SLBK 10-K & 10-Q changes, risk factors and insider trading

In addition, changes in interest rates may negatively affect both the returns on and market value of our investment securities. As we experienced due to rising interest rates in 2023, interestInterest rate changes can reduce unrealized gains or increase unrealized losses in our portfolio and thereby negatively impact our accumulated other comprehensive income and equity levels. Further, such losses could be realized into earnings should liquidity and/or business strategy necessitate the sales of securities in a loss position. Additionally, actual investment income and cash flows from investment securities that carry prepayment risk, such as mortgage-backed securities and callable securities, may materially differ from those anticipated at the time of investment or subsequently as a result of changes in interest rates and market conditions. These occurrences could have a material adverse effect on our net interest income or our results of operations.

We face vigorous competition from other banks and other financial institutions, including savings and loan associations, savings banks, finance companies and credit unions for deposits, loans and other financial services in our market area. A number of these banks and other financial institutions are significantly larger than we are and have substantially greater access to capital and other resources, as well as larger lending limits and branch systems, and offer a wider array of banking services. In addition, credit unions have been able to increasingly expand their membership definition and, because they enjoy a favorable tax status, may be able to offer more attractive loan and deposit pricing. To a limited extent, we also compete with other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies, marketplace lenders and other financial technology firms, insurance companies and governmental organizations which may offer more favorable financing than we can. Technology and other changes have lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks. Further, the widespread adoption and rapid evolution of emerging technologies in the financial services industry, including artificial intelligence, cryptocurrencies (including stablecoins and meme coins), tokens, and other digital assets could negatively impact our ability to compete. Many of our non-bank competitors are not subject to the same extensive regulations that govern us. As a result, these non-bank competitors have advantages over us in providing certain services. This competition may reduce or limit our margins and our market share and may adversely affect our results of operations and financial condition.

The market for financial services, including banking and consumer finance services, is increasingly affected by advances in technology, including recent and rapid developments in artificial intelligence and other developments in telecommunications, data processing, computers, automation, online banking and tele-banking. The pace of technological change has increased in the "fintech" environment, in which industry-changing technology-driven products and services are often introduced and adopted, including innovative ways that customers can make payments, access products, and manage accounts. Our ability to compete successfully in our market may depend on the extent to which we are able to exploit such technological changes. If we are not able to afford such technologies, properly or timely anticipate or implement such technologies, or effectively train our staff to use such technologies, our business, financial condition or operating results could be adversely affected.

Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. The activity and prominence of so-called marketplace lenders and other technological financial service companies have grown significantly over recent years and are expected to continue growing. In addition, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Large technology companies offering embedded financial services, digital wallets, and payment platforms have also increased competitive pressures and may accelerate customer migration away from traditional banking products. Consumers can also complete transactions, such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. If we are unable to address the competitive pressures that we face, we could lose market share, which could result in reduced net revenue and profitability and lower returns. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

The Company expects that the Trump administration will seek to implement a regulatory agenda that could reduce and streamline certain prudential and regulatory requirements applicable to banking organizations at a federal level. At this time, however, it is significantlyunclear different than that ofwhat the Bidenimpacts administration, impactingto the rulemaking, supervision, examination, and enforcement priorities of the federal banking agencies.agencies Atwill this time, it is unclearbe, what laws, regulations, and policies may changechange, and whether future changes or uncertainty surrounding future changes will adversely affect the Company’s operating environmentenvironment, and therefore its business, financial condition, and results of operations.

Increasing scrutiny and evolvingEvolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (“ESG”) practices may impose additional costs on the Company or expose it to new or additional risks.

Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to ESGcorporate practicessocial responsibility, environmental concerns, governance and disclosures,related especiallypractices. Failure to act responsibly or in line with regulatory and stakeholder expectations in a number of areas, such as they relate to climate risk, human capital and hiring practices, thehuman diversity of the work force, racial and social justice issues,rights, support for local communities, and corporate governance and transparency.transparency, Newcould rulesnegatively impact the Company’s reputation, ability to do business with certain partners, and regulationsstock alsoprice. could result in new or more stringent forms of ESG oversight and reporting, diligence, and disclosure. Complying with ESG-relatedThe rules, regulations and/or stakeholder expectations of regulators, customers, investors, associates, and other stakeholders with respect to these matters continue to evolve, which could result in increases to the Company’s overall operational costs and increased management time and attention. Further, failureas these rules, regulations and expectations continue to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards or to act responsibly in these areas could negatively impactevolve, the Company’s reputation,stakeholders abilitymay tohave dodiffering businessviews withon certainrelated partners,matters. andScrutiny, stockor price.the Conversely,perception ifthat the Company’s efforts around diversity and inclusion and other ESG-related areas are perceived as too ambitious,ambitious or misdirected, could expose the Company mayto bethe subjectrisk toof investigations, litigation and other proceedings andor reputational harm. If the Company is unable to meet its reputationsocial- mayor beenvironmentally-related damaged.goals Adverseor incidentsevolving and divergent stakeholder expectations and industry standards, it could negatively impact the value of the Company’s brand, the cost of its operations and/or relationships with customers, investors or employees, any of which could adversely affect its business and results.

On April 16, 2024, the Company entered into a definitive agreement to acquire Johnson County Bank (“JCB”), based in Mountain City, Tennessee, in an all-cash transaction valued at $25.0 million, with the Bank as the surviving bank. The purpose of this acquisition was to facilitate the Bank’s entry into Eastern Tennessee. The transaction closed and the merger of JCB with and into the Bank became effective on September 1, 2024. The Company was considered the acquiror and JCB was considered the acquiree in the transaction for accounting purposes. Pursuant to the JCB merger, the Company acquired $154.1 million of assets, including $87.2 million in loans and assumed $133.8 million in liabilities, including $125.3 million of deposits, on September 1, 2024. Such amounts include preliminary estimated fair value adjustments, which are subject to change.

The Company had net earnings of $15.8 million for 2025 compared to $7.4 million for 2024 compared to $9.7 million for 2023. Earnings in 2024 were impacted by the acquisition of JCB, including merger-related expenses of $2.4 million, and the inclusion of JCB’s financial results beginning September 1, 2024. Our financial performance in 20242025 can be attributed in part to our efforts that resulted in growth in the Bank’s core loan portfolio of $80.1$74.2 million, or 9.84%,7.55%, during 2024.2025. Earnings for the year ended December 31, 20242025 represented a return on average assets of 0.67%1.24% and a return on average equity of 8.69%,16.16%, compared to 0.96%0.67% and 12.70%,8.69%, respectively, for the year ended December 31, 2023.2024. The net interest margin was 3.82%4.27% in 2024,2025, compared to 3.76%3.82% in 2023.2024. As we look to 2025,2026, management anticipates that this core loan growth during 20242025 will continue to have a positive impact on both earning assets and loan yields; however, we expectcontinued competition for deposits,deposits increasedwill prevent interest expense,expense from decreasing significantly, and higher operating costs towill continue in the near term, and because of this we expect our entire industry to see continued pressure on earnings and margins.term.

The Company maintains a separate reserve for credit losses on off-balance-sheet credit exposures, including unfunded loan commitments, which is included in other liabilities on the consolidated balance sheets. The reserve for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit losses in the income statement. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life, utilizing the same models and approaches for the Company's other loan portfolio segments described above, as these unfunded commitments share similar risk characteristics as its loan portfolio segments. The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.

For the year ended December 31, 2024,2025, total interest income increased by $10.2$12.2 million compared to the year ended December 31, 2023.2024. The increase in interest income in 20242025 was primarily due to an increase of $10.1$12.2 million in loan interest income in the year over year comparison. Interest income on loans increased primarily due to the core loan growth of $80.1$74.2 million during 20242025 in addition to interest rate increases throughout the year. Total interest expense increased by $6.3$1.3 million in the year over year comparison. Interest expense on deposits increased by $6.0$1.5 million during 20242025 compared to 2023.2024. This increase was primarily a result of rate increases on deposit offerings due to competitivethe pressures$52.9 andmillion migrationincrease fromin lower costinterest-bearing deposits toduring time deposits.2025. Management anticipates that interest expense on deposits could increase in the near term as competitive pressures for deposits may resultprevent deposit costs from decreasing significantly in continuedthe increasesnear term. Interest on borrowings decreased by $193 thousand in ratesthe onyear-over-year deposit offerings, especially on time deposits.comparison. The effects of changes in volumes and rates on net interest income in 2025 compared to 2024, and 2024 compared to 2023, and 2023 compared to 2022 are shown in Table 2 above.

