest in new technology 26 Table of Contents (including those related to or involving artificial intelligence, machine learning, blockchain and other technologies), and depend on general economic trend and trends within our industry.
As of December 31, 2022, our 10 largest borrowing relationships totaled approximately $236 million in outstanding balances, or approximately 7% of our total loan portfolio.
As of December 31, 2023, our 10 largest borrowing relationships totaled approximately $256 million in outstanding balances, or approximately 7% of our total loan portfolio.
Additionally, if our competitors were extending credit on terms we found to pose excessive risks, or at interest rates which we believed did not warrant the credit exposure, we may not be able to maintain our business volume and could experience deteriorating financial performance.
Additionally, if our competitors were extending credit on terms we found to pose excessive risks, or at interest rates which we believed did not warrant the credit exposure, we may not be able to maintain our business volume and could experience deteriorating financial performance. Risks Related to Our Stock Our ability to declare and pay dividends is limited.
At December 31, 2022, approximately 77% of our loans and leases had real estate as a primary or secondary component of collateral, which includes 12% of our loans secured by construction and development collateral.
At December 31, 2023, approximately 79% of our loans and leases had real estate as a primary or secondary component of collateral, which includes 9% of our loans secured by construction and development collateral.
An economic downturn caused by inflation, recession, unemployment, government action, health emergencies, disease pandemics, natural disasters, the U.S. government’s decisions regarding its debt ceiling and the possibility that the U.S. could default on its debt obligations, or other factors beyond our control would likely contribute to the deterioration of the quality of our loan portfolio and reduce our level of deposits, which in turn would have an adverse effect on our business.
An economic downturn caused by inflation, recession, unemployment, government action, health emergencies, disease pandemics, natural disasters, adverse effects of the U.S. government’s failure to raise its debt ceiling (including defaulting on its debt obligations or experiencing credit downgrades), or other factors beyond our control would likely contribute to the deterioration of the quality of our loan portfolio and reduce our level of deposits, which in turn would have an adverse effect on our business.
As of December 31, 2022, we had 16,900,805 shares of common stock and no shares of preferred stock outstanding and had reserved or otherwise set aside for issuance 32,045 shares underlying outstanding options and 1,766,245 shares that are available for future grants of stock options, restricted stock or other equity-based awards pursuant to our equity incentive plans.
As of December 31, 2023, we had 16,988,879 shares of common stock and no shares of preferred stock outstanding and had reserved or otherwise set aside for issuance 16,340 shares underlying outstanding options and 1,674,663 shares that are available for future grants of stock options, restricted stock or other equity-based awards pursuant to our equity incentive plans.
Any regulatory action against us could have an adverse effect on our business, financial condition and results of operations. Risks Related to Our Company If our allowance for loan and lease losses and fair value adjustments with respect to acquired loans and leases is not sufficient to cover actual loan and lease losses, our earnings will be adversely affected.
Any regulatory action against us could have an adverse effect on our business, financial condition and results of operations. Risks Related to Our Company If our allowance for credit losses is not sufficient to cover actual losses, our earnings will be adversely affected. Our success depends significantly on the quality of our assets, particularly loans and leases.
The allowance for loan losses may not be adequate to cover losses associated with any of these relationships, and any loss or increase in the allowance could have a material adverse effect on our business, financial condition, results of operations and prospects.
The allowance for loan losses may not be adequate to cover losses associated with any of these relationships, and any loss or increase in the allowance could have a material adverse effect on our business, financial condition, results of operations and prospects. 29 Table of Contents Declines in the businesses or industries of our customers could cause increased credit losses and decreased loan balances, which could adversely affect our financial results.
As a result, we may experience significant loan and lease losses that may have a material adverse effect on our operating results and financial condition. We maintain an allowance for loan and lease losses with respect to our loan and lease portfolio, in an attempt to cover loan and lease losses inherent in our loan and lease portfolio.
As a result, we may experience significant loan and lease losses that may have a material adverse effect on our operating results and financial condition. We maintain allowances for credit losses with respect to our loan and lease portfolio and off-balance sheet exposures.
The Company cannot predict the nature or timing of future changes in monetary, economic, or other policies or the effect that they may have on the Company's business activities, financial condition and results of operations.
Further rate changes reportedly are dependent on the Federal Reserve’s assessment of economic data as it becomes available. The Company cannot predict the nature or timing of future changes in monetary, economic, or other policies or the effect that they may have on the Company's business activities, financial condition, and results of operations.
As a result of any of these factors the value of collateral securing a loan may be less than estimated, and if a default occurs we may not recover the outstanding balance of the loan.
As a result of any of these factors the value of collateral securing a loan may be less than estimated, and if a default occurs we may not recover the outstanding balance of the loan. Liquidity risk could impair our ability to fund our operations and jeopardize our financial condition.
If our analysis or assumptions prove to be incorrect, our current allowance may not be sufficient, and adjustments may be necessary to allow for different economic conditions or adverse developments in our loan and lease portfolio. Material additions to the allowance for loan and lease losses would materially decrease our net income and adversely affect our general financial condition.
If our analysis or assumptions prove to be incorrect, our current allowance may not be sufficient, and adjustments may be necessary to allow for different economic conditions or adverse developments in our loan and lease portfolio.
We also make various assumptions and judgments about the collectability of our loan and lease portfolio, including the diversification in our loan and lease portfolio, the effect of changes in the economy on real estate and other collateral values, the results of recent regulatory examinations, the effects on the loan and lease portfolio of current economic conditions and their probable impact on borrowers, the amount of charge-offs for the period and the amount of nonperforming loans and leases and related collateral security.
We also make various assumptions and judgments about the collectability of our loan and lease portfolio, including the diversification in our loan and lease portfolio, the effect of changes in the economy on real estate and other collateral values, the effects of current economic conditions on borrowers’ ability to pay, and the results of recent regulatory examinations.
Such secondary sources include FHLB Cincinnati advances, brokered deposits, secured and unsecured federal funds lines of credit from correspondent banks, Federal Reserve borrowings and/or accessing the equity or debt capital markets. We anticipate we will continue to rely primarily on deposits, loan and lease repayments, and cash flows from our investment securities to provide liquidity.
Such secondary sources include FHLB Cincinnati advances, brokered deposits, secured and unsecured federal funds lines of credit from correspondent banks, Federal Reserve borrowings and/or accessing the equity or debt capital markets.
Liquidity risk could impair our ability to fund our operations and jeopardize our financial condition. Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers and other creditors by either converting assets into cash or accessing new or existing sources of incremental funds.
Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers and other creditors by either converting assets into cash or accessing new or existing sources of incremental funds. Liquidity risk arises from the possibility that we may be unable to satisfy current or future funding requirements and needs.
Federal and state regulators periodically review our allowance for loan and lease losses and may require us to increase our allowance for loan and lease losses or recognize further loan charge-offs, based on judgments different than those of our management.
Further, Federal and state regulators periodically review our allowance for credit losses and may require us to increase our allowance for credit losses or recognize further loan charge offs, based on their judgements about information available to them at the time of their reviews.
Given the continued development of the trading volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause our stock price to fall. 34 Table of Contents We may issue additional shares of stock or equity derivative securities, including awards to current and future executive officers, directors and employees, which could result in the dilution of shareholders’ investment.
We may issue additional shares of stock or equity derivative securities, including awards to current and future executive officers, directors and employees, which could result in the dilution of shareholders’ investment. Our authorized capital includes 40,000,000 shares of common stock and 2,000,000 shares of preferred stock.
In addition, ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs. 35 Table of Contents Our securities are not FDIC insured .
We may incur meaningful costs with respect to our ESG efforts and if such efforts are negatively perceived, our reputation and stock price may suffer. In addition, ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs. Our securities are not FDIC insured .
If short-term interest rates immediately decreased by 200 basis points, we could expect net interest income to remain stable over the next 12-month period. In recent years, the Federal Reserve implemented a series of accommodative domestic monetary initiatives. Several of these have emphasized so-called quantitative easing strategies and decreases to the Federal funds target rate.
If interest rates immediately 22 Table of Contents decreased by 200 basis points, we could expect net interest income to increase by approximately $10.5 million over the next 12-month period. In recent years, the Federal Reserve implemented a series of accommodative domestic monetary initiatives.
If any such expansions into new product markets are not successful, there could be an adverse effect on our financial condition and results of operations. 32 Table of Contents Any deficiencies in our financial reporting or internal controls could materially and adversely affect us, including resulting in material misstatements in our financial statements, and could materially and adversely affect the market price of our common stock.
Any deficiencies in our financial reporting or internal controls could materially and adversely affect us, including resulting in material misstatements in our financial statements, and could materially and adversely affect the market price of our common stock.
Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. For example, fixed-rate securities acquired by us are generally subject to decreases in market value when interest rates rise.
For example, fixed-rate securities acquired by us are generally subject to decreases in market value when interest rates rise.
If we are unable to access any of these secondary funding sources when needed, we might be unable to meet our customers’ or creditors’ needs, which would adversely affect our financial condition, results of operations, and liquidity. We could recognize losses on securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate.
Additionally, where necessary, the secondary sources of borrowed funds described above will be used to augment our primary funding sources. If we are unable to access any of these secondary funding sources when needed, we might be unable to meet our customers’ or creditors’ needs, which would adversely affect our financial condition, results of operations, and liquidity.
Furthermore, it is possible that our unfamiliarity with new lines of business might adversely affect the success of such actions.
Furthermore, it is possible that our unfamiliarity with new lines of business might adversely affect the success of such actions. If any such expansions into new product markets are not successful, there could be an adverse effect on our financial condition and results of operations.
In determining the size of the allowance, we rely on an analysis of our loan and lease portfolio, our experience and our evaluation of general economic conditions.
In determining the size of the allowance, we rely on analysis of our credit risks and loss experience, reasonable and supportable forecasts of future economic conditions, current portfolio quality, industry concentrations, and other factors that may be an indication of potential credit losses.
Removed
Also during 2022, the Federal reserve implemented quantitative tightening. Further rate changes reportedly are dependent on the Federal Reserve’s assessment of economic data as it becomes available.
Added
The primary tool that management uses to measure short-term interest rate risk is a net interest income simulation model prepared by an independent third party provider.
Removed
Our success depends significantly on the quality of our assets, particularly loans and leases.
Added
As of December 31, 2023, SmartFinancial is considered to be in a liability-sensitive position, meaning income is generally expected to decrease with an increase in interest rates and, conversely, to increase with a decrease in interest rates.
Removed
The application of the acquisition method of accounting in our acquisitions has impacted our allowance for loan and lease losses.
Added
Material additions to the allowance for credit losses would materially decrease our net income and adversely affect our general financial condition and results of operation.
Removed
Under the acquisition method of accounting, all acquired loans and leases were recorded in our consolidated financial statements at their fair values at the time of acquisition and the related allowance for loan and lease losses was eliminated because credit quality, among other factors, was considered in the determination of fair value.
Added
Negative developments in the banking industry could adversely affect our current and projected business operations and our financial condition and results of operations. ​ The bank failures in 2023 and related negative media attention have generated significant market trading volatility among publicly traded bank holding companies and, in particular, regional banks like the Company.
Removed
To the extent that our estimates of fair values are too high, we will incur losses associated with the acquired loans and leases.
Added
These developments have negatively impacted customer confidence in regional banks, which could prompt customers to maintain their deposits with larger financial institutions. Further, competition for deposits has increased in recent periods, and the cost of funding has similarly increased, putting pressure on our net interest margin.
Removed
The allowance, if any, associated with our purchased credit impaired loans and leases reflects deterioration in cash flows since acquisition resulting from our quarterly re-estimation of cash flows which involves complex cash flow projections and significant judgment on timing of loan and lease resolution.
Added
If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses, including as a result of the negative impact of rising interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital.
Removed
As of December 31, 2022, our allowance for loan and lease losses as a percentage of total loans and leases was 0.72% and as a percentage of total nonperforming loans and leases was 830.98%.
Added
If we were required to raise additional capital in the current environment, any such capital raise may be on unfavorable terms, thereby negatively 25 Table of Contents impacting book value and profitability. While we have taken actions to improve our funding, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs.
Removed
Although management believes that the allowance for loan and lease losses is adequate to absorb losses on any existing loans or lease that may become uncollectible, we may be required to take additional provisions for loan and lease losses in the future to further supplement the allowance for loan and lease losses, either due to management’s decision to do so or because our banking regulators require us to do so.
Added
We also anticipate increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Bank, designed to address the negative developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce its profitability.
Removed
Any increase in our allowance for loan and lease losses or loan and lease charge-offs required by these regulatory agencies could have a material adverse effect on our operating results and financial condition. 25 Table of Contents Changes in accounting standards, including the implementation of Current Expected Credit Loss methodology, could materially affect how we report our financial results.
Added
Among other things, there may be an increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, losses embedded in the held-to-maturity portion of our securities portfolio, contingent liquidity, commercial real estate composition and concentration, capital position and our general oversight and internal control structures regarding the foregoing.
Removed
The Financial Accounting Standards Board adopted a new accounting standard for determining the amount of our allowance for credit losses (ASU 2016-13 Financial Instruments - Credit Losses (Topic 326)) that will be effective for us January 1, 2023.
Added
As primarily a commercial bank, the Bank has an elevated degree of uninsured deposits compared to larger national banks or smaller community banks with a stronger focus on retail deposits, and also maintains a robust commercial real estate portfolio. As a result, the Bank could face increased scrutiny or be viewed as higher risk by regulators and the investor community.
Removed
We believe that adoption of ASU 2016-13 will result in an increase to our allowance for loan and lease losses, referred to as Current Expected Credit Loss (“CECL”).
Added
In addition, bank failures have and could in the future prompt the FDIC to increase deposit insurance costs. Increases in funding, deposit insurance, or other costs as a result of these types of events have and could in the future materially adversely affect our financial condition and results of operations.
Removed
Implementation of CECL will require that we determine periodic estimates of lifetime expected future credit losses on loans in the allowance for loan and lease losses in the period when the loans are booked.
Added
Further, the disruption following these types of events have and could in the future generate significant market trading volatility among publicly traded bank holdings companies and, in particular, regional banks like the Company. Our success depends significantly on economic conditions in our market areas.
Removed
The ongoing impact of CECL will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized.
Added
Recently proposed changes to the Federal Home Loan Bank system, however, could adversely impact the Company’s access to Federal Home Loan Bank borrowings or increase the cost of such borrowings. We anticipate we will continue to rely primarily on deposits, loan and lease repayments, and cash flows from our investment securities to provide liquidity.
Removed
Should these factors materially change, we may be required to increase or decrease our allowance for loan and lease losses, decreasing or increasing our net income, and introducing additional volatility into our net income. Our success depends significantly on economic conditions in our market areas.
Added
We could recognize losses on securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities.
Removed
Declines in the businesses or industries of our customers could cause increased credit losses and decreased loan balances, which could adversely affect our financial results.
Added
Given the continued development of the trading volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause our stock price to fall.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThese offices include both owned and leased facilities as follows: ​ ​ ​ ​ ​ ​ ​ State ​ Owned ​ Leased ​ Total ​ ​ ​ ​ ​ ​ ​ Tennessee ​ ​ ​ ​ ​ ​ Branch operations ​ 18 ​ 6 ​ 24 Loan production office ​ - ​ - ​ - ​ ​ ​ ​ ​ ​ ​ Alabama ​ ​ ​ ​ ​ ​ Branch operations ​ 9 ​ 5 ​ 14 Loan production office ​ - ​ - ​ - ​ ​ ​ ​ ​ ​ ​ Florida ​ ​ ​ ​ ​ ​ Branch operations ​ 2 ​ 1 ​ 3 Loan production office ​ - ​ 1 ​ 1 ​ ​ 29 ​ 13 ​ 42 ​ 36 Table of Contents
Biggest changeThese offices include both owned and leased facilities as follows: ​ ​ ​ ​ ​ ​ ​ State ​ Owned ​ Leased ​ Total ​ ​ ​ ​ ​ ​ ​ Tennessee ​ ​ ​ ​ ​ ​ Branch operations ​ 18 ​ 6 ​ 24 ​ ​ ​ ​ ​ ​ ​ Alabama ​ ​ ​ ​ ​ ​ Branch operations ​ 9 ​ 5 ​ 14 ​ ​ ​ ​ ​ ​ ​ Florida ​ ​ ​ ​ ​ ​ Branch operations ​ 2 ​ 2 ​ 4 ​ ​ 29 ​ 13 ​ 42 ​ ​
ITEM 2. PROPERTIES The Company’s executive offices are located at 5401 Kingston Pike, #600, Knoxville, Tennessee 37919. This property is owned by SmartBank and also serves as a branch location for the Bank’s customers. At December 31, 2022, we conducted branch banking operations in 41 offices in 3 states and had one loan production office in one state.
