SmartFinancial Inc.

Company Overview

Business Model: SmartFinancial, Inc. is a bank holding company that primarily owns and operates SmartBank, a Tennessee-chartered commercial bank established in 2007. The core business involves attracting deposits from the general public and investing these funds primarily in commercial, commercial and residential real estate, leases, consumer, and residential and commercial construction loans. Funds not deployed in the loan and lease portfolio are invested in obligations of the U.S. Government, U.S. Government agencies, and various state and political subdivisions. Principal income sources are interest and fees from loans and leases, deposit account fees, and interest/dividends from other investments. Beyond traditional banking, SmartFinancial, Inc. operates Fountain Equipment Finance, LLC, offering heavy equipment, semi, and trailer loans and leases to small and medium-sized businesses across the Southeast, and SBK Insurance, Inc., providing property and casualty, commercial, transportation, and life and health insurance products. SmartBank also partners with Raymond James Financial Services, Inc. to offer investment and brokerage services.

Market Position: SmartFinancial, Inc. operates as a high-performing community bank with 42 full-service branches across select markets in East and Middle Tennessee, Alabama, and Florida as of March 1, 2025. The Company's strategy emphasizes organic loan, lease, and deposit growth, complemented by disciplined merger and acquisition activities. It faces intense competition from national, super-regional, and smaller community banks, as well as non-traditional internet-based banks and other financial intermediaries like mortgage companies, credit card issuers, leasing companies, finance companies, financial technology (fintech) companies, money market mutual funds, and brokerage firms. Many non-bank competitors benefit from less stringent regulatory oversight. SmartFinancial, Inc. differentiates itself through product and service selection, service quality, convenience, and personalized expertise. A substantial portion of its marketing and business strategy targets small to medium-sized businesses in its market areas.

Recent Strategic Developments:

• Established a Real Estate Investment Trust (REIT) subsidiary in the fourth quarter of 2024 as a tax savings strategy.
• Achieved record high net loans and leases of $3.9 billion at December 31, 2024, representing a $459.5 million increase from December 31, 2023.
• Reached record high total deposits of $4.7 billion at December 31, 2024, reflecting a $418.6 million increase from December 31, 2023.
• Strategically deployed excess cash and cash equivalents into higher-yielding loans, leases, and securities in 2024, with new security purchases focused on mortgage-backed securities to enhance cash flow, liquidity, and interest rate risk objectives.
• Realized a $1.3 million pre-tax gain from the sale of a former branch building in 2024, contributing to noninterest income growth.
• Certified as "A Great Place to Work®" in 2024 and received nominations as a "Top Workplace USA" by USA Today and "Top Workplace" by the Knoxville News Sentinel from 2017 through 2024.

Geographic Footprint: SmartFinancial, Inc. operates primarily in the Southeastern United States. As of March 1, 2025, SmartBank maintains 42 full-service bank branches across three states:

• Tennessee: 24 branches (18 owned, 6 leased)
• Alabama: 14 branches (9 owned, 5 leased)
• Florida: 4 branches (2 owned, 2 leased) Additionally, its subsidiary, Fountain Equipment Finance, LLC, has offices in Knoxville, Atlanta, Charlotte, Memphis, Nashville, and Birmingham, serving small and medium-sized businesses throughout the Southeast.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 48.15%
• Operating Margin: 15.94%
• Net Margin: 12.67%

Investment in Growth:

• R&D Expenditure: $9.9 million (3.5% of total revenue)
• Capital Expenditures: $6.4 million
• Strategic Investments:
  • Established a Real Estate Investment Trust (REIT) subsidiary in 2024.
  • Invested $30.0 million in bank-owned life insurance in 2024.
  • Focused new security purchases on higher-yielding mortgage-backed securities.

Business Segment Analysis

General Banking Unit

Financial Performance:

• Revenue: $285.3 million (+18.7% YoY)
• Operating Margin: 15.9%
• Key Growth Drivers: Organic loan and deposit growth, increased production in investment services and insurance commissions, a $1.3 million pre-tax gain on the sale of a former branch building, income from bank-owned life insurance, and fees from capital market activity.