The provision for (recovery of) credit losses was a$868 provisionthousand offor the year ended December 31, 2025, compared to $1.1 million for the year ended December 31, 2024, compared to a recovery of $50 thousand for the year ended December 31, 2023.2024. For December 31, 20242025 the provision for credit losses consisted of a provision for credit losses on loans of $1.1$759 millionthousand and a recoveryprovision offor credit losses on unfunded commitments of $32$109 thousand. The increaseprovision for credit losses on loans for the year ended December 31, 2024 included $813 thousand to establish an allowance for credit losses on the non-PCD loans acquired in the JCB merger. Excluding this $813 thousand, the provision for credit losslosses provisionsincreased by $565 thousand from 20232024 to 2024 is2025 due to the growth in the loan portfolio during 2024.2025.

The reserve for credit losses was approximately 0.82% of total loans as of December 31, 20242025 and 2023.2024. Management’s estimate of probable credit losses inherent in the acquired JCB, Great State, and Cardinal loan portfolios was reflected as a purchase discount which will continue to be accreted into income over the remaining life of the acquired loans. As of December 31, 20242025 and 2023,2024, the remaining unaccreted discount on the acquired loan portfolios totaled $4.3$3.3 million and $527$4.3 thousand,million, respectively. Management believes the provision and the resulting allowance for credit losses are adequate. Additional information is contained in Tables 12 and 13, and is discussed in Nonperforming and Problem Assets.

For the year ended December 31, 20242025 and 2023,2024, noninterest income was $7.3$7.8 million and $7.0$7.3 million, respectively. Included in noninterest income for the year 2025 was $60 thousand from life insurance contracts. Included in noninterest income for the year 2024 was $221 thousand from life insurance contracts and a net realized security loss of $141 thousand. The net security loss resulted from the recognition of unamortized premiums on a called bond. Included in noninterest income for the year 2023 was income of $129 thousand related to loan hedge fees from a correspondent bank that was recorded in other income, a $197 thousand gain on a sale leaseback, $69 thousand from life insurance contracts and security losses of $16 thousand. Excluding these itemsitems, noninterest income increased by $614$520 thousand in the year-over-year comparison, primarily as a result of increased income from service charges on deposit accounts of $131$189 thousand, and an increase of ATM, credit and debit card income of $236$340 thousand, andoffsetting ana increasedecrease of $22$39 thousand in mortgage origination fees. The mortgage department closed approximately $15.1$13.4 million of mortgage loans for the secondary market during 20242025 compared to $14.4$15.1 million in 2023.2024.

Total noninterest expenses increased by $5.7$1.0 million, or 18.79%2.76% for the year ended December 31, 2024,2025, compared to the year ended December 31, 2023,2024. Salary and benefit cost increased by $1.7 million due in part to the increase in employees resulting from the JCB acquisition,acquisition combined with routine personnelincreases additions and salary adjustments, in addition to branch expansion costs and the costs associated with running two core processing systems before the core conversion for JCB occurred. Salaries and benefit cost increased by $1.1 million from 2023 to 2024.year-over-year. Occupancy and equipment expenses increased by $344$231 thousandthousand, and data processing expense increased by $788 thousand in the year over year comparison. ATM/EFT expenses increased by $260 thousand due to increased debit card usage. There was an increase in core deposit intangible amortization of $113$464 thousand in the year-over-year comparison, due to the JCB merger. Professional fees increased by $134 thousand, which was partially offset by a decrease in telephone expenses of $83 thousand.comparison. FDIC/OCC assessments increased by $137$228 thousand and the core deposit intangible amortization increased by $290 thousand. Professional fees increased by $228 thousand in the twelve-monthyear-over-year comparison. Merger-relatedMerger related expenses related to the acquisition of JCBJohnson County Bank were $2.4 million for the year ended December 31, 2024.

