SmartFinancial, Inc. Aktie

[Operator Instructions] Hello, everyone, and thank you for joining the SmartFinancial First Quarter 2026 Earnings Release and Conference Call. My name is Claire, and I'll be coordinating your call today. [Operator Instructions] I will now hand over to Nate Strall, Director of Investor Relations, to begin. Please go ahead.

Thanks, Claire, and good morning, everyone, and thank you for joining us for SmartFinancial's First Quarter 2026 Earnings Call. During today's call, we will reference the slides and press release that are available in the Investor Relations section on our website, smartbank.com. Billy Carroll, our President and Executive Officer, will begin our call, followed by Ron Gorczynski, our Chief Financial Officer; who'll provide some additional commentary. We will be available to answer your questions at the end of our call. Our comments include forward-looking statements. These statements are subject to risks and uncertainties, and actual results could vary materially.

We list the factors that might cause these results to differ materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements because of new information, early developments or otherwise, except as may be required by law. During the call, we will reference non-GAAP financial measures related to the company's performance. You may see the reconciliation of these measures in the appendices of the earnings release and investor presentation filed on April 20, 2026, with the SEC. And now I'll turn it over to Billy Carroll to open our call.

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

It was a great start to the year for our company with another very busy quarter as we continue to execute on our strategy of leveraging the great foundation we've built over the last several years. Our team's focus on this execution continues to be outstanding. And this first quarter of 2026 was yet another example of that. So let me jump right into some of our highlights. First, and in my opinion, 1 of the most important metrics, we continue to increase the tangible book value of our company. which is now up to $27.33 per share, up from $26.86 at year-end.

For the quarter, we posted operating earnings of $13.7 million or $0.81 per diluted share, with total operating revenue coming in at $53.8 million, higher than the $53.3 million in the prior quarter, even with 2 fewer days. We continue to execute on outstanding growth on both sides of the balance sheet, posting 14% annualized growth in loans and 7% annualized growth in core deposits. Our history of strong credit continues with only 25 basis points in nonperforming assets.

I'm very pleased with our credit performance and our extremely low level of NPAs. And operating noninterest expenses also came in on target at $32.9 million as we continue to exhibit expense discipline. Looking at the first few pages in the deck, you'll see our continuation of some very nice trends. We're building our return metrics and most importantly, growing total revenue, EPS and tangible book value. All of those charts are great graphics to illustrate our execution. I'm looking forward to and expecting these trends to continue. So a couple of additional high-level comments for me.

On growth, our balance sheet expansion is a direct result of the focus of our sales teams. Our continued evolution is an outstanding organic growth company is one of the things I've been most proud of, and I believe something that sets us apart from many other banks. We have hired well, and we have built an outstanding process on prospecting and bringing in new client relationships. I would argue that we are in a top -- a small top-of-class roof when it comes to pure organic growth. As I stated, we grew our loan book 14% annualized quarter-over-quarter as sales momentum stays strong and balanced across all of our regions. Our average portfolio yield, including fees and accretion held up well at 6.02%.

Regarding deposits, again, core deposits were up 7% annualized, excluding -- when excluding broker fee payoffs, plus, we absorbed the large seasonal withdrawal early in the year. So all in all, a very nice deposit quarter. It's important to recognize how we're building this bank with core relationships, as we have intense focus on both sides of the balance sheet. A couple of other highlights noted in our release bullets included an allowance for credit loss model change that [ back ] their provisioning during the quarter. So we accomplished these results while adding an outsized provision adjustment with the new ADL model that better suits our company. Ron is going to discuss this a little bit more in a moment. We also had a senior team addition with a new Director of Private Banking and Wealth Management from an end market regional bank that I believe is going to elevate this -- the work that we're doing in this area even further.

We don't talk a lot about our Wealth and Investments platform, but this business line has steadily grown over the last several years as we've added some outstanding private bankers and new financial advisers. This focus on assisting high net worth clientele is becoming a great business driver for us. And with our strategy, we can go toe to toe with any regional or national player. So all in all, a very nice way to start 2026. I'm going to stop there and hand it over to Ron and let him dive into some details. Ron?

Thanks, Billy, and good morning, everyone. I'll start by highlighting some key deposit results. During the quarter, our momentum remains strong with nonbrokered deposits increasing by $95 million, driven by 2 factors: new deposit generation at a cost of 2.82% and which was 22 basis higher than the previous quarter and seasonal inflows. Given the strength in core funding, we took the opportunity to pay down the remaining $52 million in brokered deposits, which carried an average rate of 4.35%. And as we noted on the last call, our year-end totals included some transitory noninterest-bearing deposits.

As those deposits rolled off and clients put some excess liquidity to work, noninterest-bearing deposits were over 18% of total deposits at quarter end. Overall, interest-bearing deposits declined by 19 basis points to 2.60 and were 2.58% in March. We continue to maintain a robust liquidity profile as demonstrated by our loan deposit ratio of 87%. The Net interest income for the quarter was $45.9 million, which was $782,000 higher than the previous quarter, even though this quarter had 2 fewer days.

Our net interest margin also improved by 10 basis points to 3.48%. This increase was mainly driven by an 18 basis point reduction in funding costs, which more than offset a 3 basis point decline in asset yields. The reduction in funding costs resulted from the full quarter effects of the prior quarter's federal rate cuts. The previously mentioned paydowns of higher cost brokered funding and new deposit generation and CD renewals at lower rates.

The decline in asset yields was caused by a 6 basis point reduction in loan yields, mainly due to the impact of the rate cuts mentioned above and the pay downs and payoffs of higher rate loans. This reduction was slightly offset by strategic utilization of balance sheet cash. The weighted average yield on new loan production for the quarter was 6.40% and 6.45% for March. Looking forward, we anticipate that our margin will stabilize and remain relatively flat for the second quarter before increasing slightly in the second half of the year.

Turning to credit. Our provision expense for the quarter was $4.1 million, which includes $926,000 attributable to an increase in our unfunded commitments liability. As mentioned during the last earnings call, we've updated our CECL allowance model enabling broader capabilities such as economic forecasting, tailored to loan segments and stronger qualitative adjustments. Details about this model update will be included in our first quarter 10-Q filing.

Due to the changes in our modeling approach and quarterly activities, the allowance for credit losses increased to $44 million, representing 0.97% of total loans compared to 0.94% in the previous quarter. And our liability for unfunded commitments totaled $4.5 million, up from $3.6 million. Looking forward, we anticipate that the allowance to remain within the 97, 98 basis point range, contingent on prevailing market and credit conditions.

