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

The primary tool that management uses to measure short-term interest rate risk is a net interest income simulation model prepared by an independent third-party provider. As of December 31, 2024,2025, SmartFinancial is considered to be in a neutral to slightly liability-sensitiveasset-sensitive position, meaning income is generally expected to decrease with ana increasedecrease in short-term interest rates and, conversely, to increase with aan decreaseincrease in short-term interest rates. The primary tool that management uses to measure short-term interest rate risk is a net interest income simulation model. Based on the results of this simulation model, which assumed a static environment with no contemplated asset growth or changes in our balance sheet management strategies, if interest rates immediately increased by 200 basis points, we could expect net interest income to decreaseincrease by approximately $3.4 million over a 12-month12 month period. If interest rates immediately decreased by 200 basis points, we could expect net interest income to increasedecrease by approximately $1.5$4.06 million over the next 12-month12 month period.

The Federal Reserve reduced rates five times during 2019 through 2021. However, interest rates increased significantly in 2022-2023 to slow economic growth and counteract rising inflation. In September, November, and December of 2024, the Federal Reserve lowered the federal funds rate and indicated that the rate is likely to be held steady in 2025, or decreased, contingent upon improving inflationary conditions. Further rateRate changes reportedly are dependent on the Federal Reserve’s assessment of economic data as it becomes available. The Company cannot predict the nature or timing of future changes in monetary, economic, or other policies or the effect that they may have on the Company's business activities, financial condition, and results of operations. Although we have implemented policies, we believe will reduce the potential effects of changes in interest rates on our net interest income, this may not always be successful. Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest income and our net interest margin, asset quality, loan and lease origination volume, liquidity or overall profitability.

We are dependent on our information technology and telecommunications systems and third-party servicers, and systems failures, interruptions or breachescompromises of security in the Company’s information technology and telecommunications systems could have an adverse effect on our financial condition and results of operations.

Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks, including those we maintain with our service providers and vendors. Although we take protective measures and endeavor to modify these systems as circumstances warrant, the security of our computer systems, software and networks may be vulnerable to cyber-attacks, unauthorized access, misuse, computer viruses or other malicious code, phishing attempts, brute force attacks, exploiting software vulnerabilities (including “zero-day attacks”), ransomware or other malware, supply chain attacks, and other events that could have aan adverse security impact. We outsource many of our major systems, such as data processing, loan servicing and deposit processing systems. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If sustained or repeated, a system failure or service denial could result in a deterioration of our ability to process new and renewal loans, gather deposits and provide customer service, compromise our ability to operate effectively, damage our reputation, result in a loss of customer business and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

U.S. financial institutions have experienced significant distributed denial-of-service attacks, some of which involved sophisticated and targeted attacks intended to disable or degrade service,service or sabotage systems. Other types of attacks have attempted to obtain unauthorized access to confidential information or destroy data, often through the introduction of computer viruses or malware, cyber-attacks and other means. To date, none of these types of attacks have hadhad, or reasonably likely to have, a material effect on our business or operations. However, no assurances can be provided that we may not suffer from such an attack in the future that may cause us material harm. Such security attacks can originate from a wide variety of sources, including persons who are involved with organizedcriminal crimeorganizations or who may be linked to terrorist organizations or hostile foreign governments. ThoseThese same partiesactors may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers or clients. We are also subject to the risk that our employees may intercept and transmit unauthorized confidential or proprietary information. An interception, misuse or mishandling of personal, confidential or proprietary information being sent to or received from a customer or third party could result in legal liability, remediation costs, regulatory action and reputational harm to us.

