Cover Page - USD ($) $ in Millions	12 Months Ended
Cover Page - USD ($) $ in Millions	Dec. 31, 2023	Mar. 08, 2024	Jun. 30, 2023
Cover page [Abstract]
Document Type	10-K
Document Annual Report	true
Document Period End Date	Dec. 31, 2023
Document Transition Report	false
Entity File Number	001-37661
Entity Registrant Name	SMARTFINANCIAL INC.
Entity Incorporation, State or Country Code	TN
Entity Tax Identification Number	62-1173944
Entity Address, Address Line One	5401 Kingston Pike, Suite 600
Entity Address, City or Town	Knoxville
Entity Address, State or Province	TN
City Area Code	865
Entity Address, Postal Zip Code	37919
Local Phone Number	437-5700
Title of 12(b) Security	Common Stock, par value $1.00 per share
Trading Symbol	SMBK
Security Exchange Name	NYSE
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Public Float			$ 337.0
Entity Common Stock, Shares Outstanding		17,058,114
Amendment Flag	false
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	FY
Entity Central Index Key	0001038773
Auditor Name	FORVIS, LLP
Auditor Firm ID	686
Auditor Location	Louisville, Kentucky
Current Fiscal Year End Date	--12-31
ICFR Auditor Attestation Flag	true
Document Financial Statement Error Correction [Flag]	false

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2023	Dec. 31, 2022
ASSETS:
Cash and due from banks	$ 61,586	$ 44,265
Interest-bearing deposits with banks	233,237	206,849
Federal funds sold	57,448	15,310
Total cash and cash equivalents	352,271	266,424
Securities available-for-sale, at fair value		483,893
Securities available-for-sale, at fair value, post ASU 2019-04	408,410
Securities held-to-maturity, at amortized cost		285,949
Securities held-to-maturity, at amortized cost, post ASU 2019-04	281,236
Other investments	13,662	15,530
Loans held for sale	4,418	1,752
Total loans and leases	3,444,462
Less: Allowance for credit losses	(35,066)
Loans and leases, net	3,409,396
Loans and leases		3,253,627
Less: Allowance for loan and lease losses		(23,334)
Loans and leases, net		3,230,293
Premises and equipment, net	92,963	92,511
Other real estate owned	517	1,436
Goodwill and other intangibles, net	107,148	109,772
Bank owned life insurance	83,434	81,470
Other assets	75,932	68,468
Total assets	4,829,387	4,637,498
Deposits:
Noninterest-bearing demand	898,044	1,072,449
Interest-bearing demand	1,006,915	965,911
Money market and savings	1,812,427	1,583,481
Time deposits	550,468	455,259
Total deposits	4,267,854	4,077,100
Borrowings	13,078	41,860
Subordinated debt	42,099	42,015
Other liabilities	46,470	44,071
Total liabilities	4,369,501	4,205,046
Shareholders' equity:
Common stock, $1 par value; 40,000,000 shares authorized; 16,988,879 and 16,900,805 shares issued and outstanding, respectively	16,989	16,901
Additional paid-in capital	295,699	294,330
Retained earnings	173,105	156,545
Accumulated other comprehensive income (loss)	(25,907)	(35,324)
Total shareholders' equity	459,886	432,452
Total liabilities and shareholders' equity	$ 4,829,387	$ 4,637,498

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2023	Dec. 31, 2022
Statement of Financial Position [Abstract]
Securities held to maturity, fair value	$ 262,538	$ 260,613
Preferred stock, par value (in dollars per share)	$ 1	$ 1
Preferred stock, shares authorized (in shares)	2,000,000	2,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized (in shares)	40,000,000	40,000,000
Common stock, shares issued (in shares)	16,988,879	16,900,805
Common stock, shares outstanding (in shares)	16,988,879	16,900,805

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	12 Months Ended
CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	Dec. 31, 2023	Dec. 31, 2022	Dec. 31, 2021
Interest income:
Loans and leases, including fees	$ 186,479	$ 136,381	$ 118,582
Securities:
Taxable	16,665	11,799	3,813
Tax-exempt	1,418	2,166	1,215
Federal funds sold and other earning assets	13,481	8,488	1,622
Total interest income	218,043	158,834	125,232
Interest expense:
Deposits	84,260	18,228	8,849
Borrowings	936	602	540
Subordinated debt	2,767	2,503	2,449
Total interest expense	87,963	21,333	11,838
Net interest income	130,080	137,501	113,394
Provision for credit losses		4,018	1,633
Provision for credit losses, post ASU 2019-04	3,029
Net interest income after provision for credit losses	127,051	133,483	111,761
Noninterest income:
Service charges on deposit accounts	6,511	5,853	4,650
Gain (loss) on sale of securities	(6,801)	144	45
Mortgage banking	1,040	1,552	4,040
Investment services	5,105	4,144	2,167
Insurance commissions	4,684	3,595	3,285
Interchange and debit card transaction fees, net	5,457	5,435	4,284
Other	6,329	6,992	5,478
Total noninterest income	22,325	27,715	23,949
Noninterest expense:
Salaries and employee benefits	65,749	63,420	51,656
Occupancy and equipment	13,451	12,034	10,196
FDIC insurance	3,156	2,672	1,833
Other real estate and loan related expense	2,397	2,446	2,098
Advertising and marketing	1,342	1,293	830
Data processing and technology	9,235	7,283	6,364
Professional services	3,443	3,790	3,147
Amortization of intangibles	2,624	2,607	2,256
Merger related and restructuring expenses	110	562	3,701
Other	11,643	10,183	9,310
Total noninterest expense	113,150	106,290	91,391
Income before income tax expense	36,226	54,908	44,319
Income tax expense	7,633	11,886	9,529
Net income	$ 28,593	$ 43,022	$ 34,790
Earnings per common share:
Basic (in dollars per share)	$ 1.70	$ 2.57	$ 2.23
Diluted (in dollars per share)	$ 1.69	$ 2.55	$ 2.22
Weighted average common shares outstanding:
Basic (in shares)	16,805,068	16,740,450	15,572,537
Diluted (in shares)	16,911,185	16,871,369	15,699,215

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2023	Dec. 31, 2022	Dec. 31, 2021
Net Income (Loss)	$ 28,593	$ 43,022	$ 34,790
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available-for-sale	6,410	(46,152)	(3,941)
Tax effect	(1,656)	11,921	1,031
Reclassification of unrealized gain (loss) on securities transferred from available-for-sale to held-to-maturity		(2,009)	905
Tax effect		519	(234)
Amortization of unrealized gains (losses) on investment securities transferred from available-for-sale to held-to-maturity	148	112	(8)
Tax effect	(38)	(29)	2
Reclassification adjustment for realized losses (gains) included in net income	6,801	796	(45)
Tax effect	(1,757)	(206)	12
Unrealized gains (losses) on securities available-for-sale, net of tax	9,908	(35,048)	(2,278)
Total other comprehensive income (loss)	9,417	(36,767)	(740)
Comprehensive income (loss)	38,010	6,255	34,050
Fair Value Hedging [Member]
Other comprehensive income (loss):
Unrealized gains (losses) on hedges	(536)	(75)	2,078
Tax effect	139	19	(540)
Reclassification adjustment for realized losses (gains) included in net income		(940)
Tax effect		243
Unrealized gains (losses) on hedge instruments arising during the period, net of tax	(397)	(753)	$ 1,538
Cash Flow Hedging [Member]
Other comprehensive income (loss):
Unrealized gains (losses) on hedges	(196)	(1,303)
Tax effect	51	337
Reclassification adjustment for realized losses (gains) included in net income	69
Tax effect	(18)
Unrealized gains (losses) on hedge instruments arising during the period, net of tax	$ (94)	$ (966)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Parent [Member]	Common Stock [Member] Cumulative Effect, Period of Adoption, Adjusted Balance [Member]	Common Stock [Member]	Additional Paid-in Capital [Member] Cumulative Effect, Period of Adoption, Adjusted Balance [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member] Cumulative Effect, Period of Adoption, Adjusted Balance [Member]	Retained Earnings [Member] Cumulative Effect, Period of Adoption, Adjustment [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member] Cumulative Effect, Period of Adoption, Adjusted Balance [Member]	AOCI Attributable to Parent [Member]	Cumulative Effect, Period of Adoption, Adjusted Balance [Member]	Cumulative Effect, Period of Adoption, Adjustment [Member]	Total
BALANCE at Dec. 31, 2020			$ 15,107		$ 252,693			$ 87,185		$ 2,183			$ 357,168
BALANCE (in shares) at Dec. 31, 2020			15,107,214
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	$ 34,790							34,790					34,790
Other comprehensive income (loss)										(740)			(740)
Stock options exercised			$ 20		185								205
Stock options exercised (in shares)			20,075
Restricted stock			$ 43		(43)
Restricted stock (in shares)			43,334
Restricted stock withheld for taxes					(5)								(5)
Restricted stock withheld for taxes (in shares)			(191)
Common stock issued to shareholders			$ 1,692		40,563								42,255
Common stock issued to shareholders (in shares)			1,692,168
Stock compensation expense					693								693
Common stock dividends								(3,728)					(3,728)
Repurchases of common stock			$ (59)		(1,149)								(1,208)
Repurchases of common stock (in shares)			(59,610)
BALANCE at Dec. 31, 2021			$ 16,803		292,937			118,247		1,443			429,430
BALANCE (in shares) at Dec. 31, 2021			16,802,990
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	43,022							43,022					43,022
Other comprehensive income (loss)										(36,767)			(36,767)
Stock options exercised			$ 45		352								397
Stock options exercised (in shares)			45,253
Restricted stock			$ 61		(61)
Restricted stock (in shares)			60,515
Restricted stock withheld for taxes			$ (8)		(198)								(206)
Restricted stock withheld for taxes (in shares)			(7,953)
Stock compensation expense					1,300								1,300
Common stock dividends								(4,724)					(4,724)
BALANCE (Accounting Standards Update 2016-13 [Member]) at Dec. 31, 2022							$ (6,606)					$ (6,606)
BALANCE at Dec. 31, 2022	432,452	$ 16,901	$ 16,901	$ 294,330	294,330	$ 149,939		156,545	$ (35,324)	(35,324)	$ 425,846		432,452
BALANCE (in shares) at Dec. 31, 2022		16,900,805	16,900,805
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	28,593							28,593					28,593
Other comprehensive income (loss)										9,417			9,417
Stock options exercised			$ 16		149								165
Stock options exercised (in shares)			15,705
Restricted stock			$ 75		(75)
Restricted stock (in shares)			74,992
Restricted stock withheld for taxes			$ (3)		(54)								(57)
Restricted stock withheld for taxes (in shares)			(2,623)
Stock compensation expense					1,349								1,349
Common stock dividends								(5,427)					(5,427)
BALANCE at Dec. 31, 2023	$ 459,886		$ 16,989		$ 295,699			$ 173,105		$ (25,907)			$ 459,886
BALANCE (in shares) at Dec. 31, 2023			16,988,879

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2023	Dec. 31, 2022	Dec. 31, 2021
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY [Abstract]
Common stock dividend, per share	$ 0.32	$ 0.28	$ 0.24

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2023	Dec. 31, 2022	Dec. 31, 2021
Cash flows from operating activities:
Net income	$ 28,593	$ 43,022	$ 34,790
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,874	10,037	6,745
Accretion of fair value purchase accounting adjustments, net		(2,158)	(4,511)
Amortization of intangible assets	2,624	2,607	2,256
Provision for Loan and Lease Losses		4,018	1,633
Provision for credit losses, post ASU 2019-04	3,029
Stock compensation expense	1,349	1,300	693
Gain (loss) on sale of securities available-for-sale	6,801	(144)	(45)
Deferred income tax expense (benefit)	1,309	(555)	643
Increase in cash surrender value of bank owned life insurance	(1,964)	(1,851)	(1,714)
Net losses from sale and write-downs of other real estate owned	78	82	160
Net gains from mortgage banking	(1,040)	(1,552)	(4,040)
Origination of loans held for sale	(45,891)	(49,258)	(126,493)
Proceeds from sales of loans held for sale	44,265	54,161	137,151
Net (gain) from sale of loans and credit cards			(478)
Net (gain) loss from sale of fixed assets	19	(244)
Net change in:
Accrued interest receivable	(2,989)	(4,242)	809
Accrued interest payable	2,520	(24)	(613)
Other assets	(1,732)	(25,424)	(8,717)
Other liabilities	(8,129)	27,018	7,913
Net cash provided by operating activities	39,716	56,793	46,182
Cash flows from investing activities:
Proceeds from sales	152,775	37,390	16,771
Proceeds from maturities, calls and paydowns	56,273	39,614	132,711
Purchases	(130,584)	(297,334)	(433,750)
Proceeds from maturities, calls and paydowns	2,494	1,937
Purchases		(50,575)	(2,446)
Proceeds from sales of other investments	2,812	1,054	436
Purchases of other investments	(944)	(91)	(1,602)
Purchases of bank owned life insurance			(40,000)
Proceeds from bank owned life insurance benefits			427
Net increase in loans and leases	(213,591)	(558,387)	(37,105)
Proceeds from sale of fixed assets	682	1,460
Proceeds received from dissolved derivative instrument		940
Purchases of premises and equipment	(6,270)	(12,487)	(2,377)
Proceeds from sale of other real estate owned	1,113	542	2,833
Proceeds received from sale of loans			83,745
Net cash (paid) received from business combinations		(4,881)	15,364
Net cash used by investing activities	(135,240)	(840,818)	(264,993)
Cash flows from financing activities:
Net increase in deposits	190,887	55,630	781,315
Net increase (decrease) in securities sold under agreements to repurchase	303	(310)	(1,514)
Proceeds from borrowings	26,275	30,885	8,201
Repayment of borrowings	(30,775)	(76,300)	(1,097)
Cash dividends paid	(5,427)	(4,724)	(3,728)
Issuance of common stock, net of restricted shares withheld for taxes	108	191	200
Repurchases of common stock			(1,208)
Net cash provided by financing activities	181,371	5,372	782,169
Net change in cash and cash equivalents	85,847	(778,653)	563,358
Cash and cash equivalents, beginning of period	266,424	1,045,077	481,719
Cash and cash equivalents, end of period	352,271	266,424	1,045,077
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	85,443	21,356	12,156
Net cash paid during the period for income taxes	9,347	12,205	9,283
Noncash investing and financing activities:
Recognition of operating lease assets in exchange for lease liabilities	1,751	53	4,550
Acquisition of real estate through foreclosure	$ 272	281	628
Transfer of securities from available-for-sale to held-to-maturity		162,378	74,633
Change in goodwill due to acquisition		$ 4,580	$ 17,430

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2023

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 1. Summary of Significant Accounting Policies

Nature of Business:

SmartFinancial, Inc. (the “Company”) is a bank holding company whose principal activity is the ownership and management of its wholly-owned subsidiary, SmartBank (the “Bank”). The Company provides a variety of financial services to individuals and corporate customers through its offices in East and Middle Tennessee, Alabama and Florida. The Company’s primary deposit products are interest-bearing demand deposits, savings and money market deposits, and time deposits. Its primary lending products are commercial, residential, and consumer loans.

Basis of Presentation:

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Accounting Estimates:

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses and goodwill.

Cash and Cash Equivalents:

For purposes of reporting consolidated cash flows, cash and due from banks includes cash on hand, cash items in process of collection and amounts due from banks. Cash and cash equivalents also includes interest-bearing deposits in banks and federal funds sold. Cash flows from loans, federal funds sold, securities sold under agreements to repurchase and deposits are reported net.

The in cash or on deposit Bank is required to maintain average balances with the Federal Reserve Bank. During 2020 the Federal Reserve Bank suspended reserve requirements to provide relief related to the COVID-19 pandemic, thus the Bank did not have a reserve requirement at December 31, 2023 and 2022, respectively.

Securities:

Securities are classified based on management’s intention on the date of purchase. All debt securities classified as available-for-sale are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Securities that the Company has both the positive intent and ability to hold to maturity are classified as held-to-maturity and are carried at historical cost and adjusted for amortization of premiums and accretion of discounts. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Transfers of investments securities into the held-to-maturity category from the available-for-sale category are made at fair value at the date of transfer. The unrealized holdings gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the held-to-maturity securities. Such amounts are amortized over the remaining life of the security.

Securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase are treated as collateralized financial transactions. These agreements are recorded at the amount at which the securities

were acquired or sold plus accrued interest. It is the Company’s policy to take possession of securities purchased under resale agreements. The market value of these securities is monitored, and additional securities are obtained when deemed appropriate to ensure such transactions are adequately collateralized. The Company also monitors its exposure with respect to securities sold under repurchase agreements, and a request for the return of excess securities held by the counterparty is made when deemed appropriate.