ITEM 2. PROPERTIES The Company’s executive offices are located at 5401 Kingston Pike, #600, Knoxville, Tennessee 37919. This property is owned by SmartBank and also serves as a branch location for the Bank’s customers. At December 31, 2023, we conducted branch banking operations in 42 offices in 3 states.
Removed
We believe that our offices are in good condition and are suitable and adequate to our needs.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS At December 31, 2022, neither SmartFinancial nor SmartBank was involved in any material litigation. SmartBank is periodically involved as a plaintiff or defendant in various legal actions in the ordinary course of its business.
Biggest changeITEM 3. LEGAL PROCEEDINGS At December 31, 2023, neither SmartFinancial, nor SmartBank, was involved in any material litigation. SmartBank is periodically involved as a plaintiff or defendant in various legal actions in the ordinary course of its business.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe S&P SmallCap Bank Index contains securities of NYSE and NASDAQ-listed companies with market capitalizations between $250 million and $1 billion. The index primarily includes banks and, to a lesser extent, insurance underwriters and specialty lenders providing a broad range of financial services, including retail banking, loans, and money transmissions. ​ ​ 38 Table of Contents ITEM 6. RESERVED ​
Biggest changeThe S&P SmallCap Bank Index contains securities of NYSE and NASDAQ-listed companies with market capitalizations between $250 million and $1 billion.
The following table summarizes the Company’s repurchase activity during the quarter ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maximum ​ ​ ​ ​ ​ ​ ​ ​ ​ Number (or ​ ​ ​ ​ ​ ​ ​ ​ ​ Approximate ​ ​ ​ ​ ​ ​ ​ ​ ​ Dollar Value) of ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares That May ​ ​ ​ ​ ​ ​ ​ Total Number of Shares ​ Yet Be Purchased ​ ​ Total Number of ​ Weighted ​ Purchased as Part of ​ Under the Plans ​ ​ Shares ​ Average Price Paid ​ Publicly Announced ​ or Programs (in Period Repurchased Per Share Plans or Programs thousands) October 1, 2022 to October 31, 2022 ​ — ​ $ — ​ — ​ $ 4,484 November 1, 2022 to November 30, 2022 — ​ ​ — ​ — ​ ​ 4,484 December 1, 2022 to December 31, 2022 — ​ ​ — ​ — ​ ​ 4,484 Total ​ — ​ $ — ​ — ​ $ 4,484 ​ 37 Table of Contents Stock Performance Graph The following performance graph and related information are neither “soliciting material” nor “filed’ with the SEC, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent the Company specifically incorporates it by reference to such filing.
The following table summarizes the Company’s repurchase activity during the quarter ended December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maximum ​ ​ ​ ​ ​ ​ ​ ​ ​ Number (or ​ ​ ​ ​ ​ ​ ​ ​ ​ Approximate ​ ​ ​ ​ ​ ​ ​ ​ ​ Dollar Value) of ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares That May ​ ​ ​ ​ ​ ​ ​ Total Number of Shares ​ Yet Be Purchased ​ ​ Total Number of ​ Weighted ​ Purchased as Part of ​ Under the Plans ​ ​ Shares ​ Average Price Paid ​ Publicly Announced ​ or Programs (in Period Repurchased Per Share Plans or Programs thousands) October 1, 2023 to October 31, 2023 ​ — ​ $ — ​ — ​ $ 4,484 November 1, 2023 to November 30, 2023 — ​ ​ — ​ — ​ ​ 4,484 December 1, 2023 to December 31, 2023 — ​ ​ — ​ — ​ ​ 4,484 Total ​ — ​ $ — ​ — ​ $ 4,484 ​ ​ 38 Table of Contents Stock Performance Graph The following performance graph and related information are neither “soliciting material” nor “filed’ with the SEC, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent the Company specifically incorporates it by reference to such filing.
The performance graph compares the cumulative five-year shareholder return on the Company’s common stock, assuming an investment of $100 on December 31, 2017, and reinvestment of dividends thereafter, to that of the common stocks of United States companies reported in the Russell 3000 Index and the common stocks of the S&P SmallCap Bank Index.
The performance graph compares the cumulative five-year shareholder return on the Company’s common stock, assuming an investment of $100 on December 31, 2018, and reinvestment of dividends thereafter, to that of the common stocks of United States companies reported in the Russell 3000 Index and the common stocks of the S&P SmallCap Bank Index.
As of December 31, 2022, we have purchased $5.5 million of the authorized $10.0 million and may purchase up to an additional $4.5 million in the Company’s outstanding common stock pursuant to the plan.
As of December 31, 2023, we have purchased $5.5 million of the authorized $10.0 million and may purchase up to an additional $4.5 million in the Company’s outstanding common stock pursuant to the plan.
Dividends from SmartBank are the Company’s primary source of funds to pay dividends on its common stock. Additional information regarding restrictions on the ability of SmartBank to pay dividends to the Company and for the Company to pay dividends to its shareholders is contained in “Part I – Item 1. Business – Supervision and Regulation – Payment of Dividends”.
Dividends from SmartBank are the Company’s primary source of funds to pay dividends on its common stock. Additional information regarding restrictions on the ability of SmartBank to pay dividends to the Company and for the Company to 37 Table of Contents pay dividends to its shareholders is contained in “Part I – Item 1.
Equity Compensation Plan Information For information relating to compensation plans under which our equity securities are authorized for issuance, see Part III Items 11 and 12.
Business – Supervision and Regulation – Payment of Dividends”. Equity Compensation Plan Information For information relating to compensation plans under which our equity securities are authorized for issuance, see Part III Items 11 and 12.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information SmartFinancial’s common stock is listed on the Nasdaq Capital Market under the symbol “SMBK”. As of March 8, 2023, there were approximately 4,687 holders of record of SmartFinancial’s common stock and 16,996,288 shares outstanding.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information SmartFinancial’s common stock is listed on the New York Stock Exchange under the symbol “SMBK”. As of March 8, 2024, there were approximately 4,670 holders of record of SmartFinancial’s common stock and 17,058,114 shares outstanding.
Added
The index primarily includes banks and, to a lesser extent, insurance underwriters and specialty lenders providing a broad range of financial services, including retail banking, loans, and money transmissions. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Symbol Total Returns Index For: 2018 2019 2020 2021 2022 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Smart Financial ​ $ 100.00 ​ ​ 129.74 ​ $ 100.79 ​ $ 153.55 ​ $ 155.97 ​ $ 140.85 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Russell 3000 ​ $ 100.00 ​ $ 131.02 ​ $ 158.39 ​ $ 199.03 ​ $ 160.80 ​ $ 202.54 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ S&P SmallCap Bank ​ $ 100.00 ​ $ 125.46 ​ $ 113.94 ​ $ 158.62 ​ $ 139.85 ​ $ 140.55 ​ Definition: 1) The Russell 3000 Index is a market-capitalization-weighted equity index which tracks the performance of the 3,000 largest U.S.-traded stocks. 2) The S&P SmallCap Bank Index is a market-capitalization-weighted index which tracks the performance of NYSE and NASDAQ-listed banks, insurance underwriters and specialty lenders in S&P's coverage universe with $250M to $1B market capitalization as of most recent pricing data.
Added
Notes: 1) The lines represent monthly index levels derived from compounded daily returns that include all dividends. 2) The indexes are reweighted daily, using the market capitalization on the previous day. 3) If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used. 4) The index level for all series was set to $100.00 on 12/31/2018. ​ 39 Table of Contents ITEM 6.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe cost of average interest-bearing deposits decreased from 0.71% for 2020, to 0.36% for 2021, primarily due to a lower interest rate environment during the period. ​ 41 Table of Contents Summary of Average Balances, Interest and Rates The following table presents (dollars in thousands) , for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 2020 ​ Average ​ Yield/ Average ​ Yield/ Average ​ Yield/ ​ ​ Balance ​ Interest ​ Cost ​ Balance ​ Interest ​ Cost ​ Balance ​ Interest ​ Cost Assets: ​ ​ ​ ​ ​ ​ ​ Loans and leases, including fees 1 ​ $ 2,948,511 ​ $ 136,381 4.63 % $ 2,540,577 ​ $ 118,582 4.67 % $ 2,296,972 ​ $ 112,312 4.89 % Taxable securities ​ 688,428 ​ 11,799 1.71 % 207,459 ​ 3,813 1.84 % 122,900 ​ 2,423 1.97 % Tax-exempt securities 2 ​ 100,566 ​ 2,831 2.82 % 92,708 ​ 1,817 1.96 % 83,765 ​ 1,941 2.32 % Federal funds sold and other earning assets ​ 577,593 ​ 8,488 1.47 % 680,909 ​ 1,622 0.24 % 308,843 ​ 1,509 0.49 % Total interest-earning assets ​ 4,315,098 ​ 159,499 3.70 % 3,521,653 ​ 125,834 3.57 % 2,812,480 ​ 118,185 4.20 % Noninterest-earning assets ​ 373,026 ​ ​ 317,457 ​ ​ 250,955 ​ ​ Total assets ​ $ 4,688,124 ​ ​ $ 3,839,110 ​ ​ $ 3,063,435 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and Shareholders’ Equity: ​ ​ ​ ​ ​ ​ ​ Interest-bearing demand deposits ​ $ 945,414 ​ 6,278 0.66 % $ 737,251 ​ 1,378 0.19 % $ 481,050 ​ 1,013 0.21 % Money market and savings deposits ​ 1,576,170 ​ 9,137 0.58 % 1,191,916 ​ 3,501 0.29 % 788,006 ​ 3,482 0.44 % Time deposits ​ 513,416 ​ 2,813 0.55 % 533,994 ​ 3,970 0.74 % 641,647 ​ 9,102 1.42 % Total interest-bearing deposits ​ 3,035,000 ​ 18,228 0.60 % 2,463,161 ​ 8,849 0.36 % 1,910,703 ​ 13,597 0.71 % Borrowings 3 ​ 32,986 ​ 602 1.83 % 83,105 ​ 540 0.65 % 177,204 ​ 816 0.46 % Subordinated debt ​ 41,970 ​ 2,503 5.96 % 40,221 ​ 2,449 6.09 % 39,301 ​ 2,334 5.94 % Total interest-bearing liabilities ​ 3,109,956 ​ 21,333 0.69 % 2,586,487 ​ 11,838 0.46 % 2,127,208 ​ 16,747 0.79 % Noninterest-bearing deposits ​ 1,120,555 ​ ​ 841,746 ​ ​ 571,282 ​ ​ Other liabilities ​ 34,361 ​ ​ 23,189 ​ ​ 23,775 ​ ​ Total liabilities ​ 4,264,872 ​ ​ 3,451,422 ​ ​ 2,722,265 ​ ​ Shareholders’ equity ​ 423,252 ​ ​ 387,688 ​ ​ 341,170 ​ ​ Total liabilities and shareholders’ equity ​ $ 4,688,124 ​ ​ $ 3,839,110 ​ ​ $ 3,063,435 ​ ​ Net interest income, taxable equivalent ​ ​ $ 138,166 ​ ​ $ 113,996 ​ ​ $ 101,438 ​ Interest rate spread ​ ​ 3.01 % ​ 3.12 % ​ 3.41 % Tax equivalent net interest margin ​ ​ 3.20 % ​ 3.24 % ​ 3.61 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage of average interest-earning assets to average interest-bearing liabilities ​ ​ ​ 138.75 % ​ 136.16 % ​ 132.21 % Percentage of average equity to average assets ​ ​ 9.03 % ​ 10.10 % ​ 11.14 % ​ 1 Loans include PPP loans with an average balance of $14.1 million, $196.1 million and $201.5 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Biggest changeSummary of Average Balances, Interest and Rates The following table presents (dollars in thousands) , for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 2021 ​ Average ​ Yield/ Average ​ Yield/ Average ​ Yield/ ​ ​ Balance ​ Interest ​ Cost ​ Balance ​ Interest ​ Cost ​ Balance ​ Interest ​ Cost Assets: ​ ​ ​ ​ ​ ​ ​ Loans and leases, including fees 1 ​ $ 3,334,523 ​ $ 186,479 5.59 % $ 2,948,511 ​ $ 136,381 4.63 % $ 2,540,577 ​ $ 118,582 4.67 % Taxable securities ​ 713,637 ​ 16,665 2.34 % 688,428 ​ 11,799 1.71 % 207,459 ​ 3,813 1.84 % Tax-exempt securities 2 ​ 64,816 ​ 1,795 2.77 % 100,566 ​ 2,831 2.82 % 92,708 ​ 1,817 1.96 % Federal funds sold and other earning assets ​ 272,864 ​ 13,481 4.94 % 577,593 ​ 8,488 1.47 % 680,909 ​ 1,622 0.24 % Total interest-earning assets ​ 4,385,840 ​ 218,420 4.98 % 4,315,098 ​ 159,499 3.70 % 3,521,653 ​ 125,834 3.57 % Noninterest-earning assets ​ 370,436 ​ ​ 373,026 ​ ​ 317,457 ​ ​ Total assets ​ $ 4,756,276 ​ ​ $ 4,688,124 ​ ​ $ 3,839,110 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and Shareholders' Equity: ​ ​ ​ ​ ​ ​ ​ Interest-bearing demand deposits ​ $ 959,639 ​ 20,214 2.11 % $ 945,414 ​ 6,278 0.66 % $ 737,251 ​ 1,378 0.19 % Money market and savings deposits ​ 1,768,869 ​ 50,468 2.85 % 1,576,170 ​ 9,137 0.58 % 1,191,916 ​ 3,501 0.29 % Time deposits ​ 520,799 ​ 13,578 2.61 % 513,416 ​ 2,813 0.55 % 533,994 ​ 3,970 0.74 % Total interest-bearing deposits ​ 3,249,307 ​ 84,260 2.59 % 3,035,000 ​ 18,228 0.60 % 2,463,161 ​ 8,849 0.36 % Borrowings ​ 17,824 ​ 936 5.25 % 32,986 ​ 602 1.83 % 83,105 ​ 540 0.65 % Subordinated debt ​ 42,055 ​ 2,767 6.58 % 41,970 ​ 2,503 5.96 % 40,221 ​ 2,449 6.09 % Total interest-bearing liabilities ​ 3,309,186 ​ 87,963 2.66 % 3,109,956 ​ 21,333 0.69 % 2,586,487 ​ 11,838 0.46 % Noninterest-bearing deposits ​ 958,078 ​ ​ 1,120,555 ​ ​ 841,746 ​ ​ Other liabilities ​ 46,052 ​ ​ 34,361 ​ ​ 23,189 ​ ​ Total liabilities ​ 4,313,316 ​ ​ 4,264,872 ​ ​ 3,451,422 ​ ​ Shareholders' equity ​ 442,960 ​ ​ 423,252 ​ ​ 387,688 ​ ​ Total liabilities and shareholders’ equity ​ $ 4,756,276 ​ ​ $ 4,688,124 ​ ​ $ 3,839,110 ​ ​ Net interest income, taxable equivalent ​ ​ $ 130,457 ​ ​ $ 138,166 ​ ​ $ 113,996 ​ Interest rate spread ​ ​ 2.32 % ​ 3.01 % ​ 3.12 % Tax equivalent net interest margin ​ ​ 2.97 % ​ 3.20 % ​ 3.24 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage of average interest-earning assets to average interest-bearing liabilities ​ ​ ​ 132.54 % ​ 138.75 % ​ 136.16 % Percentage of average equity to average assets ​ ​ 9.31 % ​ 9.03 % ​ 10.10 % ​ 1 Loans include PPP loans with an average balance of $2.8 million, $14.1 million and $196.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Financial Statements and Supplementary Data – Note 9 – Borrowings and Line of Credit” and “Note 10 – Subordinated Debt." Liquidity Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost.