Product Portfolio:

• Lending: Commercial loans, commercial and residential real estate loans, leases, consumer loans, and residential and commercial construction loans. Includes specialized equipment financing through Fountain Equipment Finance, LLC.
• Deposits: Noninterest-bearing and interest-bearing checking accounts, savings accounts, money market accounts, individual retirement accounts, and certificates of deposit. Offers insured deposit accounts above FDIC thresholds via Insured Cash Sweep (ICS) or Certificate of Deposit Account Registry Service (CDARS) programs.
• Other Financial Services: Insurance products (property and casualty, commercial, transportation, life and health) through SBK Insurance, Inc., and investment/brokerage services through a partnership with Raymond James Financial Services, Inc.

Market Dynamics:

• Operates in competitive markets across East and Middle Tennessee, Alabama, and Florida, with a strategic focus on small to medium-sized businesses.
• Faces competition from diverse financial institutions, including national, super-regional, and community banks, as well as non-bank entities like fintechs, mortgage companies, and investment firms.
• Non-bank competitors often have regulatory advantages, allowing for greater flexibility and lower cost structures.
• The Company competes by offering a tailored selection of products and services, high service levels, convenient access, and personalized expertise.

Sub-segment Breakdown: (as of December 31, 2024)

• Commercial real estate - Non-owner occupied: $1,080.4 million (27.5% of total loans)
• Commercial real estate - Owner occupied: $867.7 million (22.2% of total loans)
• Consumer real estate: $741.8 million (19.0% of total loans)
• Construction and land development: $361.7 million (9.3% of total loans)
• Commercial and industrial: $775.6 million (19.9% of total loans)
• Leases: $64.9 million (1.7% of total loans)
• Consumer and other: $14.2 million (0.4% of total loans)

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: Repurchased $3.0 million (136,195 shares) in 2024. As of December 31, 2024, $1.5 million remains authorized under the $10.0 million stock repurchase plan.
• Dividend Payments: Paid $5.4 million in common stock dividends in 2024, maintaining a quarterly dividend of $0.32 per share.
• Future Capital Return Commitments: The Company has $1.5 million remaining under its authorized stock repurchase plan.

Balance Sheet Position: (as of December 31, 2024)

• Cash and Equivalents: $387.6 million
• Total Debt: $47.8 million
• Net Cash Position: $339.8 million
• Credit Rating: Not disclosed in the filing.
• Debt Maturity Profile:
  • Short-term borrowings (securities sold under repurchase agreements and FHLB advances): $8.1 million (due in less than 1 year).
  • Subordinated debt: $40.0 million (due in 3 to 5 years, maturing October 2, 2028).
  • Revolving line of credit: $4.0 million outstanding, with maturity extended to May 1, 2025.

Cash Flow Generation:

• Operating Cash Flow: $52.7 million in 2024.
• Free Cash Flow: Not explicitly disclosed in the filing.
• Cash Conversion Metrics: Not explicitly disclosed in the filing.

Operational Excellence

Production & Service Model: SmartFinancial, Inc. employs a diversified production and service model focused on both traditional banking and specialized financial services. Its core banking operations involve attracting a broad range of retail and commercial deposits and deploying these funds into a diversified loan portfolio. The Company originates one-to-four family residential mortgage loans, with some sold in the secondary market. All loans and leases undergo individual underwriting, risk-rating, approval, and continuous monitoring, guided by consistent and prudent credit policies. Specialized services include equipment financing through Fountain Equipment Finance, LLC, and a comprehensive suite of insurance products via SBK Insurance, Inc. The Company also facilitates investment services through a partnership with Raymond James Financial Services, Inc.

Supply Chain Architecture: Key Suppliers & Partners:

• Broker-Dealer/Investment Adviser: Raymond James Financial Services, Inc. (a subsidiary of Raymond James Financial, Inc.) for offering securities and financial products.
• Data Processing & IT Services: The Company outsources many major systems, including data processing, loan servicing, and deposit processing, relying on third-party servicers.
• Auditors: Forvis Mazars, LLP.
• Correspondent Banks: Utilized for federal funds lines and safekeeping accounts.
• Federal Home Loan Bank of Cincinnati: Provides access to advances for liquidity.
• Federal Reserve Bank: Offers discount window borrowing programs.