Other Investments:

The Company is required to maintain an investment in capital stock of various entities, including the Federal Home Loan Bank and Federal Reserve Bank. Based on redemption provisions of these entities, the stock has no quoted market value and is carried at cost. At their discretion, these entities may declare dividends on the stock. Management reviews restricted investments for impairment based on the ultimate recoverability of the cost basis in these stocks.

Loans Held for Sale:

Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. Gains and losses on sales of loans held for sale are included in the Consolidated Statements of Income in mortgage banking.

Loans held for sale are sold to investors with best effort intent and ability to sell loans as long as they meet the underwriting standards of the potential investor.

Loans and Leases:

Originated loans and leases for which management has the intent and ability to hold for the foreseeable future or until maturity or payoff are carried at the principal amount outstanding net of any unearned income, charge-offs and unamortized fees and costs. Nonrefundable fees collected and certain direct costs incurred related to loan and lease originations are deferred and recorded as an adjustment to loans and leases outstanding. The net amount of the nonrefundable fees and costs is amortized to interest income over the contractual lives using methods that approximate a constant yield.

The accrual of interest on loans and leases is discontinued when, in management’s opinion, the borrower may be unable to meet the contractual terms of the obligation payments as they become due, or at the time the loan or lease is 90 days past due, unless the loan is well-secured and in the process of collection. Unsecured loans and leases are typically charged off no later than 120 days past due. Past due status is based on contractual terms of the loan or lease. In all cases, loans and leases are placed on nonaccrual or charged-off at an earlier date if collection of principal and interest is considered doubtful. All interest accrued but not collected for loans and leases that are placed on nonaccrual or charged off is reversed against interest income, unless management believes that the accrual of interest is recoverable through the liquidation of collateral. Interest income on nonaccrual loans and leases is recognized on the cash basis, until the loans or leases are returned to accrual status. Loans and leases are returned to accrual status when all the principal and interest amounts contractually due are brought current and the loan or lease has been performing according to the contractual terms for a period of not less than six months.

Allowance for Credit Losses (“ACL”):

As described below under Recently Issued and Adopted Accounting Pronouncements, the Company adopted ASU 2016-13 effective January 1, 2023, which requires the estimation of an allowance for credit losses in accordance with the Current Expected Credit Losses (“CECL”) methodology. This standard applies to all financial assets measured at amortized cost and off-balance sheet credit exposures, including loans, investment securities and unfunded commitments. We applied the standard’s provisions using the modified retrospective method as a cumulative-effect adjustment to retained earnings as of January 1, 2023. With this transition method, we did not have to restate comparative prior periods presented in the financial statements related to Topic 326, but will present comparative prior periods disclosures using the previous

accounting guidance for the allowance for loan losses. This adoption method is considered a change in accounting principle requiring additional disclosure of the nature of and reason for the change, which is solely a result of the adoption of the required standard.

In connection with the adoption of ASU 2016-13, the Company revised certain accounting policies and implemented certain accounting policy elections. The revised accounting policies are described below:

ACL – Held-to-Maturity (“HTM”) Securities – The Company measures expected credit losses on HTM securities on a collective basis by major security type with each type sharing similar risk characteristics. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The Company has made the election to exclude accrued interest receivable on HTM securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. See Note 4 – Securities, for additional information related to the Company’s allowance for credit losses on HTM securities.

ACL – Available-for-Sale (“AFS”) Securities – For AFS securities in an unrealized loss position, the Company first evaluates whether it intends to sell, or whether it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of these criteria regarding intent or requirement to sell is met, the AFS security amortized cost basis is written down to fair value through income. If the criteria is not met, the Company is required to assess whether the decline in fair value has resulted from credit losses or noncredit-related factors. If the assessment indicates a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists, and an allowance for credit loss is recorded through income as a component of provision for credit loss expense. If the assessment indicates that a credit loss does not exist, the Company records the decline in fair value through other comprehensive income, net of related income tax effects. The Company has made the election to exclude accrued interest receivable on AFS securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. See Note 4 – Securities, for additional information related to the Company’s allowance for credit losses on AFS securities.

ACL – Loans and Leases – The ACL reflects management’s estimate of expected losses that will result from the inability of our clients to make required loan and lease payments. Loans and leases deemed to be uncollectible are charged against the ACL, while recoveries of previously charged-off amounts are credited to the ACL. Management uses systematic methodologies to determine its ACL for loans and leases held for investment and certain off-balance-sheet exposures. The ACL is a valuation account that is subtracted from the amortized cost basis to present the net amount expected to be collected on the loan and lease portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan and lease portfolio. The ACL recorded on the balance sheet reflects management’s best estimate of expected credit losses. The Company’s ACL is calculated using collectively assessed and individually assessed loans and leases.

The ACL is measured on a collective pool basis when similar risk characteristics exist. Loans with similar risk characteristics are grouped into homogenous segments. The Company segmented the loan and lease portfolio by call code and risk rating. The loan portfolio reserve estimate is calculated using a non-discounted cash flow method for probability of default and loss given default values. This method utilizes the Company’s data along with peer data that is regressed against the national unemployment rate. The lease portfolio’s reserve estimate is based on the open pool methodology which is a simplified process of capturing losses by quarter over the life of a lease divided by the balance of all leases originated.

Management considers forward-looking information in estimating expected credit losses. The Company uses an average of Fannie Mae and Federal Open Market Committee projections of the national unemployment rate to determine the best estimate of expected credit losses. For the contractual term that extends beyond the reasonable and supportable forecast

period, the Company reverts to the long term mean of historical factors using a straight-line approach. The Company uses an eight-quarter forecast and a four-quarter reversion period.

Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management but measured by objective measurements period over period. The data for each measurement may be obtained from internal or external sources. The Company considers the qualitative factors that are relevant as of the reporting date, which may include, but are not limited to: independent loan review results, portfolio concentrations, lending strategies, quality of assets, regulatory review results and associate retention. The qualitative allowance will increase, or decrease based on the assessment of these various factors.

Loans that do not share risk characteristics are evaluated on an individual basis. The Company maintains a net book balance threshold of $500,000 for individually evaluated loans unless further analysis in the future suggests a change is needed to this threshold based on the credit environment at that time. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset. If the loan is not collateral dependent, the measurement of loss is based on the difference between the expected and contractual future cash flows of the loan.

Management measures expected credit losses over the contractual term of a loan. When determining the contractual term, the Company considers expected prepayments but is precluded from considering expected extensions, renewals, or modifications, unless the Company reasonably expects it will execute a loan modification (“LM”) with a borrower. In the event of a reasonably expected LM, the Company factors the reasonably-expected LM into the current expected credit losses estimate.

Purchased credit-deteriorated, otherwise referred to herein as (“PCD”), assets are defined as acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The Company records acquired PCD loans by adding the expected credit losses (i.e. allowance for credit losses) to the purchase price of the financial assets rather than recording through the provision for credit losses in the income statement. The expected credit loss, as of the acquisition day, of a PCD loan is added to the allowance for credit losses. The non-credit discount or premium is the difference between the unpaid principal balance and the amortized cost basis as of the acquisition date. Subsequent to the acquisition date, the change in the ACL on PCD loans is recognized through the provision for credit losses. The non-credit discount or premium is accreted or amortized, respectively, into interest income over the remaining life of the PCD loan on a level-yield basis. In accordance with the transition requirements within the standard, the Company’s purchased credit-impaired loans (“PCI”) were treated as PCD loans.

The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Therefore, management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the portfolio and does not record an allowance for credit losses on accrued interest receivable. As of December 31, 2023, and 2022, the accrued interest receivables for loans recorded in other assets were $12.5 million and $9.8 million, respectively.

ACL – Off Balance Sheet Credit Exposures – The Company has a variety of assets that have a component that qualifies as an off-balance sheet exposure. These primarily include undrawn portions of revolving lines of credit and standby letters of credit. The expected losses associated with these exposures within the unfunded portion of the expected credit loss will be recorded as a liability on the balance sheet with an offsetting income statement expense. Management has determined that all of the Company’s off-balance-sheet credit exposures are not unconditionally cancellable. As of December 31, 2023, the liability recorded for expected credit losses on unfunded commitments in Other Liabilities was $2.4 million. The current adjustment to the ACL for unfunded commitments is recognized through the provision for credit losses in the Consolidated Statement of Income.

Loan Modifications to Borrowers Experiencing Financial Difficulty

From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty. In some cases, these modifications may result in new loans. Loan modifications to borrowers experiencing financial difficulty may be in the form of an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination thereof, among other things.

Prior to January 1, 2023, the Company designates loan modifications as Troubled Debt Restructurings (“TDRs”) when for economic and legal reasons related to the borrower’s financial difficulties, it granted a concession to the borrower that it would not otherwise consider. The Company adopted ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of TDRs and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

Other Real Estate Owned:

Other real estate owned acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less selling costs. Any write-down to fair value less cost to sell, at the time of transfer to other real estate owned is charged to the allowance for loan losses. Subsequent to foreclosure valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less costs to sell. Costs of improvements are capitalized, whereas costs relating to holding other real estate owned and subsequent write-downs to the value are expensed.

Premises and Equipment:

Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets or the expected terms of the leases, if shorter. Expected terms include lease option periods to the extent that the exercise of such options is reasonably assured. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on dispositions are included in current operations.

Goodwill and Intangible Assets:

Goodwill represents the cost in excess of the fair value of net assets acquired (including identifiable intangibles) in transactions accounted for as business combinations. 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.

Other acquired intangible assets with finite lives, such as core deposit intangibles and customer list intangibles, are initially recorded at fair value and amortized over their estimated useful lives. Intangible assets are evaluated for impairment when events or changes in circumstances indicate a potential impairment.

Transfers of Financial Assets:

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company – put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Bank Owned Life Insurance:

The Company has purchased life insurance policies on certain key employees. The purchase of these life insurance policies allows the Company to use tax-advantaged rates of return. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Derivative Instruments:

The Company applies hedge accounting to certain interest rate derivatives entered into for risk management purposes. In accordance with ASC Topic 815, Derivatives and Hedging, all derivative instruments are recorded on the accompanying consolidated balance sheet at their respective fair values. The accounting for changes in fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship. If the derivative instrument is not designated as a hedge, changes in the fair value of the derivative instrument are recognized in earnings in the period of change.

The Company enters into interest rate derivatives contracts that were designated as qualifying cash flow hedges to hedge the exposure to variability in expected future cash flows attributable to changes in a contractually specified interest rate. To qualify for hedge accounting, a formal assessment is prepared to determine whether the hedging relationship, both at inception and on an ongoing basis, is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge if a cash flow hedge.

The Company enters into interest rate swaps (“swaps”) to facilitate customer transactions and meet their financial needs. Upon entering into these instruments to meet customer needs, the Company enters into offsetting positions with large U.S. financial institutions in order to minimize the risk to the Company. These swaps are derivatives, but are not designated as hedging instruments.

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item.

Leases

The Company leases certain branch locations, administrative offices and equipment. Operating lease Right of Use (“ROU”) assets are included in other assets and the associated lease obligations are included in other liabilities. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets; the Company instead recognizes lease expense for these leases on a straight-line basis over the lease term.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s corresponding obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most

of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is determined using secured rates for new FHLB advances under similar terms as the lease at inception. The Company utilizes the implicit or incremental borrowing rate at the effective date of a modification not accounted for as a separate contract or a change in the lease terms to determine the present value of lease payments. For operating leases commencing prior to January 1, 2019, the Company used the incremental borrowing rate as of that date.

Most leases include one or more options to renew, with renewal terms that can extend the lease term. The exercise of lease renewal options is at the Company’s sole discretion. When it is reasonably certain the Company will exercise its option to renew or extend the lease term, the option is included in calculating the value of the ROU asset and lease liability. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Revenue Recognition

Service charges on deposit accounts – These deposit account-related fees represent monthly account maintenance and transaction-based service fees such as overdraft and non-sufficient funds fees, stop payment fees and wire transfer fees. For account maintenance services, revenue is recognized at the end of the statement period when our performance obligation has been satisfied. All other revenues from transaction-based services are recognized at a point in time when the performance obligation has been completed.

Investment services – These primarily represent sales commissions on various product offerings, transaction fees and asset management fees. The performance obligation for investment services is the provision of services to place annuity products issued by the counterparty to investors and the provision of services to manage the client’s assets, including brokerage custodial and other management services. Revenue from investment services is recognized over the period in which services are performed and is based on a percentage of the value of the assets under management/administration.

Insurance commissions –These represent commissions earned on the issuance of insurance products and services. The performance obligation is generally satisfied upon the issuance of the insurance policy and revenue is recognized when the commission payment is remitted by the insurance carrier or policy holder depending on whether the billing is performed by the insurance agency or the carrier.

Interchange and debit card transaction fees, net – These represent interchange fees from customer debit and credit card transactions earned when a cardholder engages in a transaction with a merchant as well as fees charged to merchants for providing them the ability to accept and process the debit and credit card transaction. Revenue is recognized when the performance obligation has been satisfied, which is upon completion of the card transaction. Additionally, as the Bank is acting as an agent for the customer and transaction processor, costs associated with cardholder and merchant services transactions are netted against the fee income.

Other –This consists of several forms of recurring revenue such as income earned on changes in the cash surrender value of bank-owned life insurance and interest rate swap fees. For the remaining immaterial transactions, revenue is recognized when, or as, the performance obligation is satisfied.

Advertising Costs:

The Company expenses all advertising and marketing costs as incurred.

Income Taxes:

The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted

tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax basis of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. Deferred tax assets may be reduced by deferred tax liabilities and a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Tax positions are recognized if it is more likely than not, based on the technical merits, the tax position will be realized or sustained upon examination. The term ”more likely than not” means a likelihood of more than 50 percent; the terms examined and upon examination also included resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgement. The Company recognizes interest and penalties in income tax expense. The Company files consolidated income tax returns with its subsidiaries.

Stock-Based Compensation Plans:

The Company has stock options, restricted stock awards and stock appreciation rights under stock-based compensation plans, which are described in more detail in Note 13 – Employee Benefits. The plans have been accounted for under the accounting guidance (FASB ASC 718, Compensation – Stock Compensation) which requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements. That cost will be measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights, and stock or other stock based awards.

The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Scholes model is used to estimate the fair value of stock options, while the market value of the Company’s common stock at the date of grant is used for restrictive stock awards and stock grants.

Comprehensive Income:

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, primarily, (1) unrealized gains and losses on available-for-sale securities, (2) unrealized gains and losses on effective portions of fair value security hedges, (3) unrealized gains and losses on effective portions of cash flow hedges and (4) unrealized gains and losses from securities transferred from available-for-sale to held-to-maturity, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

Business Combinations:

Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method of accounting, acquired assets and assumed liabilities are included with the acquirer’s accounts as of the date of acquisition at estimated fair value, with any excess of purchase price over the fair value of the net assets acquired (including

identifiable intangible assets) capitalized as goodwill. In the event that the fair value of the net assets acquired exceeds the purchase price, an acquisition gain is recorded for the difference in consolidated statements of income for the period in which the acquisition occurred. An intangible asset is recognized as an asset apart from goodwill when it arises from contractual or other legal rights or if it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged. In addition, acquisition-related costs and restructuring costs are recognized as period expenses as incurred. Estimates of fair value are subject to refinement for a period not to exceed one year from acquisition date as information relative to acquisition date fair values becomes available.

Earnings Per Common Share:

Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding and dilutive common share equivalents using the treasury stock method. Dilutive common share equivalents include common shares issuable upon exercise of outstanding stock options and restricted stock.

Operating Segments:

The Company’s chief operating decision maker primarily manages operations and assesses financial performance on a Company-wide basis. However, in addition to the discrete financial information that is provided for the Company as a whole, financial information is also provided for the wealth management services, insurance services and mortgage origination segments, respectively. While the chief operating decision maker uses the financial information related to these segments to analyze business performance and allocate resources, these segments do not meet the quantitative threshold under GAAP to be considered a reportable segment. As such, these operating segments, along with the banking operations segment, are aggregated into a single reportable operating segment in the Consolidated Financial Statements. No revenues are derived from foreign countries or from external customers that comprise more than 10% of the Company’s revenues.

Recently Issued Not Yet Effective Accounting Pronouncements:

The following is a summary of recent authoritative pronouncements not yet in effect that could impact the accounting, reporting, and/or disclosure of financial information by the Company.

In June 2022, the FASB issued ASU No. 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022-03 also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain new disclosures for equity securities subject to contractual sale restrictions. The guidance is effective for fiscal years beginning after December 15, 2023. The Company is assessing ASU 2022-03, and its adoption is not expected to have a significant impact on our Consolidated Financial Statements.