In addition, we provide our customers the ability to bank remotely, including over the internet or through their mobile device.devices. The secure transmission of confidential and sensitive information is a critical element of remote and mobile banking. Although we regularly addenhance additionalour security measures to protect our computer systems and network infrastructure to mitigate the possibility of cyber security incidents, including adding firewalls and conducting penetration testing, it is difficult or impossible to defend against every risk being posed by changing technologies, including artificial intelligence, as well as criminal intent on committing cyber-crime.intelligence. Our network could be vulnerable to unauthorized access, computer viruses,viruses or other malicious code, phishing schemes,attempts, spam attacks, human error, natural disasters, power loss and other security incidents.incidents described above. We may be required to spend significant capital and other resources to protect against the threat of security incidents, or to alleviateremediate problems caused by security incidents. To the extent that our activities or the activities of our customers involve the storage and transmission of confidential or sensitive information, security incidents (including compromises of security of customer systems and networks) could expose us to claims, litigation and other possible liabilities. AnyAn inability to prevent security incidents could also cause existing customers to lose confidence in our systems and could adversely affect our reputation, results of operations and ability to attract and maintain customers and businesses. In addition, a security incident could also subject us to additional regulatory scrutiny, sanctions, fines or penalties (which may not be covered by our insurance policies), negative publicity, release of sensitive and/or confidential information, diversion of the attention of management away from the operation of our business andbusiness, increased cybersecurity protection and remediation costs, increases inincreased operating expenses, lost revenues, expose us to civil litigation andlitigation, possible financial liability and cause reputational damage.damage, any of which could have a material adverse effect on the Company’s results of operations, financial condition and cash flows.

We maintain a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud. If our internal controls fail to prevent or detect an occurrence,incident, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations.

The guidance states that banking institutions exceeding the concentration levels mentioned in the two supervisory criteria should have in place enhanced credit risk controls, including stress testing of CRE portfolios. As of December 31, 2024,2025, the Company’s percentageCLD withand respectCRE ratios were 71.45% and 277.30%, respectively, both below the guidelines above. Our ability to thegrow abovethose CLDloan guidelinetypes wascould 75.64%,be withinconstrained by the recommendedamount 100%we limit,are and with respectable to thegrow above CRE guideline, its percentage was 303.46%, exceeding the 300% level.capital.

A substantial part of our historical growth has been a result of acquisitions and we intend to continue to grow our business through strategic acquisitions of banking franchises coupled with organic loan and lease growth. Previous availability of attractive acquisition targets may not be indicative of future acquisition opportunities, and we may be unable to identify any acquisition targets that meet our investment objectives. To the extent that we are unable to find suitable acquisition candidates, an important component of our strategy may be lost. We also face significant competition from numerous other financial services institutions, many of which will have greater financial resources than we do, when considering acquisition opportunities. Accordingly, attractive acquisition opportunities may not be available to us. There can be no assurance that we will be successful in identifying or completing any future acquisitions. If we are able to identify attractive acquisition opportunities, we must generally satisfy a number of conditions prior to completing any such transaction, including certain bank regulatory approvals, which have become substantially more difficult, time-consuming and unpredictable as a result of the 2007-2008 financial crisis.acquisitions Additionally, any future acquisitions may not produce the revenue, earnings or synergies that we anticipated. As our purchased credit impaired loan portfolio, which produces substantially higher yields than our organic and purchased non-credit impaired loan and lease portfolios, is paid down, we expect downward pressure on our income. If we are unable to replace our purchased credit impaired loans and leases and the related accretion with a significantly higher level of new performing loans and leases and other earning assets due to our inability to identify attractive acquisition opportunities, a decline in loan demand, competition from other financial institutions in our markets, stagnation or continued deterioration of economic conditions, or other conditions, our financial condition and earnings may be adversely affected.

Difficulty in integrating an acquired business or company may cause us not to realize expected revenue increases, cost savings, increases in geographic or product presence, or other anticipated benefits from any acquisition. The integration could result in higher than expected deposit attrition (run-off), loss of key employees, disruption of the Company’s business or the business of the acquired company, exposure to potential asset quality issues with acquired institutions, or otherwise adversely affect the Company’s ability to maintain relationships with customers and employees or achieve the anticipated benefits of the acquisition. The acquired companies may also have legal contingencies, beyond those that we are aware of, that could result in unexpected costs. The Company may need to make additional investment in equipment and personnel to manage higher asset levels and loan balances as a result of any significant acquisition, which may adversely impact earnings.

