SmartFinancial Reports Q3 Operating Earnings of $18.6 Million

SmartFinancial (NYSE: SMBK ) reported third-quarter financial results on Tuesday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

Access the full call at Summary SmartFinancial reported a strong third quarter with operating earnings of $18.6 million and record operating revenue of $57.5 million, marking significant growth driven by a 15% annualized organic loan growth and 12% annualized core deposit growth. The company opened a new financial center in Columbus, Georgia, and emphasized continued investment in talent acquisition and strategic facilities to support growth, with a focus on maintaining a manageable loan-to-deposit ratio.

Looking ahead, SmartFinancial expects net interest margin to remain stable at 3.45% and projects fourth-quarter operating noninterest income of approximately $7.5 million with operating noninterest expenses between $35.0 to $35.5 million, despite potential pressure from higher deposit costs. Full Transcript OPERATOR Hello everyone. Thank you for joining us and welcome to the SmartFinancial third quarter 2026 earnings release and conference call. After today's prepared remarks, we will host a question and answer session.

If you would like to ask a question, please press star-one to raise your hand. To withdraw your question, press star-one again. I will now hand over to Nate Strahl, Director of Investor Relations, to begin. Please go ahead.

Nate Strahl (Director of Investor Relations) Thanks, Erica. Good morning everyone and thank you for joining us for SmartFinancial's third quarter 2026 earnings webcast and conference call. During today's call, we will reference the slides and earnings release available in the Investor Relations section of our website at smartbank.com. Billy Carroll, our President and Chief Executive Officer, will begin the call, followed by Ron Gorczynski, our Chief Financial Officer, who will provide additional commentary.

We will be available to answer your questions at the conclusion of our call. Our comments today include forward-looking statements. These statements are subject to risks and uncertainties and actual results may differ materially. Factors that could cause actual results to differ materially are described in our earnings release and SEC filings, which are available on our website.

We undertake no obligation to update any of the forward-looking statements as a result of new information, future developments, or otherwise, except as required by law. During today's call, we may reference non-GAAP financial measures related to the company's performance. Reconciliations of these measures to the most directly comparable GAAP measures are included in the appendices to the earnings release and investor presentation filed with the SEC on October 19, 2026. And now I'll turn the call over to Billy Carroll.

Billy Carroll (President & CEO) Thanks, Nate, and good morning everyone. Great to be with you and thank you for joining us today and for your interest in SMBK. As usual, I'll open our call with some commentary and then hand it over to Ron to walk through the numbers in greater detail. After our prepared comments, we'll open it up with Ron, Nate, Rhett Miller, and myself available for Q&A.

The third quarter was another outstanding one for our company. We continue to build strong organic momentum, generated record operating revenue, and expanded our return metrics. The foundation we have built over the past several years is producing the results we expected, and our team remains highly focused on disciplined growth and long-term shareholder value. So let me jump right into some of the highlights.

First, and as I always say, one of the most important metrics to me, we continue to increase the tangible book value of our company. Tangible book value per share was up, ending the quarter at $28.50. The tangible book value excluding AOCI increased to $30.03. That represents 15% annualized quarter-over-quarter growth, excluding AOCI.

For the quarter, we posted operating earnings of $18.6 million, or $1.10 per diluted share, and record operating revenue of $57.5 million. We did have a few moving parts that netted out positive to operating earnings this quarter, including a nice tax credit transaction that Ron will discuss in a moment. We again delivered excellent growth on both sides of the balance sheet with 15% annualized organic loan growth and 12% annualized core deposit growth. Our return metrics, though slightly aided this quarter, continued to strengthen.

Operating return on average assets increased to 1.20% and operating return on average tangible common equity increased to 15.1%. Credit quality remains very sound. Nonperforming assets were only 25 basis points of total assets and annualized net charge-offs were 6 basis points. We did have a slight uptick in delinquencies in our equipment finance subsidiary as higher diesel prices have strained some transportation business, but overall very manageable as that continues to be a relatively small piece of our overall loan book.

We were thrilled to open our full-service Columbus, Georgia Financial Center during the quarter. This is our first branch in this great state and an important step in building density in that market and supporting the strong start our Columbus team has made. Looking at the first few pages in our deck, you can see the continued progress in revenue, EPS, return metrics, and tangible book value. The consistency of those trends demonstrates the strength of our organic strategy and the operating leverage we are building.

A couple of additional high-level comments from me on growth: we added $174 million in loans this quarter, representing 15% annualized. The growth remains broad-based with strong production across all regions and continued momentum in C&I lending. Our average loan portfolio yield, including fees and accretion, ticked up to 6.08%. Regarding deposits, core deposits increased $163 million, or 12% annualized, during the quarter.