In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842): Common Control Arrangements.” ASU 2023-01 requires entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. ASU 2023-01 also provides certain practical expedients applicable to private companies and not-for-profit organizations. The guidance is effective for fiscal years beginning after December 15, 2023. The Company is assessing ASU 2023-01, and its adoption is not expected to have a significant impact on our Consolidated Financial Statements.

In March 2023, the FASB issued ASU No. 2023-02, “Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” ASU 2023-02 is intended to improve the accounting and disclosures for investments in tax credit structures. ASU 2023-02 allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the

program giving rise to the related income tax credits. Previously, this method was only available for qualifying tax equity investments in low-income housing tax credit structures. The guidance is effective for fiscal years beginning after December 15, 2023. The Company is assessing ASU 2023-02, and its adoption is not expected to have a significant impact on our Consolidated Financial Statements.

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” ASU 2023-07 expands segment disclosure requirements for public entities to require disclosure of significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is accessing ASU 2023-07, and its adoption is not expected to have a significant impact on our Consolidated Financial Statements.

In December 2023, FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 requires public business entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state, and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. The guidance is effective for us for fiscal years beginning after December 15, 2024, though early adoption is permitted. The Company is accessing ASU 2023-09, and its adoption is not expected to have a significant impact on our Consolidated Financial Statements.

Recently Issued and Adopted Accounting Pronouncements:

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) (“ASU 2016-13”), and has issued subsequent amendments thereto, which introduces the current expected credit losses (“CECL”) methodology. Among other things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets, including loans and held-to-maturity debt securities, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The new model requires institutions to calculate and estimate losses that are expected to be incurred through the financial asset’s contractual life through a provision for credit losses, including loans obtained as a result of any acquisition not deemed to be PCD. ASU 2016-13 also requires the allowance for credit losses for PCD loans to be determined in a manner similar to that of other financial assets measured at amortized cost; however, the initial allowance determined at acquisition is added to the purchase price rather than recorded as provision expense. In accordance with ASU 2016-13, the disclosure of credit quality indicators related to the amortized cost of financing receivables is further disaggregated by year of origination (or vintage). The Company adopted ASU 2016-13 and all subsequent amendments thereto effective January 1, 2023, using the modified retrospective method for all financial assets measured at amortized cost and off balance sheet credit exposures. Amounts for periods beginning on or after January 1, 2023, are presented under ASU 2016-13 and all prior period information is presented in accordance with previously applicable GAAP. At January 1, 2023, the Company recognized a cumulative adjustment to retained earnings of $6.6 million, net of tax, attributable to an increase in the allowance for credit losses (“ACL”) of $8.7 million, an increase in the allowance for off balance sheet credit exposures of $3.0 million, and an increase in deferred tax assets of $2.3 million. Included in the $8.7 million increase in the allowance for credit losses is $2.9 million that was recognized on PCD loans previously classified as purchased credit impaired (“PCI”) with a corresponding adjustment to the gross carrying amount of the loans. The Company adopted ASU 2016-13 using the prospective transition approach for PCD loans, which did not require re-evaluation of whether loans previously classified as PCI loans met the criteria of PCD assets at the date of adoption. The remaining noncredit discount will be accreted into interest income over the life of the individual loans beginning January 1, 2023.

The following table illustrates the impact of ASU 2016-13 (in thousands):


		December 31, 2022		Adoption impact of ASU 2016-13		Impact of PCD Gross Up		January 1, 2023
Allowance for credit losses:
Commercial real estate	$	10,821	$	879		2,652	$	14,352
Consumer real estate		4,028		1,952		166		6,146
Construction and land development		3,059		2,145		25		5,229
Commercial and industrial		3,997		1,451		27		5,475
Leases		1,293		(683)		28		638
Consumer and other		136		13		-		149
Total allowance for credit losses	$	23,334	$	5,757	$	2,898	$	31,989

Unfunded lending commitments⁽¹⁾	$	-	$	3,029	$	-	$	3,029

(1)

The unfunded lending commitments is recorded within other liabilities on the Consolidated Statements of Financial Condition. The related expense for unfunded lending commitments is recorded within provision for credit losses on the Consolidated Statements of Income.

In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and has issued subsequent amendments thereto, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020, through December 31, 2022. In December 2022, the FASB issued an update to Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting with Accounting Standards Update 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which updated the effective date to be March 12, 2020, through December 31, 2024. The Company has implemented a transition plan to identify and modify its loans and other financial instruments, including certain indebtedness, with attributes that are either directly or indirectly influenced by LIBOR. The Company has begun negotiating loans using its preferred replacement index, the Secured Overnight Financing Rate ("SOFR"). For the Company’s currently outstanding LIBOR-based loans, the timing and manner in which each customer's contract transitions to SOFR will vary on a case-by-case basis. The Company completed all loan transitions by June 30, 2023.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method, which allows multiple hedged layers to be designated for a single closed portfolio of financial assets resulting in a greater portion of the interest rate risk in the closed portfolio being eligible to be hedged. The amendments allow the flexibility to use different types of derivatives or combinations of derivatives to better align with risk management strategies. Furthermore, among other things, the amendments clarify that basis adjustments of hedged items in the closed portfolio should be allocated at the portfolio level and not the individual assets within the portfolio. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company adopted ASU 2022-01 and the adoption did not have a material impact on the Company’s Consolidated Financial Statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which removes the accounting guidance for troubled debt restructurings and requires entities to evaluate whether a modification provided to a borrower result in a new loan or continuation of an existing loan. The amendments enhance existing disclosures and require new disclosures for receivables when there has been a modification in contractual cash flows due to a borrower experiencing financial difficulties. Additionally, the amendments require public business entities to disclose gross charge-off information by year of origination in the vintage disclosures. The guidance is effective for entities that have adopted ASU 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company adopted ASU 2022-02 when it adopted ASU 2016-13 in January 2023. The adopted ASU 2022-02 and the adoption did not have a material impact on the Company’s Consolidated Financial Statements.

Business Combinations

12 Months Ended

Dec. 31, 2023

Business Combinations [Abstract]

Business Combinations

Note 2. Business Combinations

Sunbelt Group, LLC

On September 1, 2022, Rains Agency Inc. (“Rains Agency”), an indirect wholly-owned subsidiary of SmartFinancial, Inc., completed the acquisition of substantially all the assets of Sunbelt Group, LLC (“Sunbelt”), a Tennessee limited liability company, pursuant to the Asset Purchase Agreement (the “Purchase Agreement”), dated September 1, 2022, by and among Rains Agency, Sunbelt, and A. Mark Slater, the sole member of Sunbelt.

In connection with the acquisition, Rains Agency acquired $349 thousand of assets and assumed $364 thousand of liabilities from Sunbelt. Pursuant to the Purchase Agreement, Rains Agency paid an aggregate amount of consideration to Sunbelt of $6.5 million, of which $5.2 million was paid in cash at the closing and the remainder of which will be payable in equal cash installments on September 1, 2023, and 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 Sunbelt and its sole member to Rains Agency under the terms of the Purchase Agreement. During 2023, Rains Agency changed its name to SBK Insurance, Inc.

The fair value of consideration paid exceeded the fair value of the identifiable assets and liabilities acquired and resulted in the establishment of goodwill in the amount of $4.6 million, representing the intangible value of Sunbelt’s business and reputation within the markets it served. The goodwill recognized is expected to be deductible for income tax purposes. The Company established an intangible asset related to customer relationships of $1.9 million, amortizing sum-of-the-years digits over 168 months (14 years).

The purchased assets and assumed liabilities were recorded at their acquisition date fair values and are summarized in the table below (in thousands).


			Initial
	As recorded		Fair value		Subsequent		As recorded
	by Sunbelt		adjustments		Adjustments		by the Company
Assets:
Cash & cash equivalents	$	319	$	—	$	—	$	319
Customer list intangible		—		1,948		—		1,948
Equipment, net		13		(13)		—		—
Other assets		17		—		—		17
Total assets acquired	$	349	$	1,935	$	—	$	2,284

Liabilities:
Payables and other liabilities	$	364	$	—	$	—	$	364
Total liabilities assumed		364		—		—		364
Excess of liabilities acquired over assets assumed	$	(15)
Aggregate fair value adjustments			$	1,935	$	—
Total identifiable net assets								1,920
Consideration transferred:
Purchase price								6,500
Total fair value of consideration transferred								6,500

Goodwill							$	4,580

Sevier County Bancshares, Inc.

On September 1, 2021, the Company completed the acquisition of Sevier County Bancshares, Inc., a Tennessee corporation (“SCB”), pursuant to an Agreement and Plan of Merger dated April 13, 2021 (the “Merger Agreement”).

In connection with the merger, the Company acquired $484.9 million of assets and assumed $443.1 million of liabilities. Pursuant to the Merger Agreement, at the effective time of the merger, SCB shareholders were entitled to receive for each share of SCB common stock, no par value per share, outstanding immediately prior to the Merger, either (i) $10.17 in cash (the “Per Share Cash Consideration”), or (ii) 0.4116 shares of Company common stock, par value $1.00 (the “Per Share Stock Consideration”). Pursuant to the terms of the Merger Agreement, (i) each SCB shareholder holding 20,000 shares or more of SCB common stock will receive the Per Share Stock Consideration and (ii) each SCB shareholder holding fewer than 20,000 shares of SCB common stock may elect to receive either the Per Share Stock Consideration or the Per Share Cash Consideration. SmartFinancial issued 1,692,168 shares of SmartFinancial common stock and paid $9.6 million in cash as consideration for the Merger. The fair value of consideration paid exceeded the fair value of the identifiable assets and liabilities acquired and resulted in the establishment of goodwill in the amount of $17.2 million, representing the intangible value of SCB’s business and reputation within the markets it served. None of the goodwill recognized is expected to be deductible for income tax purposes. The Company is amortizing the related core deposit intangible of $1.6 million using the effective yield method over 120 months (10 years), which represents the expected useful life of the asset.

The purchased assets and assumed liabilities were recorded at their acquisition date fair values and are summarized in the table below (in thousands).


			Initial
	As recorded		Fair value		Subsequent		As recorded
	by SCB		adjustments		Adjustments		by the Company
Assets:
Cash & cash equivalents	$	84,313	$	—	$	—	$	84,313
Investment securities available-for-sale		64,219		(614)		—		63,605
Restricted investments		533		—		—		533
Loans		304,620		(4,551)		(3,049)		297,020
Allowance for loan losses		(3,644)		3,644		—		—
Premises and equipment, net		15,579		(295)		(22)		15,262
Bank owned life insurance		7,116		—		—		7,116
Deferred tax asset, net		10,340		(4,007)		769		7,102
Core deposit intangible		—		1,550		—		1,550
Interest Receivable		884		—		—		884
Other assets		920		(272)		(533)		115
Total assets acquired	$	484,880	$	(4,545)	$	(2,835)	$	477,500

Liabilities:
Deposits	$	435,036	$	—	$	—	$	435,036
Time deposit premium		—		888		—		888
Subordinated debt		2,500		—		—		2,500
Payables and other liabilities		5,563		115		(1,254)		4,424
Total liabilities assumed		443,099		1,003		(1,254)		442,848
Excess of assets acquired over liabilities assumed	$	41,781
Aggregate fair value adjustments			$	(5,548)	$	(1,581)
Total identifiable net assets								34,652
Consideration transferred:
Cash								9,568
Common stock issued (1,692,168 shares)								42,255
Total fair value of consideration transferred								51,823

Goodwill							$	17,171

The following table presents additional information related to the purchased credit impaired loans (ASC 310-30) of the acquired loan portfolio at the acquisition date (in thousands):


	September 1, 2021
Accounted for pursuant to ASC 310-30:
Contractually required principal and interest	$	30,293
Non-accretable differences		7,609
Cash flows expected to be collected		22,684
Accretable yield		3,552
Fair value	$	19,132

Fountain Leasing, LLC

On May 3, 2021, the Company completed the acquisition of Fountain Leasing, LLC, a Tennessee limited liability company, pursuant to the Purchase Agreement (the “Purchase Agreement”), dated May 2, 2021, by and among the Bank and the members of Fountain Leasing, LLC. Following the closing of the acquisition, on May 4, 2021, the Company changed the name of Fountain Leasing, LLC to Fountain Equipment Finance, LLC (“Fountain”).

In connection with the acquisition, the Company acquired $54.1 million of assets and assumed $683 thousand of liabilities. Pursuant to the Purchase Agreement, the Company paid an aggregate amount of consideration to the Fountain members of $14.0 million in cash at closing, and the Company repaid approximately $45.8 million of Fountain’s indebtedness. In addition to the closing consideration, the Purchase Agreement contains a performance-based earnout, pursuant to which the former members of Fountain could be entitled to up to $6.0 million, which is excluded from consideration pursuant to ASC 805, in future cash payments from the Company based on future results of the acquired business over various periods through December 31, 2026. This performance-based earnout was satisfied as of December 31, 2023, and no future cash payments are due. The fair value of consideration paid exceeded the fair value of the identifiable assets and liabilities

acquired and resulted in the establishment of goodwill in the amount of $2.4 million, representing the intangible value of Fountains business and reputation within the markets it served. The goodwill recognized is expected to be deductible for income tax purposes. The Company established an intangible asset related to customer relationships of $2.7 million, amortizing sum-of-the-years digits over 96 months (8 years).

The purchased assets and assumed liabilities were recorded at their acquisition date fair values and are summarized in the table below (in thousands).


	As recorded		Fair value		Subsequent		As recorded
	by Fountain		adjustments		Adjustments		by the Company
Assets:
Cash & cash equivalents	$	413	$	—	$	—	$	413
Leases		54,945		(720)		—		54,225
Allowance for lease losses		(1,796)		1,796		—		—
Customer list intangible		—		2,658		—		2,658
Other repossessed assets		319		—		—		319
Other assets		233		—		—		233
Total assets acquired	$	54,114	$	3,734	$	—	$	57,848

Liabilities:
Payables and other liabilities	$	683	$	(229)	$	—	$	454
Total liabilities assumed		683		(229)		—		454
Excess of assets acquired over liabilities assumed	$	53,431
Aggregate fair value adjustments			$	3,963	$	—
Total identifiable net assets								57,394
Consideration transferred:
Cash								59,794
Total fair value of consideration transferred								59,794

Goodwill							$	2,400

The following table presents additional information related to the purchased credit impaired financing leases (ASC 310-30) of the acquired lease portfolio at the acquisition date (in thousands):


	May 3, 2021
Accounted for pursuant to ASC 310-30:
Contractually required principal and interest	$	6,018
Non-accretable differences		447
Cash flows expected to be collected		5,571
Accretable yield		649
Fair value	$	4,922

Earnings Per Share

12 Months Ended

Dec. 31, 2023

Earnings Per Share [Abstract]

Earnings Per Share

Note 3. Earnings Per Share

Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding and dilutive common share equivalents using the treasury stock method. Dilutive common share equivalents include common shares issuable upon exercise of outstanding stock options and restricted stock. The effect from the stock options and restricted stock on incremental shares from the assumed conversions for net income per share-basic and net income per share-diluted are presented below. There were no antidilutive shares for the years ended December 31, 2023 and 2022, and 2021.

The following is a summary of the basic and diluted earnings per share computation (dollars in thousands, except share and per share data):


	2023		2022		2021
Basic earnings per share computation:
Net income available to common shareholders	$	28,593	$	43,022	$	34,790
Average common shares outstanding – basic		16,805,068		16,740,450		15,572,537
Basic earnings per share	$	1.70	$	2.57	$	2.23
Diluted earnings per share computation:
Net income available to common shareholders	$	28,593	$	43,022	$	34,790
Average common shares outstanding – basic		16,805,068		16,740,450		15,572,537
Incremental shares from assumed conversions:
Stock options and restricted stock		106,117		130,919		126,678
Average common shares outstanding - diluted		16,911,185		16,871,369		15,699,215
Diluted earnings per common share	$	1.69	$	2.55	$	2.22

Securities

12 Months Ended

Dec. 31, 2023

Securities [Abstract]

Securities

Note 4. Securities

Available-for-Sale Securities (“AFS”), which include any security for which the Company has no immediate plan to sell, but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically identified amortized cost of the individual security, are included in other income. Unrealized gains and losses are recorded, net of related income tax effects, in accumulated other comprehensive income (loss). Premiums and discounts are amortized and accreted, respectively, to interest income using the constant effective yield method over the estimated life of the security. Prepayments are anticipated for mortgage-backed and Small Business Administration (“SBA”) securities. Premiums on callable securities are amortized to their earliest call date.

Held-to-Maturity Securities (“HTM”), which include any security for which the Company has both the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the constant effective yield method over the security’s estimated life. Prepayments are anticipated for mortgage-backed and SBA securities. Premiums on callable securities are amortized to their earliest call date.