The small to medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, including the continued elevated inflationary and interest rate environment,environment and the imposition of tariffs and retaliatory responses, which may impair a borrower’s ability to repay a loan or lease, and such impairment could have an adverse effect on our business, financial condition and results of operations. A substantial focus of our marketing and business strategy is to serve small to medium-sized businesses in our market areas. As a result, a relatively high percentage of our loan and lease portfolio consists of commercial loans to such businesses. We further anticipate an increase in the amount of loans to small to medium-sized businesses during 2025.2026.

We have established mortgage banking operations which expose us to risks that are different from our retail and commercial banking operations. During higher and rising interest rate environments, the demand for mortgage loans and the level of refinancing activity tends to decline, which can lead to reduced volumes of business and lower revenues, which could negatively impact our earnings. In 2022 and 2023, in response to growing signs of inflation, the Federal Reserve increaseddecisions to change interest rates rapidly,are butnot subsequently lowered the federal funds rate in September, November,predictable and Decembercan ofhave 2024a andmaterial indicatedimpact thaton theour ratemortgage isbanking likely to be held steady in 2025, or decreased, contingent upon improving inflationary conditions.operations. Because we sell a portion of the mortgage loans we originate, the profitability of our mortgage banking operations also depends in large part on our ability to aggregate a high volume of loans and sell them in the secondary market at a gain. Thus, in addition to our dependence on the interest rate environment, we are dependent upon (a) the existence of an active secondary market and (b) our ability to profitably sell loans into that market. Profitability of our mortgage operations will depend upon our ability to increase production and thus income while holding or reducing costs. In addition, mortgages sold to third-party investors are typically subject to certain repurchase provisions related to borrower refinancing, defaults, fraud or other reasons stipulated in the applicable third-party investor agreements. If the fair value of a loan when repurchased is less than the fair value when sold, we may be required to charge such shortfall to earnings.

Our authorized capital includes 40,000,000 shares of common stock and 2,000,000 shares of preferred stock. As of December 31, 2024,2025, we had 16,925,67217,029,317 shares of common stock and no shares of preferred stock outstanding and had reserved or otherwise set aside for issuanceissuance, 10,148 shares underlying outstanding options and 1,595,0201,679,333 shares that are available for future grants of stock options, restricted stock or other equity-based awards pursuant to our equity incentive plans. Subject to NYSE rules, our board of directors generally has the authority to issue all or part of any authorized but unissued shares of common stock or preferred stock for any corporate purpose. We anticipate that we will issue additional equity in connection with the acquisition of other strategic partners and that in the future we likely will seek additional equity capital as we develop our business and expand our operations, depending on the timing and magnitude of any particular future acquisition. These issuances would dilute the ownership interests of existing shareholders and may dilute the per share book value of the common stock. New investors also may have rights, preferences and privileges that are senior to, and that adversely affect, our then existing shareholders.

We are a bank holding company that was incorporated on September 19, 1983 under the laws of the State of Tennessee, and operate primarily through our wholly-owned bank subsidiary, SmartBank. As of December 31, 20242025 the Bank provides a comprehensive suite of commercial and consumer banking services to clients through 42 full-service bank branches and one loan production office in select markets in East and Middle Tennessee, Alabama and Florida.

In addition to our banking services, we offer insurance products through SBK Insurance, Inc., formally known as Rains Insurance Agency, Inc. and loans and leases for heavy equipment through Fountain Equipment Finance, LLC, bothwhich areis subsidiariesa subsidiary of the Bank. The Bank also contracts with RJFS, a registered broker-dealer and investment adviser, to offer and sell various securities and other financial products to the public through associates who are employed by both the Bank and RJFS. RJFS is a subsidiary of Raymond James Financial, Inc.