Financial Statements and Supplementary Data – Note 9 – Borrowings and Line of Credit” and “Note 10 – Subordinated Debt.” Liquidity Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost.
Loan and Lease Portfolio Composition Our loans and leases represent the largest portion of our earning assets, substantially greater than the securities portfolio or any other asset category, and the quality and diversification of the loan and lease portfolio is an important consideration when reviewing our financial condition.
Loan and Lease Portfolio Our loans and leases represent the largest portion of our earning assets, substantially greater than the securities portfolio or any other asset category, and the quality and diversification of the loan and lease portfolio is an important consideration when reviewing our financial condition.
Any excess of cost over estimated fair value at the time of foreclosure is charged to the allowance for loan losses. Valuations are periodically performed on these properties, and any subsequent write-downs are charged to earnings. Routine maintenance and other holding costs are included in noninterest expense.
Any excess of cost over estimated fair value at the time of foreclosure is charged to the allowance for credit losses. Valuations are periodically performed on these properties, and any subsequent write-downs are charged to earnings. Routine maintenance and other holding costs are included in noninterest expense.
Financial Statements and Supplementary Data - Note 15 - Regulatory Matters.” The table below (dollars in thousands) summarizes the capital requirements applicable to the Company and Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as the Company and Bank’s capital ratios as of December 31, 2022 and 2021.
Financial Statements and Supplementary Data – Note 15 – Regulatory Matters.” The table below (dollars in thousands) summarizes the capital requirements applicable to the Company and Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as the Company and Bank’s capital ratios as of December 31, 2023 and 2022.
At December 31, 2022, and 2021, our capital ratios, including our Company and Bank’s capital ratios, exceeded regulatory minimum capital requirements. From time to time we may be required to support the capital needs the Bank. For more information regarding our capital, leverage and total capital ratios, see “Part II - Item 8.
At December 31, 2023, and 2022, our capital ratios, including our Company and Bank’s capital ratios, exceeded regulatory minimum capital requirements. From time to time we may be required to support the capital needs the Bank. For more information regarding our capital, leverage and total capital ratios, see “Part II – Item 8.
The yield on earning assets increased from 3.57% for 2021, to 3.70% for 2022, primarily due to the Company’s deployment of excess cash and cash equivalents into loans and leases and securities during 2022 and higher yields on cash deposits in the Federal Reserve System, offset by lower Paycheck Protection Program (“PPP”) fee accretion in loan yields.
The yield on earning assets increased from 3.57% for 2021, to 3.70% for 2022, primarily due to the Company’s deployment of excess cash and cash equivalents into loans and leases and securities during 2022 and higher yields on cash deposits in the Federal 42 Table of Contents Reserve System, offset by lower Paycheck Protection Program (“PPP”) fee accretion in loan yields.
The Company and Bank exceeded all regulatory capital requirements and was considered to be “well-capitalized” as of December 31, 2022 and 2021. As of December 31, 2022, the FDIC categorized the Bank as well-capitalized under the prompt corrective action framework.
The Company and Bank exceeded all regulatory capital requirements and was considered to be “well-capitalized” as of December 31, 2023 and 2022. As of December 31, 2023, the FDIC categorized the Bank as well-capitalized under the prompt corrective action framework.
Loan fee income for the years ended December 31, 2022, 2021 and 2020, respectively, includes $1.9 million, $9.1 million and $5.9 million accretion of loan fees on PPP loans. 2 Yields related to investment securities exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 21.0% in 2022, 2021 and 2020.
Loan fee income for the years ended December 31, 2023, 2022 and 2021, respectively, includes $38 thousand, $1.9 million and $9.1 million accretion of loan fees on PPP loans. 2 Yields related to investment securities exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 21.0% in 2023, 2022 and 2021.
Borrowings and Subordinated Debt Other than deposits, the Company uses short-term borrowings and long-term debt to provide both funding and, to a lesser extent, regulatory capital using debt at the Company level which can be downstreamed as Tier 1 capital to the Bank. Total borrowings at December 31, 2022 and 2021, was $41.9 million and $87.6 million, respectively.
Borrowings and Subordinated Debt Other than deposits, the Company uses short-term borrowings and long-term debt to provide both funding and, to a lesser extent, regulatory capital using debt at the Company level which can be downstreamed as Tier 1 capital to the Bank. Total borrowings at December 31, 2023 and 2022, was $13.1 million and $41.9 million, respectively.
The primary components of the changes in noninterest expense were as follows: ● Increase in salary and employee benefits, related to the Fountain acquisition completed May 3, 2021 and overall franchise growth from talent hired in Auburn, Dothan, Montgomery and Birmingham Alabama, and Tallahassee, Florida in late 2021, and to a lesser extent, the Sunbelt acquisition completed September 1, 2022; ● Increase in occupancy and equipment, due to ongoing infrastructure and facilities added to accommodate growth in operations; ● Increase in FDIC insurance, related to continued asset growth; ● Increase in data processing and technology, primarily from continued infrastructure build and overall growth; ● Increase in professional services, related to more services performed during the year; and ● Increases in other, primarily related to continued franchise growth. 44 Table of Contents 2021 compared to 2020 Noninterest expense increased $14.7 million to $91.4 million in 2021, compared to $76.7 million in 2020.
The primary components of the changes in noninterest expense were as follows: ● Increase in salary and employee benefits, related to the Fountain acquisition completed May 3, 2021 and overall franchise growth from talent hired in Auburn, Dothan, Montgomery and Birmingham Alabama, and Tallahassee, Florida in late 2021, and to a lesser extent, the Sunbelt acquisition completed September 1, 2022; ● Increase in occupancy and equipment, due to ongoing infrastructure and facilities added to accommodate growth in operations; ● Increase in FDIC insurance, related to continued asset growth; ● Increase in data processing and technology, primarily from continued infrastructure build and overall growth; ● Increase in professional services, related to more services performed during the year; and ● Increases in other, primarily related to continued franchise growth.
If a 46 Table of Contents loan or lease, or a portion of a loan or lease is classified as doubtful or as partially charged off, the loan or lease is generally classified as nonaccrual.
If a loan or lease, or a portion of a loan or lease is classified as doubtful or as partially charged off, the loan or lease is generally classified as nonaccrual.
The Federal Reserve discount window line is collateralized by a pool of commercial real estate loans and commercial and industrial loans totaling $99.7 million as of December 31, 2022. At December 31, 2022, we had no FHLB advances outstanding. For more information regarding the FHLB advances, see "Part II - Item 8.
The Federal Reserve discount window line is collateralized by a pool of commercial real estate loans and commercial and industrial loans totaling $379.8 million as of December 31, 2023. At December 31, 2023, we had no FHLB advances outstanding. For more information regarding the FHLB advances, see “Part II – Item 8.
Our net interest margin can also be adversely impacted by the reversal of interest on nonaccrual loans and the reinvestment of loan payoffs into lower yielding investment securities and other short-term investments. 2022 compared to 2021 Net interest income, taxable equivalent, increased to $138.2 million in 2022 from $114.0 million in 2021.
Our net interest margin can also be adversely impacted by the reversal of interest on nonaccrual loans and the reinvestment of loan payoffs into lower yielding investment securities and other short-term investments. 2023 compared to 2022 Net interest income, taxable equivalent, decreased to $130.5 million in 2023 from $138.2 million in 2022.
In addition to our banking services, we offer insurance products through Rains Insurance Agency, Inc. and loans and leases for heavy equipment through Fountain Equipment Finance, LLC., both are subsidiaries of the Bank.
In addition to our banking services, we offer insurance products through SBK Insurance, Inc., formally known as Rains Insurance Agency, Inc. and loans and leases for heavy equipment through Fountain, both are subsidiaries of the Bank.
The Company believes its deposit product offerings are properly structured to attract and retain core low-cost deposit relationships. The average cost of deposits was 0.44% in 2022 compared to 0.27% in 2021. Total deposits as of December 31, 2022, were $4.1 billion, which was an increase of $55.2 million from December 31, 2021.
The Company believes its deposit product offerings are properly structured to attract and retain core low-cost deposit relationships. The average cost of deposits was 2.00% in 2023 compared to 0.44% in 2022. Total deposits as of December 31, 2023, were $4.3 billion, which was an increase of $190.8 million from December 31, 2022.
Our liquid assets include cash, interest-bearing deposits in correspondent banks, federal funds sold, and fair value of unpledged investment securities. Other available sources of liquidity include wholesale deposits, and additional borrowings from correspondent banks, FHLB advances, and the Federal Reserve discount window.
Our liquidity position is supported by management of liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks, federal funds sold, and fair value of unpledged investment securities. Other available sources of liquidity include wholesale deposits, and additional borrowings from correspondent banks, FHLB advances, and the Federal Reserve discount window.
Income Taxes 2022 compared to 2021 In 2022, income tax expense totaled $11.9 million compared to $9.5 million in 2021. The effective tax rate was approximately 21.7% for 2022 compared to 21.5% in 2021. 2021 compared to 2020 In 2021, income tax expense totaled $9.5 million compared to $6.6 million in 2020.
Income Taxes 2023 compared to 2022 In 2023, income tax expense totaled $7.6 million compared to $11.9 million in 2022. The effective tax rate was approximately 21.1% for 2023 compared to 21.7% in 2022.
Nonperforming loans and leases as a percentage of gross loans and leases, net of deferred fees, was 0.09% as of December 31, 2022, and 0.12% as of December 31, 2021, respectively. Total nonperforming assets as a percentage of total assets as of December 31, 2022, totaled 0.10% compared to 0.11% as of December 31, 2021.
Nonperforming loans and leases as a percentage of gross loans and leases, net of deferred fees, was 0.24% as of December 31, 2023, and 0.09% as of December 31, 2022, respectively. Total nonperforming assets as a percentage of total assets as of December 31, 2023, totaled 0.20% compared to 0.10% as of December 31, 2022.
For certain sold participation loans, the Bank has retained effective control of the loans, typically by restricting the participating institutions from pledging or selling their share of the loan without permission from the Bank. 45 Table of Contents GAAP requires the participated portion of these loans to be recorded as secured borrowings.
For certain sold participation loans, the Bank has retained effective control of the loans, typically by restricting the participating institutions from pledging or selling their share of the loan without permission from the Bank. Generally accepted accounting principles (“GAAP”) requires the participated portion of these loans to be recorded as secured borrowings.
As part of our liquidity management strategy, we open federal funds lines with our correspondent banks. As of December 31, 2022, we had $76.5 million of unsecured federal funds lines with no funds advanced. In addition, we have access to the Federal Reserve’s discount window in the amount $74.1 million with no borrowings outstanding as of December 31, 2022.
As part of our liquidity management strategy, we open federal funds lines with our correspondent banks. As of December 31, 2023, we had $98.0 million of unsecured federal funds lines with no funds advanced. In addition, we have access to the Federal Reserve’s discount window in the amount $283.0. million with no borrowings outstanding as of December 31, 2023.
Net Interest Income and Yield Analysis The management of interest income and expense is fundamental to our financial performance. Net interest income, the difference between interest income and interest expense, is the largest component of the Company’s total revenue. Management closely monitors both total net interest income and the net interest margin (net interest income divided by average earning assets).
Net interest income, the difference between interest income and interest expense, is the largest component of the Company’s total revenue. Management closely monitors both total net interest income and the net interest margin (net interest income divided by average earning assets).
The effective tax rate was approximately 21.5% for 2021 compared to 21.2% in 2020.
The effective tax rate was approximately 21.7% for 2022 compared to 21.5% in 2021.
Treasury ​ $ — ​ - % ​ $ 150,295 ​ 1.47 % ​ $ — ​ - % ​ $ — ​ - % ​ $ 150,295 ​ 1.47 % ​ U.S.