The amortized cost and fair value of securities AFS and HTM at December 31, 2023 and 2022 are summarized as follow (in thousands):


	December 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Available-for-sale:	Cost		Gains		Losses		Value
U.S. Treasury	$	84,307	$	—	$	(8,274)	$	76,033
U.S. Government-sponsored enterprises (GSEs)		46,983		1,256		(146)		48,093
Municipal securities		18,616		135		(475)		18,276
Other debt securities		36,863		93		(3,887)		33,069
Mortgage-backed securities (GSEs)		254,288		588		(21,937)		232,939
Total	$	441,057	$	2,072	$	(34,719)	$	408,410


	December 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Held-to-maturity:	Cost		Gains		Losses		Value
U.S. Treasury	$	150,066	$	—	$	(1,482)	$	148,584
U.S. Government-sponsored enterprises (GSEs)		49,336		—		(7,143)		42,193
Municipal securities		52,680		—		(6,178)		46,502
Mortgage-backed securities (GSEs)		29,154		—		(3,895)		25,259
Total	$	281,236	$	—	$	(18,698)	$	262,538


	December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Available-for-sale:	Cost		Gains		Losses		Value
U.S. Treasury	$	241,506	$	—	$	(17,853)	$	223,653
U.S. Government-sponsored enterprises (GSEs)		1,593		—		(18)		1,575
Municipal securities		19,210		17		(616)		18,611
Other debt securities		32,959		—		(2,408)		30,551
Mortgage-backed securities (GSEs)		233,948		6		(24,451)		209,503
Total	$	529,216	$	23	$	(45,346)	$	483,893


	December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Held-to-maturity:	Cost		Gains		Losses		Value
U.S. Treasury	$	150,295	$	—	$	(5,613)	$	144,682
U.S. Government-sponsored enterprises (GSEs)		50,539		—		(8,037)		42,502
Municipal securities		53,694		—		(7,550)		46,144
Mortgage-backed securities (GSEs)		31,421		—		(4,136)		27,285
Total	$	285,949	$	—	$	(25,336)	$	260,613

At December 31, 2023 and 2022, securities with a carrying value totaling approximately $358.3 million and $304.8 million, respectively, were pledged to secure public funds and securities sold under agreements to repurchase.

For the years ended December 31, 2023, 2022 and 2021, the Company recorded gross realized gains of $0, $155 thousand, and $64 thousand, and gross realized losses of $6.8 million, $11 thousand, and $19 thousand, respectively.

During the first quarter of 2022, the Company transferred $162.4 million, of AFS securities to the HTM category, reflecting the Company’s intent to hold those securities to maturity. Transfers of investment securities into the held-to-maturity category from the available-for-sale category are made at fair value at the date of transfer. The related $2.0 million of unrealized holding loss that was included in the transfer is retained in accumulated other comprehensive income, net of tax, and in the carrying value of the held-to-maturity securities. This amount will be amortized as an adjustment to interest income over the remaining life of the securities. This will offset the impact of amortization of the net premium created in the transfer. There were no gains or losses recognized as a result of this transfer.

The Company has entered into various fair value hedging transactions to mitigate the impact of changing interest rates on the fair values of available for sale securities. See Note 18 – Derivatives Financial Instruments for disclosure of the gains and losses recognized on derivative instruments and the cumulative fair value hedging adjustments to the carrying amount of the hedged securities.

The amortized cost and estimated market value of securities by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	December 31, 2023
	Amortized		Fair
Available-for-sale:	Cost		Value
Due in one year or less	$	1,410	$	1,404
Due from one year to five years		61,431		56,124
Due from five years to ten years		113,703		107,904
Due after ten years		10,225		10,039
		186,769		175,471
Mortgage-backed securities		254,288		232,939
Total	$	441,057	$	408,410

Held-to-maturity:
Due in one year or less	$	150,066	$	148,585
Due from one year to five years		750		708
Due from five years to ten years		47,493		41,032
Due after ten years		53,773		46,954
		252,082		237,279
Mortgage-backed securities		29,154		25,259
Total	$	281,236	$	262,538

The following tables present the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities available-for-sale and securities held-to-maturity have been in a continuous unrealized loss position, as of December 31, 2023 and 2022 (dollars in thousands):


	December 31, 2023
	Less than 12 Months					12 Months or Greater					Total
			Gross		Number			Gross		Number			Gross		Number
	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of
Available-for-sale:	Value		Losses		Securities	Value		Losses		Securities	Value		Losses		Securities
U.S. Treasury	$	—	$	—	—	$	76,033	$	(8,274)	9	$	76,033	$	(8,274)	9
U.S. Government-sponsored enterprises (GSEs)		9,743		(137)	3		1,482		(9)	3		11,225		(146)	6
Municipal securities		2,786		(2)	2		9,849		(473)	17		12,635		(475)	19
Other debt securities		2,986		(17)	2		29,057		(3,870)	26		32,043		(3,887)	28
Mortgage-backed securities (GSEs)		16,401		(229)	8		176,351		(21,708)	88		192,752		(21,937)	96
Total	$	31,916	$	(385)	15	$	292,772	$	(34,334)	143	$	324,688	$	(34,719)	158

	December 31, 2023
	Less than 12 Months					12 Months or Greater					Total
			Gross		Number			Gross		Number			Gross		Number
	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of
Held-to-maturity:	Value		Losses		Securities	Value		Losses		Securities	Value		Losses		Securities
U.S. Treasury	$	—	$	—	—	$	148,584	$	(1,482)	4	$	148,584	$	(1,482)	4
U.S. Government-sponsored enterprises (GSEs)		—		—	—		42,194		(7,143)	13		42,194		(7,143)	13
Municipal securities		—		—	—		46,500		(6,178)	35		46,500		(6,178)	35
Mortgage-backed securities (GSEs)		—		—	—		25,258		(3,895)	5		25,258		(3,895)	5
Total	$	—	$	—	—	$	262,536	$	(18,698)	57	$	262,536	$	(18,698)	57


	December 31, 2022
	Less than 12 Months					12 Months or Greater					Total
			Gross		Number			Gross		Number			Gross		Number
	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of
Available-for-sale:	Value		Losses		Securities	Value		Losses		Securities	Value		Losses		Securities
U.S. Treasury	$	134,414	$	(7,610)	9	$	89,239	$	(10,243)	11	$	223,653	$	(17,853)	20
U.S. Government-sponsored enterprises (GSEs)		1,266		(14)	1		309		(4)	2		1,575		(18)	3
Municipal securities		13,146		(616)	20		—		—	—		13,146		(616)	20
Other debt securities		25,044		(1,866)	20		5,506		(542)	6		30,550		(2,408)	26
Mortgage-backed securities (GSEs)		111,598		(8,968)	86		96,285		(15,483)	28		207,883		(24,451)	114
Total	$	285,468	$	(19,074)	136	$	191,339	$	(26,272)	47	$	476,807	$	(45,346)	183

	December 31, 2022
	Less than 12 Months					12 Months or Greater					Total
			Gross		Number			Gross		Number			Gross		Number
	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized		of
Held-to-maturity:	Value		Losses		Securities	Value		Losses		Securities	Value		Losses		Securities
U.S. Treasury	$	144,683	$	(5,613)	4	$	—	$	—	—	$	144,683	$	(5,613)	4
U.S. Government-sponsored enterprises (GSEs)	$	13,048	$	(2,503)	3	$	29,451	$	(5,534)	10	$	42,499	$	(8,037)	13
Municipal securities		40,770		(6,387)	28		5,375		(1,163)	7		46,145		(7,550)	35
Mortgage-backed securities (GSEs)		—		—	—		27,285		(4,136)	5		27,285		(4,136)	5
Total	$	198,501	$	(14,503)	35	$	62,111	$	(10,833)	22	$	260,612	$	(25,336)	57

For any securities classified as AFS that are in an unrealized loss position at the balance sheet date, the Company assesses whether it intends to sell the security, or more likely than not will be required to sell the security before recovery of its amortized cost basis which would require a write-down to fair value through net income. Because the Company currently

does not intend to sell those AFS securities that have an unrealized loss at December 31, 2023, and it is not likely that they we will be required to sell the securities before recovery of their amortized cost bases, which may be maturity, the Company has determined that no write-down is necessary. In addition, the Company evaluates whether any portion of the decline in fair value of AFS securities is the result of credit deterioration, which would require the recognition of an allowance for credit losses. The unrealized losses associated with AFS securities at December 31, 2023, are driven by changes in interest rates and are not due to the credit quality of the securities, and accordingly, no allowance for credit losses is considered necessary related to AFS securities at December 31, 2023. Management evaluates the financial performance of the issuers on a quarterly basis to determine if it is probable that the issuers can make all contractual principal and interest payments.

The unrealized losses in the Company’s HTM portfolio were caused by changes in the interest rate environment. The Company has a zero-loss expectation for its U.S. treasury securities in addition to U.S. Government-sponsored enterprises (GSEs) and mortgage-backed securities (GSEs), and accordingly, no allowance for credit losses is estimated for these securities. The HTM state and municipal securities are general obligation bonds which have a very low historical default rate due to issuers generally having unlimited taxing authority to service the debt. All debt securities in an unrealized loss position as of December 31, 2023, continue to perform as scheduled and we do not believe there is a credit loss or a provision for credit losses is necessary.

The Company utilizes bond credit ratings assigned by third party ratings agencies to monitor the credit quality of debt securities held-to-maturity. At December 31, 2023, all debt securities classified as held-to-maturity were rated AA- or higher by the ratings agencies. Updated credit ratings are obtained as they become available from the ratings agencies.

Allowance for Credit Losses:

The Company adopted ASU 2016-13 on January 1, 2023, and based on the analysis of the underlying risk characteristics of its AFS and HTM portfolios, including credit ratings and other qualitative factors, there was no provision for credit losses related to AFS or HTM securities recorded during the year ended December 31, 2023, because the ACL was deemed immaterial.

Other Investments:

Our other investments consist of restricted non-marketable equity securities that have no readily determinable market value. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. As of December 31, 2023, the Company determined that there was no impairment on its other investment securities.

The following is the amortized cost and carrying value of other investments (in thousands):


	December 31,		December 31,
	2023		2022
Federal Reserve Bank stock	$	9,526	$	9,783
Federal Home Loan Bank stock		3,786		5,397
First National Bankers Bank stock		350		350
Total	$	13,662	$	15,530

Loans and Leases and Allowance for Credit Losses

12 Months Ended

Dec. 31, 2023

Receivables [Abstract]

Loans and Leases and Allowance for Credit Losses

Note 5. Loans and Leases and Allowance for Credit Losses

Portfolio Segmentation:

Major categories of loans and leases are summarized as follows (in thousands):


	December 31,		December 31,
	2023		2022
Commercial real estate	$	1,739,205	$	1,627,761
Consumer real estate		649,867		587,977
Construction and land development		327,185		402,501
Commercial and industrial		645,918		551,867
Leases		68,752		67,427
Consumer and other		13,535		16,094
Total loans and leases		3,444,462		3,253,627
Less: Allowance for credit losses		(35,066)		(23,334)
Loans and leases, net	$	3,409,396	$	3,230,293

The loan and lease portfolio is disaggregated into segments. There are six loan and lease portfolio segments that include commercial real estate, consumer real estate, construction and land development, commercial and industrial, leases, and consumer and other.

The following describe risk characteristics relevant to each of the portfolio segments:

Commercial Real Estate: Commercial real estate loans include owner-occupied commercial real estate loans and loans secured by income-producing properties. Owner-occupied commercial real estate loans to operating businesses are long-term financing of land and buildings. These loans are repaid by cash flow generated from the business operation. Real estate loans for income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Consumer Real Estate: Consumer real estate loans include real estate loans secured by first liens, second liens, or open end real estate loans, such as home equity lines. These are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Construction and Land Development: Loans for real estate construction and development are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Commercial and Industrial: The commercial and industrial loan portfolio segment includes commercial and financial loans. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the customers’ business operations.

Leases: The lease portfolio segment includes leases to small and mid-size companies for equipment financing leases. These leases are secured by a secured interest in the equipment being leased.

Consumer and Other: The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans, and educational loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures.

The Bank occasionally enters into loan participation agreements with other banks in the ordinary course of business to diversify credit risk. 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. GAAP requires the participated portion of these loans to be recorded as secured borrowings. The participated portions of these loans are included in the Commercial Real Estate totals above with a corresponding liability reflected in other borrowings. At December 31, 2023, and 2022, the total participated portions of loans of this nature totaled $0 and $24.6 million, respectively.

Allowance for credit losses:

As described in Note 1 - Summary of Significant Accounting Policies, the Company adopted ASU 2016-13 on January 1, 2023.

The following tables detail the changes in the allowance for credit losses by loan and lease classification (in thousands):


	Year Ended December 31, 2023
			Consumer		Construction		Commercial
	Commercial		Real		and Land		and				Consumer
	Real Estate		Estate		Development		Industrial		Leases		and Other		Total
Beginning balance	$	10,821	$	4,028	$	3,059	$	3,997	$	1,293	$	136	$	23,334
Impact of adopting ASU 2016-13		879		1,952		2,145		1,451		(683)		13		5,757
PCD gross up		2,652		166		25		27		28		—		2,898
Charged-off loans and leases		—		(9)		—		(584)		(345)		(425)		(1,363)
Recoveries of charge-offs		6		53		25		396		—		205		685
Provision charged to expense ⁽¹⁾		906		1,059		(380)		1,637		347		186		3,755
Ending balance	$	15,264	$	7,249	$	4,874	$	6,924	$	640	$	115	$	35,066

(1)

In the provision charged to expense there was a release of $726 thousand for unfunded commitments through the provision for credit losses not reflected in the year ended December 31, 2023.


	Year Ended December 31, 2022
			Consumer		Construction		Commercial
	Commercial		Real		and Land		and				Consumer
	Real Estate		Estate		Development		Industrial		Leases		and Other		Total
Beginning balance	$	9,781	$	3,454	$	1,882	$	3,781	$	330	$	124	$	19,352
Charged-off loans and leases		—		(33)		—		(307)		(110)		(744)		(1,194)
Recoveries of charge-offs		6		564		—		184		194		210		1,158
Provision charged to expense		1,034		43		1,177		339		879		546		4,018
Ending balance	$	10,821	$	4,028	$	3,059	$	3,997	$	1,293	$	136	$	23,334


	Year Ended December 31, 2021
			Consumer		Construction		Commercial
	Commercial		Real		and Land		and				Consumer
	Real Estate		Estate		Development		Industrial		Leases		and Other		Total
Beginning balance	$	7,579	$	3,471	$	2,076	$	5,107	$	—	$	113	$	18,346
Charged-off loans and leases		—		(67)		—		(298)		(166)		(482)		(1,013)
Recoveries of charge-offs		83		39		—		25		41		198		386
Provision charged to expense		2,119		11		(194)		(1,053)		455		295		1,633
Ending balance	$	9,781	$	3,454	$	1,882	$	3,781	$	330	$	124	$	19,352

The following tables detail the allowance for credit losses and recorded investment in loans by loan classification and by impairment evaluation method as of December 31, 2022, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13 (in thousands):


					Construction		Commercial				Consumer
	Commercial		Consumer		and Land		and				and
	Real Estate		Real Estate		Development		Industrial		Leases		Other		Total
December 31, 2022:
Performing loans and leases	$	10,815	$	3,913	$	2,674	$	3,997	$	1,293	$	136	$	22,828
Impaired loans and leases		—		—		385		—		—		—		385
		10,815		3,913		3,059		3,997		1,293		136		23,213
PCI loans and leases		6		115		—		—		—		—		121
Total allowance for loans and leases	$	10,821	$	4,028	$	3,059	$	3,997	$	1,293	$	136	$	23,334


					Construction		Commercial
	Commercial		Consumer		and Land		and				Consumer
	Real Estate		Real Estate		Development		Industrial		Leases		and Other		Total
December 31, 2022:
Performing loans and leases	$	1,611,815	$	578,342	$	400,114	$	549,974	$	66,459	$	16,091	$	3,222,795
Impaired loans and leases		—		1,283		858		—		—		—		2,141
		1,611,815		579,625		400,972		549,974		66,459		16,091		3,224,936
PCI loans and leases		15,946		8,352		1,529		1,893		968		3		28,691
Total loans and leases	$	1,627,761	$	587,977	$	402,501	$	551,867	$	67,427	$	16,094	$	3,253,627

We maintain the allowance for credit losses at a level that we deem appropriate to adequately cover the expected credit loss in the loan and lease portfolio. Our provision for loan and lease losses for the years ended December 31, 2023, 2022 and 2021, were $3.8 million, $4.0 million and $1.6 million, respectively. As of December 31, 2023, and 2022, our allowance for credit losses was $35.1 million and $23.3 million, respectively, which we deemed to be adequate at each of the respective dates. Our allowance for credit losses as a percentage of total loans was 1.02% at December 31, 2023 and 0.72% at December 31, 2022.

