SmartFinancial, Inc. (SMBK) Earnings

Management highlights

• Company had a great start to 2026 with busy quarter, continuing to execute strategy. • Tangible book value increased to $27.33 per share. • Strong credit performance with 25 basis points in nonperforming assets. • Balance sheet expansion due to sales teams' focus, organic growth. • Hired new director of private banking and wealth management. • Continued to build return metrics, grow total revenue, EPS, and tangible book value. • Team embraced internal initiative to hit $4 EPS run rate by 2026.

Guidance

• Margin expected to stabilize and remain relatively flat for second quarter before increasing slightly in second half of the year. • Second quarter noninterest income projected to be approximately $7.8 million, noninterest expense expected to be in range of $34 million to $34.5 million. • Salary and benefit expenses anticipated to range from $20.5 million to [inaudible] million, slightly elevated from prior quarter due to merit increases and new hires. • Allowance for credit losses anticipated to remain within 97 to 98 basis point range contingent on market credit conditions.

Segment performance

Loans had 14% annualized growth, core deposits had 7% annualized growth excluding brokered CD payoffs. Operating earnings were $13.7 million or $0.81 per diluted share. Total operating revenue was $53.8 million. Net interest income was $45.9 million, net interest margin improved to 3.48%. Provision expense was $4.1 million. Operating noninterest income was $7.9 million, operating noninterest expenses were $32.9 million. Consolidated TCE ratio increased to 8%, total risk-based capital ratio was 12.7%.

Risks & headwinds

• Actual results could vary materially from forward-looking statements due to risks and uncertainties. • Competition in deposit and loan pricing could impact financial performance. • Uncertainty around interest rate movements could affect margin and funding costs. • Changes in market credit conditions could impact allowance for credit losses.

Analyst Q&A

• Q: Good morning, everyone. I wanted to start on the growth outlook from here. Obviously, you guys continue to execute really well on growth, and there have been rumblings of some competitors in Tennessee in particular being very aggressive with rate. I just wanted to see if you were seeing any of that and then the pace of growth in 1Q—if that is sustainable, particularly on loan growth for the rest of the year.

  A: Yeah, Brett, I will start, and Rhett, you chime in from what you are seeing in pipelines as well. We had a really solid first quarter. Our pipeline is still good. As I have said in my comments, I think we can continue at or around that 10% plus/minus. Might be a little more, might be a little bit less, but I like our pace. Competition is—I'll tell you, we were talking about this the other day—we could have had a lot more. We are turning away some deals, some good deals, just because we are seeing some unreasonable rate competition, and that is okay. One of the things that I think you have heard me comment on in past calls is we have really got a nice disciplined approach around our pricing model. Growing both sides of the balance sheet is really important for us. Not that we will not make an exception here or there for the right types of situations, but for the most part, we really hold to making sure that we are hitting our return on risk-adjusted capital targets. We are seeing some competition that is a little bit crazier. We are letting some of those deals go. We are involved in them; sometimes we just think the pricing is too thin. Rhett, you might talk a little bit about pipelines and how you feel about this high single-digits-plus pace.

• Q: Good morning. I wanted to ask on deposit costs. You did a great job dropping those this quarter. Within the margin update you guys provided, how are you thinking about the ability to lower deposit costs from here if the Fed does remain on pause? Do you have some incremental room, or should we be thinking about potentially some upward pressure on deposit costs going forward?

  A: Yeah, I am pretty neutral at this point in time. Our flatness is really due to—we have seen some mix shift in our deposit portfolio. Our team has done a great job of expanding our margin over the last several quarters, but we are coming into a period of seasonality. Second quarter for us is traditionally a heavy cash quarter for clients for tax payments and other uses. Even though we have seen competition through our footprint—as we will probably get a question on that—our team has done a great job of bringing in deposits and keeping the rates down. In essence, I think we will still see a little bit of rate movement upward, but we are only looking at very few basis points quarter over quarter from here on, so pretty neutral at this point.

• Q: Good morning. One follow-up on the margin: In your guidance for the margin to be flat this quarter and then expand slightly in the back half of the year, what are your rate forecasts under that scenario?

  A: We are flat—not assuming up or down at this point in time.

• Q: Good morning, guys. Going back to NIM for one second, I am kind of curious what you see as the biggest risk to the continued positive trajectory on the NIM in that back half of 2026. What could cause that to be different than expected currently?