1Yields related to tax-exempt loans exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 21.0%. The taxable-equivalent adjustment was $748,$970 $0thousand, $748 thousand and $0 for the years ended December 31, 2024,2025, 20232024 and 2022,2023, respectively.

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. Net interest income, taxable equivalent, increased by $29.1 million between the years ended December 31, 2025, and 2024 and increased by $8.0 million between the years ended December 31, 20242024, and 2023 and decreased by $7.7 million between the years ended December 31, 2023 and 2022.2023. The following is an analysis of the changes in net interest income comparing the changes attributable to rates and those attributable to volumes (in thousands):

While a loan or lease is classified as nonaccrual and the future collectability of the recorded loan or lease balance is doubtful, collections of interest and principal are generally applied as a reduction to the principal outstanding, except in the case of loans and leases with scheduled amortizations where the payment is generally applied to the oldest payment due. When the future collectability of the recorded loan and lease balance is expected, interest income may be recognized on a cash basis. In the case where a nonaccrual loan and lease had been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan and lease balance at the contractual interest rate. Receipts in excess of that amount are recorded as recoveries to the allowance for loan and leasecredit losses until prior charge-offs have been fully recovered.

At December 31, 2024,2025, substandard or problem loans and leasesleases, which are defined in “Part II – Item 8. Financial Statements and Supplementary Data – Note 5 – Loans and Leases and Allowance for Credit Losses”, amounted to approximately $11.7$10.6 million or 0.30%0.24% of total loans and leases outstanding. Potential problem loans and leases, which are not included in nonperforming loans and leases, represent those loans and leases with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have doubts about the borrower’s ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by the Bank’s primary regulators, for loans classified as substandard or worse, but not considered nonperforming loans and leases.

On January 1, 2023, we adopted FASB ASU 2016-13, which introduced the current expected credit losses ("CECL") methodology and required us to estimate all expected credit losses over the remaining life of our loan portfolio. For additional information relating to CECL, see Note 1—Summary of Significant Accounting Policies to our audited consolidated financial statements. Accordingly, the allowance for credit losses represents an amount that, in management's evaluation, is adequate to provide coverage for all expected future credit losses on outstanding loans. As of December 31, 2024,2025, and 2023,2024, our allowance for credit losses on loans and leases was $37.4$40.9 million and $35.1$37.4 million, respectively, which our management deemed to be adequate at each of the respective dates. Our allowance for credit losses as a percentage of total loans was 0.96%0.94% and 1.02%0.96% at December 31, 2024,2025, and 2023,2024, respectively.

The current methodology for assessing the appropriate allowance includes: (1) a collective quantified reserve determined by non-discounted cash flow analysis for the loan portfolio, (2) a collective quantified reserve determined by the open-pool methodology for the bank’s lease portfolio, (3) collective qualitative factors to adjust expected credit losses for information not already captured in the loss estimation,estimation and (4) individual allowances on collateral-dependent loans where the bank may be inadequately protected by current paying capacity of the borrower. At December 31, 2024,2025, 45%42% of the allowance is attributable to the collective qualitative factors, a slight decline from 46%45% at December 31, 2023.2024.

Our available-for-sale (“AFS”) investment portfolio is carried at fair market valuevalue, and our held-to-maturity investment portfolio is carried at amortized cost, and consists primarily of Federal agency bonds, mortgage-backed securities, state and municipal securities and other debt securities. Our investment portfolio decreasedincreased from $689.6 million at December 31, 2023, to $609.0 million at December 31, 2024.2024, to $662.0 million at December 31, 2025. The $80.7$53.0 million decreaseincrease is primarily related to the strategic decision not to reinvestrestructure a portion of the fullportfolio proceedsin the third quarter of scheduled2025, maturities back intoand the investmentimpact of lower market interest rates, which improved the fair value of the AFS portfolio. The Company purchased $131.4$215.3 million of securities during the year ended December 31, 2024,2025, which was offset by $210.5$174.7 million of sales, maturities, and prepayments received during the same period. New purchases were focused on higherprepayment yieldingprotected mortgage-backed securities to provide cash flow, liquidity and to support interest rate risk objectives. Our investment to asset ratio has decreased from 14.3% at December 31, 2023, to 11.5% at December 31, 20242024, to 11.3% at December 31, 2025, primarily due to deploying principal cash flow away from the investment portfolio.