Furthermore, our asset quality metrics remain robust with nonperforming assets accounting for just 0.25% of total assets and net charge-offs were limited to 2 basis points. Operating noninterest income was $7.9 million, down slightly from the last quarter, but exceeding expectations. Higher investment services fees offset lower mortgage banking and capital markets revenue which was lower primarily due to seasonality. Other income sources met or modestly surpassed expectations.

Operating noninterest expenses for the quarter increased slightly to $32.9 million, which was modestly below our guidance. Salary and benefit expenses were higher mainly due to variable compensation on stronger-than-anticipated [ reduction ] as well as our annual merit increase adjustments that started in March. We also reduced our FDIC insurance accrual of $275,000 this quarter, but expect this expense to return to normal levels in future periods. Our operating efficiency ratio for the first quarter remained around 60% plus level showing our continued focus on improving margins and controlling costs.

For the second quarter, noninterest income is projected to be approximately $7.8 million and noninterest expense is expected to be in the range of $34 million to $34.5 million. Salary and benefit expenses are anticipated to range from $20.5 million to 20 million -- $21 million, slightly elevated from the prior quarter due to the full quarter effects of our merit increases and new hires. Our accruals for incentive-based compensation will fluctuate based on performance and may vary throughout the year.

I'll conclude with capital. The company's consolidated TCE ratio increased to 8%, and our total risk-based capital ratio remained well above regulatory well capitalized standards at 12.7%. Overall, we believe our capital levels remain optimally balanced to continue to support growth while maximizing returns on equity. With that said, I'll turn it back over to Billy.

Thanks, Ron.

As you can tell from Ron's comments, our trends continue to have a nice trajectory. We are successfully executing on the leveraging phase of growth for our company. And on our return metrics, we feel very confident in our ability now to move through the 1% and 12% ROA and ROE thresholds as we look into 2026. I mentioned on our last quarter call, our internal 4x4 challenge of hitting a $4 EPS run rate by the fourth quarter of 2026. So basically hitting $1 per share and EPS by Q4 of this year. We rolled that initiative out internally during the quarter, and our team embraced it. We've got a little bit of work to do, but we've had a nice start to the year, and we're going to continue to push to hit that EPS target. I like our chances on accomplishing this goal.

We believe we're one of the brightest banking stories in the Southeast. Outstanding growth markets paired with strong experienced bankers and a very focused executive team. Our primary efforts will be on generating more operating leverage throughout 2026 with our focus on doubling down on our organic strategy and getting deeper in our markets. As I mentioned, pipelines are solid, and I think we can continue growing at this high single digits plus pace. Talent acquisition continues to be a high priority for our company, and I really like what I've seen during the first part of this year.

We've continued to add select revenue producers in several markets and have several more committed to come onboard soon. We're constant recruiters and I like our position as we continue seeing market disruption in the South. Just an anecdotal comment on that. I was at a client event in Alabama last week, and I had a new Smart Bank client that one of our new bankers has brought over to us come up to me and say how much he enjoyed working with us, saying, you guys can do everything the regionals can do, but you're better and more nimble -- that sums up our business strategy and our recruiting strategy, and we're having great success with both.

So we will continue to look for these organic growth opportunities and remain very focused on recruiting. So to summarize, we kicked off a very solid 2026, and we are positioned very well. We are executing, growing revenue, EPS and book value and staying prudent on expense growth. We remain optimistic around our ability to add balance sheet growth and have a nice tailwind coming with rate resets in our loan portfolio over the coming quarters. Credit remains very sound.

And on goal setting, we're executing on this year's 4x4 initiative as we have line of sight to a $4-plus earnings per share target. And I also wanted to add how Saturday am that we've elevated Cynthia Tan to our Chief Operating Officer role. Cynthia is one of the best leaders in our company and will be tasked on aligning all of our operational and tech initiatives. He's going to do a great job in this role. I appreciate the work of our SmartFinancial, SmartBank team and the efforts of all of our associates. I'm very proud of what we've got going on here at SMBK. So I'm going to stop there and open it up for questions.

[Operator Instructions] Our first question comes from Brett Rabatin from StoneX.

Hey, good morning, everyone. I wanted to start on -- I wanted to start on just the growth outlook from here. Obviously, you guys continue to execute really well on growth. And there's been rumblings of some competitors in Tennessee, in particular, being very aggressive with rate? And just wanted to see if that -- if you were seeing any of that and then just the pace of growth in 1Q, if that's sustainable, particularly on loan growth over the rest of the year?

Yes. Brett, I'll start and Rhett, you can chime in from what you're seeing in pipelines as well. But yes, it has -- we had, again, a really solid first quarter. Our pipelines feel good. As I 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 your pace. Competition is -- I'll tell you I don't know where we're talking about this today. We could have had a lot more we're turning away some do so good deals just because we're seeing some unreasonable rate competition.

And that's okay. I mean, we just -- one of the things, and I think you've heard me comment on it in past calls is, we've really got a nice disciplined approach around our pricing model. And again, growing both sides of the balance sheet is really important for us. And so as not that we won't 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're hitting our return on risk-adjusted capital targets.

And so we are seeing some competition that's a little bit crazy. We're letting some of those deals go. We're involved in them. Sometimes we just think the price [ in step then. ] But I mean, you might talk a little bit about pipelines and just how you feel about kind of this high single digits plus pace.

No. Billy, you kind of stole my thunder because I was going to say the same thing that despite the growth we saw, we actually could have -- we could have produced more, and we not been a little -- not been as disciplined as we were on our return brand. So the pipeline itself, though, continues to backfill at a pretty consistent pace. I mean as we've kind of monitored this growth like we've had for the past several quarters, you see it in the numbers. The pipeline just continues to backfill each quarter end when we look at -- and what we've got coming for the balance of the next couple of 3 quarters.

So it -- all indicators are that the market pace is still good. There's a lot of opportunity out there, and we are certainly getting our pressure.

Yes. Brett, I'd also add, it's not just Tennessee. It's all across the footprint. All about in the Panhandle has been very strong as well.

Okay. That's great color, guys. I appreciate all that. And then just wanted to ask on the balance sheet management. Your loan-to-deposit ratio has increased last year, and you talked about paying down some brokered CDs this quarter but just wanted to hear you guys' thoughts on managing the balance sheet the loan-to-deposit ratio, if there's an upper limit that you guys might have on that and then just funding the growth where you think that comes from in terms of product and how you're going to do that?

Ron, do you want to take that?.