Facility Network:

• Executive Offices: Located at 5401 Kingston Pike, Suite 600, Knoxville, Tennessee 37919, which also serves as a SmartBank branch.
• Manufacturing: Not applicable for a financial institution.
• Research & Development: While no dedicated R&D facilities are mentioned, the Company's Information Security Officer and Chief Technology Officer lead teams that collaborate with industry groups and policymakers on cybersecurity trends and best practices, indicating internal technology development and risk management.
• Distribution: A network of 42 full-service bank branches across East and Middle Tennessee, Alabama, and Florida. Fountain Equipment Finance, LLC maintains offices in Knoxville, Atlanta, Charlotte, Memphis, Nashville, and Birmingham.

Operational Metrics:

• Efficiency Ratio: 70.49% in 2024, an improvement from 74.24% in 2023.
• Net (charge-offs) to average loans and leases: -0.08% in 2024, an increase from -0.02% in 2023.
• Allowance for loan and leases to total loans and leases: 0.96% in 2024, a decrease from 1.02% in 2023.
• Nonperforming loans and leases to total loans and leases, gross: 0.20% in 2024, an improvement from 0.24% in 2023.
• Nonperforming assets to total assets: 0.19% in 2024, an improvement from 0.20% in 2023.
• Commercial Real Estate (CRE) Concentration: Construction, Land Development, and Other Land (CLD) loans were 75.64% of total risk-based capital (within the 100% guideline). Total non-owner occupied CRE loans (including CLD) were 303.46% of total risk-based capital (exceeding the 300% guideline), indicating a higher concentration risk in this segment.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Leverages the business contacts of its senior management, other bank officers, and directors to actively pursue and build customer relationships within its local market areas.
• Channel Partners: Utilizes its wholly-owned subsidiaries, Fountain Equipment Finance, LLC, and SBK Insurance, Inc., to offer specialized lending and insurance products. It also partners with Raymond James Financial Services, Inc. for investment and brokerage services.
• Digital Platforms: Provides remote banking capabilities, including internet and mobile banking, to enhance customer access and convenience.

Customer Portfolio: Enterprise Customers:

• Tier 1 Clients: The Company's marketing and business strategy has a substantial focus on serving small to medium-sized businesses in its market areas.
• Strategic Partnerships: Maintains a strategic partnership with Raymond James Financial Services, Inc. to broaden its financial product offerings.
• Customer Concentration: As of December 31, 2024, the 10 largest borrowing relationships constituted approximately $314 million, or 9% of the total loan portfolio.

Geographic Revenue Distribution:

• Geographic revenue distribution is not explicitly disaggregated in the filing.
• Growth Markets: The Company's primary operational regions and growth markets are East and Middle Tennessee, Alabama, and Florida.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The Company operates within a highly competitive banking and financial services industry, characterized by increasing competition driven by advancements in financial technology from both existing and new firms. The industry is sensitive to economic conditions, particularly in its concentrated geographic markets, with potential impacts from real estate market weakness (affecting collateral values and mortgage originations) and the tourism industry (sensitive to unemployment, inflation, and consumer sentiment).

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: SmartFinancial, Inc. competes with a broad spectrum of financial institutions, including national banks, super-regional banks, smaller community banks, and non-traditional internet-based banks. Additionally, it faces competition from other financial intermediaries such as mortgage companies, credit card issuers, leasing companies, finance companies, money market mutual funds, brokerage firms, governmental and corporate bond issuers, and insurance companies. Larger national and super-regional banks often possess greater resources and broader product offerings.

Emerging Competitive Threats: The Company identifies financial technology (fintech) companies and certain technology companies directly providing financial services as increasing competitive threats. These non-traditional providers often develop digital products and services that compete effectively with traditional banking, sometimes with fewer regulatory restrictions, allowing for greater operational flexibility and lower cost structures. The development and use of artificial intelligence (AI) also presents evolving risks and challenges.