Net unrealized losses in our AFS securities portfolio were $30.4$11.6 million as of December 31, 2024,2025, compared to $33.0$30.4 million at December 31, 2023.2024. The decrease was attributable to changes in market interest rates related to our securities, relative to when the securities were purchased. Principal paydowns/maturities on lower yielding securitiessecurities, as well as the decision to sell a portion of the bank’s AFS securitiessecurities, also played a role in a decrease in the net unrealized loss change over the period.

During 2024,2025, average deposits increased in noninterest-bearing demand, money market and savings and time deposits, with decreases in noninterest-bearing demand and interest-bearing demand deposits. The Company believes its deposit product offerings are properly structured to attract and retain core low-cost deposit relationships. The average cost of deposits was 2.51%2.36% in 20242025 compared to 2.00%2.51% in 2023.2024.

Other than deposits, the Company uses short-term borrowings and long-term debt to provide both funding and, to a lesser extent, regulatory capital using debt at the Company level which can be down streamed as Tier 1 capital to the Bank. Total borrowings at December 31, 20242025 and 2023,2024, were $8.1$3.0 million and $13.1$8.1 million, respectively. The $5.0$5.1 million reduction in borrowings was primarily the repayment of $4.0 million on a line of credit.credit, that had a $0 balance at December 31, 2025. Short-term borrowings, included in borrowings, totaled $3.0 million at December 31, 2025 and $4.1 million at December 31, 2024 and $5.1 million at December 31, 2023 and consisted entirely of securities sold under repurchase agreements. Long-term debt totaled $98.7 million at December 31, 2025 and $39.7 million at December 31, 2024 and $42.1 million at December 31, 2023 and consisted entirely of subordinated debt. The $2.4$59.0 million reductionincrease in long-term debt is related to the redemptionCompany issuing $100 million in subordinated debt during the third quarter of $2.52025, and subsequently retiring $40 million of sub-debtexisting duringsubordinated 2024.debt in the fourth quarter of 2025. For more information regarding our borrowings and subordinated debt, see “Part II – Item 8. Financial Statements and Supplementary Data – Note 9 – Borrowings and Line of Credit” and “Note 10 – Subordinated Debt.”

The Company has a revolving line of credit for an aggregate amount of $35.0 million, with a maturity date of February 1, 2025. On January 21,2025, the maturity date was extended to May 1, 2025.2027. At December 31, 2024,2025, $4.0 million$0 was outstanding under the line of credit, and $31.0all $35.0 million of the line of credit remained available to the Company.

At December 31, 2024,2025, we had $828.8$1.09 million ofbillion pre-approved but unused lines of credit and $23.2$15.6 million of standby letters of credit. These commitments generally have fixed expiration dates and many will expire without being drawn upon. The total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Bank has the ability to liquidate Federal funds sold or securities available-for-sale, or on a short-term basis to borrow and purchase Federal funds from other financial institutions. Additional information about our off-balance sheet risk exposure is presented in Note 14 – Commitments and Contingent Liabilities to our audited consolidated financial statements.

These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found in SmartFinancial’s most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, in each case filed with or furnished to the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website (www.sec.gov). Undue relianceReaders should not beplace placedundue reliance on forward-looking statements. The Company disclaims any obligation to update or revise any forward-looking statements contained in this release,report, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise.