Sure. We've been hovering around the 86%, 87% loan deposit ratio. We're not afraid to go up to 90, 90 plus. But at this point, we don't see the need. Our deposit generation has been strong throughout our footprint. As you can see for Q1, a lot of it's been money market generated. We are leading off on the CD side. We feel the relationship building of that money market category has been pretty special for us going forward. Other than that, again, relationship building and a lot of -- we have a lot of deposit opportunities in our footprint.

Our next question comes from Russell Gunther from Stevens.

Russell, I wanted to ask on deposit costs 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?.

Ron, do you want to take that? I think from what Russell is saying, I think with rates being up a little bit, probably have a little bit more read on that. But you want to discuss kind of thoughts around deposit costs moving forward?

Yes, we're pretty neutral at this point in time. We've -- 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're seeing coming into a period of seasonality. Second quarter for us is traditionally a heavy cash quarter for clients for tax payments and other sources and other uses. Even though we've seen competition through our footprint, as we'll probably get a question on that, our team has done a great job of bringing in deposits and keeping the rates down.

So in essence, I think we will still see a little bit of rate movement upward, but we're only looking at very few basis points quarter-over-quarter from here on. So pretty neutral at this point.

Okay. That is very helpful. And then you led the witness here a little bit. Let me follow up on your deposit cost competition. It's also a follow-up to Brett's very good question. I mean the Southeast is always a competitive place to operate. Maybe just high level, how would you describe the environment this quarter incrementally has that high level of competition increased. It sounds like on the loan side, but perhaps just the deposit side too.

Yes. Yes, I'll grab that one, Russell. Yes, it has. I think competition is ramping up. I don't think there's any doubt about that. I mean you've got a lot of banks that are out there looking for growth. We've been fortunate. Again, I go back to -- I think our process has really been good. And I think that's what's allowed us to drive growth and continuing to do it at right levels that we're comfortable at.

But yes, it's on both sides. Brett talked about loan pricing. It's the same on the deposit pricing side. We're seeing especially with thoughts around maybe a flatter rate environment in '26, I think it's fueling a little bit of fire to keep deposit rates higher. So I think we're going to -- we'll continue with that. But, again, we're -- our deposit growth is not always rate sensitive. I know we've -- I've talked about it on prior calls, the treasury management team that we have in our company, and they're doing such a great job with their commercial bankers.

And we're bringing in some really good -- just good core operating business outside of just kind of where prevailing money market rates are. And so I like the way we're growing the deposit side. I think we continue to do it like that, Ron said, probably had a little bit of mix shift this quarter that might give us a little bit of kind of short-term pressure. But all in all, I still think we continue to kind of do it at the same levels that we've been doing.

Great. And then, guys, just last one for me, a follow-up in terms of very helpful to get production yields this quarter, the 640 and the $645 million in March, and I always go right to that repricing slide on #4. How are those kind of yields holding relative to what's coming on in the pipeline? Is that kind of similar levels? Or do you see some pressure there?

Yes. I think it's close to the same, maybe a little bit of additional pressure on those Russell. But all in all, we're getting some nice yield pickup. So I think we're trying to be strategic and trying to be out in front of these rate resets and maturities well in advance. But yes, we're watching it closely. Maybe a little bit of additional pressure just like new production today, but still to the positive. Ron, I don't know if you've got anything to add on that?

Yes. The renewals and the repricing has been obviously a tailwind for us. We are renewing 88% of the loans that are coming up for repricing or renewal. That's -- and are coming in about 120 basis points higher. So they're very similar to the rates for today, maybe 10 basis points lighter but still very strong in that area.

[Operator Instructions] Our next question comes from Catherine Mealor from KBW.

Follow-up on the margin is in your guidance for the margin to be flat this quarter and then expand slightly in the back half of the year, do you have any -- what are your rate forecast under that scenario?

Yes, we're -- it's flat. We're not assuming up or down at this point in time..

Okay. So no more rate cuts were just in a flat rate environment. We were kind of stable to maybe up as we get better loan repricing in the back half of the year?

Correct.

Even if deposit costs kind of start to trend up a little bit?

Correct.

Okay. That's great. And then on the expense guide, it's helpful to see the next quarter's expense guide, which is still kind of shaking out to about that 5% annual growth rate. But just curious if you still feel like that 5% full year expense growth guide is appropriate? Or is there anything that with the recruiting you've talked about or anything else that you think we should be aware of to model in the back half of the year?

Yes. Ron, yes, just high level for me, Catherine, from the recruiting side, we think we can we think we can handle some of the recruiting. We don't do -- we're not going out and doing really, really large ad. We're just kind of selectively adding the right producing team members when they come on board. So we should be able to absorb that with the increased production. But Ron can talk about guidance. But yes, I don't think we've got a lot of really heavy expense lift in the forecast going forward. Most of that's already built in. But Ron, any color on that?

Yes, Catherine, we're projecting pretty much for the rest of the year, quarter-over-quarter. We're going to stay within a -- looking to stay within a tight band between $3.5 million to $5 million kind of in there. We're not expecting any other -- not expecting creep unless something strategic comes along. We're still looking to get our efficiency ratio to trend down to that target 60% level by year-end. So the only other item is the variable comp piece that could change some of this if we do get extended production and then variable comp will kick in. But no, we look like we can keep it in that band.

[Operator Instructions] our next question comes from Stephen Scouten from Pipas.

I guess going back to NIM just for 1 second. I'm kind of curious what you guys see as the biggest risk to the continued positive trajectory on the NIM, especially in that back half of 26, what could kind of cause that to be different than expected currently?

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

No, exactly. It's going -- going to be in the funding cost. And if we do have trending more of our mix shift at noninterest-bearing, but really, those are the other items.

Okay. And I know you guys noted that more of the growth had come kind of from money market and savings. Were there any sort of specials on the money market rates? Anything unusual that led to that kind of material pickup there from a mix shift?

I don't think so. I don't think we really did anything.

It's actually hard work.

Yes. And really, we prefer selling money markets and CDs. So -- but yes, not we didn't have any rate promos or anything out of the norm, Stephen.

Okay. Great. And then just last for me. I guess you guys noted the Director of Private Banking and some wealth management hires there in Nashville. How do you feel about your Nashville presence today? Is that something we should continue to see you focus on expanding given the current opportunity set? And if so, kind of what could that look like over the next couple of years?

Yes, it is. We're -- as I've said, we're really -- just really lean into all of our zones. We've just got such great ability to grow share in so many of our markets. But obviously, Nashville is a big one. It's a big market. We're really starting to build some nice momentum. I was over there with some clients a couple of weeks ago. And there's -- we've got really good energy over there. We've got a couple of them really got some nice team members that we've added over the course of the last couple of years. They've got more that we want to add over there.