Competitive Response Strategy: SmartFinancial, Inc. aims to maintain its competitive advantage by focusing on the selection, service level, convenience, and expertise in its banking products and services. Its strategic plan includes organic loan and deposit growth, as well as disciplined merger and acquisition activity to expand its market presence. The Company also invests in new technologies, including artificial intelligence, machine learning, and blockchain, to keep pace with industry advancements.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics:

• Interest Rate Risk: The Company's net interest income is sensitive to interest rate fluctuations, particularly adjustments by the Federal Reserve Board. As of December 31, 2024, SmartFinancial, Inc. is in a neutral to slightly liability-sensitive position, meaning net interest income is generally expected to decrease with rising short-term interest rates and increase with falling rates. Mitigation strategies include active monitoring and management of interest rate-sensitive assets and liabilities by the Asset Liability Management Committee (ALCO) and the implementation of policies to reduce the effects of rate changes.
• Economic Conditions: Financial results are highly dependent on economic conditions in its concentrated market areas (East and Middle Tennessee, Alabama, Florida Panhandle). Economic downturns (e.g., inflation, recession, unemployment) could deteriorate loan portfolio quality and reduce deposits. The tourism-dependent nature of some markets adds sensitivity to consumer financial conditions.
• Technology Disruption: Increasing competition from financial technology (fintech) companies and technology firms offering direct financial services poses a risk due to their potential for greater flexibility and lower cost structures from reduced regulatory oversight.
• Customer Concentration: The 10 largest borrowing relationships accounted for approximately 9% of the total loan portfolio as of December 31, 2024, creating a concentration risk if one or more of these relationships default.

Operational & Execution Risks

Supply Chain Vulnerabilities:

• Supplier Dependency: Reliance on third-party servicers for major systems (data processing, loan servicing, deposit processing) exposes the Company to risks from system failures or service interruptions. Mitigation includes a third-party risk management program to assess and manage risks, including cybersecurity, associated with external service providers.
• Geographic Concentration: The concentration of branches and operations in East and Middle Tennessee, Alabama, and the Florida Panhandle exposes the Company to regional economic downturns or natural disasters.
• Capacity Constraints: Not explicitly mentioned as a current constraint, but growth plans inherently carry risks related to managing and scaling operational capacity effectively.

Financial & Regulatory Risks

Market & Financial Risks:

• Demand Volatility: Mortgage banking operations are sensitive to interest rate environments, with higher rates typically leading to reduced loan demand and refinancing activity, impacting revenues.
• Credit & Liquidity: The adequacy of the allowance for credit losses is critical; insufficient allowance could adversely affect earnings. Liquidity risk, the inability to meet cash flow requirements, could jeopardize financial condition. Mitigation includes robust credit risk management, an asset/liability and liquidity management policy, and access to liquid assets and alternative funding sources (wholesale deposits, FHLB advances, Federal Reserve discount window).
• Capital & Regulatory Compliance: SmartFinancial, Inc. and SmartBank are subject to extensive federal and state regulations, including minimum capital levels. Failure to meet these could lead to restrictions on activities, dividends, and growth. The Company and SmartBank exceeded all "well-capitalized" regulatory capital requirements as of December 31, 2024.

Regulatory & Compliance Risks:

• Industry Regulation: Changes in banking laws, regulations, or their interpretation can increase compliance costs and affect profitability. Regulatory agencies have broad authority to impose fines, cease and desist orders, or other enforcement actions.
• Data Privacy: Compliance with federal (Gramm-Leach-Bliley Act, Right to Financial Privacy Act) and increasing state-level data privacy and cybersecurity regulations requires ongoing investment and vigilance to prevent legal liability, reputational harm, and regulatory scrutiny.
• Trade & Export Controls: Compliance with OFAC regulations is required to prevent transactions with prohibited parties, necessitating monitoring and reporting.

Geopolitical & External Risks

Geopolitical Exposure:

• Geographic Dependencies: The Company's financial performance is tied to local economic conditions, which can be influenced by broader geopolitical factors, trade relations, and government policies.
• Trade Relations: The imposition of tariffs and retaliatory responses is identified as a factor that could contribute to economic downturns.
• Sanctions & Export Controls: The Company must comply with OFAC's economic sanctions programs, which involve identifying and restricting transactions with sanctioned entities.

Innovation & Technology Leadership

Research & Development Focus: Core Technology Areas: SmartFinancial, Inc. prioritizes technology risk management and cybersecurity, guided by the National Institute of Standards and Technology (NIST) Cybersecurity Framework and Federal Financial Institutions Examination Council (FFIEC) guidelines. Its Information Security Officer and Chief Technology Officer lead efforts in cybersecurity risk assessment, defense operations, incident response, vulnerability assessment, threat intelligence, identity access governance, third-party risk management, and business resilience. The Company employs a "trust by design" philosophy for new products and services and invests in new technologies, including artificial intelligence, machine learning, and blockchain.