Our Consolidated Financial Statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and follow general practices within the industries in which we operate. The most significant accounting policies we follow are presented in Note 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the Consolidated Financial Statements. These factors include among other things, whether the policy requires management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. The accounting policies which we believe to be most critical in preparing our Consolidated Financial Statements are presented in the section titled “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. During thisthe quarter ending March 31, 2026, the Bank enhanced its ACL loss model for loans and leases. See Note 1. Recently Modified Accounting Policies and Allowance for Credit Losses in the Notes to our Consolidated Financial Statements in this Form 10-Q for further information related to these changes. There have been no other significant changes in the Company’s application of critical accounting policies since December 31, 2025.

The following is a summary of the Company’s financial highlights and significant events during the second quarter and first quartersix months of 2026:

The following is a summary of certain financial information for the three-monththree and six month periods ended MarchJune 31,30, 2026,2026 and 20252025, and as of MarchJune 31,30, 2026, and December 31, 2025 (dollars in thousands, except per share data):

Net income was $13.7$16.3 million, or $0.81$0.96 per diluted common share, for the firstsecond quarter of 2026, compared to $11.3$11.7 million, or $0.67$0.69 per diluted common share, for the firstsecond quarter of 2025. For the three months ended MarchJune 31,30, 2026, when compared to the comparable period in 2025, the increase in net income of $2.4$4.6 million was due to an increase in net interest income after provision for loan and lease losses of $4.5$8.7 million, offset by a decrease onin noninterest income of $656$1.0 thousand andmillion, an increase in noninterest expense of $619$1.4 thousandmillion and an increase in income tax expense of $777$1.7 thousand.million. The tax equivalent net interest margin was 3.48%3.52% for the firstsecond quarter of 2026, compared to 3.21%3.29% for the firstsecond quarter of 2025. Noninterest income to average assets was 0.56%0.53% for the firstsecond quarter of 2026, decreasing from 0.66%0.67% for the firstsecond quarter of 2025. Noninterest expense to average assets decreased to 2.31%2.29% in the firstsecond quarter of 2026, from 2.48%2.44% in the firstsecond quarter of 2025.

Net interest income, taxable equivalent, increased to $46.2$48.4 million for the firstsecond quarter of 2026, up from $38.6$40.7 million for the firstsecond quarter of 2025. Net interest income increased due to higher loan and lease balances, higher yields on these assets, and lower cost of interest-bearing libailities.liabilities. Average interest-earning assets increased from $4.87$4.96 billion for the firstsecond quarter of 2025, to $5.39$5.52 billion for the firstsecond quarter of 2026, primarily from the increase in our average loan and lease balances and average securities,securities balances, which was offset by decreases in average cash balances. Over this period, average loan and lease balances increased by $492.9$560.0 million and average interest-bearing deposits increased by $342.6$395.7 million. Average securities increased by $46.1$46.0 million, average federal funds sold and other interest earning assets decreased by $20.4$43.4 million, average subordinated debt increased by $59.0 million, average borrowings decreasedincreased by $4.7$33.5 million and noninterest-bearing deposits increased by $47.8$25.5 million. The tax equivalent net interest margin increased to 3.48%3.52% for the firstsecond quarter of 2026, compared to 3.21%3.29% for the firstsecond quarter of 2025. The yield on earning assets increased from 5.56%5.65% for the firstsecond quarter of 2025, to 5.62%5.70% for the firstsecond quarter of 2026, primarily due to the deployment of excess cash and cash equivalents into loans and leases. The cost of average interest-bearing deposits decreased from 2.92%2.95% for the firstsecond quarter of 2025, to 2.60%2.62% for the firstsecond quarter of 2026, primarily due to the decrease in rates by the Federal Reserve.

1Yields related to tax-exempt loans exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 21.0%. The taxable-equivalent adjustment was $218$194 thousand and $246$245 thousand for the three months ended MarchJune 31,30, 2026, and 2025, respectively.

2Yields related to investment securities exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 21.0%. The taxable-equivalent adjustment was $148$150 thousand and $94$105 thousand for the three months ended MarchJune 31,30, 2026, and 2025, respectively.