So I think that's a market that's going to be important to us as we go forward. But we're -- we've got a lot of other zones where we're growing share, too, but NASH is going to be 1 that I think has got a heck of an upside for us.

Great. Appreciate that or congrats on all the continued progress here.

Our next question comes from Steve Moss from Raymond James.

Good morning, guys, and nice quarter here. Most of my questions was asked to answer here. Just kind of curious in terms of just the -- maybe the pipeline mix is focusing to be more construction nonoiREor just kind of how you guys are thinking about how you guys are feeling with that underlying mix?

Yes. I'll dive in on pipelines and so seeing more of that. But we've been able to keep it pretty balanced and pretty agnostic to kind of what whatever group that I think we've been able to hold. I still think we'll be able to hold but any additional color on how you see the loan composition looking over the next few quarters.

Name with regard to kind of what our focus is. I mean, clearly, you look at the graph got there, I think it's Page 9 of the deck that outlines our loan composition. I mean you might have a slight move here or there on a percentage point or 1 quarter to the next. But overall, as you can see, it's maintaining a pretty steady pace as it relates to the mix of the portfolio. When you look at our fourth quarter production and it really ties in almost exactly to the same those same metrics for the quarter. So I mean, it's a -- it's just a continued solid, strong mix across the different segments of the book. And we are we're focused in doing that.

We've got our [indiscernible] set where they have some target areas and specializations here and there, and each 1 of them are, as Millapointed out earlier, across the geography and across our different markets. One of them are carrying their own waiting wireline. I mean so far and say it's been a very consistent mix.

Okay. Appreciate that. And then maybe just in terms of expansion Bill, you just talked about the Nashville area. Just kind of curious, as you hire teams selectively here or people selectively -- should we think about any de novo expansion around that market? Or any thoughts on M&A these days? I know you guys are speaking to leverage your existing base, but just kind of updated thoughts there.

Yes. On your third question on de novo expansion. No, not really. I mean I think obviously, we -- last quarter, we talked about excited to get Columbus, Georgia started. Really excited about what our team is starting to build down there and building it really quickly. So I've been happy with that. But outside of that, nothing really will look -- I think we -- we'll probably look to add another Nashville area office sometime here in the foreseeable future. Just maybe a couple of other small offices to support some of our markets as we look out over the next couple of years.

But nothing really big on that front, Steve, probably just like I said, focus on that de novo Columbus zone and then really focus on probably just growing national, maybe add a branch there and maybe another one in another market or 2 over the next couple of years.

Got it. And still all quiet on the M&A for I take it?

Yes, in M&A. M&A, I forgot about M&A miller, start lapping, it's -- I'll just -- and we have -- we've had -- we've been successful in M&A over the years, before this pivot that we made a few years ago and the leadership that we've been able to put in on the sales side, the organic growth, and I think you see it the results and what it's done, the revenue growth, the EPS growth. And I said it take a unicorn to probably get us to move Nolato the firm now and just the company and the work ethic in just -- what we're doing now is, Mark. Yes. And so yes, probably a little light on prioritizing that, Steve, but love where we're sitting.

[Operator Instructions] We currently have no further questions, and therefore concludes the Q&A session. I would now like to hand back to Miller Welborn, Chairman of the Board for any closing remarks.

Thanks, Claire. And I appreciate everybody joining us today. It's great to be with you all. And as Billy said, it's just an exciting time to be part of this bank and just being cost of recruiters, and that's a great team members all across the bank footprint and also just great clients. We appreciate you all being part of it. Thank you, and have a great day.

This now concludes today's call. You may now disconnect your lines.

Hello, everyone, and thank you for joining the SmartFinancial Fourth Quarter 2025 Earnings Release and Conference Call. My name is Claire and I will be coordinating your call today. [Operator Instructions] I will now hand over to Nate Strall, Director of Strategy and Corporate Development of SmartFinancial to begin. Please go ahead.

Thanks, Claire. Good morning, everyone, and thank you for joining us for SmartFinancial's Fourth Quarter 2025 Earnings Conference Call. During today's call, we will reference the slides and press release which are available in our Investor Relations section on our website, smartbank.com Billy Carroll, our President and Chief Executive Officer, will begin our call followed by Ron Gorczynski, our Chief Financial Officer, who will provide some additional commentary. We will be available to answer your questions at the end of the call.

Our comments include forward-looking statements. These statements are subject to risks and uncertainties, and the actual results could vary materially. We list the factors that might cause these results to differ materially in our press release and in our SEC filings which are available on our website. We do not assume any obligation to update any forward-looking statements because of new information, early developments or otherwise, except as may be required by law. During the call, we will reference non-GAAP financial measures related to the company's performance. You may see the reconciliation of these measures in the appendices of the earnings release and investor presentation filed on January 20, 2026, with the SEC. And now I'll turn it over to Billy Carroll to open our call. Billy?

Thanks, Nate, and good morning, everyone. Great to be with you, and thank you for joining us today and for your interest in SMBK. I'll open our call today with some commentary, then hand it over to Ron to walk through the numbers in some greater detail. After our prepared comments, we'll open it up with Ron, Nate, Rhett, Miller and myself available for Q&A. It's been another very busy quarter for us as we continue to execute on our strategy of leveraging the great foundation we've built at SmartFinancial. Our team's focus on execution has been outstanding as we wrap the best year in our company's history. The fourth quarter was yet another example of that.

So let's jump right in and discuss some of the highlights. First, and in my opinion, one of the most important metrics, we continue to increase the tangible book value of our company, which is now up to $26.85 per share. That's growth of over 13% annualized quarter-over-quarter and 17% for the year. For the quarter, we posted operating earnings of $13.7 million or $0.81 per diluted share. This is our seventh consecutive quarter of positive operating leverage. And for the year, we had record earnings of over $51 million. We again had outstanding growth on both sides of the balance sheet, posting 13% annualized growth in loans and 8% annualized growth in deposits. Our history of strong credit continues with only 22 basis points of nonperforming assets. You'll see we added a little more in the allowance to cover our strong loan growth and to address a small handful of fountain equipment loans, but I'm pleased to see these nonperforming numbers continue at exceptionally low levels.