Credit Risk Management:

The Company employs a credit risk management process with defined policies, accountability and routine reporting to manage credit risk in the loan and lease portfolio segments. Credit risk management is guided by credit policies that provide for a consistent and prudent approach to underwriting and approvals of credits. 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.

Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lies in each portfolio segment. For the consumer real estate and consumer and other portfolio segments, the risk management process focuses on managing customers who become delinquent in their payments. For the other portfolio segments, the risk management process focuses on underwriting new business and, on an ongoing basis, monitoring the credit of the portfolios, including a third party review of the largest credits on an annual basis or more frequently, as needed. To ensure problem credits are identified on a timely basis, several specific portfolio reviews occur periodically to assess the larger adversely rated credits for proper risk rating and accrual status.

Credit quality and trends in the loan and lease portfolio segments are measured and monitored regularly. Detailed reports (e.g., by product, collateral, accrual status) are reviewed by director, management and loan committees.

A description of the general characteristics of the risk grades used by the Company is as follows:

Pass: Loans and leases in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan and lease obligations. Loans and leases in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the debt if required, for any weakness that may exist.

Watch: Loans and leases in this risk category involve borrowers that exhibit characteristics, or are operating under conditions that, if not successfully mitigated as planned, have a reasonable risk of resulting in a downgrade within the next six to twelve months. Loans and leases may remain in this risk category for six months and then are either upgraded or downgraded upon subsequent evaluation.

Special Mention: Loans and leases in this risk grade are the equivalent of the regulatory definition of "Other Assets Especially Mentioned" classification. Loans and leases in this category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and /or reliance on the secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the asset or in the Company’s credit position.

Substandard: Loans and leases in this risk grade are inadequately protected by the borrower’s current financial condition and payment capability or of the collateral pledged, if any. Loans and leases so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans and leases in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimated loss is deferred until its more exact status may be determined.

Uncollectible: Loans and leases in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan or lease has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan or lease, even though partial recovery may be obtained in the future. Charge-offs against the allowance for loan and lease losses are taken in the period in which the loan or lease becomes uncollectible. Consequently, the Company typically does not maintain a recorded investment in loans or leases within this category.

The Company evaluates the loan risk grading system definitions and allowance for credit loss methodology on an ongoing basis. There were no changes to these subsequent to adoption ASU 2016-13 on January 1, 2023.

The following tables outline the amount of each loan and lease classification and the amount categorized into each risk rating based on year of origination (in thousands):


	December 31, 2023
	Loans Amortized Cost Basis by Origination Year
															Revolving
															Loans
													Revolving		Converted
	2023		2022		2021		2020		2019		Prior		Loans		to Term		Total
Commercial real estate
Pass	$	237,110	$	578,227	$	433,505	$	181,374	$	134,495	$	106,315	$	15,132	$	6,690	$	1,692,848
Watch		22,295		1,267		1,950		921		4,426		2,926		-		3,500		37,285
Special mention		-		3,215		-		-		-		-		-		-		3,215
Substandard		903		-		3,932		310		282		430		-		-		5,857
Doubtful		-		-		-		-		-		-		-		-		-
Total commercial real estate		260,308		582,709		439,387		182,605		139,203		109,671		15,132		10,190		1,739,205
YTD gross charge-offs		-		-		-		-		-		-		-		-		-

Consumer real estate
Pass		123,203		174,755		98,460		53,688		33,598		48,378		107,949		3,026		643,057
Watch		171		-		258		116		-		55		1,581		-		2,181
Special mention		-		-		-		-		-		53		-		-		53
Substandard		196		824		176		253		164		2,850		113		-		4,576
Doubtful		-		-		-		-		-		-		-		-		-
Total consumer real estate		123,570		175,579		98,894		54,057		33,762		51,336		109,643		3,026		649,867
YTD gross charge-offs		-		-		-		-		-		(9)		-		-		(9)

Construction and land development
Pass		113,752		115,032		23,823		2,749		5,056		6,595		40,667		7,489		315,163
Watch		6,670		3,233		607		-		-		1		-		-		10,511
Special mention		437		-		-		-		-		-		-		-		437
Substandard		-		-		35		620		-		419		-		-		1,074
Doubtful		-		-		-		-		-		-		-		-		-
Total construction and land development		120,859		118,265		24,465		3,369		5,056		7,015		40,667		7,489		327,185
YTD gross charge-offs		-		-		-		-		-		-		-		-		-

Commercial and industrial
Pass		168,957		162,799		62,796		22,639		9,135		25,207		185,619		7,270		644,422
Watch		54		15		13		-		-		-		120		83		285
Special mention		-		-		-		-		-		-		-		-		-
Substandard		193		614		200		129		75		-		-		-		1,211
Doubtful		-		-		-		-		-		-		-		-		-
Total commercial and industrial		169,204		163,428		63,009		22,768		9,210		25,207		185,739		7,353		645,918
YTD gross charge-offs		(75)		(274)		(50)		(183)		-		-		(2)		-		(584)

Leases
Pass		28,922		26,658		8,658		3,603		703		208		-		-		68,752
Watch		-		-		-		-		-		-		-		-		-
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total leases		28,922		26,658		8,658		3,603		703		208		-		-		68,752
YTD gross charge-offs		(122)		(193)		(18)		-		(12)		-		-		-		(345)

Consumer and other
Pass		5,926		2,049		841		373		132		206		3,931		67		13,525
Watch		-		-		-		-		10		-		-		-		10
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total consumer and other		5,926		2,049		841		373		142		206		3,931		67		13,535
YTD gross charge-offs		(40)		(135)		(74)		(54)		(33)		(89)		-		-		(425)

Total loans
Pass		677,870		1,059,520		628,083		264,426		183,119		186,909		353,298		24,542		3,377,767
Watch		29,190		4,515		2,828		1,037		4,436		2,982		1,701		3,583		50,272
Special mention		437		3,215		-		-		-		53		-		-		3,705
Substandard		1,292		1,438		4,343		1,312		521		3,699		113		-		12,718
Doubtful		-		-		-		-		-		-		-		-		-
Total loans	$	708,789	$	1,068,688	$	635,254	$	266,775	$	188,076	$	193,643	$	355,112	$	28,125	$	3,444,462
Total YTD gross charge-offs	$	(237)	$	(602)	$	(142)	$	(237)	$	(45)	$	(98)	$	(2)	$	-	$	(1,363)

The following tables outline the amount of each loan and lease classification and the amount categorized into each risk rating as of December 31, 2022, prior to the adoption of ASU 2016-13 (in thousands):


	December 31, 2022
					Construction		Commercial
	Commercial		Consumer		and Land		and				Consumer
Non PCI Loans and Leases:	Real Estate		Real Estate		Development		Industrial		Leases		and Other		Total
Pass	$	1,579,387	$	576,428	$	399,846	$	545,210	$	66,459	$	16,057	$	3,183,387
Watch		29,810		1,496		224		4,523		—		19		36,072
Special mention		2,539		35		—		61		—		—		2,635
Substandard		79		1,666		902		180		—		15		2,842
Doubtful		—		—		—		—		—		—		—
Total		1,611,815		579,625		400,972		549,974		66,459		16,091		3,224,936

PCI Loans and Leases:
Pass		11,924		6,927		1,054		1,893		968		3		22,769
Watch		1,439		188		46		—		—		—		1,673
Special mention		11		54		—		—		—		—		65
Substandard		2,572		1,183		429		—		—		—		4,184
Doubtful		—		—		—		—		—		—		—
Total		15,946		8,352		1,529		1,893		968		3		28,691
Total loans and leases	$	1,627,761	$	587,977	$	402,501	$	551,867	$	67,427	$	16,094	$	3,253,627

Past Due Loans and Leases:

A loan or lease is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. Generally, management places a loan or lease on nonaccrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due.

The following tables present an aging analysis of our loan and lease portfolio (in thousands):


	December 31, 2023
					90 Days
	30-59 Days		60-89 Days		or More		Total		Loans Not		Total
	Past Due		Past Due		Past Due		Past Due		Past Due		Loans
Commercial real estate	$	52	$	270	$	1,660	$	1,982	$	1,737,223	$	1,739,205
Consumer real estate		2,216		1,347		561		4,124		645,743		649,867
Construction and land development		631		—		620		1,251		325,934		327,185
Commercial and industrial		956		330		2,286		3,572		642,346		645,918
Leases		1,208		132		212		1,552		67,200		68,752
Consumer and other		80		9		98		187		13,348		13,535
Total	$	5,143	$	2,088	$	5,437	$	12,668	$	3,431,794	$	3,444,462


	December 31, 2022
					90 Days
	30-59 Days		60-89 Days		or More		Total		Loans Not		Total
	Past Due		Past Due		Past Due		Past Due		Past Due		Loans
Commercial real estate	$	54	$	—	$	—	$	54	$	1,627,707		1,627,761
Consumer real estate		731		—		108		839		587,138		587,977
Construction and land development		—		—		920		920		401,581		402,501
Commercial and industrial		185		18		180		383		551,484		551,867
Leases		1,024		84		170		1,278		66,149		67,427
Consumer and other		103		10		9		122		15,972		16,094
Total	$	2,097	$	112	$	1,387	$	3,596	$	3,250,031	$	3,253,627

The table below presents the amortized cost basis of loans on nonaccrual status and loans past due 90 or more days and still accruing interest at December 31, 2023, and 2022. Also presented is the balance of loans on nonaccrual status at December 31, 2023, for which there was no related allowance for credit losses recorded (in thousands):


	December 31, 2023						December 31, 2022
	Total		Nonaccrual		Loans Past Due		Total		Loans Past Due
	Nonaccrual		With No Allowance		Over 90 Days		Nonaccrual		Over 90 Days
	Loans		for Credit Losses		Still Accruing		Loans		Still Accruing
Commercial real estate	$	2,044	$	1,352	$	—	$	—	$	—
Consumer real estate		2,647		1,562		—		1,665		—
Construction and land development		620		—		—		920		—
Commercial and industrial		2,480		160		—		180		—
Leases		140		—		72		28		143
Consumer and other		—		—		98		15		—
Total	$	7,931	$	3,074	$	170	$	2,808	$	143

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses (in thousands):


	December 31, 2023
	Real Estate		Other		Total
Commercial real estate	$	5,155	$	—	$	5,155
Consumer real estate		2,756		—		2,756
Construction and land development		1,411		—		1,411
Commercial and industrial		—		1,018		1,018
Leases		—		—		—
Consumer and other		—		—		—
Total	$	9,322	$	1,018	$	10,340

Impaired Loans and Leases:

The following table presents impaired loans at December 31, 2022, as determined under ASC 310 prior to the adoption of ASU 2016-13. A loan or lease held for investment is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both principal and interest) according to the terms of the loan or lease agreement. Presented are the recorded investment, unpaid principal balance and related allowance of impaired loans at December 31, 2022, by loan classification (in thousands):


	December 31, 2022
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
Impaired loans and leases without a valuation allowance:
Commercial real estate	$	—	$	—	$	—
Consumer real estate		1,283		1,282		—
Construction and land development		—		—		—
Commercial and industrial		—		—		—
Leases		—		—		—
Consumer and other		—		—		—
		1,283		1,282		—
Impaired loans and leases with a valuation allowance:
Commercial real estate		—		—		—
Consumer real estate		—		—		—
Construction and land development		858		858		385
Commercial and industrial		—		—		—
Leases		—		—		—
Consumer and other		—		—		—
		858		858		385
PCI loans and leases:
Commercial real estate		500		580		6
Consumer real estate		684		646		115
Construction and land development		—		—		—
Commercial and industrial		—		—		—
Leases		—		—		—
Consumer and other		—		—		—
		1,184		1,226		121
Total impaired loans and leases	$	3,325	$	3,366	$	506

The following table details the average recorded investment and the amount of interest income recognized on a cash basis for the years ended December 31, 2022 and 2021, respectively, of impaired loans by loan classification as determined under ASC 310 prior to the adoption of ASU 2016-13 (in thousands):


	Year Ended December 31,
	2022				2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans and leases without a valuation allowance:
Commercial real estate	$	122	$	—	$	800	$	1
Consumer real estate		1,728		94		1,783		78
Construction and land development		—		—		—		—
Commercial and industrial		—		—		—		—
Leases				—		—		—
Consumer and other		—		—		—		—
		1,850		94		2,583		79
Impaired loans and leases with a valuation allowance:
Commercial real estate		343		—		1,145		104
Consumer real estate		52		—		334		14
Construction and land development		515		—		—		—
Commercial and industrial		19		—		132		8
Leases		—		—		—		—
Consumer and other		—		—		—		—
		929		—		1,611		126
PCI loans and leases:
Commercial real estate		702		57		488		42
Consumer real estate		819		50		1,140		83
Construction and land development		—		—		—		—
Commercial and industrial		—		—		197		3
Leases		—		—		—		—
Consumer and other		2		—		13		—
		1,523		107		1,838		128
Total impaired loans and leases	$	4,302	$	201	$	6,032	$	333

Loan Modifications to Borrowers Experiencing Financial Difficulty:

From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty. In some cases, these modifications may result in forbearance agreements. Loan modifications to borrowers experiencing financial difficulty may be in the form of a principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination thereof, among other things.

The Company adopted ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

The table below shows the amortized cost of loans and leases made to borrowers experiencing financial difficulty that were modified during the year ended December 31, 2023 (dollars in thousands):


					Payment Delay				Total Class
	Payment		Term		and Term				of Financing
Year ended December 31, 2023	Delay		Extension		Extension		Total		Receivable
Commercial real estate	$	386	$	2,530	$	—	$	2,916	0.17	%
Consumer real estate		—		446		—		446	0.07
Construction and land development		—		690		—		690	0.21
Commercial and industrial		57		—		136		193	0.03
Leases		—		—		—		—	-
Consumer and other		—		—		—		—	-
Total	$	443	$	3,666	$	136	$	4,245	0.12	%

The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty for the year ended December 31, 2023 (dollars in thousands):


	Weighted-Average
	Term		Weighted-Average
	Extension		Total Payment
Year ended December 31, 2023	(in months)		Delay
Commercial real estate		10	$	22
Consumer real estate		16		—
Construction and land development		8		—
Commercial and industrial		30		6
Leases		—		—
Consumer and other		—		—

No loan modifications made to borrowers experiencing financial difficulty defaulted after modification during the year ended December 31, 2023.

The table below shows an age analysis of loans and leases made to borrowers experiencing financial difficulty that were modified on or after January 1, 2023, that date the Company adopted ASU 2022-02 (in thousands):


	December 31, 2023
					90 Days
			30-89 Days		or More
	Current		Past Due		Past Due		Nonaccrual		Total
Commercial real estate	$	2,530	$	—	$	—	$	386	$	2,916
Consumer real estate		446		—		—		—		446
Construction and land development		690		—		—		—		690
Commercial and industrial		—		—		—		193		193
Leases		—		—		—		—		—
Consumer and other		—		—		—		—		—
Total	$	3,666	$	—	$	—	$	579	$	4,245

As of December 31, 2022, prior to the adoption ASU 2022-02, management had approximately $101 thousand that meet the criteria of TDR, none of which were on nonaccrual.

Foreclosure Proceedings and Balances:

As of December 31, 2023, there were two residential real estate properties totaling $279 thousand in which physical possession had been obtained and included within other real estate owned assets and one property for $281 thousand at December 31, 2022. There were two residential real estate loans totaling $1.2 million in the process of foreclosure at December 31, 2023, and one for $33 thousand at December 31, 2022.

Related Party Loans:

In the ordinary course of business, the Company has granted loans to certain related interests, including directors, executive officers, and their affiliates (collectively referred to as "related parties"). Such loans are made in the ordinary course of business and on substantially the same terms as those for comparable transactions prevailing at the time and do not present other unfavorable features. A summary of activity in loans to related parties is as follows (in thousands):


	2023		2022
Balance, beginning of year	$	14,246	$	13,970
Additions		8,653		3,162
Repayments		(2,063)		(2,886)
Balance, end of year	$	20,836	$	14,246

At December 31, 2023, the Company had pre-approved but unused lines of credit totaling approximately $8.9 million to related parties.

