10-K: SmartFinancial Reports Strong 2025 Growth, Profitability

SmartFinancial, Inc. reported a significant increase in net income and record loan and deposit growth for 2025, alongside strategic capital management and a focus on cybersecurity.

Summary

• Net income increased to $50.3 million, or $2.98 per diluted common share, in 2025, compared to $36.1 million, or $2.14 per diluted common share, in 2024.
• Net loans and leases grew by $453.8 million (11.7%) to a record high of $4.3 billion at December 31, 2025.
• Total deposits grew by $466.3 million to a record high of $5.2 billion at December 31, 2025.
• Return on average assets improved to 0.91% for 2025, up from 0.73% for 2024.
• The tax equivalent net interest margin increased to 3.29% for 2025, compared to 3.04% for 2024.
• SmartBank, a wholly-owned subsidiary, sold 100% of the equity interests of SBK Insurance (SBKI) in the third quarter of 2025, resulting in a $4.0 million pre-tax gain.
• Issued $100 million in subordinated debt during the third quarter of 2025 and subsequently retired $40 million of existing subordinated debt in the fourth quarter of 2025.
• Repositioned $85 million of available-for-sale securities in the third quarter of 2025, resulting in a $3.9 million pre-tax loss.
• Allowance for credit losses on loans and leases was $40.9 million, representing 0.94% of total loans and leases, at December 31, 2025.
• Nonperforming loans and leases as a percentage of gross loans and leases was 0.22% at December 31, 2025.
• Both SmartFinancial and SmartBank maintained capital ratios above all applicable well-capitalized regulatory standards at December 31, 2025.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong performance, demonstrating robust financial growth, effective capital management, and solid asset quality, despite some market challenges and strategic repositioning costs.

Positives

• Net income increased significantly to $50.3 million in 2025 from $36.1 million in 2024, representing a 39.2% year-over-year increase.
• Diluted earnings per common share rose to $2.98 in 2025 from $2.14 in 2024, a 39.2% increase.
• Achieved record high net loans and leases of $4.3 billion at December 31, 2025, reflecting strong organic loan growth of $453.8 million (11.7%).
• Reached record high total deposits of $5.2 billion at December 31, 2025, with organic deposit growth of $466.3 million.
• Return on average assets improved to 0.91% in 2025 from 0.73% in 2024, indicating enhanced efficiency and profitability.
• Tax equivalent net interest margin increased to 3.29% in 2025 from 3.04% in 2024, demonstrating effective interest rate management.
• The sale of SBK Insurance (SBKI) generated a $4.0 million pre-tax gain, streamlining operations and focusing on core banking services.
• Maintained strong asset quality with nonperforming loans and leases at 0.22% of total loans and leases at year-end 2025.
• Both SmartFinancial and SmartBank were categorized as 'well-capitalized' under regulatory frameworks, exceeding all minimum capital requirements.
• The effective tax rate decreased to 18.1% in 2025 from 20.5% in 2024, primarily due to the full-year impact of the Real Estate Investment Trust (REIT) structure.
• Achieved 'Great Place to Work' certification in 2025 and was named the Top 28th best Financial and Insurance Services Company to work for, indicating strong human capital management.

Negatives

• Incurred a $3.9 million pre-tax loss from repositioning $85 million of available-for-sale securities in the third quarter of 2025.
• Noninterest income to average assets decreased to 0.62% in 2025 from 0.69% in 2024.
• Provision for credit losses increased to $7.75 million in 2025 from $5.153 million in 2024, reflecting higher expected credit losses.
• Restructuring expenses increased to $1.326 million in 2025, related to the sale of SBKI.
• Net unrealized losses in the available-for-sale (AFS) securities portfolio were $11.6 million at December 31, 2025.
• Unrealized losses in the held-to-maturity (HTM) portfolio were $12.7 million at December 31, 2025, primarily due to changes in the interest rate environment.
• The cost of average interest-bearing deposits increased significantly in 2024 (from 2.59% to 3.15%) due to rising Federal Reserve rates, although it decreased slightly in 2025.