On the revenue side, for the quarter, total operating revenue came in at $53.3 million, but I also want to draw your attention to our pre-provision net revenue number, PPNR has grown from $14.5 million in the fourth quarter of '24 to a record $20.9 million in the final quarter of '25 million. That's a 44% increase year-over-year. Our revenue expansion has been outstanding. And operating noninterest expenses also came in on target and flat to Q3 at $32.5 million, another great example of our expense discipline. Looking at the first few pages in our deck, you'll see a continuation of some very nice trends. We're building our return metrics and most importantly, growing total revenue, EPS and as I mentioned earlier, tangible book value. All of those charts are great graphics to illustrate our execution, and I'm looking forward to and expecting these trends to continue.

So just a couple of additional high-level comments for me on growth. Our balance sheet expansion is a direct result of the focus of our sales teams. Our continued evolution of an outstanding organic growth company is one of the things I've been most proud of over the last several years. As we've hired well, we've also built an outstanding foundational process that includes aggressively going after new client relationships, growing existing ones along with a diligent prospecting process. I would argue that we were in a small top-of-class group when it comes to pure organic growth. As I stated, we grew our loan book 13% annualized quarter-over-quarter as sales momentum stayed strong and balanced across all of our regions.

Our average portfolio yield, including fees and accretion held up well at 6.08% and our new loan production continues to come on to the books accretive to our total portfolio yields. Regarding deposits. Again, deposits were up 8% annualized and that's inclusive of reducing some of our brokered CD positions. It's important to recognize how we're building this bank with core relationships as we have intense focus on both sides of the balance sheet. Looking at the full year for 2025, we grew net loan balances $457 million or 12% and grew core deposit balances $626 million or 14%, excluding that brokered CD activity, just a phenomenal year from our sales and support teams. Our pipelines continue to feel very good as we start 2025, and I will discuss this a little bit more in my closing comments. But we also had some very nice highlight bullets that I want to focus on, on our earnings release this quarter. All tied to building the foundation of a bank that's on track to becoming one of the Southeast's strongest regional community banks.

One key highlight in addition to the numbers is our announcement of our planned expansion into the Columbus, Georgia market. Columbus is a natural move for us as we've been doing business in that market over the last few years out of our Auburn office. The timing was excellent to open an office in the second largest city in the state of Georgia given the opportunity to bring on some outstanding Columbus bankers and the current market disruption. Over the last couple of weeks, we started the process to expand this region of our footprint. Our style of banking is going to play exceptionally well in Columbus, and we look forward to getting ramped up in 2026. So all in all, a very nice fourth quarter and a very nice way to wrap 2025. And I'm going to stop there and hand it over to Ron to dive into some of the details. Ron?

Thanks, Billy, and good morning, everyone. I'll start by highlighting some key deposit results. We experienced great momentum this quarter with non-broker deposits growing by $214 million, nearly 18% annualized from both new deposit production at a cost of 2.60% which was down 87 basis points from the prior quarter and from seasonal inflows. Overall, interest-bearing deposit costs declined by 19 basis points to 2.79% and were 2.74% in December. We also experienced an uptick in noninterest-bearing deposits due to some temporary balance increases at year-end. Looking ahead, we anticipate the ratio of noninterest-bearing deposits to total deposits to stabilize near 19%. Our team's ability to grow and retain core deposits continues to reduce our need for expensive wholesale funding.

Accordingly, we paid down $112 million in broker deposits during the quarter with an average rate of 4.27% and we anticipate paying down an additional $44 million during Q1 with an average rate of 4.05%, leaving a remaining broker deposit balance of only $8 million. Despite these paydowns, we anticipate maintaining a strong liquidity position as demonstrated by our quarter-end loan-to-deposit ratio of 85%. During the quarter, our net interest margin increased by 13 basis points to 3.38%. This growth was primarily attributable to a 17 basis point reduction in funding costs, which outweighed the 3 basis point decrease in interest-earning asset yields. The decline in funding costs were driven by our deposit portfolio, which is approximately 45% variable, benefiting from the federal rate reductions and slight mix shift changes.

The payoff of our previously issued $40 million of sub debt and the reduction in high-cost brokered funding. The lower yield on interest-earning assets stem from a 6 basis point decrease in loan yields, partially offset by a full quarter impact of securities repositioning completed at the end of the prior quarter. During the quarter, the weighted average yield on new loan production was 6.58%. Looking ahead, we are projecting our first quarter 2026 margin in the 3.4% to 3.45% range. Our provision expense totaled $4.1 million, which included an unfunded commitment provision of $408,000. Approximately $2.4 million of the provision was allocated to our fountain equipment subsidiary, with the remainder of the provision supporting the bank's strong continued growth. Despite the challenges in the small isolated segment of our overall loan portfolio, our asset quality ratios continue to remain very low with nonperforming assets comprising 0.22% of total assets and 2025 net charge-offs to average loans of only 8 basis points.

At the end of the quarter, the allowance for credit losses was 0.94% of total loans. Looking forward to the first quarter, we expect this ratio to increase slightly by a few basis points as we transition to a new allowance model. This updated model will provide expanded capabilities, including loan segment specific economic forecasting and more robust qualitative factor adjustments. Implementation is scheduled for the end of the first quarter. Operating noninterest income reached $8.2 million, surpassing our expectations due to elevated mortgage banking revenue and customer swap fees generated by our Capital Markets Group. All other sources of income were in line with or modestly exceeded our expectations. Operating noninterest expenses held steady at $32.5 million. Salary and benefit costs were slightly higher driven by increased variable compensation due to stronger-than-forecasted year-end performance. Our fourth quarter operating efficiency ratio improved to 60%, down from 64% last quarter, primarily as a result of continued margin improvement and a continued company-wide commitment to expense management.

For the first quarter, noninterest income is projected to be approximately $7.6 million and noninterest expense is expected to be in the range of $33.5 million to $34 million. Salary and benefit expenses are anticipated to range from $20.5 million to $21 million, slightly elevated from the prior quarter due to the seasonality of our associate merit increases, corresponding employee tax resets and some new hires. Our bank and consolidated capital ratios experienced minor quarter-over-quarter fluctuations primarily due to timing differences between the issuance of new sub debt during Q3 and the repayment of the existing issuance on October 2. Both the bank and company remain well capitalized with the company's total consolidated risk-based capital at 12.67% and tangible common equity ratio improving by 15 basis points to 7.9%. Looking ahead, we are confident that our capital levels are appropriately balanced and well positioned to support continued growth while optimizing returns on equity. With that said, I'll turn it back over to Billy.