Our focus on both sides of the balance sheet continues to pay off, and loan-to-deposit ratios remained very manageable at 87%. Deposit pricing remains competitive and higher funding costs pressured the margin modestly, but net interest income still increased nicely to $49.4 million as balance sheet growth more than offset that pressure. On expenses, operating noninterest expense was $36.4 million. The quarter included some slightly higher one-time items along with continued investment in our people and franchise.

Even with that increase, year-over-year operating revenue growth outpaced operating expense growth. We will maintain discipline around expenses, but we'll also continue making investments that support growth, including revenue-producing talent, technology, and strategic facilities. So all in all, another excellent quarter of continued execution. I'm going to stop there and hand it over to Ron to dive into the details.

Ron Gorczynski (EVP Chief Financial Officer) Thanks, Billy, and good morning everyone. I'll start with deposits. During the quarter, our non-broker deposits grew $163 million, driven by continued new account growth and strong relationship expansion. The weighted average cost of new deposit production increased 43 basis points to 3.33% for the quarter and was 3.36% for September.

Noninterest-bearing deposits were essentially unchanged at $920 million, representing approximately 70% of total deposits. Interest-bearing deposit costs increased 9 basis points to 2.71%, while total deposit costs increased 11 basis points to 2.26%. Loan balances increased $174 million with growth diversified across all loan categories and geographies. New loan production carried a weighted average yield of 6.37% for the quarter and was 6.78% for September.

Our growth on both sides of the balance sheet reflects the consistent execution of our relationship-based strategy. Our bankers remain focused on pairing quality loan growth with broader client relationships, operating accounts, and core deposits. Turning to margin, net interest income increased $1.3 million to $49.4 million, and net interest margin was 3.45%, in line with our stated guidance. Looking ahead, we expect continued improvement in asset yields to support modest margin expansion over time.

However, near-term deposit cost pressure is expected to continue to offset some of that benefit. As such, for the fourth quarter, we currently expect net interest margin to remain around current levels in the 3.45% range. Our provision for credit losses declined to $687,000 from $1.5 million in the prior quarter. This included approximately $1.1 million of provisions, partially offset by a $371,000 release from our unfunded commitments liability.

The provision also benefited from a $1.7 million net release of a loan-specific reserve driven by a loan payoff. Overall, the allowance for credit losses increased slightly to $45.6 million and our allowance-to-loans ratio declined to 94 basis points. We believe the allowance is appropriate for the portfolio and current environment. Operating noninterest income was $8.1 million, up $245,000 from the prior quarter, led by service charges and mortgage banking income.

Together with higher net interest income, this drove operating revenue to $57.5 million, reflecting continued momentum across the company. Operating noninterest expense totaled $36.4 million, up $2.4 million from the prior quarter. Approximately $1 million of this increase was attributable to sale losses and valuation write-downs on repossessed equipment in our equipment finance subsidiary. Salary and benefit expenses also increased primarily due to higher production-related variable compensation.

Professional service expense included approximately $300,000 of consulting and placement costs associated with our tax credit purchase. Adjusting for the equipment finance and tax credit expenses, our noninterest expenses were in line with our stated guidance. Our operating efficiency ratio increased to approximately 63% from 60% in the prior quarter. Although the ratio was elevated this quarter due to the aforementioned items, we expect to generate positive operating leverage over time as our recent investments contribute more meaningfully to revenue.

We will continue making targeted investments in our expanding markets while maintaining discipline across the broader expense base. For the fourth quarter, we expect operating noninterest income of approximately $7.5 million and operating noninterest expense of $35.0 to $35.5 million. Salary and benefit expenses are expected to range from $21.0 to $21.5 million, reflecting production-related incentive compensation and additional hiring. Incentive compensation accruals will vary with performance.

Turning to taxes, income tax expense was $1.9 million, compared with $4.2 million in the prior quarter. During the quarter, we purchased $36 million of transferable energy tax credits at a discount to face, resulting in a $2.6 million income tax benefit. Looking ahead, we may consider similar transactions from time to time as part of our tax planning. Our effective tax rate going forward will be in the range of 19.5% to 20.5%.

I'll wrap up with capital. Our tangible common equity ratio was 7.8%, compared with 8.0% in the second quarter. The decline in the tangible common equity ratio was primarily attributable to changes in AOCI as rising interest rates reduced the fair value of our bond portfolio during the quarter. In contrast, our estimated common equity tier 1 ratio increased to 9.8% and our estimated total risk-based capital ratio was 12.6% at quarter end.