Treasury ​ $ 150,066 ​ 1.47 % ​ $ — ​ - % ​ $ — ​ - % ​ $ — ​ - % ​ $ 150,066 ​ 1.47 % ​ U.S.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Selected Financial Data Set forth below is certain selected financial data related to the Company’s operations for 2022, 2021 and 2020: (dollars in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ ​ ​ 2021 ​ ​ ​ 2020 ​ Balance Sheet: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets ​ $ 4,637,498 ​ ​ $ 4,611,579 ​ ​ $ 3,304,949 ​ Loans and leases ​ ​ 3,253,627 ​ ​ ​ 2,693,397 ​ ​ ​ 2,382,243 ​ Allowance for loan and lease losses ​ ​ 23,334 ​ ​ ​ 19,352 ​ ​ ​ 18,346 ​ Total securities ​ ​ 769,842 ​ ​ ​ 559,422 ​ ​ ​ 215,634 ​ Goodwill and other intangibles, net ​ ​ 109,772 ​ ​ ​ 105,852 ​ ​ ​ 86,471 ​ Total deposits ​ ​ 4,077,100 ​ ​ ​ 4,021,938 ​ ​ ​ 2,805,215 ​ Borrowings ​ ​ 41,860 ​ ​ ​ 87,585 ​ ​ ​ 81,199 ​ Subordinated debt ​ ​ 42,015 ​ ​ ​ 41,930 ​ ​ ​ 39,346 ​ Shareholders' equity ​ ​ 432,452 ​ ​ ​ 429,430 ​ ​ ​ 357,168 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income Statement: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ $ 158,834 ​ ​ $ 125,232 ​ ​ $ 117,613 ​ Interest expense ​ ​ 21,333 ​ ​ ​ 11,838 ​ ​ ​ 16,747 ​ Net interest income ​ ​ 137,501 ​ ​ ​ 113,394 ​ ​ ​ 100,866 ​ Provision for loan and lease losses ​ ​ 4,018 ​ ​ ​ 1,633 ​ ​ ​ 8,683 ​ Net interest income after provision for loan and lease losses ​ ​ 133,483 ​ ​ ​ 111,761 ​ ​ ​ 92,183 ​ Noninterest income ​ ​ 27,715 ​ ​ ​ 23,949 ​ ​ ​ 15,426 ​ Noninterest expense ​ ​ 106,290 ​ ​ ​ 91,391 ​ ​ ​ 76,719 ​ Income before income taxes ​ ​ 54,908 ​ ​ ​ 44,319 ​ ​ ​ 30,890 ​ Income tax expense ​ ​ 11,886 ​ ​ ​ 9,529 ​ ​ ​ 6,558 ​ Net income ​ $ 43,022 ​ ​ $ 34,790 ​ ​ $ 24,332 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Per Share Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per common share - basic ​ $ 2.57 ​ ​ $ 2.23 ​ ​ $ 1.63 ​ Weighted average common shares outstanding - basic ​ ​ 16,740,450 ​ ​ ​ 15,572,537 ​ ​ ​ 14,955,423 ​ Earnings per common share - diluted ​ $ 2.55 ​ ​ $ 2.22 ​ ​ $ 1.62 ​ Weighted average common shares outstanding - diluted ​ ​ 16,871,369 ​ ​ ​ 15,699,215 ​ ​ ​ 15,019,175 ​ Common dividends per share ​ $ 0.28 ​ ​ $ 0.24 ​ ​ $ 0.20 ​ Book value per share ​ $ 25.59 ​ ​ $ 25.56 ​ ​ $ 23.64 ​ Common shares outstanding at end of period ​ ​ 16,900,805 ​ ​ ​ 16,802,990 ​ ​ ​ 15,107,214 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance Ratios: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Return on average assets ​ ​ 0.92 % ​ ​ 0.91 % ​ ​ 0.79 % Return on average shareholders' equity ​ ​ 10.16 % ​ ​ 8.97 % ​ ​ 7.13 % Tax equivalent net interest margin ​ ​ 3.20 % ​ ​ 3.24 % ​ ​ 3.61 % Interest rate spread ​ ​ 3.01 % ​ ​ 3.12 % ​ ​ 3.41 % Noninterest income to average assets ​ ​ 0.59 % ​ ​ 0.62 % ​ ​ 0.50 % Noninterest expense to average assets ​ ​ 2.27 % ​ ​ 2.38 % ​ ​ 2.50 % Efficiency ratio ​ ​ 64.33 % ​ ​ 66.54 % ​ ​ 65.97 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit Quality Ratios: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net charge-offs to average loans and leases ​ ​ - % ​ ​ (0.02) % ​ ​ (0.03) % Allowance for loan and leases to total loans and leases ​ ​ 0.72 % ​ ​ 0.72 % ​ ​ 0.77 % Nonperforming loans and leases to total loans and leases, gross ​ ​ 0.09 % ​ ​ 0.12 % ​ ​ 0.24 % Nonperforming assets to total assets ​ ​ 0.10 % ​ ​ 0.11 % ​ ​ 0.31 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capital Ratios 1 : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tier 1 leverage ​ ​ 7.95 % ​ ​ 7.45 % ​ ​ 8.70 % Common equity Tier 1 ​ ​ 9.65 % ​ ​ 10.56 % ​ ​ 11.61 % Tier 1 capital ​ ​ 9.65 % ​ ​ 10.56 % ​ ​ 11.61 % Total capital ​ ​ 11.40 % ​ ​ 12.55 % ​ ​ 14.07 % 1 Capital Ratios are for SmartFinancial, Inc. 39 Table of Contents Business Overview The following is a discussion of our financial condition and results of our operations for the years ended December 31, 2022, 2021 and 2020.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Selected Financial Data Set forth below is certain selected financial data related to the Company’s operations for 2023, 2022 and 2021: (dollars in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ ​ ​ 2022 ​ ​ ​ 2021 ​ Balance Sheet: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets ​ $ 4,829,387 ​ ​ $ 4,637,498 ​ ​ $ 4,611,579 ​ Loans and leases ​ ​ 3,444,462 ​ ​ ​ 3,253,627 ​ ​ ​ 2,693,397 ​ Allowance for credit losses ​ ​ (35,066) ​ ​ ​ (23,334) ​ ​ ​ (19,352) ​ Total securities ​ ​ 689,646 ​ ​ ​ 769,842 ​ ​ ​ 559,422 ​ Goodwill and other intangibles, net ​ ​ 107,148 ​ ​ ​ 109,772 ​ ​ ​ 105,852 ​ Total deposits ​ ​ 4,267,854 ​ ​ ​ 4,077,100 ​ ​ ​ 4,021,938 ​ Borrowings ​ ​ 13,078 ​ ​ ​ 41,860 ​ ​ ​ 87,585 ​ Subordinated debt ​ ​ 42,099 ​ ​ ​ 42,015 ​ ​ ​ 41,930 ​ Shareholders' equity ​ ​ 459,886 ​ ​ ​ 432,452 ​ ​ ​ 429,430 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income Statement: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ $ 218,043 ​ ​ $ 158,834 ​ ​ $ 125,232 ​ Interest expense ​ ​ 87,963 ​ ​ ​ 21,333 ​ ​ ​ 11,838 ​ Net interest income ​ ​ 130,080 ​ ​ ​ 137,501 ​ ​ ​ 113,394 ​ Provision for loan and lease losses ​ ​ 3,029 ​ ​ ​ 4,018 ​ ​ ​ 1,633 ​ Net interest income after provision for loan and lease losses ​ ​ 127,051 ​ ​ ​ 133,483 ​ ​ ​ 111,761 ​ Noninterest income ​ ​ 22,325 ​ ​ ​ 27,715 ​ ​ ​ 23,949 ​ Noninterest expense ​ ​ 113,150 ​ ​ ​ 106,290 ​ ​ ​ 91,391 ​ Income before income taxes ​ ​ 36,226 ​ ​ ​ 54,908 ​ ​ ​ 44,319 ​ Income tax expense ​ ​ 7,633 ​ ​ ​ 11,886 ​ ​ ​ 9,529 ​ Net income ​ $ 28,593 ​ ​ $ 43,022 ​ ​ $ 34,790 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Per Share Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per common share - basic ​ $ 1.70 ​ ​ $ 2.57 ​ ​ $ 2.23 ​ Weighted average common shares outstanding - basic ​ ​ 16,805,068 ​ ​ ​ 16,740,450 ​ ​ ​ 15,572,537 ​ Earnings per common share - diluted ​ $ 1.69 ​ ​ $ 2.55 ​ ​ $ 2.22 ​ Weighted average common shares outstanding - diluted ​ ​ 16,911,185 ​ ​ ​ 16,871,369 ​ ​ ​ 15,699,215 ​ Common dividends per share ​ $ 0.32 ​ ​ $ 0.28 ​ ​ $ 0.24 ​ Book value per share ​ $ 27.07 ​ ​ $ 25.59 ​ ​ $ 25.56 ​ Common shares outstanding at end of period ​ ​ 16,988,879 ​ ​ ​ 16,900,805 ​ ​ ​ 16,802,990 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance Ratios: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Return on average assets ​ ​ 0.60 % ​ ​ 0.92 % ​ ​ 0.91 % Return on average shareholders' equity ​ ​ 6.45 % ​ ​ 10.16 % ​ ​ 8.97 % Tax equivalent net interest margin ​ ​ 2.97 % ​ ​ 3.20 % ​ ​ 3.24 % Interest rate spread ​ ​ 2.32 % ​ ​ 3.01 % ​ ​ 3.12 % Noninterest income to average assets ​ ​ 0.47 % ​ ​ 0.59 % ​ ​ 0.62 % Noninterest expense to average assets ​ ​ 2.38 % ​ ​ 2.27 % ​ ​ 2.38 % Efficiency ratio ​ ​ 74.24 % ​ ​ 64.33 % ​ ​ 66.54 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit Quality Ratios: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net (charge-offs) to average loans and leases ​ ​ (0.02) % ​ ​ - % ​ ​ (0.02) % Allowance for loan and leases to total loans and leases ​ ​ 1.02 % ​ ​ 0.72 % ​ ​ 0.72 % Nonperforming loans and leases to total loans and leases, gross ​ ​ 0.24 % ​ ​ 0.09 % ​ ​ 0.12 % Nonperforming assets to total assets ​ ​ 0.20 % ​ ​ 0.10 % ​ ​ 0.11 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capital Ratios 1 : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tier 1 leverage ​ ​ 8.27 % ​ ​ 7.95 % ​ ​ 7.45 % Common equity Tier 1 ​ ​ 10.16 % ​ ​ 9.65 % ​ ​ 10.56 % Tier 1 capital ​ ​ 10.16 % ​ ​ 9.65 % ​ ​ 10.56 % Total capital ​ ​ 11.80 % ​ ​ 11.40 % ​ ​ 12.55 % 1 Capital Ratios are for SmartFinancial, Inc. 40 Table of Contents Business Overview The following is a discussion of our financial condition and results of our operations for the years ended December 31, 2023, 2022 and 2021.
The cost of average interest-bearing deposits increased from 0.36% for 2021, to 0.60% for 2022, primarily due to the impact of rising Federal Reserve rates and to a lesser extent increased pricing competition. 2021 compared to 2020 Net interest income, taxable equivalent, increased to $114.0 million in 2021 from $101.4 million in 2020.
The cost of average interest-bearing deposits increased from 0.36% for 2021, to 0.60% for 2022, primarily due to the impact of rising Federal Reserve rates and to a lesser extent increased pricing competition.
While the Company’s primary focus is on establishing customer relationships to attract core deposits, at times, the Company uses brokered deposits and other wholesale deposits to supplement its funding sources.
While the Company’s primary focus is on establishing customer relationships to attract core deposits, at times, the Company uses brokered deposits and other wholesale deposits to supplement its funding sources. As of December 31, 2023, brokered deposits represented approximately 0.52% of total deposits.
Our available-for-sale investment portfolio is carried at fair market value and our held-to-maturity investment portfolio is carried at amortized cost, and consists primarily of Federal agency bonds, mortgage-backed securities, state and municipal securities and other debt securities.
Our available-for-sale (“AFS”) investment portfolio is carried at fair market value and our held-to-maturity investment portfolio is carried at amortized cost, and consists primarily of Federal agency bonds, mortgage-backed securities, state and municipal securities and other debt securities. Our investment portfolio decreased from $769.8 million at December 31, 2022, to $689.6 million at December 31, 2023.
Loan fees included in loan income were $4.1 million, $11.1 million, and $9.8 million for 2022, 2021 and 2020, respectively.
Loan fees included in loan income were $5.3 million, $4.1 million, and $11.1 million for 2023, 2022, and 2021, respectively.
The level of the allowance is based upon our evaluation of the loan and lease portfolios, past loan and lease loss experience, known and inherent risks in the portfolio, the views of the Bank’s regulators, adverse situations that may affect the borrower’s ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan and lease portfolio, economic conditions, industry and peer bank loan and lease quality indications and other pertinent factors.
The level of the allowance is based upon management's evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay the loan (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations.
This definition is believed to be substantially consistent with the standards established by the Bank’s primary regulators, for loans classified as substandard or worse, but not considered nonperforming loans and leases. Allocation of the Allowance for Loan and Lease Losses The allowance for loan and lease losses is an estimate of probable incurred losses in the loan and lease portfolio.
This definition is believed to be substantially consistent with the standards established by the Bank’s primary regulators, for loans classified as substandard or worse, but not considered nonperforming loans and leases.
Income tax expense was $11.9 million in 2022 with an effective tax rate of 21.7%, compared to $9.5 million in 2021 with an effective tax rate of 21.5%. ​ 40 Table of Contents 2021 compared to 2020 Net income was $34.8 million, or $2.22 per diluted common share in 2021, compared to $24.3 million, or $1.62 per diluted common share in 2020.
Income tax expense was $7.6 million in 2023 with an effective tax rate of 21.1%, compared to $11.9 million in 2022 with an effective tax rate of 21.7%. 2022 compared to 2021 Net income was $43.0 million, or $2.55 per diluted common share in 2022, compared to $34.8 million, or $2.22 per diluted common share in 2021.
As of December 31, 2022 and December 31, 2021, our allowance for loan and lease losses was $23.3 million and $19.4 million, respectively, which we deemed to be adequate at each of the respective dates. Our allowance for loan and lease loss as a percentage of total loans and leases was 0.72% at December 31, 2022 and 2021, respectively.
As of December 31, 2023, and 2022, our allowance for credit losses was $35.1 million and $23.3 million, respectively, which our management deemed to be adequate at each of the respective dates. Our allowance for credit losses as a percentage of total loans was 1.02% and 0.72% at December 31, 2023, and 2022, respectively.
As of December 31, 2022, brokered deposits represented approximately 0.90% of total deposits. ​ 51 Table of Contents The following table summarizes the average balances outstanding and average interest rates for each major category of deposits for 2022, 2021 and 2020 (dollars in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 2020 ​ Average % of Average Average % of Average Average % of Average ​ ​ Balance ​ Total ​ Rate ​ Balance ​ Total ​ Rate ​ Balance ​ Total ​ Rate Noninterest-bearing demand ​ $ 1,120,555 27.0 % — ​ $ 841,746 25.5 % — ​ $ 571,282 23.0 % — ​ Interest-bearing demand ​ 945,414 22.8 % 0.66 % 737,251 22.3 % 0.19 % 481,050 19.4 % 0.21 % Money market and savings ​ 1,576,170 37.9 % 0.58 % 1,191,916 36.1 % 0.29 % 788,006 31.7 % 0.44 % Time deposits ​ 513,416 12.4 % 0.55 % 533,994 16.2 % 0.74 % 641,647 25.9 % 1.42 % Total average deposits ​ $ 4,155,555 100.0 % 0.44 % $ 3,304,907 100.0 % 0.27 % $ 2,481,985 100.0 % 0.55 % ​ During 2022, average deposits increased in all categories, except for time deposits.
The following table summarizes the average balances outstanding and average interest rates for each major category of deposits for 2023, 2022 and 2021 (dollars in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 2021 ​ Average % of Average Average % of Average Average % of Average ​ ​ Balance ​ Total ​ Rate ​ Balance ​ Total ​ Rate ​ Balance ​ Total ​ Rate Noninterest-bearing demand ​ $ 958,078 22.8 % — ​ $ 1,120,555 27.0 % — ​ $ 841,746 25.5 % — ​ Interest-bearing demand ​ 959,639 22.8 % 2.11 % 945,414 22.8 % 0.66 % 737,251 22.3 % 0.19 % Money market and savings ​ 1,768,869 42.0 % 2.85 % 1,576,170 37.9 % 0.58 % 1,191,916 36.1 % 0.29 % Time deposits ​ 520,799 12.4 % 2.61 % 513,416 12.4 % 0.55 % 533,994 16.2 % 0.74 % Total average deposits ​ $ 4,207,385 100.0 % 2.00 % $ 4,155,555 100.0 % 0.44 % $ 3,304,907 100.0 % 0.27 % ​ During 2023, average deposits increased in all categories, except for noninterest-bearing demand deposits.
The following table provides a summary of noninterest income for the periods presented (in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ December 31, ​ ​ 2022 – 2021 ​ December 31, ​ ​ 2021 – 2020 ​ 2022 2021 ​ Change 2020 ​ ​ Change Service charges on deposit accounts ​ $ 5,853 ​ $ 4,650 ​ $ 1,203 ​ $ 3,403 ​ $ 1,247 Gain on sale of securities ​ 144 ​ 45 ​ ​ 99 ​ 6 ​ ​ 39 Mortgage banking ​ 1,552 ​ 4,040 ​ ​ (2,488) ​ 3,875 ​ ​ 165 Investment services ​ ​ 4,144 ​ ​ 2,167 ​ ​ 1,977 ​ ​ 1,566 ​ ​ 601 Insurance commissions ​ ​ 3,595 ​ ​ 3,285 ​ ​ 310 ​ ​ 1,850 ​ ​ 1,435 Interchange and debit card transaction fees, net ​ 5,435 ​ 4,284 ​ ​ 1,151 ​ 2,413 ​ ​ 1,871 Other ​ 6,992 ​ 5,478 ​ ​ 1,514 ​ 2,313 ​ ​ 3,165 Total noninterest income ​ $ 27,715 ​ $ 23,949 ​ $ 3,766 ​ $ 15,426 ​ $ 8,523 ​ 2022 compared to 2021 Noninterest income increased $3.8 million to $27.7 million in 2022, compared to $23.9 million in 2021.
The following table provides a summary of noninterest income for the periods presented (in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ December 31, ​ ​ 2023 - 2022 ​ December 31, ​ ​ 2022 - 2021 ​ 2023 2022 ​ Change 2021 ​ ​ Change Service charges on deposit accounts ​ $ 6,511 ​ $ 5,853 ​ $ 658 ​ $ 4,650 ​ $ 1,203 Gain (loss) on sale of securities ​ (6,801) ​ 144 ​ ​ (6,945) ​ 45 ​ ​ 99 Mortgage banking ​ 1,040 ​ 1,552 ​ ​ (512) ​ 4,040 ​ ​ (2,488) Investment services ​ ​ 5,105 ​ ​ 4,144 ​ ​ 961 ​ ​ 2,167 ​ ​ 1,977 Insurance commissions ​ ​ 4,684 ​ ​ 3,595 ​ ​ 1,089 ​ ​ 3,285 ​ ​ 310 Interchange and debit card transaction fees, net ​ 5,457 ​ 5,435 ​ ​ 22 ​ 4,284 ​ ​ 1,151 Other ​ 6,329 ​ 6,992 ​ ​ (663) ​ 5,478 ​ ​ 1,514 Total noninterest income ​ $ 22,325 ​ $ 27,715 ​ $ (5,390) ​ $ 23,949 ​ $ 3,766 ​ 44 Table of Contents 2023 compared to 2022 Noninterest income decreased $5.4 million to $22.3 million in 2023, compared to $27.7 million in 2022.