Income tax expense (substantially all Federal) was $4.2 million in 2025 and $1.9 million in 2024 and $2.4 million in 2023,2024, resulting in effective tax rates of 20.7%20.9% and 19.7%,20.7%, respectively. The decreaseincrease in income tax expense of $443$2.3 thousandmillion in 20242025 was primarily due to the decreaseincrease in income before taxes of $2.7$10.7 million in 20242025 compared to 2023.2024.

Average loans totaled $874.3$1.02 millionbillion for the year ended December 31, 2024.2025. This represents an increase of $92.1$150.2 million, or 11.78%,17.17%, from the average of $782.2$874.3 million for 2023.2024. This increase was primarily due to organic core loan growth of $80.1$74.2 million during 2024, in addition to the $87.2 million of loans acquired in the JCB merger in September 2024.2025.

Average total deposits for the year ended December 31, 20242025 amounted to $989.8$1.14 million,billion, which was a increase of $82.3$148.9 million, or 9.07%15.05% from $907.5$989.8 million at December 31, 2023.2024. Average core deposits totaled $901.7$1.02 millionbillion in 20242025 representing a 7.16%13.60% increase from the $841.4$901.7 million in 2023.2024. The percentage of the Company’s average deposits that are interest-bearing increased to 68.4%68.8% in 20242025 compared to 67.1%68.4% in 2023.2024. The percentage of the Company’s average demand deposits, which earn no interest, decreased from 32.9% in 2023 to 31.6% in 2024.2024 to 31.2% in 2025. Average deposits for the periods ended December 31, 20242025 and 20232024 are summarized in Table 9.

Stockholders’ equity totaled $107.7 million at December 31, 2025 compared to $88.7 million at December 31, 2024 compared to $82.9 million at December 31, 2023.2024. The increase of $5.8$19.0 million, or 6.98%,21.42%, was due to earnings of $7.4$15.8 million, $787$5.6 thousandmillion in other comprehensive income, less dividend payments of $2.6$2.9 million, common stock repurchases of $230 thousand, and share-based compensation of $381$477 thousand. Book value increased from $14.84 per share at December 31, 2023 to $15.69 per share at December 31, 2024.2024 to $19.00 per share at December 31, 2025.

Effective January 1, 2015, the federal banking regulators adopted rules to implement the Basel III regulatoryFederal capital reforms from the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rules required the Bank to comply with the following minimum capital ratios: (i) a new common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6% of risk-weighted assets; (iii) a total capital ratio of 8% of risk-weighted assets; and (iv) a leverage ratio of 4% of total assets. As fully phased in on January 1, 2019, the rules require the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets.

Under Basel III Capital requirements, a capital conservation buffer of 0.625% became effective beginning on January 1, 2016. The capital conservation buffer was gradually increased through January 1, 2019 to 2.50%. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banks are now required to maintain levels that meet the required minimum plus the capital conservation buffer in order to make distributions, such as dividends, or discretionary bonus payments. The Banks’s capital conservation buffer is 3.19%3.53% as of December 31, 2024.2025.

Total nonperforming loans were 0.26%0.45% and 0.21%0.26% of total outstanding loans as of December 31, 20242025 and 2023,2024, respectively. The majority of the increase in nonaccrual loans from 20232024 to 20242025 came in the “residential real estate” category due to an increase of $1.5$2.7 million during 2024.2025, which was primarily related to one loan relationship going into nonaccrual status. Based on discounted appraisal values, management does not expect any credit losses on the relationship at this time. Loans are placed in nonaccrual status when, in management’s opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Loans are removed from nonaccrual status when they are deemed a loss and charged to the allowance, transferred to foreclosed assets, or returned to accrual status based upon performance consistent with the original terms of the loan or a subsequent restructuring thereof. Management’s ability to ultimately resolve these loans either with or without significant loss will be determined, to a great extent, by general economic and real estate market conditions.

As a result of the JCB merger, there was one property valued at $140 thousand in other real estate owned at December 31, 2024,2024. comparedThe toproperty was sold during the second quarter of 2025. There was no other real estate owned at December 31, 2023.2025. More information on nonperforming assets and modifications to borrowers experiencing financial difficulty can be found in Note 5 of the “Notes to Consolidated Financial Statements” found in Item 8 of this annual report on Form 10-K.