Our capital position remains solid and provides flexibility to support organic growth, maintain balance sheet strength, and continue building long-term shareholder value. With that said, I'll turn it back over to Billy. Billy Carroll (President & CEO) Thanks, Ron. As you can tell from Ron's comments, we continue to execute successfully in the leveraging phase of our company's growth.

Our outlook remains centered on the strategy that has brought us here: getting deeper in our markets, growing share, expanding high-value relationships, recruiting great bankers, and leveraging the infrastructure and capabilities we have built. Our pipelines remain solid and we continue to see opportunities across our footprint. The higher rate forecast does present some added challenges as we look ahead, but I'm going to continue to stick to our high single digits plus growth guidance, even though we bettered that in recent quarters. Talent acquisition remains a high priority.

Market disruption across the Southeast continues to create opportunities for us to add experienced revenue producers who fit our culture. We have added some strong bankers in several markets this year and our ability to recruit maintains one of our company's key competitive advantages. We had several very nice recruiting wins this quarter and have several other great talent members in the pipeline currently. Again, Columbus, Georgia is a good example of our strategy in action as we opened our full-service financial center during the quarter right in the heart of Columbus's main business district.

We're very bullish about the opportunity to build meaningful relationships and market share there. To summarize, we're positioned very well. We are executing, posting record operating revenue this quarter. We are producing double-digit organic growth on both sides of the balance sheet.

We are managing risk as credit remains very sound, and we are winning on talent as we continue to add outstanding new team members. Also want to close with a huge shout-out to our associates as our company was recently named to Great Place to Work's list of top 50 mid-sized companies in the country and we also ranked number 11 nationally in the financial institutions category. This is another great statement on the culture that this team is creating. Our future is bright and I appreciate the work of our SmartFinancial and SmartBank team and the efforts of all of our associates.

I'm extremely proud of what we're building here at SmartFinancial. I'll stop there and we'll open it up for questions. OPERATOR We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise your hand.

To withdraw your question, press star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your first question comes from the line of Will Jones with KBW. Your line is open. Please go ahead. Will Jones (Analyst at KBW) Yeah.

Hey. Great. Good morning, guys. Billy Carroll (President & CEO) Hey, Will.

Will Jones (Analyst at KBW) Hey. Another really strong quarter of growth, both sides of the balance sheet, loans and deposits. I know last quarter we spoke about some deposit seasonality that we would see in the back half of the quarter that may be supporting some of the growth we saw. Could you speak to maybe any seasonality in this quarter's results and what you would expect to maybe flow through into the balance of this year.

Ron, you want to jump in on that one? Ron Gorczynski (EVP Chief Financial Officer) Yeah, we did get a pickup really for Q3 throughout the board. Not only new relationships but building of the existing client base. So I think we're, you know, I think we're still looking for a good growth quarter for fourth and, you know, we're out of our seasonality trend, our historical trending for that.

Will Jones (Analyst at KBW) Yeah, got it. Okay. And then I think, I think, Ron, I heard you say the new deposits in the quarter were 3.30. Is that… Did I hear that right?

Ron Gorczynski (EVP Chief Financial Officer) 3.33 for the quarter. Yes. Will Jones (Analyst at KBW) Okay. And as we just kind of model out and think about deposit betas moving forward, could you just maybe walk us through, you know, level set expectations there, you know, and hear you that that margin may be more stable over the near term as, you know, some of your repricing on the asset side is offset by deposit costs.

Is that how we should, you know, kind of think about, you know, additional incremental hikes from here? I know the forward curve would imply maybe a few more hikes coming into 2027. You know, is kind of a stable margin where you would, you know, peg margin performance as we think about additional hikes in the future? Ron Gorczynski (EVP Chief Financial Officer) Yeah.

First, since the rates hiked again, we're probably running around 70% beta at this point of time. You know, we're really so neutral. We're really not going to be affected by rate hikes or rate decreases at this point. A lot of our expansion that's, you know, our modest expansion throughout 2027, is really due to our repricing book.

We will see incremental lift going through 2027. So as far as rate hikes, we should be fairly neutral throughout each rate hike. Which, by the way, our guidance does include a rate hike in December. Will Jones (Analyst at KBW) Yeah.

Okay. And then just fair to say, I know we talked about a $1 EPS target by the end of this year. Feels like things are still kind of trending in that direction if we normalize some of the expenses from this quarter. Is that the way that you guys are kind of viewing the business?

Billy Carroll (President & CEO) Yeah. Well, I think you're spot on. Yeah, you really, you shake out kind of the ebbs and flows this quarter. Really a solid quarter.

And we still feel very good about our ability to kind of hit that four by four challenge that we've stated publicly, hitting that dollar run rate.