Receipts in excess of that amount are recorded as recoveries to the allowance for loan and lease losses until prior charge-offs have been fully recovered. Assets acquired as a result of foreclosure are recorded at estimated fair value in other real estate owned.
Receipts in excess of that amount are recorded as recoveries to the allowance for loan and lease losses until prior charge-offs have been fully recovered.
Net interest income, taxable equivalent, increased by $24.2 million between the years ended December 31, 2022 and 2021 and by $12.6 million 42 Table of Contents between the years ended December 31, 2021 and 2020.
Net interest income, taxable equivalent, decreased by $7.7 million between the years ended December 31, 2023 and 2022 and increased by $24.2 million between the years ended December 31, 2022 and 2021.
A significant portion of our noninterest income is associated service charges on deposit accounts and mortgage banking fees.
A significant portion of our noninterest income is associated with service charges on deposit accounts, capital markets income and interchange and debit card transaction fees.
Capital Requirements The Company and Bank are required under federal law to maintain certain minimum capital levels based on ratios of capital to total assets and capital to risk-weighted assets.
At December 31, 2023, $8.0 million was outstanding under the line of credit, and $27.0 million of the line of credit remained available to the Company. Capital Requirements The Company and Bank are required under federal law to maintain certain minimum capital levels based on ratios of capital to total assets and capital to risk-weighted assets.
The following table summarizes the maturities of time deposits of $250,000 or more as of December 31, 2022 (in thousands) : ​ ​ ​ ​ ​ December 31, ​ ​ 2022 Three months or less ​ $ 32,044 Three to six months ​ 36,027 Six to twelve months ​ 42,870 More than twelve months ​ 36,221 Total ​ $ 147,162 ​ As of December 31, 2022 and 2021, $1.65 billion and $1.58 billion, respectively, of our deposit portfolio was uninsured.
The following table summarizes the maturities of time deposits of $250,000 or more as of December 31, 2023 (in thousands) : ​ ​ ​ ​ ​ December 31, ​ ​ 2023 Three months or less ​ $ 106,715 Three to six months ​ 39,985 Six to twelve months ​ 47,087 More than twelve months ​ 31,892 Total ​ $ 225,679 ​ As of December 31, 2023 and 2022, $1.76 billion and $1.65 billion, respectively, of our deposit portfolio was uninsured.
There have been no conditions or events since December 31, 2022, that management believes would change this classification. ​ 53 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Minimum to be ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ well ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ capitalized under ​ ​ ​ ​ ​ ​ ​ ​ Minimum for ​ prompt ​ ​ ​ ​ ​ ​ ​ ​ capital ​ corrective action ​ ​ ​ ​ Actual ​ adequacy purposes ​ provisions 1 ​ ​ Amount Ratio Amount Ratio Amount Ratio ​ December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SmartFinancial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Capital (to Risk Weighted Assets) ​ $ 425,957 11.40 % $ 298,966 8.00 % ​ N/A N/A ​ Tier 1 Capital (to Risk Weighted Assets) ​ 360,608 9.65 % 224,224 6.00 % ​ N/A N/A ​ Common Equity Tier 1 Capital (to Risk Weighted Assets) ​ 360,608 9.65 % 168,168 4.50 % ​ N/A N/A ​ Tier 1 Capital (to Average Assets) 2 ​ 360,608 7.95 % 181,387 4.00 % ​ N/A N/A ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SmartBank: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Capital (to Risk Weighted Assets) ​ $ 426,947 11.44 % $ 298,476 8.00 % $ 373,094 10.00 % Tier 1 Capital (to Risk Weighted Assets) ​ 403,613 10.82 % 223,857 6.00 % 298,476 8.00 % Common Equity Tier 1 Capital (to Risk Weighted Assets) ​ 403,613 10.82 % 167,892 4.50 % 242,511 6.50 % Tier 1 Capital (to Average Assets) 2 ​ 403,613 8.90 % 181,383 4.00 % 226,729 5.00 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SmartFinancial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Capital (to Risk Weighted Assets) ​ $ 386,627 12.55 % $ 246,483 8.00 % N/A N/A ​ Tier 1 Capital (to Risk Weighted Assets) ​ 325,345 10.56 % 184,862 6.00 % N/A N/A ​ Common Equity Tier 1 Capital (to Risk Weighted Assets) ​ 325,345 10.56 % 138,647 4.50 % N/A N/A ​ Tier 1 Capital (to Average Assets) ​ 325,345 7.45 % 174,578 4.00 % N/A N/A ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SmartBank: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Capital (to Risk Weighted Assets) ​ $ 378,055 12.29 % $ 246,053 8.00 % $ 307,566 10.00 % Tier 1 Capital (to Risk Weighted Assets) ​ 358,703 11.66 % 184,539 6.00 % 246,053 8.00 % Common Equity Tier 1 Capital (to Risk Weighted Assets) ​ 358,703 11.66 % 138,405 4.50 % 199,918 6.50 % Tier 1 Capital (to Average Assets) ​ 358,703 8.23 % 174,384 4.00 % 217,980 5.00 % ​ 1 The prompt corrective action provisions are applicable at the Bank level only. 2 Average assets for the above calculations were based on the most recent quarter. ​ Contractual Obligations ​ The following tables present, as of December 31, 2022, our significant fixed and determinable contractual obligations (in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2022, payments due in ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ More ​ ​ ​ ​ Less than 1 to 3 3 to 5 than 5 ​ ​ ​ ​ 1 year ​ years ​ years ​ years ​ Total Operating leases ​ $ 1,400 ​ $ 2,453 ​ $ 1,984 ​ $ 4,773 ​ $ 10,610 Time deposits ​ 317,743 ​ 122,350 ​ 15,155 ​ 11 ​ 455,259 Securities sold under agreement to repurchase ​ 4,775 ​ — ​ — ​ — ​ 4,775 FHLB advances and other borrowings ​ 37,085 ​ — ​ — ​ — ​ 37,085 Subordinated debt ​ — ​ — ​ — ​ 42,500 ​ 42,500 Total ​ $ 361,003 ​ $ 124,803 ​ $ 17,139 ​ $ 47,284 ​ $ 550,229 ​ 54 Table of Contents Off-Balance Sheet Arrangements At December 31, 2022, we had $912.0 million of pre-approved but unused lines of credit and $6.9 million of standby letters of credit.
There have been no conditions or events since December 31, 2023, that management believes would change this classification. ​ 54 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Minimum to be ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ well ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ capitalized under ​ ​ ​ ​ ​ ​ ​ ​ Minimum for ​ prompt ​ ​ ​ ​ ​ ​ ​ ​ capital ​ corrective action ​ ​ ​ ​ Actual ​ adequacy purposes ​ provisions 1 ​ ​ Amount Ratio Amount Ratio Amount Ratio ​ December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SmartFinancial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Capital (to Risk Weighted Assets) ​ $ 448,050 11.80 % $ 303,658 8.00 % ​ N/A N/A ​ Tier 1 Capital (to Risk Weighted Assets) ​ 385,795 10.16 % 227,744 6.00 % ​ N/A N/A ​ Common Equity Tier 1 Capital (to Risk Weighted Assets) ​ 385,795 10.16 % 170,808 4.50 % ​ N/A N/A ​ Tier 1 Capital (to Average Assets) 2 ​ 385,795 8.27 % 186,672 4.00 % ​ N/A N/A ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SmartBank: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Capital (to Risk Weighted Assets) ​ $ 456,134 12.02 % $ 303,680 8.00 % $ 379,600 10.00 % Tier 1 Capital (to Risk Weighted Assets) ​ 427,559 11.26 % 227,760 6.00 % 303,680 8.00 % Common Equity Tier 1 Capital (to Risk Weighted Assets) ​ 427,559 11.26 % 170,820 4.50 % 246,740 6.50 % Tier 1 Capital (to Average Assets) 2 ​ 427,559 9.18 % 186,363 4.00 % 232,954 5.00 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SmartFinancial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Capital (to Risk Weighted Assets) ​ $ 425,957 11.40 % $ 298,966 8.00 % N/A N/A ​ Tier 1 Capital (to Risk Weighted Assets) ​ 360,608 9.65 % 224,224 6.00 % N/A N/A ​ Common Equity Tier 1 Capital (to Risk Weighted Assets) ​ 360,608 9.65 % 168,168 4.50 % N/A N/A ​ Tier 1 Capital (to Average Assets) ​ 360,608 7.95 % 181,387 4.00 % N/A N/A ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SmartBank: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Capital (to Risk Weighted Assets) ​ $ 426,947 11.44 % $ 298,476 8.00 % $ 373,094 10.00 % Tier 1 Capital (to Risk Weighted Assets) ​ 403,613 10.82 % 223,857 6.00 % 298,476 8.00 % Common Equity Tier 1 Capital (to Risk Weighted Assets) ​ 403,613 10.82 % 167,892 4.50 % 242,511 6.50 % Tier 1 Capital (to Average Assets) ​ 403,613 8.90 % 181,383 4.00 % 226,729 5.00 % ​ 1 The prompt corrective action provisions are applicable at the Bank level only. 2 Average assets for the above calculations were based on the most recent quarter. ​ Contractual Obligations ​ The following tables present, as of December 31, 2023, our significant fixed and determinable contractual obligations (in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2023, payments due in ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ More ​ ​ ​ ​ Less than 1 to 3 3 to 5 than 5 ​ ​ ​ ​ 1 year ​ years ​ years ​ years ​ Total Operating leases ​ $ 1,488 ​ $ 2,718 ​ $ 2,275 ​ $ 5,369 ​ $ 11,850 Time deposits ​ 474,114 ​ 59,492 ​ 16,862 ​ — ​ 550,468 Securities sold under agreement to repurchase ​ 5,078 ​ — ​ — ​ — ​ 5,078 FHLB advances and other borrowings ​ 8,000 ​ — ​ — ​ — ​ 8,000 Subordinated debt ​ — ​ — ​ 40,000 ​ 2,500 ​ 42,500 Total ​ $ 488,680 ​ $ 62,210 ​ $ 59,137 ​ $ 7,869 ​ $ 617,896 ​ 55 Table of Contents Off-Balance Sheet Arrangements At December 31, 2023, we had $717.0 million of pre-approved but unused lines of credit and $7.6 million of standby letters of credit.
The primary components of the changes in noninterest income were as follows: ● Increase in service charges on deposit accounts, related to the PFG and SCB acquisitions, deposit growth and transaction volume; ● Increase in investment services, stemming from increased production; ● Increase in insurance commissions, primarily from a full year of insurance commissions in 2021 and placement of life insurance policies during the first quarter of 2021; ● Increase in interchange and debit card transaction fees, related to increased volume, deposit growth and the PFG and SCB acquisitions; and ● Increase in other, primarily related to; (1.) addition of new lease fee income from the acquisition of Fountain, (2.) income from the cash surrender value of bank owned life insurance from the additional BOLI purchased during the first quarter of 2021 and (3.) SWAP fee income from the newly created capital markets program in the second quarter of 2021. ​ Noninterest Expense The following table provides a summary of noninterest expense for the periods presented (in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ December 31, ​ ​ 2022 – 2021 ​ December 31, ​ ​ 2021 – 2020 ​ 2022 2021 ​ Change ​ 2020 Change Salaries and employee benefits ​ $ 63,420 ​ $ 51,656 ​ $ 11,764 ​ $ 42,911 ​ $ 8,745 Occupancy and equipment ​ 12,034 ​ 10,196 ​ 1,838 ​ 8,348 ​ 1,848 FDIC insurance ​ 2,672 ​ 1,833 ​ 839 ​ 1,190 ​ 643 Other real estate and loan related expense ​ 2,446 ​ 2,098 ​ 348 ​ 2,050 ​ 48 Advertising and marketing ​ 1,293 ​ 830 ​ 463 ​ 834 ​ (4) Data processing and technology ​ 7,283 ​ 6,364 ​ 919 ​ 4,476 ​ 1,888 Professional services ​ 3,790 ​ 3,147 ​ 643 ​ 2,958 ​ 189 Amortization of intangibles ​ 2,607 ​ 2,256 ​ 351 ​ 1,740 ​ 516 Merger related and restructuring expenses ​ 562 ​ 3,701 ​ (3,139) ​ 4,565 ​ (864) Other ​ 10,183 ​ 9,310 ​ 873 ​ 7,647 ​ 1,663 Total noninterest expense ​ $ 106,290 ​ $ 91,391 ​ $ 14,899 ​ $ 76,719 ​ $ 14,672 ​ 2022 compared to 2021 Noninterest expense increased $14.9 million to $106.3 million in 2022, compared to $91.4 million in 2021.
The primary components of the changes in noninterest income were as follows: ● Increase in service charges on deposit accounts, related to the SCB acquisition, deposit growth and transaction volume; ● Decrease in mortgage banking income, related to increased secondary market interest rates driving lower volume; ● Increase in investment services, stemming from increased production; ● Increase in interchange and debit card transaction fees, related to increased volume, deposit growth and the SCB acquisition; and ● Increase in other, primarily related to increased fee income from capital markets activity. ​ Noninterest Expense The following table provides a summary of noninterest expense for the periods presented (in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ December 31, ​ ​ 2023 - 2022 ​ December 31, ​ ​ 2022 - 2021 ​ 2023 2022 ​ Change ​ 2020 Change Salaries and employee benefits ​ $ 65,749 ​ $ 63,420 ​ $ 2,329 ​ $ 51,656 ​ $ 11,764 Occupancy and equipment ​ 13,451 ​ 12,034 ​ 1,417 ​ 10,196 ​ 1,838 FDIC insurance ​ 3,156 ​ 2,672 ​ 484 ​ 1,833 ​ 839 Other real estate and loan related expense ​ 2,397 ​ 2,446 ​ (49) ​ 2,098 ​ 348 Advertising and marketing ​ 1,342 ​ 1,293 ​ 49 ​ 830 ​ 463 Data processing and technology ​ 9,235 ​ 7,283 ​ 1,952 ​ 6,364 ​ 919 Professional services ​ 3,443 ​ 3,790 ​ (347) ​ 3,147 ​ 643 Amortization of intangibles ​ 2,624 ​ 2,607 ​ 17 ​ 2,256 ​ 351 Merger related and restructuring expenses ​ 110 ​ 562 ​ (452) ​ 3,701 ​ (3,139) Other ​ 11,643 ​ 10,183 ​ 1,460 ​ 9,310 ​ 873 Total noninterest expense ​ $ 113,150 ​ $ 106,290 ​ $ 6,860 ​ $ 91,391 ​ $ 14,899 ​ 2023 compared to 2022 Noninterest expense increased $6.9 million to $113.2 million in 2023, compared to $106.3 million in 2022.
As of December 31, 2022 the Bank provides a comprehensive suite of commercial and consumer banking services to clients through 41 full-service bank branches and one loan production office in the Florida Panhandle.
As of December 31, 2023 the Bank provides a comprehensive suite of commercial and consumer banking services to clients through 42 full-service bank branches in select markets in East and Middle Tennessee, Alabama and Florida.
The participated portions of these loans are included in the Commercial Real Estate totals below with a corresponding liability reflected in other borrowings. At December 31, 2022, the total participated portions of loans of this nature totaled $24.6 million and none at December 31, 2021.
The participated portions of these loans are included in the Commercial Real Estate totals below with a corresponding liability reflected in other borrowings.