Noninterest income decreased by $656$1.0 thousandmillion during the firstsecond quarter of 2026 compared to the same period in 2025. This quarterly change in total noninterest income primarily resulted from the following:

Noninterest expense increased by $619$1.4 thousandmillion in the firstsecond quarter of 2026 as compared to the same period in 2025. The quarterly increase in total noninterest expense primarily resulted from the following:

In the firstsecond quarter of 2026 income tax expense totaled $3.1$4.2 million as compared to $2.3$2.6 million in thesame first quarterperiod of 2025. The effective tax rate was approximately 18.39%20.5% in the firstsecond quarter of 2026 compared to 17.01%17.9% in the firstsecond quarter of 2025. The increase in the effective tax rate is primarily due to a higher estimatedprojected annual effective tax rate forresulting 2026.from Theincreased higherforecasted annual rate reflects an increase in projected pre-tax booktaxable income whilerelative permanentto taxnon-taxable benefits remain relatively consistent, resulting in a higher overall tax rate.income.

The Company had total net loans and leases outstanding of approximately $4.47$4.64 billion at MarchJune 31,30, 2026, compared to $4.32 billion at December 31, 2025. Loans secured by real estate, consisting of commercial and residential property, are the principal component of our loan and lease portfolio.

The following table sets forth the maturity distribution of our loans and leases at MarchJune 31,30, 2026, including the interest rate sensitivity for loans and leases maturing after one year (in thousands):

Nonperforming loans and leases, as a percentage of total gross loans and leases, net of deferred fees, waswere 0.27%0.25% as of MarchJune 31,30, 2026, and 0.22% as of December 31, 2025 respectively.2025. Total nonperforming assets, as a percentage of total assets, waswere 0.25%0.23% asat ofJune March 31,30, 2026, and 0.22% as ofat December 31, 2025, respectively.2025.

We maintain the allowance at a level that we deem appropriate to adequately cover change in the loan and lease portfolio. Our provision for credit losses for loans and leases for the threesix months ended MarchJune 31,30, 2026, iswas $3.2$5.1 million compared to $843$2.6 thousandmillion in the same period of 2025, an increase of $2.4$2.5 million. As of MarchJune 31,30, 2026, and December 31, 2025, our allowance for credit losses was $44.0$45.3 million and $40.9 million, respectively, which we deemed to be adequate at each of the respective dates. Our allowance for credit loss as a percentage of total loans and leases was 0.97% at MarchJune 31,30, 2026, and 0.94% at December 31, 2025. During thisthe quarter ending March 31, 2026, the Bank enhanced its ACL loss model for loans and leases. See Note 1. Recently Modified Accounting Policies and Allowance for Credit Losses in the Notes to our Consolidated Financial Statements in this Form 10-Q for further information related to these changes.

The allowance associated with the individually evaluated loans and leases werewas approximately $3.7$3.5 million at MarchJune 31,30, 2026, compared toand $4.9 million at December 31, 2025.

Our available-for-sale securities portfolio is carried at fair market value and our held-to-maturity securities portfolio is carried at amortized cost, and consists primarily of Federal agency bonds, mortgage-backed securities, state and municipal securities and other debt securities. Our securities portfolio increased from $662.0 million at December 31, 2025, to $673.1$679.9 million at MarchJune 31,30, 2026, primarily as a result of available-for-sale securities purchasespurchases. Our securities to asset ratio increasedhas decreased from 11.3% at December 31, 2025, to 11.4%11.1% at MarchJune 31,30, 2026.

The following table presents the contractual maturity of the Company’s securities by contractual maturity date and average yields based on amortized cost (for all obligations on a fully taxable basis) at MarchJune 31,30, 2026 (dollars in thousands). The composition and maturity/repricing distribution of the securities portfolio is subject to change depending on rate sensitivity, capital and liquidity needs.