  A: Ron, I will let you take a stab at it. Mine is going to be competitive pressure on money market rates and funding rates—probably a big driver in the second half is just not knowing exactly where rates are going to be or what kind of pressures we are going to get. Stephen, I still think, if rates hold steady, we can do a pretty nice job on the loan yield front. I think it is going to be more funding cost pressures potentially. Ron, anything else you would add?

• Q: Thanks, guys. Going back to NIM for one second, I am kind of curious what you see as the biggest risk to the continued positive trajectory on the NIM in that back half of 2026. What could cause that to be different than expected currently?

  A: No, exactly. It is all going to be in the funding cost if we do have trending more of our mix shift out of noninterest-bearing. Those are the only other items.

• Q: Thanks, guys. Going back to NIM for one second, I am kind of curious what you see as the biggest risk to the continued positive trajectory on the NIM in that back half of 2026. What could cause that to be different than expected currently?

  A: I do not think so. I do not think we really did anything. No—we did it with hard work. We prefer selling money markets than CDs. We did not have any rate promos or anything out of the norm, Stephen.

• Q: Thanks, guys. Going back to NIM for one second, I am kind of curious what you see as the biggest risk to the continued positive trajectory on the NIM in that back half of 2026. What could cause that to be different than expected currently?

  A: Yeah, it is. As I have said, we are really leaning into all of our zones. We have just got such great ability to grow share in so many of our markets. Obviously, Nashville is a big market. We are really starting to build some nice momentum. I was over there with some clients a couple of weeks ago, and we have got really good energy over there. We have got some nice team members that we have added over the course of the last couple of years, and we have got more that we want to add over there. I think that is a market that is going to be important to us as we go forward. We have a lot of other zones where we are growing share too, but Nashville is going to be one that I think has got a heck of an upside for us.

• Q: Good morning, guys. A nice quarter here. Most of my questions have been asked and answered. Just kind of curious in terms of the pipeline mix—is it focusing to be more construction, non-owner-occupied CRE, or how are you thinking about dealing with that underlying mix?

  A: I will let Rhett weigh in on the pipeline since he is seeing more of that. We have been able to keep it pretty balanced and pretty agnostic to whatever group. I still think we will be able to hold. Rhett, any additional color on how you see the loan composition looking over the next few quarters?

• Q: Good morning, guys. A nice quarter here. Most of my questions have been asked and answered. Just kind of curious in terms of the pipeline mix—is it focusing to be more construction, non-owner-occupied CRE, or how are you thinking about dealing with that underlying mix?

  A: No, Billy. You nailed it with regard to our focus. I look at the graphic on page nine of the deck that outlines our loan composition. You might have a slight move here or there—one percentage point or two one quarter to the next—but overall, as you can see, it is maintaining a pretty steady pace as it relates to the mix of the portfolio. When you look at our first quarter production, it really ties in almost exactly to those same metrics for the quarter. It is a continued solid, strong mix across the different segments of the book. We are focused on doing that. We have our banker teams set where they have targets and specializations here and there, and each one of them—across the geographies and across our different markets—are carrying their own weight. So far, it has been a very consistent mix.

• Q: Good morning, guys. A nice quarter here. Most of my questions have been asked and answered. Just kind of curious in terms of the pipeline mix—is it focusing to be more construction, non-owner-occupied CRE, or how are you thinking about dealing with that underlying mix?

  A: On your first question on de novo expansion—no, not really. Last quarter, we talked about being excited to get Columbus, Georgia started. I am really excited about what our team is starting to build down there and building really quickly. I have been happy with that. Outside of that, nothing really. We will look to add another Nashville area office sometime here in the foreseeable future—maybe a couple of other small offices to support some of our markets as we look over the next couple of years. Nothing really big on that front, Steve. We will focus on that de novo Columbus zone and really focus on growing Nashville—maybe add a branch there and maybe another one in another market or two over the next couple of years.

• Q: Good morning, guys. A nice quarter here. Most of my questions have been asked and answered. Just kind of curious in terms of the pipeline mix—is it focusing to be more construction, non-owner-occupied CRE, or how are you thinking about dealing with that underlying mix?

  A: On M&A—M&A, Miller and I start laughing. We have been successful in M&A over the years, but with the pivot we made a few years ago and the leadership we have put in on the sales side, the organic growth—and I think you see it in the results and what it has done to revenue growth and EPS growth—I said it would take a unicorn to probably get us to move. What we are doing now is working. So we are probably a little light on prioritizing that, Steve, but I love where we are sitting.