Innovation Pipeline: The Company is actively engaged in designing new products, services, and technology, with a focus on enhancing digital capabilities for remote and mobile banking. While specific product timelines are not detailed, the ongoing investment in technology and cybersecurity indicates a continuous innovation effort.

Intellectual Property Portfolio: The filing does not explicitly detail the Company's intellectual property portfolio, such as patents or licensing programs.

Technology Partnerships: SmartFinancial, Inc. outsources many of its major systems (e.g., data processing, loan servicing, deposit processing) to third-party servicers, indicating reliance on external technology partners. Its partnership with Raymond James Financial Services, Inc. for investment services also involves technology integration.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The board of directors annually reviews succession plans for the Chief Executive Officer and other key executives to ensure the availability of leadership talent for long-term strategic execution.

Board Composition: The board of directors oversees the Company's governance, including the approval of management committees such as the Information Technology Steering Committee and the Risk Management Committee. These committees provide oversight of technology and information security programs, reporting their activities to the full board at least quarterly. The board's composition includes directors who sign the 10-K, but specific details on independence, expertise areas, or committee structures are not fully disclosed in the provided text.

Human Capital Strategy

Workforce Composition: As of December 31, 2024, SmartFinancial, Inc. employed 612 associates (597 full-time and 15 part-time), primarily across Tennessee, Alabama, and Florida. The workforce is diverse, with over 66% women and 9% minorities overall. Among the 320 banking officers, approximately 55% are women and 6% are minorities. None of the associates are represented by a collective bargaining agreement.

Talent Management: Acquisition & Retention: The Company successfully onboarded 112 new associates in 2024. It fosters a work environment that values individual needs, sets high expectations, and recognizes achievement, aiming to create "WOW" experiences for clients. SmartFinancial, Inc. offers competitive compensation and benefits, a team-oriented culture, and flexible work-life balance options. Annual engagement surveys are conducted to gather associate feedback, which informs initiatives to improve the workplace. The Company was certified as "A Great Place to Work®" in 2024 and has been nominated as a "Top Workplace USA" and "Top Workplace by the Knoxville News Sentinel" from 2017-2024.

• Retention Metrics: Not explicitly disclosed, but the focus on employee engagement and recognition suggests a strategy to improve retention.

Diversity & Development:

• Diversity Metrics: Over 66% of associates are women, and 9% are minorities. Among banking officers, 55% are women and 6% are minorities.
• Development Programs: The Company invests in associate growth through a multi-dimensional learning approach, including educational courses relevant to banking, tuition reimbursement for continuing education, peer mentoring, and leadership programs.
• Culture & Engagement: Core values include "Act with Integrity, Be Enthusiastic, Create Positivity, Demonstrate Accountability, and Embrace Change." The Company emphasizes empowering associates, fostering community involvement, and delivering exceptional client experiences.

Environmental & Social Impact

Environmental Commitments: The filing mentions "environmental stewardship" as a corporate responsibility activity and "environmental laws" in the context of potential litigation risks. However, it does not disclose specific environmental commitments, emissions targets, carbon neutrality goals, or renewable energy strategies.

Social Impact Initiatives: SmartFinancial, Inc. acknowledges its corporate responsibility and strives to conduct banking activities responsibly, prioritizing the financial needs of clients and the economic health of its communities. SmartBank has a "Satisfactory" rating in its most recent Community Reinvestment Act (CRA) evaluation, demonstrating its commitment to meeting the credit needs of its communities, including low- and moderate-income neighborhoods. The Company also made a CRA-related donation of a former branch location in 2023.

Business Cyclicality & Seasonality

Demand Patterns:

• Seasonal Trends: Not explicitly detailed in the filing.
• Economic Sensitivity: The Company's financial results are highly dependent on economic conditions in its local market areas (East and Middle Tennessee, Alabama, and the Florida Panhandle). Economic downturns, driven by factors like inflation, recession, or unemployment, can significantly impact loan originations, borrower repayment abilities, and collateral values. Portions of its target market are sensitive to tourism, which is more susceptible to changes in unemployment, inflation, and consumer sentiment.
• Industry Cycles: Mortgage banking activities are particularly sensitive to interest rate environments; higher or rising rates typically lead to decreased demand for mortgage loans and refinancing activity, reducing revenues.