Deposits are the primary source of funds for the Company’s lending and investing activities. The Company provides a range of deposit services to businesses and individuals, including noninterest-bearing checking accounts, interest-bearing checking accounts, savings accounts, money market accounts, Individual Retirement Accounts and Certificatescertificates of Deposits.deposit. These accounts generally earn interest at rates the Company establishes based on market factors and the anticipated amount and timing of funding needs. The establishment or continuity of a core deposit relationship can be a factor in loan pricing decisions. While the Company’s primary focus is on establishing customer relationships to attract core deposits, at times, the Company uses brokered deposits and other wholesale deposits to supplement its funding sources. As of MarchJune 31,30, 2026, and December 31, 2025, the Company had $0$106.2 and $51.9 million in brokered deposits, respectively.

The following tables summarize the average balances outstanding and average interest rates for each major category of deposits for the three and six month periods ending MarchJune 31,30, 2026, and 2025, respectively (dollars in thousands):

The Company believes its deposit product offerings are properly structured to attract and retain core deposit relationships. The average cost of interest-bearing deposits for the three months ended MarchJune 31,30, 2026, and 2025, was 2.60%2.15% and 2.92%,2.39%, respectively. The cost decrease was primarily attributable to the rate decreases by the Federal Reserve. The average cost of interest-bearing deposits for the six months ended June 30, 2026, and 2025, was 2.14% and 2.38%, respectively. The cost decrease was primarily attributable to rate decreases by the Federal Reserve.

Total deposits as of MarchJune 31,30, 2026, were $5.20$5.39 billion, which was an increase of $43.4$232.8 million from December 31, 2025. This overall increase was driven primarily by increases in money market deposits of $182.3 million, other time deposits of $16.1$181.2 million, interest-bearing demand deposits of $8.6,$76.4 million, certificate time deposits of $62.0 million and brokered deposits of $54.3 million, offset by a decline in noninterest demand deposits of $111.6 million and brokered deposits of $51.9$141.0 million. As of MarchJune 31,30, 2026, the Company had outstanding time deposits under $250,000 with balances of $366.3$474.6 million and time deposits over $250,000 with balances of $468.3$512.2 million.

The Company uses short-term borrowings and long-term debt to provide both funding and, to a lesser extent, regulatory capital using debt at the Company level which can be down-streamed as Tier 1 capital to the Bank. Borrowings totaled $3.2$603 millionthousand at MarchJune 31,30, 2026, and consisted entirely of securities sold under repurchase agreements. Long-term debt totaled $98.8 million at June 30, 2026, and $98.7 million at March 31, 2026, and December 31, 2025, respectively, and consisted entirely of subordinated debt. For more information regarding our borrowings, see “Part I - Item 1. Consolidated Financial Statements – Note 6 – Borrowings, Line of Credit and Subordinated Debt” of this report.

The Company uses leverage analysis to examine the potential of the institution to increase assets and liabilities using the current capital base. The key measurements included in this analysis are the Bank’s Common Equity Tier 1 capital, Tier 1 capital, leverage and total capital ratios. At MarchJune 31,30, 2026 and December 31, 2025, our capital ratios, including our Bank’s capital ratios, exceeded regulatory minimum capital requirements. From time to time, we may be required to support the capital needs of our bank subsidiary. We believe we have various capital raising techniques available to us to provide for the capital needs of our bank, if necessary. For more information regarding our capital, leverage and total capital ratios, see “Part I - Item 1. Consolidated Financial Statements – Note 12 – Regulatory Matters” of this report.

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. At MarchJune 31,30, 2026, we had $1.04 billion of pre-approved but unused lines of credit and $23.7$23.3 million of standby letters of credit. These commitments generally have fixed expiration dates, and many will expire without being drawn upon. The total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Bank has the ability to liquidate federal funds sold or securities available-for-sale, or on a short-term basis to borrow and purchase federal funds from other financial institutions. For more information regarding our off-balance sheet arrangements, see “Part I - Item 1. Consolidated Financial Statements – Note 8 – Commitments and Contingent Liabilities” of this report.

At MarchJune 31,30, 2026, our model results indicated that we were within our policy limits.