Risks

• Net interest income could be negatively affected by interest rate adjustments by the Federal Reserve Board; a 200 basis point decrease could reduce net interest income by approximately $4.06 million over a 12-month period.
• Dependence on information technology and telecommunications systems and third-party servicers exposes the company to risks of system failures, interruptions, or compromises of security (e.g., cyber-attacks, malware, phishing, ransomware, supply chain attacks).
• Extensive government regulation could limit or restrict activities, increasing compliance costs and adversely affecting profitability.
• The Federal Reserve may require the company to commit capital resources to support SmartBank, potentially at times when resources are constrained.
• Federal and state regulators periodically examine the business, and the company may be required to remediate adverse examination findings.
• The allowance for credit losses may not be sufficient to cover actual losses, which would adversely affect earnings.
• Negative developments in the banking industry, such as high-profile bank failures, could adversely affect client confidence, liquidity, loan funding capacity, net interest margin, capital, and results of operations.
• Success depends significantly on economic conditions in concentrated market areas (East and Middle Tennessee, Alabama, and the Florida Panhandle), with tourism-dependent areas being particularly sensitive to economic changes.
• Intense competition from financial institutions and other financial service providers (commercial banks, credit unions, fintechs) may adversely affect profitability, potentially requiring higher deposit rates or lower loan rates.
• The development and use of artificial intelligence (AI) presents risks and challenges, including legal and regulatory uncertainty, incorrect or biased output, intellectual property infringement, and difficulty in understanding complex models.
• Organic loan and lease growth may be limited by regulatory constraints, particularly interagency guidance on Concentrations in Commercial Real Estate Lending (CLD and Total CRE ratios).
• Inability to identify and consummate attractive acquisitions, or increase loans and leases through organic growth, could hinder the growth strategy.
• Acquisition activity and future expansion involve various risks, including integration difficulties, deposit attrition, loss of key employees, business disruption, exposure to asset quality issues, and legal contingencies.
• Concentration in loans secured by real estate (80% of the portfolio, with 10% in construction and development) makes the company susceptible to declines in real estate values and adverse economic conditions.
• The 10 largest borrowing relationships totaled approximately $303 million (7% of the total loan portfolio) at December 31, 2025, posing concentration risk if one or more default.
• Declines in the businesses or industries of small to medium-sized customers could cause increased credit losses and decreased loan balances.
• The use of appraisals in real property lending does not ensure the value of the real property collateral, as appraisals are estimates and values can decrease.
• Liquidity risk could impair the ability to fund operations and jeopardize financial condition, especially if deposit balances decrease or access to secondary funding sources is limited.
• Potential for losses on securities held in the portfolio, particularly if interest rates increase or economic and market conditions deteriorate, leading to realized and/or unrealized losses.
• Increased mortgage banking activities expose the company to risks from higher interest rate environments (reduced demand, lower revenues) and dependence on the secondary market.
• Any expansion into new lines of business might not be successful, with risks related to revenue generation, competition, regulatory compliance, and internal controls.
• Deficiencies in financial reporting or internal controls could materially and adversely affect the company, including resulting in material misstatements in financial statements and a negative impact on stock price.
• Inability to retain senior management and key employees or to attract new experienced financial services professionals could impair customer relationships, reduce growth, and adversely affect the business.
• Employee misconduct could expose the company to significant legal liability and reputational harm.
• The company may be adversely affected by the soundness of other financial institutions due to interrelationships and market perceptions.
• The ability to declare and pay dividends is limited by future earnings, regulatory restrictions, and capital requirements.
• The common stock has less liquidity than many other stocks quoted on a national securities exchange, and significant sales could cause the stock price to fall.
• Issuance of additional shares of stock or equity derivative securities could result in the dilution of shareholders' investment.
• Anti-takeover laws and certain agreements and charter provisions may adversely affect the price of common stock by making acquisitions more difficult.
• Corporate responsibility risks related to diversity, equity, inclusion, environmental stewardship, human capital management, and transparency could adversely affect reputation and stakeholder relationships.
• The company's securities are not FDIC insured.

Future Outlook

SmartFinancial believes that both the Company and SmartBank will continue to exceed all applicable well-capitalized regulatory capital requirements and the capital conservation buffer in 2026. The company anticipates an increase in loans to small to medium-sized businesses during 2026. However, it expects downward pressure on income as its purchased credit impaired loan portfolio is paid down, necessitating a significantly higher level of new performing loans and leases and other earning assets to replace it. The company cannot predict the nature or timing of future changes in monetary, economic, or other policies or their effect on its business activities, financial condition, and results of operations.

Management Comments

• "We believe that we and SmartBank will continue to exceed all applicable well-capitalized regulatory capital requirements and the capital conservation buffer in 2026."
• "We anticipate an increase in the amount of loans to small to medium-sized businesses during 2026."
• "Management believes that any claims pending against SmartFinancial, or its subsidiary, are without merit or that the ultimate liability, if any, resulting from them will not materially affect SmartBanks financial condition or SmartFinancials consolidated financial position."
• "Management believes the allowance for credit losses on loans and leases to be adequate to absorb our estimate of expected future credit losses on loans outstanding at December 31, 2025."
• "Management will continue to evaluate the economic conditions at future reporting periods for applicable changes [regarding goodwill impairment]."

Industry Context

StockSavvy.ai notes that SmartFinancial's strong organic growth in loans and deposits, coupled with improved profitability metrics like ROAA and net interest margin, positions it favorably within the regional banking sector. The strategic sale of its insurance subsidiary and active capital management (subordinated debt issuance and retirement) demonstrate proactive efforts to optimize its core banking focus. However, the industry faces ongoing challenges from interest rate volatility, increasing competition from fintechs, and evolving regulatory landscapes, particularly concerning AI and cybersecurity, which SmartFinancial acknowledges and addresses through its risk management framework. The company's geographic concentration in the Southeast makes it susceptible to regional economic shifts, a common characteristic of community banks.