The following is an analysis of the changes in net interest income comparing the changes attributable to rates and those attributable to volumes (in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 Compared to 2021 ​ 2021 Compared to 2020 ​ ​ Increase (decrease) due to ​ Increase (decrease) due to ​ ​ Rate ​ Volume ​ Net ​ Rate ​ Volume ​ Net Interest-earning assets: ​ ​ ​ ​ ​ ​ Loans and leases ​ $ (1,241) ​ $ 19,040 ​ $ 17,799 ​ $ (5,656) ​ $ 11,926 ​ $ 6,270 Taxable Securities ​ (99,688) ​ 107,674 ​ 7,986 ​ (324) ​ 1,714 ​ 1,390 Tax-exempt securities ​ (6,776) ​ 7,790 ​ 1,014 ​ (397) ​ 273 ​ (124) Federal funds and other earning assets ​ 6,971 ​ (105) ​ 6,866 ​ (1,013) ​ 1,126 ​ 113 Total interest-earning assets ​ (100,734) ​ 134,399 ​ 33,665 ​ (7,390) ​ 15,039 ​ 7,649 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing demand deposits ​ 4,511 ​ 389 ​ 4,900 ​ (173) ​ 538 ​ 365 Money market and savings deposits ​ 4,508 ​ 1,128 ​ 5,636 ​ (1,765) ​ 1,784 ​ 19 Time deposits ​ (1,004) ​ (153) ​ (1,157) ​ (3,605) ​ (1,527) ​ (5,132) Total interest-bearing deposits ​ 8,015 ​ 1,364 ​ 9,379 ​ (5,543) ​ 795 ​ (4,748) Borrowings ​ 405 ​ (343) ​ 62 ​ 163 ​ (439) ​ (276) Subordinated debt ​ (52) ​ 106 ​ 54 ​ 59 ​ 56 ​ 115 Total interest-bearing liabilities ​ 8,368 ​ 1,127 ​ 9,495 ​ (5,321) ​ 412 ​ (4,909) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ $ (109,102) ​ $ 133,272 ​ $ 24,170 ​ $ (2,069) ​ $ 14,627 ​ $ 12,558 ​ Changes in net interest income are attributed to either changes in average balances (volume change) or changes in average rates (rate change) for earning assets and sources of funds on which interest is received or paid.
The following is an analysis of the changes in net interest income comparing the changes attributable to rates and those attributable to volumes (in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 Compared to 2022 ​ 2022 Compared to 2021 ​ ​ Increase (decrease) due to ​ Increase (decrease) due to ​ ​ Rate ​ Volume ​ Net ​ Rate ​ Volume ​ Net Interest-earning assets: ​ ​ ​ ​ ​ ​ Loans and leases ​ $ 32,246 ​ $ 17,852 ​ $ 50,098 ​ $ (1,241) ​ $ 19,040 ​ $ 17,799 Taxable Securities ​ 4,471 ​ 395 ​ 4,866 ​ (99,688) ​ 107,674 ​ 7,986 Tax-exempt securities ​ 58 ​ (1,094) ​ (1,036) ​ (6,776) ​ 7,790 ​ 1,014 Federal funds and other earning assets ​ 9,232 ​ (4,239) ​ 4,993 ​ 6,971 ​ (105) ​ 6,866 Total interest-earning assets ​ 46,007 ​ 12,914 ​ 58,921 ​ (100,734) ​ 134,399 ​ 33,665 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing demand deposits ​ 13,842 ​ 94 ​ 13,936 ​ 4,511 ​ 389 ​ 4,900 Money market and savings deposits ​ 40,214 ​ 1,117 ​ 41,331 ​ 4,508 ​ 1,128 ​ 5,636 Time deposits ​ 10,724 ​ 41 ​ 10,765 ​ (1,004) ​ (153) ​ (1,157) Total interest-bearing deposits ​ 64,780 ​ 1,252 ​ 66,032 ​ 8,015 ​ 1,364 ​ 9,379 Borrowings ​ 656 ​ (322) ​ 334 ​ 405 ​ (343) ​ 62 Subordinated debt ​ 259 ​ 5 ​ 264 ​ (52) ​ 106 ​ 54 Total interest-bearing liabilities ​ 65,695 ​ 935 ​ 66,630 ​ 8,368 ​ 1,127 ​ 9,495 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ $ (19,688) ​ $ 11,979 ​ $ (7,709) ​ $ (109,102) ​ $ 133,272 ​ $ 24,170 ​ Changes in net interest income are attributed to either changes in average balances (volume change) or changes in average rates (rate change) for earning assets and sources of funds on which interest is received or paid.
Analysis of the Allowance for Loan and Lease Losses The following table presents information related to credit losses on loans and lease by loan segment for each of the years in the three year period ended December 31, (dollars in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ratio of Net (charge-offs) ​ ​ ​ Provision for ​ Net (charge-offs) ​ Average ​ Recoveries to ​ ​ ​ Credit Losses ​ Recoveries ​ Loans ​ Average Loans ​ For the year ended December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ $ 1,034 ​ $ 6 ​ $ 1,498,235 ​ ​ - % Consumer real estate ​ ​ 43 ​ ​ 531 ​ ​ 520,447 ​ ​ 0.10 ​ Construction and land development ​ ​ 1,177 ​ ​ - ​ ​ 360,660 ​ ​ - ​ Commercial and industrial ​ ​ 339 ​ ​ (123) ​ ​ 493,236 ​ ​ (0.02) ​ Leases ​ ​ 879 ​ ​ 84 ​ ​ 61,960 ​ ​ 0.14 ​ Consumer and other ​ ​ 546 ​ ​ (534) ​ ​ 13,973 ​ ​ (3.82) ​ Total ​ $ 4,018 ​ $ (36) ​ $ 2,948,511 ​ ​ - ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ $ 2,119 ​ ​ 83 ​ $ 1,213,311 ​ ​ 0.01 % Consumer real estate ​ ​ 11 ​ ​ (28) ​ ​ 456,529 ​ ​ (0.01) ​ Construction and land development ​ ​ (194) ​ ​ - ​ ​ 293,190 ​ ​ - ​ Commercial and industrial ​ ​ (1,053) ​ ​ (273) ​ ​ 526,586 ​ ​ (0.05) ​ Leases ​ ​ 455 ​ ​ (125) ​ ​ 39,408 ​ ​ (0.32) ​ Consumer and other ​ ​ 295 ​ ​ (284) ​ ​ 11,553 ​ ​ (2.46) ​ Total ​ $ 1,633 ​ $ (627) ​ $ 2,540,577 ​ ​ (0.02) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ $ 3,052 ​ ​ 19 ​ $ 997,659 ​ ​ - % Consumer real estate ​ ​ 879 ​ ​ 16 ​ ​ 456,678 ​ ​ - ​ Construction and land development ​ ​ 947 ​ ​ 2 ​ ​ 266,204 ​ ​ - ​ Commercial and industrial ​ ​ 3,456 ​ ​ (306) ​ ​ 562,254 ​ ​ (0.05) ​ Leases ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ Consumer and other ​ ​ 349 ​ ​ (311) ​ ​ 14,177 ​ ​ (2.19) ​ Total ​ $ 8,683 ​ $ (580) ​ $ 2,296,972 ​ ​ (0.03) ​ ​ Investment Portfolio Our investment portfolio is the second largest component of our interest earning assets.
The increase in the individually evaluated loans and lease, is primarily from $2.9 million that was recognized on purchase credit-deteriorated (“PCD”) loans previously classified as purchased credit impaired (“PCI”) with a corresponding adjustment to the gross carrying amount of the loans from the implementation of FASB ASU 2016-13 on January 1, 2023, for more information see Note 1—Summary of Significant Accounting Policies to our audited consolidated financial statements. 50 Table of Contents The following table presents information related to credit losses on loans and lease by loan segment for each of the years in the three year period ended December 31, (dollars in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ratio of Net (charge-offs) ​ ​ ​ Provision for ​ Net (charge-offs) ​ Average ​ Recoveries to ​ ​ ​ Credit Losses ​ Recoveries ​ Loans ​ Average Loans ​ For the year ended December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ $ 906 ​ $ 6 ​ $ 1,657,874 ​ ​ - % Consumer real estate ​ ​ 1,059 ​ ​ 44 ​ ​ 624,972 ​ ​ 0.01 ​ Construction and land development ​ ​ (380) ​ ​ 25 ​ ​ 367,421 ​ ​ 0.01 ​ Commercial and industrial ​ ​ 1,637 ​ ​ (188) ​ ​ 602,413 ​ ​ (0.03) ​ Leases ​ ​ 347 ​ ​ (345) ​ ​ 67,318 ​ ​ (0.51) ​ Consumer and other ​ ​ 186 ​ ​ (220) ​ ​ 14,525 ​ ​ (1.51) ​ Total ​ $ 3,755 ​ $ (678) ​ $ 3,334,523 ​ ​ (0.02) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ $ 1,034 ​ ​ 6 ​ $ 1,498,235 ​ ​ - % Consumer real estate ​ ​ 43 ​ ​ 531 ​ ​ 520,447 ​ ​ 0.10 ​ Construction and land development ​ ​ 1,177 ​ ​ - ​ ​ 360,660 ​ ​ - ​ Commercial and industrial ​ ​ 339 ​ ​ (123) ​ ​ 493,236 ​ ​ (0.02) ​ Leases ​ ​ 879 ​ ​ 84 ​ ​ 61,960 ​ ​ 0.14 ​ Consumer and other ​ ​ 546 ​ ​ (534) ​ ​ 13,973 ​ ​ (3.82) ​ Total ​ $ 4,018 ​ $ (36) ​ $ 2,948,511 ​ ​ - ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ $ 2,119 ​ ​ 83 ​ $ 1,213,311 ​ ​ 0.01 % Consumer real estate ​ ​ 11 ​ ​ (28) ​ ​ 456,529 ​ ​ (0.01) ​ Construction and land development ​ ​ (194) ​ ​ - ​ ​ 293,190 ​ ​ - ​ Commercial and industrial ​ ​ (1,053) ​ ​ (273) ​ ​ 526,586 ​ ​ (0.05) ​ Leases ​ ​ 455 ​ ​ (125) ​ ​ 39,408 ​ ​ (0.32) ​ Consumer and other ​ ​ 295 ​ ​ (284) ​ ​ 11,553 ​ ​ (2.46) ​ Total ​ $ 1,633 ​ $ (627) ​ $ 2,540,577 ​ ​ (0.02) ​ ​ Investment Portfolio Our investment portfolio is the second largest component of our interest earning assets.
We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements.
We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.
This increase is related to organic deposit growth from franchise expansion into new markets. As of December 31, 2022, the Company had outstanding time deposits under $250,000 of $308.1 million, time deposits over $250,000 of $147.2 million, and a time deposit fair value adjustment of $239 thousand.
This increase is related to organic deposit growth. As of December 31, 2023, the Company had outstanding time deposits under $250,000 of $324.8 million, time deposits over $250,000 of $225.7 million, and a time deposit fair value 52 Table of Contents adjustment of $106 thousand.
Financial Statements and Supplementary Data - Note 9 – Borrowings and Line of Credit." Based on the values of loans pledged as collateral, we had $589.8 million of additional borrowing availability with the FHLB as of December 31, 2022. We also maintain relationships in the capital markets with brokers to issue certificates of deposit and money market accounts.
Financial Statements and Supplementary Data – Note 9 – Borrowings and Line of Credit.” Based on the 53 Table of Contents values of loans pledged as collateral, we had $469.9 million of additional borrowing availability with the FHLB as of December 31, 2023.
Loan Participation Agreements The Bank occasionally enters into loan participation agreements with other banks in the ordinary course of business to diversify credit risk.
Loans secured by real estate, consisting of commercial or residential property, are the principal component of our loan and lease portfolio. Loan Participation Agreements The Bank occasionally enters into loan participation agreements with other banks in the ordinary course of business to diversify credit risk.
No PPLF funding was used the twelve month periods ended December 31, 2022, and 2021. ​ Rate and Volume Analysis Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates.
The taxable-equivalent adjustment was $377 thousand, $665 thousand and $602 thousand for 2023, 2022 and 2021, respectively. ​ ​ 43 Table of Contents ​ Rate and Volume Analysis Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates.
The tax equivalent net interest margin for 2021 was 3.24% compared to 3.61% for 2020. Noninterest income to average assets was 0.62% for 2021, increasing from 0.50% for 2020. Noninterest expense to average assets decreased to 2.38% in 2021, from 2.50% in 2020.
The tax equivalent net interest margin for 2023 was 2.97% compared to 3.20% for 2022. Noninterest income to average assets was 0.47% for 2023, decreasing from 0.59% for 2022. Noninterest expense to average assets increased to 2.38% in 2023, up from 2.27% in 2022.
PCI loans and leases that are included in loan pools are reclassified at acquisition to accrual status and thus are not included as nonperforming assets. ​ 47 Table of Contents The following table is a summary of our loans and leases that were past due at least 30 days but not more than 89 days and 90 days or more past due as of December 31, 2022, and 2021 (dollars in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accruing Loans ​ ​ Accruing Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 30-89 Days ​ ​ 90 Days or More ​ ​ Total Accruing ​ ​ ​ ​ ​ Past Due ​ ​ Past Due ​ ​ Past Due Loans ​ ​ ​ ​ ​ ​ ​ ​ Percentage of ​ ​ ​ ​ ​ Percentage of ​ ​ ​ ​ ​ Percentage of ​ ​ ​ Total ​ ​ ​ ​ Loans in ​ ​ ​ ​ ​ Loans in ​ ​ ​ ​ ​ Loans in ​ ​ ​ Loans ​ ​ Amount ​ Category ​ ​ ​ Amount ​ Category ​ ​ ​ Amount ​ Category ​ December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate $ 1,627,761 ​ $ 54 ​ - % ​ $ - ​ - % ​ $ 54 ​ - % Consumer real estate ​ 587,977 ​ ​ 594 ​ 0.10 ​ ​ ​ - ​ - ​ ​ ​ 594 ​ 0.10 ​ Construction and land development ​ 402,501 ​ ​ - ​ - ​ ​ ​ - ​ - ​ ​ ​ - ​ - ​ Commercial and industrial ​ 551,867 ​ ​ 203 ​ 0.04 ​ ​ ​ - ​ - ​ ​ ​ 203 ​ 0.04 ​ Leases ​ 67,427 ​ ​ 1,108 ​ 1.64 ​ ​ ​ 143 ​ 0.21 ​ ​ ​ 1,251 ​ 1.86 ​ Consumer and other ​ 16,094 ​ ​ 107 ​ 0.66 ​ ​ ​ - ​ - ​ ​ ​ 107 ​ 0.66 ​ Total $ 3,253,627 ​ $ 2,066 ​ 0.06 ​ ​ $ 143 ​ - ​ ​ $ 2,209 ​ 0.07 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate $ 1,384,156 ​ $ 172 ​ 0.01 % ​ $ - ​ - % ​ $ 172 ​ 0.01 % Consumer real estate ​ 477,272 ​ ​ 894 ​ 0.19 ​ ​ ​ - ​ - ​ ​ ​ 894 ​ 0.19 ​ Construction and land development ​ 278,386 ​ ​ 91 ​ 0.03 ​ ​ ​ - ​ - ​ ​ ​ 91 ​ 0.03 ​ Commercial and industrial ​ 488,024 ​ ​ 1,310 ​ 0.27 ​ ​ ​ 45 ​ 0.01 ​ ​ ​ 1,355 ​ 0.28 ​ Leases ​ 53,708 ​ ​ 361 ​ 0.67 ​ ​ ​ - ​ - ​ ​ ​ 361 ​ 0.67 ​ Consumer and other ​ 11,851 ​ ​ 103 ​ 0.87 ​ ​ ​ 19 ​ 0.16 ​ ​ ​ 122 ​ 1.03 ​ Total $ 2,693,397 ​ $ 2,931 ​ 0.11 ​ ​ $ 64 ​ - ​ ​ $ 2,995 ​ 0.11 ​ ​ The following table is a summary of our nonaccrual loans and leases as of December 31, 2022, and 2021 (dollars in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ December 31, 2021 ​ ​ ​ ​ Nonaccrual Loans ​ ​ ​ ​ ​ Nonaccrual Loans ​ ​ ​ ​ ​ ​ ​ ​ Percentage of ​ ​ ​ ​ ​ ​ ​ ​ Percentage of ​ ​ ​ Total ​ ​ ​ ​ Loans in ​ ​ ​ Total ​ ​ ​ ​ Loans in ​ ​ ​ Loans ​ ​ Amount ​ Category ​ ​ ​ Loans ​ ​ Amount ​ Category ​ Commercial real estate $ 1,627,761 ​ $ - ​ - % ​ $ 1,384,156 ​ $ 858 ​ 0.06 % Consumer real estate ​ 587,977 ​ ​ 1,665 ​ 0.28 ​ ​ ​ 477,272 ​ ​ 2,139 ​ 0.45 ​ Construction and land development ​ 402,501 ​ ​ 920 ​ 0.23 ​ ​ ​ 278,386 ​ ​ - ​ - ​ Commercial and industrial ​ 551,867 ​ ​ 180 ​ 0.03 ​ ​ ​ 488,024 ​ ​ 116 ​ 0.02 ​ Leases ​ 67,427 ​ ​ 28 ​ 0.04 ​ ​ ​ 53,708 ​ ​ - ​ - ​ Consumer and other ​ 16,094 ​ ​ 15 ​ 0.09 ​ ​ ​ 11,851 ​ ​ 11 ​ 0.09 ​ Total $ 3,253,627 ​ $ 2,808 ​ 0.09 ​ ​ $ 2,693,397 ​ $ 3,124 ​ 0.12 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for loans and leases to nonaccrual loans ​ ​ ​ ​ 830.98% ​ ​ ​ ​ ​ ​ ​ ​ 619.46% ​ ​ ​ ​ Potential Problem Loans and Leases At December 31, 2022, substandard or problem loans and leases amounted to approximately $2.8 million or 0.09% of total loans and leases outstanding.