Thanks, Ron. As you can tell from Ron's comments, our trends continue to have a nice trajectory. And drawing your attention back to Page 8 of our deck, we are successfully executing on the leveraging phase of growth for our company. On our return metrics, we feel very confident in our ability to move through to 1% and 12% ROA and ROE targets we achieved in '25 as we look into 2026. We're building a great franchise and arguably some of the most attractive markets in the country and have put together a team that is rapidly moving us forward. We continue to be one of the Southeast's brightest stories, outstanding markets, strong experienced bankers coupled with a great operational and support team, plus very nice complementary business lines. As we put a bow on '25, we did exactly what we said we were going to do, generate more operating leverage and hit some key revenue and return metric targets.

As we look into 2026, expect more of the same. Our focus will be doubling down on our current strategy and getting deeper into our markets. As I mentioned, pipelines are good, and I still think we can continue growing at this high-single-digit plus pace. On talent acquisition, this continues to be a focus. As I mentioned, we recently added a couple of great bankers to lead our Columbus, Georgia expansion and also added some great bankers in a few of our other markets during Q4. We continue to actively recruit and identify revenue producers that fit our culture in all of our regions. I believe we are included in a very small handful of banks that have built a culture where outstanding regional bankers want to work. We will continue to look for these organic growth opportunities and remain very focused on recruiting.

So to summarize, as we enter 2026, we are well positioned. We are executing, growing revenue, EPS and book value while staying prudent on expense growth. We remain optimistic around our margin as new production stays strong and as we see the tailwind coming from the rate resets in our loan portfolio over the next couple of years. Credit continues to be very sound. And on goal setting, setting our $50 million revenue target for the team several quarters ago led to some great success this past year. So we've set a new internal goal challenging our team to take the next step on our financial metrics. We set a challenge goal to hit a $4 EPS run rate by the end of '26, so basically hitting $1 in earnings per share by Q4. That's not going to be easy, but I know we're up for the challenge. There's a great energy around our company, and we're excited to tackle 2026. I appreciate the work of our SmartFinancial SmartBank team and the efforts of all of our associates. I'm very proud of what we have going on here at SMB. So I'm going to stop there and Claire will open it up for questions.

[Operator Instructions] Our first question comes from Russell Gunther from Stephens.

I wanted to start on the loan growth side of things, another very strong double-digit organic growth year for you. It would be helpful to get a sense for whether or not you think that type of growth rate is sustainable in '26. And perhaps as a part of that question, maybe just comment on where that recruitment pipeline does stand today outside of Columbus, where else might you look to hire?

Yes. I'll start, Russell, and then any of the other folk -- guys can jump in. As far as thoughts around growth for '26. I think I mentioned, we did -- we had a really, really nice year, double digits every quarter. And so for us, going into '26, we're not necessarily backing off, but as the balance sheet gets a little bit bigger, it's tough to keep hitting those outsized percentages. We're -- again, we're targeting, and I said it in my comments, kind of high-single-digit plus. That means there might be some quarters where we exceed 10%. But I think if we can hang in there to that 8% to 9-ish, I think that helps us get to where we want to in '26. So we're still going to kind of guide to high-singles. And then as far as recruitment pipelines, we've got a really -- we're doing a lot of work. We're talking to a lot of different bankers. Again, as we've really kind of got this thing up on plane over the last couple of years. We've just -- I do, and I said it, I think we're creating a culture where a lot of really good bankers are enjoying working. And so for us, we're just going to continue to tell our story where we look for folks that fit our culture first, that align with the vision that we have for our company but we're doing that, and there's really no market, in particular, that we're looking at.

We're looking to continue to grow as we double down on getting deeper in every one of these markets. We're really looking at all of our key zones to add talent where we can find them. So pretty agnostic to the market. We're just looking for really good bankers that can help us execute our growth goals.

Okay. Excellent, Billy. And then last one for me would be on the expense side of things. I appreciate the guide for the coming quarter. I think you guys have posted 7 consecutive quarters of positive operating leverage. So it would be helpful to just get a sense for how you're thinking about the overall core expense growth rate for the year as you contemplate things like franchise investment in technology or the hiring plans you just referenced.

Ron, do you want to dive into that? I think in our comment, Russell, we're going to try to stay pretty prudent, but we want to continue to invest in people and tech where appropriate. But Ron, you've got any thoughts on kind of just overall year guidance.

Yes. We've been brought in the last couple of earnings calls. We're trying -- we're expecting to stay within the $34.5 million to $35 million band. So we're probably targeting around 5% overall expense growth year-over-year.

Our next question comes from Catherine Mealor from KBW.

It was really nice to see the NIM expansion this quarter and then it looks like we've got more coming in the first quarter. Was just kind of thinking about it from a full year perspective and maybe how much that plays into hitting that dollar run rate in the fourth quarter of '26. Do you feel like as long as rates are stable that we can continue to see NIM expansion in the back half of the year just given where the back book loan repricing is coming from? You have a nice chart in your deck that kind of highlights that. Or are we more just kind of stable after we see this pop in the first quarter?

Ron, do you want to take that? Yes, I get. I'll let Ron kind of dive into the details. But yes, I think for us, it's just -- I think as long as rates stay relatively stable, I think you said that, that's kind of what we're betting on. But Ron, do you want to maybe talk a little bit about kind of where you see NIM over the course of the next little bit?

Yes. After the first quarter, 3.40%, 3.45% range, we're probably seeing some slower incremental growth quarter-over-quarter. We're now looking probably to stay at 3.45%. I would see it probably getting to the 3.50%, plus or minus range by year-end.

Okay. Great. And then on the size of the balance sheet, you had a little bit of securities growth this quarter more than we've seen for the rest of the year. How are you thinking about the size of the bond book as we move through '26?

At this point, I think right now, we're really targeting staying around 11%, 12%. We don't see our bond book getting that much greater than that. We still have some liquidity that we can deploy for loan growth. But again, the investments we should stay around that 12% range of total assets..

Our next question is from Steve Moss from Piper Sandler -- apologies, from Raymond James.

Maybe just -- maybe just following up on the margin here. Ron, in terms of just obviously nice expansion this quarter. I was thinking maybe your funding costs would come in a little bit more just given how many Fed cuts we've seen in the past 3, 4 months. Just kind of curious maybe any color around spot funding costs at quarter end or kind of how you're thinking about the liability side of the business?

I think we intend -- for Q1, we've had -- we'll obviously get the full hit of the rate cuts done in the fourth quarter. We intend to go down probably around, I'd say, 17, 18 basis points to Q1. Again, everything is market dependent on what we do here. We're getting a lot of lift from -- we did pay down some brokered deposits or some callable brokered deposits that gave you some lift. But I still think that we will see it slow down as if we don't get any rate cuts or slower as we go through the year.