Premises and Equipment

12 Months Ended

Dec. 31, 2023

Property, Plant and Equipment [Abstract]

Premises and Equipment

Note 6. Premises and Equipment

A summary of premises and equipment at December 31, is as follows (in thousands):


	Useful Life	2023		2022
Land and land improvements	Indefinite	$	21,403	$	21,654
Building and leasehold improvements	15-40 years		71,582		69,276
Furniture, fixtures and equipment	3-7 years		24,301		24,601
Construction in progress			2,269		1,762
Total, gross			119,555		117,293
Accumulated depreciation			(26,592)		(24,782)
Total, net		$	92,963	$	92,511

At December 31, 2023 management estimates the cost necessary to complete the construction in progress will be approximately $2.4 million.

Depreciation and amortization expense relating to premises and equipment was $5.1 million, $4.7 million and $4.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Note 7. Goodwill and Intangible Assets

Goodwill and Intangible Assets:

In accordance with FASB ASC 350, Goodwill and Other, regarding testing goodwill for impairment provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company performs its annual goodwill impairment test as of December 31 of each year, but considering the economic conditions in 2023, the Company performed a Step 1 goodwill impairment test during the second quarter of 2023 (which compares the fair value of a reporting unit with its carrying amount, including goodwill), and the results indicated that there was no impairment. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes.

The Company’s other intangible assets consist of core deposit intangibles, insurance agency customer relationships and insurance agency tradename. They are initially recognized based on a valuation performed as of the consummation date. The core deposit intangible is amortized over the average remaining life of the acquired customer deposits, the insurance agency customer relationships are amortized over 14 years and the insurance agency tradename is amortized over five years.

The carrying amount of goodwill and other intangible assets as of the dates indicated is summarized below (in thousands):


	December 31,		December 31,
	2023		2022
Goodwill:
Balance, beginning of period	$	96,145	$	91,565
Acquisition of Sunbelt		—		4,580
Balance, end of the period	$	96,145	$	96,145


	Core Deposit		Customer Relationships		Tradename
Amortized other intangible assets:	Intangibles		Intangibles		Intangibles		Total
December 31, 2023:
Beginning balance January 1, 2023, gross	$	17,470	$	5,670	$	63	$	23,203
Less: accumulated amortization		(9,758)		(2,379)		(63)		(12,200)
Balance, December 31, 2023, other intangible assets, net	$	7,712	$	3,291	$	-	$	11,003

December 31, 2022:
Beginning balance January 1, 2022, gross	$	17,470	$	3,722	$	63	$	21,255
Acquisition of Sunbelt		-		1,948		-		1,948
Balance, December 31, 2022, other intangible assets, gross		17,470		5,670		63		23,203
Less: accumulated amortization		(8,021)		(1,519)		(36)		(9,576)
Balance, December 31, 2022, other intangible assets, net	$	9,449	$	4,151	$	27	$	13,627

The aggregate amortization expense for other intangibles assets for the years ended December 31, 2023, 2022, was $2.6 million, respectively, and for the year ended December 31, 2021, was $2.3 million.

The estimated aggregate amortization expense for future periods for other intangible assets is as follows (in thousands):


2024	$	2,425
2025		2,256
2026		2,086
2027		1,904
2028		1,139
Thereafter		1,193
Total	$	11,003

Deposits

12 Months Ended

Dec. 31, 2023

Deposits [Abstract]

Deposits

Note 8. Deposits

The aggregate amount of time deposits in denominations of $250,000 or more was $225.7 million and $147.2 million at December 31, 2023 and 2022, respectively. At December 31, 2023, the scheduled maturities of time deposits are as follows (in thousands):


2024	$	474,114
2025		49,474
2026		10,018
2027		9,192
2028		7,670
Thereafter		—
Total	$	550,468

As of December 31, 2023, and 2022, there was a fair value adjustment of $106 thousand and $239 thousand, respectively, to time deposits as a result of business combinations.

From time to time, the Company engages in deposit transactions with its directors, executive officers and their related interests (collectively referred to as "related parties"). Such deposits are made in the ordinary course of business and on substantially the same terms as those for comparable transactions prevailing at the time and do not present other unfavorable features. The total amount of related party deposits was $85.0 million and $23.2 million at December 31, 2023 and 2022, respectively.

Borrowings and Line of Credit

12 Months Ended

Dec. 31, 2023

Borrowings and Line of Credit [Abstract]

Borrowings and Line of Credit

Note 9. Borrowings and Line of Credit

Securities Sold Under Agreements to Repurchase:

Securities sold under repurchase agreements, which are secured borrowings, generally mature within one to four days from the transaction date. Securities sold under repurchase agreements are reflected at the amount of cash received in connection with the transaction. The Company may be required to provide additional collateral based on the fair value of the underlying securities. The Company monitors the fair value of the underlying securities on a daily basis.

At December 31, 2023 and 2022, the Company had securities sold under agreements to repurchase of $5.1 million and $4.8 million, respectively, with commercial checking customers which were secured by government agency securities. The average balance for 2023 and 2022 was $5.1 million and $5.4 million, respectively. The maximum month-end outstanding balance for 2023 and 2022 was $6.1 million and $5.9 million, respectively. The carrying value of investment securities pledged as collateral under repurchase agreements was $7.6 million and $9.2 million at December 31, 2023 and December 31, 2022, respectively.

Federal Reserve Bank:

The Bank has agreements with the Federal Reserve Bank’s discount window to provide additional funding to the Bank. The Federal Reserve discount window line is collateralized by a pool of commercial real estate loans and commercial and industrial loans.

At December 31, 2023 and 2022, the funding capacity and loans secured for borrowings was as follows (in thousands):


	2023		2022
Maximum funding capacity	$	283,048	$	74,054
Borrowings		—		—
Additional funding capacity	$	283,048	$	74,054
Loans pledged for borrowings	$	379,827	$	99,728

Federal Home Loan Bank Advances:

The Bank has agreements with the Federal Home Loan Bank of Cincinnati ("FHLB") that can provide advances to the Bank. All of the advances are secured by a blanket lien on qualifying first mortgages on 1-4 family residential and commercial properties and are pledged as collateral for these advances. There were no securities pledged to FHLB at December 31, 2023 and 2022.

At December 31, 2023 and 2022, the borrowing capacity and loans secured for advances was as follows (in thousands):


	2023		2022
Maximum borrowing capacity	$	573,888	$	593,759
FHLB advances		—		—
Standby letters of credit		(103,982)		(3,981)
Additional borrowing capacity	$	469,906	$	589,778
Loans pledged for advances	$	809,707	$	777,480

The Company had no FHLB advances as of December 31, 2023, and 2022, respectively.

Federal Funds Purchased:

There were no federal funds purchased as of December 31, 2023, and 2022 respectively.

Line of Credit:

The Company has a revolving line of credit for an aggregate amount of $35.0 million at December 31, 2023. During 2023 the revolving line of credit was increased by $10 million from $25 million at December 31, 2022, and the maturity was extended to February 1, 2025. At December 31, 2023, and 2022, $8.0 million and $12.5 million, respectively, was outstanding under the line of credit.

Secured Borrowings:

The Bank occasionally enters into loan participation agreements with other banks in the ordinary course of business to diversify credit risk. 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. GAAP requires the participated portion of these loans to be recorded as secured borrowings. The participated portions of these loans are included in the Commercial Real Estate totals above with a corresponding liability reflected in other borrowings. At December 31, 2023 and 2022, the balance of such loans totaled $0 and $24.6 million, respectively.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 470
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 1B
-Subparagraph (h)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481139/470-20-50-1B

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 235
-SubTopic 10
-Name Accounting Standards Codification
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(c))
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480678/235-10-S99-1

Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef
-Topic 470
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org//470/tableOfContent

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Topic 470
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 1B
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481139/470-20-50-1B

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Topic 470
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 1B
-Subparagraph (g)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481139/470-20-50-1B

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Topic 470
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 1B
-Subparagraph (i)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481139/470-20-50-1B

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Topic 470
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 1C
-Subparagraph (a)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481139/470-20-50-1C

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Topic 470
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 1C
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481139/470-20-50-1C

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Topic 470
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 1C
-Subparagraph (c)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481139/470-20-50-1C

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Topic 470
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 1E
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481139/470-20-50-1E

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Topic 470
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 1I
-Subparagraph (a)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481139/470-20-50-1I

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Topic 470
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 1I
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481139/470-20-50-1I

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Topic 470
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 1I
-Subparagraph (d)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147481139/470-20-50-1I

+ Details

Subordinated debt

12 Months Ended

Dec. 31, 2023

Subordinated debt [Abstract]

Subordinated debt

Note 10. Subordinated Debt

On September 28, 2018, the Company issued $40 million of 5.625% fixed-to-floating rate subordinated notes (the "Notes"), which was outstanding as of December 31, 2023 and 2022. Unamortized debt issuance cost was $401 thousand and $485 thousand at December 31, 2023 and 2022, respectively.

The Notes initially bears interest at a rate of 5.625% per annum from and including September 28, 2018, to but excluding October 2, 2023, with interest during this period payable semi-annually in arrears. On October 2, 2023, to but excluding the maturity date or early redemption date, the interest rate will, with the sunset of LIBOR, reset quarterly to an annual floating rate equal to three-month CME Term SOFR, plus 281.161 basis points, with interest during this period payable quarterly in arrears. The reset on October 2, 2023, resulted in the Notes bearing interest at a rate of 8.20642% per annum. The Notes are redeemable by the Company, in whole or in part, on or after October 2, 2023, and at any time, in whole but not in part, upon the occurrence of certain events. The Notes have been structured to qualify initially as Tier 2 capital for the Company for regulatory capital purposes.

The Notes debt issuance costs totaled $844 thousand and will be amortized through the Notes’ maturity date. Amortization expense totaled $84 thousand for each of the years ended December 31, 2023, 2022 and 2021, respectively.

On September 1, 2021, the Company acquired $2.5 million of subordinated notes (“sub-debt”) from the acquisition of SCB. The sub-debt bears interest at a rate of 6.75% per annum until August 14, 2024, with the interest during this period payable semi-annually in arrears. From and including August 14, 2024, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to three-month term SOFR plus transition spread of 261.61 bases points., with interest during this period payable quarterly in arrears. The sub-debt is redeemable by the Company, in whole or in part, on or after August 14, 2024, and at any time, in whole but not in part, upon the occurrence of certain events. The sub-debt has been structured to qualify initially as Tier 2 capital for the Company for regulatory capital purposes.

Leases

12 Months Ended

Dec. 31, 2023

Leases [Abstract]

Leases

Note 11. Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.

Substantially all of the leases in which the Company is the lessee are comprised of real estate for branches and office space with terms extending through 2035. All of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheet. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated balance sheet as a right-of-use (“ROU”) asset and a corresponding lease liability.

The following table represents the consolidated balance sheet classification of the Company’s ROU assets and lease liabilities. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated balance sheet (in thousands):


		December 31,		December 31,
	Classification	2023		2022
Assets:
Operating lease right-of-use assets	Other assets	$	9,894	$	9,314
Liabilities:
Operating lease liabilities	Other liabilities	$	10,303	$	9,457

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception the Company considers the

exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

As of December 31, 2023, the weighted average remaining lease term was 9.03 years and the weighted average discount rate was 2.84%.

The Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance. The following table represents lease costs and other lease information for the years ended December 31, (in thousands):


	Year Ended
	December 31,
	2023		2022		2021
Lease costs:
Operating lease costs	$	1,687	$	1,633	$	1,222
Variable lease costs		117		100		97
Total	$	1,804	$	1,733	$	1,319
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,421	$	1,562	$	1,180

Future minimum payments for operating leases with initial or remaining terms of one year or more as of December 31, 2023 were as follows (in thousands):


	Amounts
2024	$	1,488
2025		1,393
2026		1,325
2027		1,140
2028		1,135
Thereafter		5,369
Total future minimum lease payments		11,850
Amounts representing interest		(1,547)
Present value of net future minimum lease payments	$	10,303

Lease expense for the years ended December 31, 2023, 2022, and 2021, was $1.8 million, $1.7 million and $1.3 million, respectively.

The Company entered into two leasing arrangements for branch offices with companies that are wholly owned by a board of director’s immediate family. The Company has determined that these leasing arrangements were considered economically fair and in the best interest of the Company. For the years ended December 31, 2023, 2022, and 2021, the Company paid $157 thousand, $150 thousand and $150 thousand, respectively, for base rent payments.

Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 12. Income Taxes

Income tax expense in the consolidated statements of income for the years ended December 31, 2023, 2022, and 2021, includes the following (in thousands):


	2023		2022		2021
Current tax expense
Federal	$	5,632	$	10,412	$	8,031
State		692		2,029		855
Deferred tax expense related to:
Federal		1,100		(407)		405
State		209		(148)		238
Total income tax expense	$	7,633	$	11,886	$	9,529

The income tax expense is different from the expected tax expense computed by multiplying income before income tax expense by the statutory income tax rate of 21%. The reasons for this difference are as follows (in thousands):


	2023		2022		2021
Federal income tax expense computed at the statutory rate	$	7,607	$	11,531	$	9,307
State income taxes, net of federal tax benefit		712		1,486		863
Nondeductible acquisition expenses		—		1		94
Tax-exempt interest		(419)		(624)		(568)
Bank-owned life insurance		(413)		(389)		(393)
Tax benefit from stock options		(68)		(170)		(10)
Other		214		51		236
Total income tax expense	$	7,633	$	11,886	$	9,529

The components of the net deferred tax asset, which are included in Other Assets in the consolidated balance sheets, as of December 31, 2023 and 2022, were as follows (in thousands):


	2023		2022
Deferred tax assets:
Allowance for loan losses	$	9,075	$	6,033
Unfunded commitments		618		22
Fair value adjustments		1,584		3,366
Unrealized losses on investment securities		8,514		11,965
Unrealized losses on hedges		508		337
Other real estate owned		9		258
Deferred compensation		1,132		2,316
Lease liability		2,667		2,445
Federal net operating loss carryforward		4,024		4,335
Other		1,992		1,595
Total deferred tax assets		30,123		32,672
Deferred tax liabilities:
Accumulated depreciation		2,451		2,464
Core deposit intangible		1,774		2,362
Right of use asset		2,561		2,408
Other		1,031		845
Total deferred tax liabilities		7,817		8,079
Net deferred tax asset	$	22,306	$	24,593

At December 31, 2023, the Company has a federal net operating loss carryforward recorded of approximately $19.1 million acquired with the acquisition of SCB. The net operating loss is subject to Section 382 limitations. The federal net operating loss will begin to expire in 2031. The income tax returns of the Company for 2022, 2021, and 2020 are subject to examination by the federal and state taxing authorities, generally for three years after they were filed.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 13
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480990/946-20-50-13

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 235
-SubTopic 10
-Name Accounting Standards Codification
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(h)(2))
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480678/235-10-S99-1

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org//740/tableOfContent

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
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-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482685/740-10-50-14

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 21
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482685/740-10-50-21

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
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-Name Accounting Standards Codification
-Section 50
-Paragraph 1
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-URI https://asc.fasb.org//1943274/2147482526/740-270-50-1

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 17
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482685/740-10-50-17

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
-Section S99
-Paragraph 1
-Subparagraph (SAB TOPIC 6.I.5.Q1)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479360/740-10-S99-1

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
-Section S99
-Paragraph 2
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Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 30
-Name Accounting Standards Codification
-Section 50
-Paragraph 2
-Subparagraph (a)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482603/740-30-50-2

+ Details

Employee Benefit Plans

12 Months Ended

Dec. 31, 2023

Defined Benefit Plan [Abstract]

Employee Benefit Plans

Note 13. Employee Benefit Plans

401(k) Plan:

The Company provides a deferred salary reduction plan (“Plan”) under Section 401(k) of the Internal Revenue Code covering substantially all employees. After 90 days of service the Company matches 100% of employee contributions up to 3% of compensation and 50% of employee contributions on the next 2% of compensation. The Company’s contribution to the Plan for the years ended December 2023, 2022, and 2021, was $1.8 million, $1.6 million and $1.3 million, respectively.

Equity Incentive Plans:

The Compensation Committee of the Company’s Board of Directors may grant or award eligible participants stock options, restricted stock, restricted stock units, stock appreciation rights, and other stock-based awards or any combination of awards (collectively referred to herein as "Rights"). At December 31, 2023, the Company had one active equity incentive plan available for future grants, the 2015 Stock Incentive Plan, which has 1,674,663 Rights available for future grants or awards.

The Company’s 2015 Stock Incentive Plan has 11,840 Rights issued. In addition, the Company has 4,500 Rights issued from the Cornerstone Non-Qualified Plan Options, which does not have any Rights available for future grants or awards.