The following table is a summary of our loans and leases that were past due at least 30 days but not more than 89 days and 90 days or more past due as of December 31, 2023, and 2022 (dollars in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accruing Loans ​ ​ Accruing Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 30-89 Days ​ ​ 90 Days or More ​ ​ Total Accruing ​ ​ ​ ​ ​ Past Due ​ ​ Past Due ​ ​ Past Due Loans ​ ​ ​ ​ ​ ​ ​ ​ Percentage of ​ ​ ​ ​ ​ Percentage of ​ ​ ​ ​ ​ Percentage of ​ ​ ​ Total ​ ​ ​ ​ Loans in ​ ​ ​ ​ ​ Loans in ​ ​ ​ ​ ​ Loans in ​ ​ ​ Loans ​ ​ Amount ​ Category ​ ​ ​ Amount ​ Category ​ ​ ​ Amount ​ Category ​ December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate $ 1,739,205 ​ $ 322 ​ 0.02 % ​ $ - ​ - % ​ $ 322 ​ 0.02 % Consumer real estate ​ 649,867 ​ ​ 2,229 ​ 0.34 ​ ​ ​ - ​ - ​ ​ ​ 2,229 ​ 0.34 ​ Construction and land development ​ 327,185 ​ ​ 631 ​ 0.19 ​ ​ ​ - ​ - ​ ​ ​ 631 ​ 0.19 ​ Commercial and industrial ​ 645,918 ​ ​ 1,286 ​ 0.20 ​ ​ ​ - ​ - ​ ​ ​ 1,286 ​ 0.20 ​ Leases ​ 68,752 ​ ​ 1,340 ​ 1.95 ​ ​ ​ 72 ​ 0.10 ​ ​ ​ 1,412 ​ 2.05 ​ Consumer and other ​ 13,535 ​ ​ 89 ​ 0.66 ​ ​ ​ 98 ​ 0.72 ​ ​ ​ 187 ​ 1.38 ​ Total $ 3,444,462 ​ $ 5,897 ​ 0.17 ​ ​ $ 170 ​ - ​ ​ $ 6,067 ​ 0.18 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate $ 1,627,761 ​ $ 54 ​ - % ​ $ - ​ - % ​ $ 54 ​ - % Consumer real estate ​ 587,977 ​ ​ 594 ​ 0.10 ​ ​ ​ - ​ - ​ ​ ​ 594 ​ 0.10 ​ Construction and land development ​ 402,501 ​ ​ - ​ - ​ ​ ​ - ​ - ​ ​ ​ - ​ - ​ Commercial and industrial ​ 551,867 ​ ​ 203 ​ 0.04 ​ ​ ​ - ​ - ​ ​ ​ 203 ​ 0.04 ​ Leases ​ 67,427 ​ ​ 1,108 ​ 1.64 ​ ​ ​ 143 ​ 0.21 ​ ​ ​ 1,251 ​ 1.86 ​ Consumer and other ​ 16,094 ​ ​ 107 ​ 0.66 ​ ​ ​ - ​ - ​ ​ ​ 107 ​ 0.66 ​ Total $ 3,253,627 ​ $ 2,066 ​ 0.06 ​ ​ $ 143 ​ - ​ ​ $ 2,209 ​ 0.07 ​ ​ The following table is a summary of our nonaccrual loans and leases as of December 31, 2023, and 2022 (dollars in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ December 31, 2022 ​ ​ ​ ​ Nonaccrual Loans ​ ​ ​ ​ ​ Nonaccrual Loans ​ ​ ​ ​ ​ ​ ​ ​ Percentage of ​ ​ ​ ​ ​ ​ ​ ​ Percentage of ​ ​ ​ Total ​ ​ ​ ​ Loans in ​ ​ ​ Total ​ ​ ​ ​ Loans in ​ ​ ​ Loans ​ ​ Amount ​ Category ​ ​ ​ Loans ​ ​ Amount ​ Category ​ Commercial real estate $ 1,739,205 ​ $ 2,044 ​ 0.12 % ​ $ 1,627,761 ​ $ - ​ - % Consumer real estate ​ 649,867 ​ ​ 2,647 ​ 0.41 ​ ​ ​ 587,977 ​ ​ 1,665 ​ 0.28 ​ Construction and land development ​ 327,185 ​ ​ 620 ​ 0.19 ​ ​ ​ 402,501 ​ ​ 920 ​ 0.23 ​ Commercial and industrial ​ 645,918 ​ ​ 2,480 ​ 0.38 ​ ​ ​ 551,867 ​ ​ 180 ​ 0.03 ​ Leases ​ 68,752 ​ ​ 140 ​ 0.20 ​ ​ ​ 67,427 ​ ​ 28 ​ 0.04 ​ Consumer and other ​ 13,535 ​ ​ - ​ - ​ ​ ​ 16,094 ​ ​ 15 ​ 0.09 ​ Total $ 3,444,462 ​ $ 7,931 ​ 0.23 ​ ​ $ 3,253,627 ​ $ 2,808 ​ 0.09 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses to nonaccrual loans ​ ​ ​ ​ 424.75% ​ ​ ​ ​ ​ ​ ​ ​ 830.98% ​ ​ ​ 48 Table of Contents ​ Potential Problem Loans and Leases At December 31, 2023, substandard or problem loans and leases amounted to approximately $12.7 million or 0.37% of total loans and leases outstanding.
We assess the adequacy of the allowance at the end of each calendar quarter. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance.
Our management assesses the adequacy of the allowance on a quarterly basis. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance.
Short-term borrowings, included in borrowings, totaled $4.8 million at December 31, 2022 and $5.1 million at December 31, 2021 and consisted entirely of securities sold under repurchase agreements. Long-term debt totaled $42.0 million at December 31, 2022 and $41.9 million at December 31, 2021 and consisted entirely of subordinated debt.
The $28.8 million reduction in borrowings, was primarily the reduction of $24.6 million in secured borrowing and the repayment of $4.5 million on a line of credit. Short-term borrowings, included in borrowings, totaled $5.1 million at December 31, 2023 and $4.8 million at December 31, 2022 and consisted entirely of securities sold under repurchase agreements.
The primary components of the changes in noninterest expense were as follows: ● Increase in salary and employee benefits, related to the PFG acquisition completed March 1, 2020, Fountain acquisition completed May 3, 2021, SCB acquisition completed September 1, 2021, and overall franchise growth from talent hired in Auburn, Dothan, Montgomery and Birmingham, Alabama, and Tallahassee, Florida; ● Increase in occupancy and equipment, due to ongoing infrastructure and facilities added to accommodate growth in operations; ● Increase in FDIC insurance, related to continued asset growth; ● Increase in data processing and technology, primarily from continued infrastructure build and overall growth; and ● Increase in other, primarily from an investment in a start-up fintech company and other expenses related to continued franchise growth.
The primary components of the changes in noninterest expense were as follows: ● Increase in salary and employee benefits, related to the Sunbelt acquisition completed September 1, 2022 and overall franchise growth; ● Increase in occupancy and equipment, due to ongoing infrastructure and facilities added to accommodate growth in operations; ● Increase in FDIC insurance, related to continued asset growth; ● Increase in data processing and technology, primarily from continued infrastructure build and overall growth; and 45 Table of Contents ● Increases in other, primarily related to a Community Reinvestment Act donation of a former branch location and accruals in respect of pending litigation. 2022 compared to 2021 Noninterest expense increased $14.9 million to $106.3 million in 2022, compared to $91.4 million in 2021.
An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. As of December 31, 2022, there was approximately $96.1 million in goodwill. The Company performed a qualitative assessment on goodwill and the results indicated that there was no impairment as of December 31, 2022.
Goodwill has an indefinite useful life and is evaluated for impairment annually, or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. As of December 31, 2023, there was approximately $96.1 million in goodwill.
Financial Statements and Supplementary Data - Note 1 – Summary of Significant Accounting Policies." The following table sets forth, based on management’s best estimate, the allocation of the allowance for credit losses on loans and leases to categories of loans and leases and loan and lease balances by category and the percentage of loans and leases in each category to total loans and leases and allowance for credit losses as a percentage of total loans and leases within each loan and lease category as of December 31 for each of the past two years (dollars in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage of Loans ​ ​ ​ ​ Ratio of Allowance ​ ​ ​ Amount of ​ in Each Category ​ ​ Total ​ Allocated to Loans in ​ ​ ​ Allowance Allocated ​ to Total Loans ​ ​ Loans ​ Each Category ​ December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ $ 10,821 ​ ​ 50.0 % ​ $ 1,627,761 ​ ​ 0.66 % Consumer real estate ​ ​ 4,028 ​ ​ 18.1 ​ ​ ​ 587,977 ​ ​ 0.69 ​ Construction and land development ​ ​ 3,059 ​ ​ 12.4 ​ ​ ​ 402,501 ​ ​ 0.76 ​ Commercial and industrial ​ ​ 3,997 ​ ​ 17.0 ​ ​ ​ 551,867 ​ ​ 0.72 ​ Leases ​ ​ 1,293 ​ ​ 2.1 ​ ​ ​ 67,427 ​ ​ 1.92 ​ Consumer and other ​ ​ 136 ​ ​ 0.5 ​ ​ ​ 16,094 ​ ​ 0.85 ​ Total ​ $ 23,334 ​ ​ 100.0 % ​ $ 3,253,627 ​ ​ 0.72 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ $ 9,781 ​ ​ 51.4 % ​ $ 1,384,156 ​ ​ 0.71 % Consumer real estate ​ ​ 3,454 ​ ​ 17.7 ​ ​ ​ 477,272 ​ ​ 0.72 ​ Construction and land development ​ ​ 1,882 ​ ​ 10.3 ​ ​ ​ 278,386 ​ ​ 0.68 ​ Commercial and industrial ​ ​ 3,781 ​ ​ 18.1 ​ ​ ​ 488,024 ​ ​ 0.77 ​ Leases ​ ​ 330 ​ ​ 2.0 ​ ​ ​ 53,708 ​ ​ 0.61 ​ Consumer and other ​ ​ 124 ​ ​ 0.4 ​ ​ ​ 11,851 ​ ​ 1.05 ​ Total ​ $ 19,352 ​ ​ 100.0 % ​ $ 2,693,397 ​ ​ 0.72 ​ 49 Table of Contents ​ The allocation by category is determined based on the assigned risk rating, if applicable, and environmental factors applicable to each category of loans and leases.
There are factors beyond our control, such as conditions in the local and national economy, local real estate market or a particular industry or borrower which may negatively impact, materially, our asset quality and the adequacy of our allowance for credit losses and, thus, the resulting provision for credit losses. 49 Table of Contents ​ The following table sets forth, based on management’s best estimate, the allocation of the allowance for credit losses on loans and leases to categories of loans and leases and loan and lease balances by category and the percentage of loans and leases in each category to total loans and leases and allowance for credit losses as a percentage of total loans and leases within each loan and lease category as of December 31 for each of the past two years (dollars in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage of Loans ​ ​ ​ ​ Ratio of Allowance ​ ​ ​ Amount of ​ in Each Category ​ ​ Total ​ Allocated to Loans in ​ ​ ​ Allowance Allocated ​ to Total Loans ​ ​ Loans ​ Each Category ​ December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ $ 15,264 ​ ​ 50.4 % ​ $ 1,739,205 ​ ​ 0.88 % Consumer real estate ​ ​ 7,249 ​ ​ 18.9 ​ ​ ​ 649,867 ​ ​ 1.12 ​ Construction and land development ​ ​ 4,874 ​ ​ 9.5 ​ ​ ​ 327,185 ​ ​ 1.49 ​ Commercial and industrial ​ ​ 6,924 ​ ​ 18.8 ​ ​ ​ 645,918 ​ ​ 1.07 ​ Leases ​ ​ 640 ​ ​ 2.0 ​ ​ ​ 68,752 ​ ​ 0.93 ​ Consumer and other ​ ​ 115 ​ ​ 0.4 ​ ​ ​ 13,535 ​ ​ 0.85 ​ Total ​ $ 35,066 ​ ​ 100.0 % ​ $ 3,444,462 ​ ​ 1.02 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ $ 10,821 ​ ​ 50.0 % ​ $ 1,627,761 ​ ​ 0.66 % Consumer real estate ​ ​ 4,028 ​ ​ 18.1 ​ ​ ​ 587,977 ​ ​ 0.69 ​ Construction and land development ​ ​ 3,059 ​ ​ 12.4 ​ ​ ​ 402,501 ​ ​ 0.76 ​ Commercial and industrial ​ ​ 3,997 ​ ​ 17.0 ​ ​ ​ 551,867 ​ ​ 0.72 ​ Leases ​ ​ 1,293 ​ ​ 2.1 ​ ​ ​ 67,427 ​ ​ 1.92 ​ Consumer and other ​ ​ 136 ​ ​ 0.4 ​ ​ ​ 16,094 ​ ​ 0.85 ​ Total ​ $ 23,334 ​ ​ 100.0 % ​ $ 3,253,627 ​ ​ 0.72 ​ ​ The allowance associated with the individually evaluated loans and leases were approximately $3.5 million at December 31, 2023, compared to $385 thousand at December 31, 2022.
The primary components of the changes in noninterest income were as follows: ● Increase in service charges on deposit accounts, related to the SCB acquisition, deposit growth and transaction volume; ● Decrease in mortgage banking income, related to increased secondary market interest rates driving lower volume; 43 Table of Contents ● Increase in investment services, stemming from increased production; ● Increase in interchange and debit card transaction fees, related to increased volume, deposit growth and the SCB acquisition; and ● Increase in other, primarily related to increased fee income from capital markets activity. ​ 2021 compared to 2020 Noninterest income increased $8.5 million to $23.9 million in 2021, compared to $15.4 million in 2020.
The primary components of the changes in noninterest income were as follows: ● Increase in service charges on deposit accounts, related to deposit growth and transaction volume; ● Increase in loss on sale of securities, associated with a $6.8 million pre-tax loss on the sale of $159.6 million in available-for-sale securities, reinvesting into higher yielding assets; ● Increase in investment services, stemming from increased production; ● Increase in insurance commissions, driven by the addition of Sunbelt and organic growth; and ● Decrease in other, primarily related to decreased fees from capital market activity. ​ 2022 compared to 2021 Noninterest income increased $3.8 million to $27.7 million in 2022, compared to $23.9 million in 2021.
The Company purchased $347.9 million of securities during the year ended December 31, 2022, which was offset by $78.9 million of sales, maturities and payments received during the same period.