Got it. Okay. Appreciate that. And then in terms of just the hiring in Columbus, Billy, maybe just if you could size up the team there in terms of how big that could get, you talked about hiring. Maybe just kind of curious like where -- what that could mean for expenses -- expense growth over the course of '26?

Yes. Yes. I think a lot of -- Andrew, probably the easiest answer, Steve, is it depends. I think it depends on continuing to find the right folks that fit us. The initial folks that we've come over to help -- that came over to help start the market, we're really excited about, and we're going to continue to dive in and recruit. When we typically do an expansion like this, we've done it traditionally is that we make sure that we kind of balance the expense growth with production. So I don't think you'll see a material impact in even as we hire, we typically try to blend that in as we continue to grab growth on the balance sheet and so from that standpoint, I don't think you'll see a material number that would impact the expense run rates going forward.

I do think over the course of the next several quarters and maybe the next couple of years, we're going to continue to see some disruption in that market. I think there will be opportunities to continue to add really good team members in that market. And remember, the thing about it, Columbus, even though it's only 45 minutes from Auburn, we've really been able to build -- we've been able to build some really nice relationships in that zone. We bank a lot of folks in Columbus today out of Auburn. And so this just really gives us just a nice spot, and it allows us to get deeper in that zone, which really aligns with everything that we've been saying. And so I think we're going to be able to kind of use this that little flag planting in Columbus to just pick up some good talent over the next little bit. But I don't think you'll see it have a material impact on the expense line.

Okay. Appreciate that. And maybe just following up, Billy, I mean, obviously, you've been doing a lot of organic growth here and quite successful on that side. Just curious, any updated thoughts on M&A here?

Not really. We said it all along and it would really have to be something unique and special to get us to want to pivot. When we're growing, you saw -- I mean, we were able to grow $0.5 billion on both sides of the balance sheet last year. That's 10% of our -- almost 10% of our footing. If we continue to do that, not have to put any shares out, man, that's a home run. And that's something that as we built this thing to be able to create this engine. And it's great. It's just a testament to the sales teams, the sales leaders that we have in this company that we're really starting to generate that sort of momentum. And again, I touched on it in my comments, but we've really developed I think a great process that quite frankly, I don't think a lot of banks have been able to replicate. There's a handful that we watch that we've seen to do it really, really well. I think we're kind of getting into that class where we can be a really strong organic grower.

So as long as we can continue to execute this way, I think you'll probably just see more and more of this from us.

Billy has convinced me over the last 2 years looking at how our metrics have improved over the last 2 years, we can really grow organically and improve this bank and improve the efficiency and the profitability and manage risks easier on our team to build it organically.

What's risk. It's -- we're kind of boring, Steve. We kind of laugh. We laugh around our table. We're kind of a boring story. But...

Except our shareholders.

Except -- but we continue to look to improve these EPS numbers and these efficiency numbers and the metrics and all of that will come. We just continue to execute. We don't have to take the risk of looking to integrate another bank or another culture. Some folks like that strategy. And we've done it. We've been successful doing it. I'm saying that we won't ever do it again, but man, it's just -- it needs to be special to have us pivot today.

Our next question comes from Stephen Scouten from Piper same.

So Billy, I know you said you're kind of agnostic around potentially where to hire as you think about talent. But are there any other markets that you see similar to Columbus that could be kind of a natural extension to where you guys are doing business today, whether that's I don't know if it could be making or if it could be anywhere else kind of throughout the footprint that might make sense in the future?

Yes. Stephen, it is. Yes, possibly. When you look at kind of where we are, I mean, obviously, we bank some of the -- we bank some of North Georgia out of Chattanooga. That would be something that's similar if you found something that might be -- you might be in that market that could help Macon again, kind of looking at some of the South Georgia, as we continue to grow maybe that's not on our plan today, but again, a market that we could grow into. The biggest things -- and we really are agnostic to the market. But we've got tons of opportunity, especially in markets like Nashville and in markets like Birmingham. So we're -- we want to lean into those markets. We added another -- we added another office, just a loan production office in the Nashville Metro area last quarter just to give us a little bit more space as we continue to add some good talent in that area.

And so I think you'll see us wanting to lean into those markets, get a little bit -- get even deeper into the Birminghams and the Nashvilles. But nothing really that looks like Columbus on our Board today, but we could potentially look at a couple other of those Georgia markets down the road.

Got it. That's helpful. And I like that you noted your kind of internal challenge goal here to kind of hit this $1 a quarter, maybe EPS run rate by year-end '26. Is there anything more significant that needs to occur or any kind of segment of the earnings power of the bank that need to improve to get you there? Or is it more just a continuation of the same things you've been doing? Drive operating leverage, organic growth and the like.

Yes. Just stay on the path, stay diligent in our process, keep grinding. It's kind of like we say around here. just keep drawing it. A lot of it is no, there's really nothing that we need to do, just continue to execute. Just a little bit more operating leverage over the course of the next several quarters, probably a little flatter with the short quarter, operating leverage is a little bit flatter probably in Q1 with a shorter quarter. But -- and we think that ramps up as you get into Q2, Q3, Q4 as we get this loan back book repriced as we get up, get some -- get the growth that we think we can get -- feel like we can get on to the balance sheet during the course of the year. We can get there. We got to stay disciplined on expenses. We've been able to do that. I don't think there's anything that's going to cause us to veer off that course. So a lot of it like I said to Steve's comment earlier, we're kind of boring. We're just going to execute. And I said I'm really bullish on the team that we've got in place to help us do that. So nothing special, just go work hard.

Yes. Makes sense. Boring is never bad in banks. So Congrats on all that continued success.

[Operator Instructions] We currently have no further questions. So I'll hand back to Miller Welborn for any closing remarks.

Thank you, Claire. We appreciate everybody being on the call today. Thank you for your continued support of the bank and for all that each of you do every day. Look forward to jumping into '26. And thank you very much. Have a great day.

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.

Hello, everyone, and welcome to the SmartFinancial Third Quarter 2025 Earnings Release and Conference Call. My name is Ezra, and I will be your coordinator today. [Operator Instructions] We will be taking questions at the end of the presentation.

I will now hand you over to Nate Strall, Director of Investor Relations, to begin. Please go ahead.