Comparison to Industry Standards

• SmartFinancial's Return on Average Assets (0.91% in 2025) and Return on Average Shareholders' Equity (9.67% in 2025) show improvement and are competitive within the regional banking sector, often compared to peers like First Horizon Corporation (FHN) or Pinnacle Financial Partners (PNFP) which typically aim for ROAA above 1% and ROAE in the low to mid-teens.
• The tax equivalent net interest margin of 3.29% in 2025 is a solid performance, especially given the dynamic interest rate environment, comparing favorably to many regional banks that have seen NIM compression.
• The nonperforming loans and leases to total loans and leases ratio of 0.22% at December 31, 2025, indicates strong asset quality, generally outperforming the industry average which can range from 0.5% to 1.5% for commercial banks.
• The company's capital ratios (CET1 9.83%, Tier 1 9.83%, Total Capital 12.71% for SmartFinancial) are well above regulatory minimums, demonstrating a robust capital position, comparable to well-capitalized benchmarks set by federal regulators for institutions of its size.

Corporate Governance

Legal Proceedings

• At December 31, 2025, neither SmartFinancial nor SmartBank was involved in any material litigation.
• SmartBank is periodically involved as a plaintiff or defendant in various legal actions in the ordinary course of its business, but management believes any ultimate liability will not materially affect SmartBank's financial condition or SmartFinancial's consolidated financial position.

Related Party Transactions

• Loans to related parties (directors, executive officers, and their affiliates) totaled $24.16 million at December 31, 2025, an increase from $21.898 million at December 31, 2024.
• Pre-approved but unused lines of credit totaling approximately $10.9 million were extended to related parties at December 31, 2025.
• The company has two leasing arrangements for branch offices with companies wholly owned by the sons of director David A. Ogle (Dolly Parton Parkway Lease and Alcoa Lease), which are considered economically fair.
• Total related party deposits were $20.1 million at December 31, 2025, a decrease from $70.6 million at December 31, 2024.

Stakeholder Impact

• Shareholders: Positive impact from increased net income, EPS, and consistent dividends. Potential dilution from future equity issuances and risks from anti-takeover provisions.
• Employees: Positive impact from competitive compensation and benefits, a healthy work-life balance, professional development opportunities, and recognition as a 'Great Place to Work'. Risk of employee misconduct.
• Customers: Benefit from a comprehensive suite of banking and investment services. Potential risk of cybersecurity incidents affecting confidential information.
• Regulators: Company maintains strong compliance with capital requirements and internal controls, but remains subject to ongoing scrutiny and potential enforcement actions.
• Communities: SmartBank has a 'Satisfactory' Community Reinvestment Act (CRA) rating, indicating efforts to meet the credit needs of its communities.

Next Steps

• Continue evaluating business combination and purchase opportunities and conduct due diligence activities.
• Implement growth plans and manage growth effectively, including organic loan and lease growth.
• Continue to attract and retain key personnel and recruit qualified individuals to succeed existing key personnel.
• Monitor developments in state and national privacy and cybersecurity regulations and make ongoing investments in information systems and compliance capabilities.
• Assess the adequacy of the allowance for credit losses on a quarterly basis.
• Perform the annual goodwill impairment test as of December 31 of each year.
• Evaluate the provisions of recently issued FASB ASUs (2024-03, 2025-08, 2025-09, 2025-11, 2025-12) for potential impact on consolidated financial statements.
• The board of directors will continue to review succession plans for senior positions annually.
• Continue the policy of paying regular cash dividends on a quarterly basis, subject to board approval and applicable regulatory requirements.
• May purchase up to an additional $1.5 million in outstanding common stock under the authorized repurchase plan.
• The Annual Meeting of Shareholders is scheduled to be held on May 21, 2026.

Key Dates

Recommendation

SmartFinancial demonstrated strong financial performance in 2025 with significant increases in net income, EPS, and record loan and deposit growth. The company maintains a robust capital position, exceeding regulatory requirements, and has a healthy asset quality with low nonperforming loan ratios. Strategic actions like the sale of SBK Insurance and active capital management further enhance its financial profile. While facing industry-wide risks such as interest rate volatility and competition, the company's consistent growth, strong management of credit risk, and proactive approach to regulatory compliance and cybersecurity suggest a positive outlook for long-term investors.

Keywords

SmartFinancial, SMBK, Bank Holding Company, Financial Services, SEC Filing, 10-K, Annual Report, Banking, Loans, Deposits, Net Interest Income, Capital Ratios, Credit Quality, Risk Management, Corporate Governance, Cybersecurity, Acquisitions, Tennessee Banking, Financial Performance, Stock Repurchase, Subordinated Debt, Mortgage Banking, Asset Quality, Regulatory Compliance, Shareholder Equity, Dividend Policy, Internal Controls, AI Risk