Stock Options:

A summary of the activity in these stock option plans is presented in the following table:


		Weighted
		Average
		Exercisable
	Number	Price
Outstanding at December 31, 2021	79,667	$	10.17
Granted	—		—
Exercised	(45,253)		8.75
Forfeited	(2,369)		11.90
Outstanding at December 31, 2022	32,045		12.04
Granted	—		—
Exercised	(15,705)		10.47
Forfeited	—		—
Outstanding at December 31, 2023	16,340		13.55

Information pertaining to options outstanding at December 31, 2023, is as follows:


		Options Outstanding				Options Exercisable
			Weighted-
			Average	Weighted-			Weighted-
			Remaining	Average			Average
Exercise		Number	Contractual	Exercise		Number	Exercise
Prices		Outstanding	Life	Price		Exercisable	Price
$	9.60	4,500	0.17 years	$	9.60	4,500	$	9.60
	15.05	11,840	1.75 years		15.05	11,840		15.05
Outstanding, end of period		16,340	1.31 years	$	13.55	16,340	$	13.55

The Company did not recognize any stock option-based compensation expense for the year ended December 31, 2023, 2022 and 2021, respectively, as all stock options are fully vested. As of December 31, 2023, all options were fully vested and currently no future compensation cost will be recognized related to nonvested stock-based compensation arrangements granted under the Plans.

The intrinsic value of options exercised during the year ended December 31, 2023 and 2022 was $242 thousand and $806 thousand, respectively. The aggregate intrinsic value of total options outstanding and exercisable options at December 31, 2023, was $179 thousand. Cash received from options exercised under all share-based payment arrangements for the period ended December 31, 2023, was $165 thousand.

No options vested during the year ended December 31, 2023, and 2022, respectively. The income tax benefit recognized for the exercise of options during the periods ended December 31, 2023, 2022, and 2021 was $55 thousand, $209 thousand, and $13 thousand, respectively.

Restricted Stock Awards:

A summary of the activity of the Company’s unvested restricted stock awards for the year ended December 31, 2023 is presented below:

The following table summarizes activity relating to non-vested restricted stock awards:


		Weighted
		Average
		Grant-Date
	Number	Fair Value
Balance at December 31, 2022	129,836	$	19.61
Granted	91,582		26.13
Vested	(33,058)		22.24
Forfeited/expired	(16,590)		23.31
Balance at December 31, 2023	171,770	$	22.22

The Company measures the fair value of restricted stock awards based on the price of the Company’s common stock on the grant date, and compensation expense is recorded over the vesting period. The compensation expense for restricted stock awards during the years ended December 31, 2023, 2022 and 2021, was $1.4 million, $1.3 million, and $693 thousand, respectively. As of December 31, 2023, there was $1.5 million of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan. The cost is expected to be recognized over a weighted average period of 1.76 years. The grant-date fair value of restricted stock awards vested was $735 thousand for the year ended December 31, 2023.

Stock Appreciation Rights ("SARs"):

When SARs are issued, they are assigned an exercisable price based on the closing stock price on the date of grant. The SARs are recorded at fair market value and adjusted through salaries and employee benefits expense. The SAR’s will be settled through cash based on the difference of Company’s closing stock price on exercise date and original grant date stock price. SARs compensation expense of ($70) thousand, $93 thousand and $256 thousand was recognized for the years ended December 31, 2023, 2022, and 2021, respectively. The credit adjustment for the year ended December 31, 2023, is related to the fair value evaluation of SARs.

A summary of the status of SARs plans is presented in the following table:


		Weighted
		Average
	Number	Exercisable Price
Outstanding at December 31, 2021	55,000	$	18.21
Granted	—		—
Exercised	(19,000)		18.12
Forfeited/Expired	—		—
Outstanding at December 31, 2022	36,000		18.25
Granted	—		—
Exercised	(16,000)		15.19
Forfeited/Expired	—		—
Outstanding at December 31, 2023	20,000	$	20.70

Information pertaining to SARs outstanding at December 31, 2023, is as follows:

SARs Outstanding

SARs Exercisable

Weighted-

Average

Weighted-

Remaining

Average

Weighted- Average

Exercise

Number

Contractual

Exercise

Number

Exercise

Prices

Outstanding

Life

Price

Exercisable

Price

$

20.70

20,000

1.00 years

$

20.70

—

$

—

Outstanding, end of period

20,000

1.00 years

$

20.70

—

$

—

Commitments and Contingencies

12 Months Ended

Dec. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 14. Commitments and Contingent Liabilities

Commitments:

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing and depository needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets. The majority of all commitments to extend credit are variable rate instruments while the standby letters of credit are primarily fixed rate instruments. The Company’s exposure to credit loss is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.

A summary of the Company's total contractual amount for all off-balance sheet commitments for the years ended December 31, 2023 and 2022, are as follows (in thousands):


	December 31,		December 31,
	2023		2022
Commitments to extend credit	$	716,951	$	911,998
Standby letters of credit		7,611		6,897

At December 31, 2023, and 2022, the allowance for these off-balance sheet commitments, included in other liabilities in the consolidated balance sheet, was $2.4 million and $85 thousand, respectively. With the adoption of ASU 2016-13, effective January 1, 2023, there was an increase in the allowance of $3.0 million on these off-balance sheet commitments. The expense (credit) related to the allowance for off-balance sheet commitments during the years ended December 31, 2023, 2022 and 2021, was ($725) thousand, $15 thousand and $9 thousand, respectively.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate, and income-producing commercial properties.

Standby letters of credit issued by the Company are conditional commitments to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral held varies and is required in instances which the Company deems necessary. At December 31, 2023 and 2022, the carrying amount of liabilities related to the Company’s obligation to perform under standby letters of credit was insignificant. The Company has not been required to perform on any standby letters of credit, and the Company has not incurred any losses on standby letters of credit for the years ended December 31, 2023, 2022 and 2021.

Contingent Liabilities:

The Company is subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. Management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against the Company will be material to the Company’s consolidated financial position. On an on-going basis, the Company assesses any potential liabilities or contingencies in connection with such legal proceedings. For those matters where it is deemed probable that the Company will incur losses and the amount of the losses can be reasonably estimated, the Company would record an expense and corresponding liability in its consolidated financial statements.

Regulatory Matters

12 Months Ended

Dec. 31, 2023

Banking and Thrift [Abstract]

Regulatory Matters

Note 15. Regulatory Matters

Regulatory Capital Requirements:

The final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective January 1, 2015. In order to avoid restrictions on capital distributions and discretionary bonus payments to executives, under the new rules a covered banking organization is also required to maintain a “capital conservation buffer” in addition to its minimum risk-based capital requirements. This buffer is required to consist solely of common equity Tier 1, and the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital). As of January 1, 2019, an additional amount of Tier 1 common equity equal to 2.5% of risk-weighted assets is required for compliance with the capital conservation buffer. The ratios for the Company and the Bank are currently

sufficient to satisfy the fully phased-in conservation buffer. At December 31, 2023, the Company and the Bank exceeded the minimum regulatory requirements and exceeded the threshold for the "well capitalized" regulatory classification.

Regulatory Restrictions on Dividends:

Pursuant to Tennessee banking law, the Bank may not, without the prior consent of the Commissioner of the Tennessee Department of Financial Institutions (the “TDFI”), pay any dividends to the Company in a calendar year in excess of the total of the Bank’s retained net income for that year plus the retained net income for the preceding two years. Because this test involves a measure of net income, any charge on the Bank’s income statement, such as an impairment of goodwill, could impair the Bank’s ability to pay dividends to the Company. Under Tennessee corporate law, the Company is not permitted to pay dividends if, after giving effect to such payment, it would not be able to pay its debts as they become due in the usual course of business or its total assets would be less than the sum of its total liabilities plus any amounts needed to satisfy any preferential rights if it were dissolving. In addition, in deciding whether or not to declare a dividend of any particular size, the Company’s board of directors must consider its and the Bank’s current and prospective capital, liquidity, and other needs. In addition to state law limitations on the Company’s ability to pay dividends, the Federal Reserve imposes limitations on the Company’s ability to pay dividends. Federal Reserve regulations limit dividends, stock repurchases and discretionary bonuses to executive officers if the Company’s regulatory capital is below the level of regulatory minimums plus the applicable capital conservation buffer.

During the year ended December 31, 2023 the Bank paid $10.0 million in dividends to the Company. No dividends were paid to the Company during the year ended December 31, 2022. Since the fourth quarter of 2019, the Company has paid a quarterly common stock dividend. During the years ended December 31, 2023, and 2022, the Company paid a quarterly common stock dividend of $0.08 and $0.07 per share, respectively. The amount and timing of all future dividend payments by the Company, if any, is subject to discretion of the Company’s board of directors and will depend on the Company’s earnings, capital position, financial condition and other factors, including new regulatory capital requirements, as they become known to the Company.

Regulatory Capital Levels:

Actual and required capital levels at December 31, 2023 and 2022 are presented below (dollars in thousands):


									Minimum to be
									well
									capitalized under
					Minimum for				prompt
					capital				corrective action
		Actual			adequacy purposes				provisions¹
	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.

- Definition

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

+ References + Details

Concentrations of Credit Risk

12 Months Ended

Dec. 31, 2023

Risks and Uncertainties [Abstract]

Concentrations of Credit Risk

Note 16. Concentrations of Credit Risk

The Company originates primarily commercial, residential, and consumer loans to customers in East and Middle Tennessee, Alabama, and Florida. The ability of the majority of the Company’s customers to honor their contractual loan obligations is dependent on the economy in these areas.

Seventy-nine percent of the Company’s loan portfolio is concentrated in loans secured by real estate, of which a substantial portion is secured by real estate in the Company’s primary market areas. Commercial real estate, including commercial construction loans, represented 56% of the loan portfolio at December 31, 2023, and 58% of the loan portfolio at December 31, 2022. Accordingly, the ultimate collectability of the loan portfolio and recovery of the carrying amount of other real estate owned is susceptible to changes in real estate conditions in the Company’s primary market areas. The other concentrations of credit by type of loan are set forth in Note 5.

Fair Value of Assets and Liabilities

12 Months Ended

Dec. 31, 2023

Fair Value of Assets and Liabilities [Abstract]

Fair Value of Assets and Liabilities

Note 17. Fair Value of Assets and Liabilities

Determination of Fair Value:

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the “Fair Value Measurements and Disclosures” ASC Topic 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

ASC Topic 820 provides a consistent definition of fair value, which focuses on exit price in an orderly transaction between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact business at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy:

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 - Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following methodologies were used by the Company in estimating fair value disclosures for financial instruments:

Securities available-for-sale: The fair value of U.S. Treasury, U.S. Government-sponsored enterprises, municipal securities, other debt securities and mortgage-backed securities, is estimated using a third party pricing service. The third party provider evaluates securities based on comparable investments with trades and market data and will utilize pricing models that use a variety of inputs, such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2.

Derivative financial instruments - The fair value for derivative financial instruments and interest rate swap agreements is determined based on market prices, broker-dealer quotations on similar products, or other related input parameters. The derivative financial instruments are generally classified as Level 2.

Recurring Measurements of Fair Value:

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis are as follows (in thousands):


			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
Description	Fair Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2023:
Assets:
Securities available-for-sale:
U.S. Treasury	$	76,033	$	—	$	76,033	$	—
U.S. Government-sponsored enterprises (GSEs)		48,093		—		48,093		—
Municipal securities		18,276		—		18,276		—
Other debt securities		33,069		—		33,069		—
Mortgage-backed securities (GSEs)		232,939		—		232,939		—
Total securities available-for-sale		408,410		—		408,410		—

Derivative financial instruments and interest rate swap agreements		12,821		—		12,821		—
Total assets at fair value	$	421,231	$	—	$	421,231	$	—

Liabilities:
Derivative financial instruments and interest rate swap agreements	$	14,807	$	—	$	14,807	$	—

December 31, 2022:
Assets:
Securities available-for-sale:
U.S. Treasury	$	223,653	$	—	$	223,653	$	—
U.S. Government-sponsored enterprises (GSEs)		1,575		—		1,575		—
Municipal securities		18,611		—		18,611		—
Other debt securities		30,551		—		30,551		—
Mortgage-backed securities (GSEs)		209,503		—		209,503		—
Total securities available-for-sale		483,893		—		483,893		—

Derivative financial instruments and interest rate swap agreements		11,834		—		11,834		—
Total assets at fair value	$	495,727	$	—	$	495,727	$	—

Liabilities:
Derivative financial instruments and interest rate swap agreements	$	13,110	$	—	$	13,110	$	—

The Company has no assets or liabilities whose fair values are measured on a recurring basis using Level 3 inputs. Additionally, during the years ended December 31, 2023, and 2022, there were no transfers between Level 1 and Level 2 in the fair value hierarchy.

Assets Measured at Fair Value on a Nonrecurring Basis:

Under certain circumstances management makes adjustments to fair value for assets and liabilities although they are not measured at fair value on an ongoing basis. The following tables present the financial instruments carried on the consolidated balance sheets by caption and by level in the fair value hierarchy, for which a nonrecurring change in fair value has been recorded (in thousands):


			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2023:
Collateral dependent loans	$	1,295	$	—	$	—	$	1,295
Other real estate owned		279		—		—		279

December 31, 2022:
Collateral dependent loans	$	1,536	$	—	$	—	$	1,536
Other real estate owned		915		—		—		915

For Level 3 assets measured at fair value on a non-recurring basis, the significant unobservable inputs used in the fair value measurements are presented below (dollars in thousands):


					Weighted
			Valuation	Significant Other	Average of
	Fair Value		Technique	Unobservable Input	Input
December 31, 2023:
Collateral dependent loans	$	1,295	Appraisal	Appraisal discounts	73	%
Other real estate owned		279	Appraisal	Appraisal discounts	33	%

December 31, 2022:
Collateral dependent loans	$	1,536	Appraisal	Appraisal discounts	25	%
Other real estate owned		915	Appraisal	Appraisal discounts	29	%

Collateral dependent loans: A collateral dependent loan is measured based on the fair value of the collateral securing these loans, less selling costs. Collateral dependent loans are classified within Level 3 of the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory, and/or accounts receivable. The Company determines the value of the collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised values are discounted for costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors discussed above. The amount of valuation allowance on collateral dependent loans was $3.5 million and $506 thousand as of December 31, 2023, and 2022, respectively.

Other real estate owned: Other real estate owned, consisting of properties obtained through foreclosure or in satisfaction of loans, are initially recorded at fair value less estimated costs to sell upon transfer of the loans to other real estate. Subsequently, other real estate is carried at the lower of carrying value or fair value less costs to sell. Fair values are generally based on third party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes further discounted based on management’s historical knowledge, and/or changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and

the customer’s business. Such discounts are typically significant unobservable inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less estimated costs to sell, a loss is recognized in noninterest expense.

Carrying value and estimated fair value:

The carrying amount and estimated fair value of the Company’s financial instruments are as follows (in thousands):


	Fair Value Measurements Using
	Carrying								Estimated
	Amount		Level 1		Level 2		Level 3		Fair Value
December 31, 2023:
Assets:
Cash and cash equivalents	$	352,271	$	352,271	$	—	$	—	$	352,271
Securities available-for-sale		408,410		—		408,410		—		408,410
Securities held-to-maturity		281,236		—		262,538		—		262,538
Other investments		13,662		N/A		N/A		N/A		N/A
Loans and leases, net and loans held for sale		3,413,814		—		—		3,308,980		3,308,980
Derivative financial instruments and interest rate swap agreements		12,821		—		12,821		—		12,821

Liabilities:
Noninterest-bearing demand deposits		898,044		—		898,044		—		898,044
Interest-bearing demand deposits		1,006,915		—		1,006,915		—		1,006,915
Money market and savings deposits		1,812,427		—		1,812,427		—		1,812,427
Time deposits		550,468		—		548,397		—		548,397
Borrowings		13,078		—		13,078		—		13,078
Subordinated debt		42,099		—		—		39,882		39,882
Derivative financial instruments and interest rate swap agreements		14,807		—		14,807		—		14,807

December 31, 2022:
Assets:
Cash and cash equivalents	$	266,424	$	266,424	$	—	$	—	$	266,424
Securities available-for-sale		483,893		—		483,893		—		483,893
Securities held-to-maturity		285,949		—		260,613				260,613
Other investments		15,530		N/A		N/A		N/A		N/A
Loans and leases, net and loans held for sale		3,232,045		—		—		3,143,921		3,143,921
Derivative financial instruments and interest rate swap agreements		11,834		—		11,834		—		11,834

Liabilities:
Noninterest-bearing demand deposits		1,072,449		—		1,072,449		—		1,072,449
Interest-bearing demand deposits		965,911		—		965,911		—		965,911
Money market and savings deposits		1,583,481		—		1,583,481		—		1,583,481
Time deposits		455,259		—		451,899		—		451,899
Borrowings		41,860		—		41,860		—		41,860
Subordinated debt		42,015		—		—		40,439		40,439
Derivative financial instruments and interest rate swap agreements		13,110		—		13,110		—		13,110

Limitations:

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises

and equipment. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Derivatives Financial Instruments

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives Financial Instruments

Note 18. Derivatives Financial Instruments

Derivatives designated as fair value hedges:

Financial derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative net investment hedge instrument as well as the offsetting gain or loss on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of certain fixed rate securities designated as available-for-sale. The hedging strategy converts the fixed interest rates to SOFR-based variable interest rates. These derivatives are designated as partial term hedges covering specified periods of time prior to the maturity date of the hedged securities. The Company has elected early adoption of ASU 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities, which allows such partial term hedge designations.