The Company purchased $130.6 million of securities during the year ended December 31, 2023, which was offset by $211.5 million of sales, maturities and prepayments received during the same period. New purchases were focused on higher yielding mortgage-backed securities to provide cash flow and liquidity.
The excess of the purchase price over the net estimated fair values of the acquired assets and liabilities is allocated to identifiable intangible assets with the remaining excess allocated to goodwill. Goodwill has an indefinite useful life and is evaluated for impairment annually, or more frequently if events and circumstances indicate that the asset might be impaired.
Fair values for acquired assets and assumed liabilities – Assets and liabilities acquired are recorded at their respective fair values as of the date of the acquisition. The excess of the purchase price over the net estimated fair values of the acquired assets and liabilities is allocated to identifiable intangible assets with the remaining excess allocated to goodwill.
Executive Summary The following is a summary of the Company’s financial highlights and significant events during 2022: ● Completed the asset purchase of Sunbelt. ● Net income totaled $43.0 million, or $2.55 per diluted common share, during the year ended of 2022 compared to $34.8 million, or $2.22 per diluted common share, for the same period in 2021. ● Net loans and leases growth of $556.2 million from December 31, 2021, with a record high net loans and leases of $3.2 billion at December 31, 2022. ● Return on average assets was 0.92% for the year ended December 31, 2022, compared to 0.91% for the year ended December 31, 2021. ​ Analysis of Results of Operations 2022 compared to 2021 Net income was $43.0 million, or $2.55 per diluted common share in 2022, compared to $34.8 million, or $2.22 per diluted common share in 2021.
Executive Summary The following is a summary of the Company’s financial highlights and significant events during 2023: ● Net income totaled $28.6 million, or $1.69 per diluted common share, during the year ended of 2023 compared to $43.0 million, or $2.55 per diluted common share, for the same period in 2022. ● Net loans and leases growth of $179.1 million from December 31, 2022, with a record high net loans and leases of $3.4 billion at December 31, 2023. ● Total deposits growth of $190.8 million from December 31, 2022, with a record high total deposits of $4.3 billion at December 31, 2023. ● Return on average assets was 0.60% for the year ended December 31, 2023, compared to 0.92% for the year ended December 31, 2022. ● On January 1, 2023, the Company adopted ASU 2016-13, which resulted in a $8.7 million, or 37.1%, increase in the allowance for credit losses (“ACL”) at the adoption date, with initial adoption entry being recorded through retained earnings, net of tax. ● During the third quarter of 2023, the Company sold $159.6 million in available-for-sale securities, as part of a balance sheet optimization transaction that resulted in a $5.0 million loss, net of tax. ● During the fourth quarter of 2023, the Company voluntarily withdrew the listing of its common stock from Nasdaq and transferred the listing to the New York Stock Exchange. ​ 41 Table of Contents Analysis of Results of Operations 2023 compared to 2022 Net income was $28.6 million, or $1.69 per diluted common share in 2023, compared to $43.0 million, or $2.55 per diluted common share in 2022.
Net unrealized losses in our available-for-sale securities portfolio were $45.3 million as of December 31, 2022, as compared to a net unrealized gain of $33 thousand as of December 31, 2021. The decrease was attributable to changes in market interest rates related to all our securities, relative to when the securities were purchased.
The decrease was attributable to changes in market interest rates related to our securities, relative to when the securities were purchased.
For more information regarding our borrowings and subordinated debt, see "Part II - Item 8.
Long-term debt totaled $42.1 million at December 31, 2023 and $42.0 million at December 31, 2022 and consisted entirely of subordinated debt. For more information regarding our borrowings and subordinated debt, see “Part II – Item 8.
Over this period, average loan and lease balances increased by $245.4 million, average interest-earning cash and federal funds sold increased by $372.1 million and average securities increased by $93.5 million. Average interest-bearing deposits increased by $552.5 million, average noninterest-bearing deposits increased $270.5 million and average borrowings decreased $94.1 million.
Average earning assets increased from $4.3 billion in 2022 to $4.4 billion in 2023, primarily from organic loan and lease growth. Over this period, average loan and lease balances increased by $386.0 million, offset by a decrease in interest-earning cash and federal funds sold of $304.7 million and average securities decreased by $10.5 million.
On February 1, 2023, the Loan and Security Agreement was amended, increasing the revolving line of credit to an aggregate amount of $35.0 million and extending the maturity date to February 1, 2025.
We also maintain relationships in the capital markets with brokers to issue certificates of deposit and money market accounts. The Company has a revolving line of credit for an aggregate amount of $35.0 million, with a maturity date of February 1, 2025.
During the first quarter of 2022, we transferred $162.4 million of available-for-sale securities to the held-to-maturity category, reflecting our intent to hold those securities to maturity, which reduced the impact of these interest rate changes. ​ The following table presents the contractual maturity of the company’s securities by contractual maturity date and average yields based on amortized cost (for all obligations on a fully taxable basis) at December 31, 2022 (dollars in thousands) .
Principal paydowns/maturities on lower yielding securities as well as the 51 Table of Contents decision to sell a portion of the bank’s AFS securities also played a role in a decrease in the net unrealized loss change over the period. ​ The following table presents the contractual maturity of the Company’s securities by contractual maturity date and average yields based on amortized cost (for all obligations on a fully taxable basis) at December 31, 2023 (dollars in thousands) .
Government agencies ​ ​ — ​ - ​ ​ ​ — ​ - ​ ​ ​ 33,785 ​ 1.83 ​ ​ ​ 16,754 ​ 1.92 ​ ​ ​ 50,539 ​ 1.86 ​ ​ State and political subdivisions ​ — ​ - ​ ​ — ​ - ​ ​ 4,285 ​ 2.20 ​ ​ 49,409 ​ 2.13 ​ ​ 53,694 ​ 2.14 ​ ​ Other debt securities ​ — ​ - ​ ​ — ​ - ​ ​ — ​ - ​ ​ — ​ - ​ ​ — ​ - ​ ​ Mortgage-backed securities ​ — ​ - ​ ​ — ​ - ​ ​ 4,890 ​ 2.14 ​ ​ 26,531 ​ 2.13 ​ ​ 31,421 ​ 2.13 ​ ​ Total securities ​ $ — ​ - ​ ​ $ 150,295 ​ 1.47 ​ ​ $ 42,960 ​ 1.90 ​ ​ $ 92,694 ​ 2.09 ​ ​ $ 285,949 ​ 1.74 ​ ​ ​ 1 Based on amortized cost, taxable equivalent basis.
Government agencies ​ ​ — ​ - ​ ​ ​ — ​ - ​ ​ ​ 42,989 ​ 1.84 ​ ​ ​ 6,347 ​ 2.01 ​ ​ ​ 49,336 ​ 1.86 ​ ​ State and political subdivisions ​ — ​ - ​ ​ 750 ​ 1.32 ​ ​ 4,504 ​ 2.17 ​ ​ 47,426 ​ 2.17 ​ ​ 52,680 ​ 2.13 ​ ​ Other debt securities ​ — ​ - ​ ​ — ​ - ​ ​ — ​ - ​ ​ — ​ - ​ ​ — ​ - ​ ​ Mortgage-backed securities ​ — ​ - ​ ​ — ​ - ​ ​ 4,834 ​ 2.14 ​ ​ 24,320 ​ 2.12 ​ ​ 29,154 ​ 2.12 ​ ​ Total securities ​ $ 150,066 ​ 1.47 ​ ​ $ 750 ​ 1.32 ​ ​ $ 52,327 ​ 1.90 ​ ​ $ 78,093 ​ 2.13 ​ ​ $ 281,236 ​ 1.73 ​ ​ ​ 1 Based on amortized cost, taxable equivalent basis.
The Company had total net loans and leases outstanding, including organic and purchased loans and leases, of approximately $3.23 billion at December 31, 2022 and $2.67 billion at December 31, 2021. Loans secured by real estate, consisting of commercial or residential property, are the principal component of our loan and lease portfolio.
The Company had total net loans and leases outstanding of approximately $3.41 billion at December 31, 2023, and $3.23 billion at December 31, 2022. The year over year increase of $179.1 million, or 5.5%, was related to organic loan growth throughout all markets.
The results above include operating effects of the Fountain and SCB acquisitions, which were completed on May 3, 2021, and September 1, 2021, respectively. Income tax expense was $9.5 million in 2021 with an effective tax rate of 21.5%, compared to $6.6 million in 2020 with an effective tax rate of 21.2%.
Income tax expense was $11.9 million in 2022 with an effective tax rate of 21.7%, compared to $9.5 million in 2021 with an effective tax rate of 21.5%. Net Interest Income and Yield Analysis The management of interest income and expense is fundamental to our financial performance.
Additional information on the allocation of the allowance between performing and impaired loans and leases is provided in Note 5 – Loans and Lease and Allowance for Loan and Lease Losses to our audited consolidated financial statements.
For additional information relating to CECL, see Note 1—Summary of Significant Accounting Policies to our audited consolidated financial statements. Accordingly, the allowance for credit losses represents an amount that, in management's evaluation, is adequate to provide coverage for all expected future credit losses on outstanding loans.
Removed
Average earning assets increased from $2.8 billion in 2020 to $3.5 billion in 2021, primarily as a result of the acquisition of PFG completed March 1, 2020, the acquisition of Fountain completed May 3, 2021, the acquisition of SCB completed September 1, 2021, participation in the PPP and continued organic loan and lease growth.
Added
Average interest-bearing deposits increased by $214.3 million, average noninterest-bearing deposits decreased $162.5 million and average borrowings decreased $15.2 million. The tax equivalent net interest margin decreased to 2.97% for 2023, compared to 3.20% for 2022.
Removed
The tax equivalent net interest margin decreased to 3.24% for 2021, compared to 3.61% for 2020.
Added
The yield on earning assets increased from 3.70% for 2022, to 4.98% for 2023, primarily due to the Company’s deployment of excess cash and cash equivalents into loans and leases and securities during 2023 and higher yields on cash deposits in the Federal Reserve System.
Removed
The yield on earning assets decreased from 4.20% for 2020, to 3.57% for 2021, primarily due to the on-going effects of rate cuts by the Federal Reserve during the first quarter of 2020, to a lesser extent loan yields declining from market competition and lower yielding excess liquidity, offset by PPP fee accretion and loan fees.
Added
The cost of average interest-bearing deposits increased from 0.60% for 2022, to 2.59% for 2023, primarily due to the impact of rising Federal Reserve rates, and such increases significantly contributing to the increase in interest expense in 2023. 2022 compared to 2021 Net interest income, taxable equivalent, increased to $138.2 million in 2022 from $114.0 million in 2021.
Removed
The taxable-equivalent adjustment was $665 thousand, $602 thousand and $572 thousand for 2022, 2021 and 2020, respectively. 3 Includes average balance of $91,190 in Paycheck Protection Liquidity Facility (“PPLF”) funding in the twelve month period ended December 31, 2020.
Added
The primary reason for the 0.06% decline in the effective tax rate was due to lower earnings, largely from the $6.8 million pre-tax loss on the sale of available-for-sale securities during the year. 2022 compared to 2021 In 2022, income tax expense totaled $11.9 million compared to $9.5 million in 2021.
Removed
Organic Loans and Leases Our organic net loans and leases, which excludes loans and leases purchased through acquisitions, increased by $710.0 million, or 31.9% from December 31, 2021, to $2.93 billion at December 31, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+0 added−0 removed16 unchanged
Biggest changeInterest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as interest rate caps and floors) which limit changes in interest rates.
Biggest changeIn addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as interest rate caps and floors) which limit changes in interest rates. Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments.
We utilize an independent third party earnings simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. The model quantifies the effects of various interest rate scenarios on projected net interest income and net income over the next 12-24 months.
We utilize an independent third party earnings simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. The model quantifies the effects of 56 Table of Contents various interest rate scenarios on projected net interest income and net income over the next 12-24 months.
Additionally, debt securities are subject to prepayment and call provisions that could accelerate their payoff prior to stated maturity. We attempt to price our deposit products to meet our asset/liability objectives consistent with local market conditions. Our ALCO is responsible for monitoring our ongoing liquidity needs.
Additionally, debt securities are subject to prepayment and call provisions that could accelerate their payoff prior to stated maturity. We attempt to price our deposit products to meet our asset/liability objectives consistent with local market conditions. Our ALCO is responsible for monitoring our ongoing liquidity needs. Our regulators also monitor our liquidity and capital resources on a periodic basis.
For changes up or down in rates from our static interest rate forecast over the next 12 months, limits in the decline in net interest income are as follows: ​ ​ ​ ​ ​ ​ Estimated % Change in Net Interest Income Over 12 Months ​ December 31, 2022: ​ Instantaneous, Parallel Change in Prevailing Interest Rates Equal to: ​ ​ ​ 100 basis points increase (0.44)% 200 basis points increase (0.99)% ​ 100 basis points decrease 0.27% ​ ​ 56 Table of Contents Economic Value of Equity.
For changes up or down in rates from our static interest rate forecast over the next 12 months, limits in the decline in net interest income are as follows: ​ ​ ​ ​ ​ Estimated % Change in Net Interest Income Over 12 Months December 31, 2023: ​ Instantaneous, Parallel Change in Prevailing Interest Rates Equal to: ​ ​ 100 basis points increase (3.70)% 200 basis points increase (7.47)% 100 basis points decrease 3.89% 200 basis points decrease ​ 6.30% ​ Economic Value of Equity.
However, the frequency and magnitude of interest rate fluctuations do not necessarily coincide with changes in the general inflation rate. Inflation does affect operating expenses in that personnel expenses and the cost of supplies and outside services tend to increase more during periods of high inflation. ​ 58 Table of Contents
Inflation does affect operating expenses in that personnel expenses and the cost of supplies and outside services tend to increase more during periods of high inflation. ​ 58 Table of Contents
Our regulators also monitor our liquidity and capital resources on a periodic basis. 57 Table of Contents Impact of Inflation and Changing Prices As a financial institution, we have an asset and liability make-up that is distinctly different from that of an entity with substantial investments in plant and inventory, because the major portions of a commercial bank’s assets are monetary in nature.
Impact of Inflation and Changing Prices As a financial institution, we have an asset and liability make-up that is distinctly different from that of an entity with substantial investments in plant and inventory, because the major portions of a commercial bank’s assets are monetary in nature. As a result, our performance may be significantly influenced by changes in interest rates.
To help monitor our related risk, we have established the following policy limits regarding simulated changes in our economic value of equity: ​ ​ ​ ​ ​ ​ Current Estimated Instantaneous Rate Change ​ December 31, 2022: ​ ​ ​ Instantaneous, Parallel Change in Prevailing Interest Rates Equal to: 100 basis points increase (1.01)% ​ 200 basis points increase (2.72)% ​ 100 basis points decrease ​ (0.13)% ​ ​ At December 31, 2022, our model results indicated that we were within these policy limits.
To help monitor our related risk, we have established the following policy limits regarding simulated changes in our economic value of equity: ​ ​ ​ ​ ​ Current Estimated Instantaneous Rate Change December 31, 2023: ​ ​ Instantaneous, Parallel Change in Prevailing Interest Rates Equal to: 100 basis points increase (2.09)% 200 basis points increase (4.71)% 100 basis points decrease ​ 1.54% 200 basis points decrease ​ 0.99% ​ At December 31, 2023, our model results indicated that we were within these policy limits. 57 Table of Contents Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by changes in interest rates.
In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates.
For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates.
As a result, our performance may be significantly influenced by changes in interest rates. Although we, and the banking industry, are more affected by changes in interest rates than by inflation in the prices of goods and services, inflation is a factor that may influence interest rates.
Although we, and the banking industry, are more affected by changes in interest rates than by inflation in the prices of goods and services, inflation is a factor that may influence interest rates. However, the frequency and magnitude of interest rate fluctuations do not necessarily coincide with changes in the general inflation rate.
Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates.
Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income.
Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many borrowers to service their debts also may decrease during periods of rising interest rates.
The ability of many borrowers to service their debts also may decrease during periods of rising interest rates.

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