Planning & Forecasting: For estimating expected credit losses under the Current Expected Credit Losses (CECL) methodology, the Company incorporates forward-looking information. It uses an average of Fannie Mae and Federal Open Market Committee projections for the national unemployment rate as a regression tool to determine probability of default expectations. The Company employs an eight-quarter forecast period, with a four-quarter reversion period to the long-term mean of historical factors using a straight-line approach for contractual terms extending beyond the reasonable and supportable forecast.

Regulatory Environment & Compliance

Regulatory Framework: SmartFinancial, Inc. and SmartBank operate within a highly regulated environment, subject to extensive oversight by federal and state authorities. Industry-Specific Regulations:

• Bank Holding Company Act: SmartFinancial, Inc. is registered and supervised by the Federal Reserve.
• Tennessee Department of Financial Institutions (TDFI): SmartBank, as a Tennessee-chartered bank, is subject to TDFI supervision.
• Federal Deposit Insurance Corporation (FDIC): SmartBank's deposits are insured by the FDIC, which also holds backup examination and enforcement authority.
• Consumer Financial Protection (CFPB): Subsidiaries offering consumer financial products and services are subject to CFPB regulation.
• Sarbanes-Oxley Act of 2002: Requires compliance with corporate governance and financial reporting standards, including management and auditor reports on internal controls.
• Dodd-Frank Act: Influences investor protections, corporate governance, executive compensation (e.g., advisory votes on executive compensation, claw-back policies), and mandates rules for incentive compensation in financial institutions with over $1 billion in assets.
• Community Reinvestment Act (CRA): SmartBank has a "Satisfactory" rating in its most recent CRA evaluation, fulfilling its obligation to meet community credit needs.
• Anti-Money Laundering (USA PATRIOT Act): Requires financial institutions to establish anti-money laundering programs with internal policies, compliance officers, training, and independent audits.
• Economic Sanctions (OFAC): Requires compliance with U.S. sanctions programs, including screening for prohibited parties and reporting.
• Commercial Real Estate (CRE) Lending Guidance: The Company is subject to interagency guidance on CRE lending concentrations, with its total non-owner occupied CRE loans exceeding the 300% of total risk-based capital guideline as of December 31, 2024.
• Equal Credit Opportunity Act (ECOA) and Fair Housing Act (FHA): Prohibit discrimination in credit and real estate transactions.
• Anti-Tying Restrictions: Governs the conditioning of credit or services on obtaining other products, with certain exceptions.

Trade & Export Controls:

• Sanctions Compliance: The Company is responsible for complying with OFAC's economic sanctions, which involves identifying and restricting transactions with sanctioned entities.

Legal Proceedings: As of December 31, 2024, neither SmartFinancial, Inc. nor SmartBank was involved in any material litigation. Management believes any pending claims are without merit or will not materially affect the Company's financial position.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: 20.5% for 2024, compared to 21.1% for 2023.
• Geographic Tax Planning: In the fourth quarter of 2024, the Company established a Real Estate Investment Trust (REIT) subsidiary as a tax savings strategy.
• Tax Reform Impact: Not explicitly detailed beyond the REIT initiative.
• Federal Net Operating Loss (NOL) Carryforward: As of December 31, 2024, the Company has a federal NOL carryforward of approximately $17.7 million, acquired with Sevier County Bancshares, Inc., which is subject to Section 382 limitations and will begin to expire in 2031.

Insurance & Risk Transfer

Risk Management Framework: SmartFinancial, Inc. maintains a system of internal controls and insurance coverage to mitigate operational risks, including data processing system failures, errors, and customer or employee fraud.

• Insurance Coverage: The Company holds insurance coverage for operational risks, though specific policy types or limits are not disclosed in the filing.
• Risk Transfer Mechanisms: The Company actively uses interest rate derivatives, specifically interest rate swaps, to manage market risk. These include:
  • Fair Value Hedges: Designated to mitigate the impact of changing interest rates on the fair values of certain fixed-rate available-for-sale securities, converting fixed rates to SOFR-based variable rates.
  • Cash Flow Hedges: Designated to hedge exposure to variability in expected future cash flows attributable to changes in contractually specified interest rates on assets and liabilities.