A summary of the Company’s fair value hedge relationships for the periods presented are as follows (dollars in thousands):


		Weighted
		Average
	Balance	Remaining	Weighted
	Sheet	Maturity	Average		Receive	Notional		Estimated
Asset/Liability derivatives	Location	(In Years)	Pay Rate		Rate	Amount		Fair Value
December 31, 2023:
Interest rate swap agreements - securities	Other liabilities	3.40	4.25	%	SOFR Overnight	$	27,050	$	(536)

December 31, 2022:
Interest rate swap agreements - securities	—	—	—	%	—	$	—	$	—

The effects of the Company’s fair value hedge relationships reported in interest income on taxable and tax-exempt AFS securities on the consolidated income statement were as follows (in thousands):


	Year Ended
	December 31,
	2023		2022		2021
Interest income on taxable AFS securities	$	13,049	$	—	$	—
Effects of fair value hedge relationships		30		—		—
Reported interest income on taxable AFS securities	$	13,079	$	—	$	—

	Year Ended
	December 31,
	2023		2022		2021
Interest income on tax-exempt AFS securities	$	—	$	1,550	$	2,205
Effects of fair value hedge relationships		—		(336)		(1,050)
Reported interest income on tax-exempt AFS securities	$	—	$	1,214	$	1,155


	Year Ended
	December 31,
Gain (loss) on fair value hedging relationship	2023		2022
Interest rate swap agreements - securities:
Hedged items	$	(536)	$	—
Derivative designated as hedging instruments		536		—
Carry amount of hedged assets - mortgage backed securities		24,736		—

Derivatives Designated as Cash Flow Hedges:

The Company enters into interest rate derivative contracts on assets and liabilities that are designated as qualifying cash flow hedges. The Company hedges the exposure to variability in expected future cash flows attributable to changes in contractual specified interest rates. To qualify for hedge accounting, a formal assessment is prepared to determine whether the hedging relationship, both at inception and on an ongoing basis, is expected to be highly effective in offsetting cash flows attributable to the hedged risk. At inception, a statistical regression analysis is prepared to determine hedge effectiveness. At each reporting period thereafter, a statistical regression or qualitative analysis is performed. If it is determined that hedge effectiveness has not been or will not continue to be highly effective, then hedge accounting ceases and any gain or loss in accumulated other comprehensive income (“AOCI”) is recognized in earnings immediately. The cash flow hedges are recorded at fair value in other assets and liabilities on the consolidated balance sheets with changes in fair value recorded in AOCI, net of tax, see – Consolidated Statements of Comprehensive Income (Loss). Amounts recorded to AOCI are reclassified into earnings in the same period in which the hedged asset or liability affects earnings and are presented in the same income statement line item as the earnings effect of the hedged asset or liability, as future interest payments are made on the underlying assets. At December 31, 2023, the Company estimates that in the next 12 months an additional $368 thousand will be reclassified as a decrease in interest income and $245 thousand will be reclassified as an increase in interest expense.

At December 31, 2023 and 2022, respectively, cash flow hedges are as follows (in thousands):


		December 31, 2023				December 31, 2022
	Balance Sheet	Notional		Estimated		Notional		Estimated
	Location	Amount		Fair Value		Amount		Fair Value
Cash flow hedges:
Assets	Other liabilities	$	100,000	$	(556)	$	100,000	$	(1,304)
Liabilities	Other liabilities	$	150,000	$	(881)	$	-	$	-
Liabilities	Other assets		25,000		7		-		-

The following table presents the effect of fair value and cash flow hedge accounting on AOCI (in thousands):


Derivatives in cash flow hedging relationships:		Amount of Gain (Loss) Recognized on OCI on Derivative	Location of Gain or (Loss) Recognized from AOCI into Income		Amount of Gain or (Loss) Reclassified from AOCI into Income
Year ended December 31, 2023
Interest rate swaps - Assets	$	(556)	Interest income	$	(480)
Interest rate swaps - Liabilities		(874)	Interest expense		411

Year ended December 31, 2022
Interest rate swaps - Assets	$	—	Interest income	$	—
Interest rate swaps - Liabilities		(1,304)	Interest expense		—

Year ended December 31, 2021
Interest rate swaps - Assets	$	—	Interest income	$	—
Interest rate swaps - Liabilities		—	Interest expense		—

The following table presents the effect of fair value and cash flow hedge accounting on the income statement (in thousands):


	Year Ended
	December 31,
	2023		2022		2021
Total interest income	$	218,523	$	—	$	—
Effects of cash flow hedge relationships		(480)		—		—
Reported total interest income	$	218,043	$	—	$	—

Total interest expense	$	88,374	$	—	$	—
Effects of cash flow hedge relationships		(411)		—		—
Reported total interest expense	$	87,963	$	—	$	—

Non-hedged derivatives:

The Company provides a loan hedging program to certain loan customers. Through this program, the Company originates a variable rate loan with the customer. The Company and the customer will then enter into a fixed interest rate swap. Lastly, an identical offsetting swap is entered into by the Company with a dealer bank. These “back-to-back” swap arrangements are intended to offset each other and allow the Company to book a variable rate loan, while providing the customer with a contract for fixed interest payments. In these arrangements, the Company’s net cash flow is equal to the interest income received from the variable rate loan originated with the customer. These customer swaps are not designated as hedging instruments and are recorded at fair value in other assets and other liabilities. Since the income statement impact of the offsetting positions is limited, any changes in fair value are recognized as other noninterest income in the current period.

At December 31, 2023, and 2022, respectively, interest rate swaps related to the Company’s loan hedging program that were outstanding are presented in the following table (in thousands):


	December 31, 2023				December 31, 2022
		Notional		Estimated		Notional		Estimated
		Amount		Fair Value		Amount		Fair Value
Interest rate swap agreements:
Assets	$	294,133	$	12,813	$	216,656	$	11,834
Liabilities		294,133		(12,813)		216,656		(11,834)

The Company establishes limits and monitors exposures for customer swap positions. Any fees received to enter the swap agreements at inception are recognized in earnings when received and is included in noninterest income. Such fees were as follows (in thousands):


	Year Ended
	December 31,
	2023		2022		2021
Interest rate swap agreements	$	1,421	$	2,162	$	965

Collateral requirements:

These derivative rate contracts have collateral requirements, both at inception of the trade and as the value of each derivative position changes. At December 31, 2023 and 2022, respectively, collateral totaling $390 thousand and $1.4 million, respectively, was pledged to the derivative counterparties to comply with collateral requirements.

Other comprehensive income (loss)

12 Months Ended

Dec. 31, 2023

Equity [Abstract]

Other comprehensive income (loss)

Note 19. Other Comprehensive Income (Loss)

The changes in each component of accumulated other comprehensive income (loss), net of tax, were as follows (in thousands):


	Year Ended December 31, 2023
									Accumulated
	Securities		Securities		Fair Value				Other
	Available-for-		Transferred to		Municipal		Cash Flow		Comprehensive
	Sale		Held-to-Maturity		Security Hedges		Hedges		Income (Loss)
Beginning balance, December 31, 2022	$	(33,616)	$	(742)	$	—	$	(966)	$	(35,324)

Other comprehensive income (loss)		4,754		—		(397)		(145)		4,212
Reclassification of amounts included in net income		5,044		110		—		51		5,205
Net other comprehensive income (loss) during period		9,798		110		(397)		(94)		9,417

Ending balance, December 31, 2023	$	(23,818)	$	(632)	$	(397)	$	(1,060)	$	(25,907)

	Year Ended December 31, 2022
									Accumulated
	Securities		Securities		Fair Value				Other
	Available-for-		Transferred to		Municipal		Cash Flow		Comprehensive
	Sale		Held-to-Maturity		Security Hedges		Hedges		Income (Loss)
Beginning balance, December 31, 2021	$	25	$	665	$	753	$	—	$	1,443

Other comprehensive income (loss)		(34,231)		(1,490)		(56)		(966)		(36,743)
Reclassification of amounts included in net income		590		83		(697)		—		(24)
Net other comprehensive income (loss) during period		(33,641)		(1,407)		(753)		(966)		(36,767)

Ending balance, December 31, 2022	$	(33,616)	$	(742)	$	—	$	(966)	$	(35,324)

	Year Ended December 31, 2021
									Accumulated
	Securities		Securities		Fair Value				Other
	Available-for-		Transferred to		Municipal		Cash Flow		Comprehensive
	Sale		Held-to-Maturity		Security Hedges		Hedges		Income (Loss)
Beginning balance, December 31, 2020	$	2,968	$	—	$	(785)	$	—	$	2,183

Other comprehensive income (loss)		(2,910)		671		1,538		—		(701)
Reclassification of amounts included in net income		(33)		(6)		—		—		(39)
Net other comprehensive income (loss) during period		(2,943)		665		1,538		—		(740)

Ending balance, December 31, 2021	$	25	$	665	$	753	$	—	$	1,443

Condensed Parent Information

12 Months Ended

Dec. 31, 2023

Condensed Financial Information Disclosure [Abstract]

Condensed Parent Information

Note 20. Condensed Parent Information

CONDENSED BALANCE SHEETS

December 31, 2023 and 2022

(Dollars in thousands)


	2023		2022
ASSETS:
Cash	$	1,522	$	6,202
Investment in subsidiary		501,650		475,457
Other assets		7,890		6,130

Total assets	$	511,062	$	487,789

LIABILITIES AND SHAREHOLDERS’ EQUITY:
Other liabilities	$	1,077	$	822
Other borrowings		50,099		54,515

Total liabilities		51,176		55,337

Shareholders’ equity		459,886		432,452

Total liabilities and shareholders’ equity	$	511,062	$	487,789

CONDENSED STATEMENTS OF INCOME

Years ended December 31, 2023, 2022 and 2021

(Dollars in thousands)


	2023		2022		2021
INCOME:
Dividends from SmartBank	$	10,000	$	—	$	—
Other income		—		—		2
Total income		10,000		—		2

EXPENSES:
Interest expense		3,597		2,962		2,512
Other operating expenses		937		1,017		1,109
Total expense		4,534		3,979		3,621

Income (loss) before equity in undistributed earnings of subsidiaries and income tax benefit		5,466		(3,979)		(3,619)
Income tax benefit (expense)		1,059		728		888
Income before equity in undistributed net income of subsidiaries		6,525		(3,251)		(2,731)
Equity in undistributed earnings of subsidiaries		22,068		46,273		37,521
Net income	$	28,593	$	43,022	$	34,790
Comprehensive income (loss)	$	38,010	$	6,255	$	34,050

STATEMENTS OF CASH FLOWS

For the years ended December 31, 2023, 2022 and 2021

(Dollars in thousands)


	2023		2022		2021
Cash flows from operating activities:
Net income	$	28,593	$	43,022	$	34,790
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Equity in undistributed income of subsidiary		(22,068)		(46,273)		(37,521)
Other assets		(1,726)		(544)		(652)
Other liabilities		340		(1,915)		127
Net cash used in operating activities		5,139		(5,710)		(3,256)

Cash flows from investing activities:
Net cash paid for business combinations		—		—		(6,130)
Equity contribution from subsidiary		—		—		10,000
Net cash provided by (used in) investing activities		—		—		3,870

Cash flows from financing activities:
Issuance of common stock, net of restricted shares withheld for taxes		108		191		205
Proceeds from other borrowings		—		5,000		7,500
Repayment borrowings		(4,500)		—		—
Cash dividends paid		(5,427)		(4,724)		(3,728)
Repurchase of common stock		—		—		(1,208)
Net cash (used in) provided by financing activities		(9,819)		467		2,769

Net change in cash and cash equivalents		(4,680)		(5,243)		3,383

Cash and cash equivalents, beginning of year		6,202		11,445		8,062

Cash and cash equivalents, end of period	$	1,522	$	6,202	$	11,445

Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2023

Accounting Policies [Abstract]

Nature of Business

Nature of Business:

SmartFinancial, Inc. (the “Company”) is a bank holding company whose principal activity is the ownership and management of its wholly-owned subsidiary, SmartBank (the “Bank”). The Company provides a variety of financial services to individuals and corporate customers through its offices in East and Middle Tennessee, Alabama and Florida. The Company’s primary deposit products are interest-bearing demand deposits, savings and money market deposits, and time deposits. Its primary lending products are commercial, residential, and consumer loans.

Basis of Presentation

Basis of Presentation:

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Accounting Estimates

Accounting Estimates:

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses and goodwill.

Cash and Cash Equivalents

Cash and Cash Equivalents:

For purposes of reporting consolidated cash flows, cash and due from banks includes cash on hand, cash items in process of collection and amounts due from banks. Cash and cash equivalents also includes interest-bearing deposits in banks and federal funds sold. Cash flows from loans, federal funds sold, securities sold under agreements to repurchase and deposits are reported net.

The in cash or on deposit Bank is required to maintain average balances with the Federal Reserve Bank. During 2020 the Federal Reserve Bank suspended reserve requirements to provide relief related to the COVID-19 pandemic, thus the Bank did not have a reserve requirement at December 31, 2023 and 2022, respectively.

Securities

Securities:

Securities are classified based on management’s intention on the date of purchase. All debt securities classified as available-for-sale are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Securities that the Company has both the positive intent and ability to hold to maturity are classified as held-to-maturity and are carried at historical cost and adjusted for amortization of premiums and accretion of discounts. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Transfers of investments securities into the held-to-maturity category from the available-for-sale category are made at fair value at the date of transfer. The unrealized holdings gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the held-to-maturity securities. Such amounts are amortized over the remaining life of the security.

Securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase are treated as collateralized financial transactions. These agreements are recorded at the amount at which the securities

were acquired or sold plus accrued interest. It is the Company’s policy to take possession of securities purchased under resale agreements. The market value of these securities is monitored, and additional securities are obtained when deemed appropriate to ensure such transactions are adequately collateralized. The Company also monitors its exposure with respect to securities sold under repurchase agreements, and a request for the return of excess securities held by the counterparty is made when deemed appropriate.

Other Investments

Other Investments:

The Company is required to maintain an investment in capital stock of various entities, including the Federal Home Loan Bank and Federal Reserve Bank. Based on redemption provisions of these entities, the stock has no quoted market value and is carried at cost. At their discretion, these entities may declare dividends on the stock. Management reviews restricted investments for impairment based on the ultimate recoverability of the cost basis in these stocks.

Loans Held for Sale

Loans Held for Sale:

Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. Gains and losses on sales of loans held for sale are included in the Consolidated Statements of Income in mortgage banking.

Loans held for sale are sold to investors with best effort intent and ability to sell loans as long as they meet the underwriting standards of the potential investor.

Loans and Leases

Loans and Leases:

Originated loans and leases for which management has the intent and ability to hold for the foreseeable future or until maturity or payoff are carried at the principal amount outstanding net of any unearned income, charge-offs and unamortized fees and costs. Nonrefundable fees collected and certain direct costs incurred related to loan and lease originations are deferred and recorded as an adjustment to loans and leases outstanding. The net amount of the nonrefundable fees and costs is amortized to interest income over the contractual lives using methods that approximate a constant yield.

The accrual of interest on loans and leases is discontinued when, in management’s opinion, the borrower may be unable to meet the contractual terms of the obligation payments as they become due, or at the time the loan or lease is 90 days past due, unless the loan is well-secured and in the process of collection. Unsecured loans and leases are typically charged off no later than 120 days past due. Past due status is based on contractual terms of the loan or lease. In all cases, loans and leases are placed on nonaccrual or charged-off at an earlier date if collection of principal and interest is considered doubtful. All interest accrued but not collected for loans and leases that are placed on nonaccrual or charged off is reversed against interest income, unless management believes that the accrual of interest is recoverable through the liquidation of collateral. Interest income on nonaccrual loans and leases is recognized on the cash basis, until the loans or leases are returned to accrual status. Loans and leases are returned to accrual status when all the principal and interest amounts contractually due are brought current and the loan or lease has been performing according to the contractual terms for a period of not less than six months.

Allowance for Loan Losses and Lease Losses