Thanks, Ezra. Good morning, everyone, and thank you for joining us for SmartFinancial's Third Quarter 2025 Earnings Conference Call. During today's call, we will reference the slides and press release that are available in the Investor Relations section on our website, smartbank.com. Billy Carroll, our President and Chief Executive Officer, will begin our call, followed by Ron Gorczynski, our Chief Financial Officer, who will provide some comments and some additional commentary. We will be available to answer your questions at the end of the call.

Our comments include forward-looking statements. These statements are subject to risks and uncertainties, and the actual results could vary materially. We list the factors that might cause these results to differ materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements because of new information, early developments or otherwise, except as may be required by law.

During the call, we will reference non-GAAP financial measures related to the company's performance. You may see the reconciliation of these measures in the appendices of the earnings release and investor presentation filed on October 21, 2025, with the SEC.

And now I'll turn it over to Billy Carroll to open our call. Billy?

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

It's been a busy quarter for us, and we've had a number of very positive things happening with our company. The focus on execution that's going on right now is outstanding. Our team continues to have a keen focus on hitting targets we've set for this year in regard to revenue, returns and prudent expense growth, and I remain very bullish on our outlook. So let me jump right into some of our highlights. First, and in my opinion, one of the most important metrics, we continue to increase the tangible book value of our company, moving up to $26 per share, including the impacts of AOCI and $26.63, excluding that impact. That's growth of over 26% annualized quarter-over-quarter.

For the quarter, we posted operating earnings of $14.5 million or $0.86 per diluted share. This is our sixth consecutive quarter of positive operating leverage, and we hit our $50 million quarterly revenue target in Q3, which we had set for our team this year. We actually hit it a few months early, and I look forward to seeing that number continue to grow. We had outstanding growth on both sides of the balance sheet, posting 10% annualized growth in loans and 15% annualized growth in deposits.

Our history of strong credit continues with only 22 basis points in nonperforming assets. I'm pleased to see these numbers continue at exceptionally low levels. Total operating revenue came in at $50.8 million as net interest income continued to expand and noninterest income was solid again. And our operating noninterest expenses also came in on target at $32.6 million.

Looking at the charts on Page 4 and 5, you'll see very nice trends. We're building our return metrics and most importantly, growing our total revenue, EPS and as I mentioned earlier, tangible book value. All those charts are great graphics to illustrate our execution. I'm looking forward to and expecting these trends to continue. So just a couple of additional high-level comments for me on growth.

Our continued balance sheet expansion is a direct result of the focus of our sales teams. I've enjoyed watching this company transforming into a very good organic grower. As we have hired well over the last several years, we've also built an outstanding foundational process that includes aggressively going after new client relationships, growing existing ones, along with a very diligent prospecting process. As I stated, we grew our loan book at a 10% annualized rate quarter-over-quarter as sales momentum stays strong and balanced across all of our regions.

Our average portfolio yield, including fees and accretion was up to 6.14%, and our new loan production continues to come onto the books accretive through our total portfolio yield levels.

Regarding deposits, again, deposits were up 15% annualized or $179 million for the quarter, inclusive of reducing some of our brokered CD positions. It's important to recognize how we're building this bank with core relationships as we have an intense focus on both sides of the balance sheet. We've made investments in our treasury management team over the last several quarters, and it's nice to see this line of business gain outstanding momentum. Our loan-to-deposit ratio was at 84%, which is actually down quarter-over-quarter even with 10% loan growth. This strong position gives us continued flexibility to leverage a great balance sheet.

Our pipelines continue to look good, and I'll discuss these a little bit more in my closing comments. But also, when you look at the highlight bullets in our earnings release, we've had a lot going on this quarter. All of it tied back to building the foundation of a bank that is on track to becoming one of the Southeast's strongest regional community banks. Everything accomplished this quarter as part of our focus on efficiency and growth, a well-executed sub-debt issuance, a sale with a subsequent minority reinvestment on our insurance platform. A repositioning trade with our bond portfolio did not impact our book value as we leverage the gain of the insurance deal and continued contract evaluations and renegotiations, including our core data processing vendor, interchange payment rails and some new tech-focused initiatives looking into 2026.

So all in all, a very nice third quarter for our company. And I'm going to stop there and hand it over to Ron to let him dive into some greater detail. Ron?

Thanks, Billy, and good morning, everyone. I'll start by highlighting some key deposit results. For the quarter, we had strong nonbroker deposit growth of $283 million, representing more than 24% growth on an annualized basis. This increase resulted from both new deposit production and seasonal client liquidity build following the previous quarter outflows. The cost of new nonbrokered production was 3.47%. This growth gave us the opportunity to pay down $104 million of broker deposits, which had a weighted average cost of 4.7%.

Our overall interest-bearing costs rose by 3 basis points to 2.98%, but were down to 2.93% for the month of September.

Despite funding almost $100 million of loan growth and paying down $104 million of brokered deposits, our overall liquidity position, which includes cash and securities at quarter end was approximately 21%. Included in our liquidity position was $98 million in net proceeds from our sub-debt issuance, which closed in August. As we look ahead to Q4, we anticipate our liquidity position normalizing as we already retired $40 million in our existing sub-debt on October 2, and we expect to pay down an additional $111 million in broker deposits with a weighted average rate of 4.28% during the fourth quarter.

As Billy had mentioned, we utilized the gain generated from sale of our insurance operations to offset losses associated with selling $85 million of securities with a weighted average rate of 1.40%. The proceeds of the security sales were reinvested in securities, yielding 4.95%, which will generate $2.6 million of additional annual interest income and increase our overall weighted average securities portfolio yield to 3.70%.

During the quarter, our net interest margin experienced some temporary compression, declining 4 basis points to 3.25%, primarily as a result of timing differences between issuing new sub-debt prior to paying off our existing sub-debt and higher rates for new deposit production. However, the average rate of new loan production was 7.11%, which continues to push the yield on our overall portfolio higher. Furthermore, any future cuts to the federal rates fund will positively impact our deposit portfolio costs as approximately 45% is variable cost, adjusting in lockstep with any fed actions. We believe these factors, in conjunction with anticipated broker deposit paydowns and enhanced yields on our overall securities portfolio has our balance sheet well positioned heading into the fourth quarter and into 2026.

Looking ahead, we're projecting our fourth quarter margin to be in the 3.3% to 3.35% range.

Our quarterly provision expense decreased to $227,000 from $2.4 million reported in the previous quarter. The growth-related provision this quarter was offset by the adjustment to our qualitative factors, specifically an improvement in our CRE concentration ratio, which decreased to 271% from 301% in the previous quarter. This decrease was due to the downstreaming of $45 million of proceeds from our sub-debt issuance to the bank as equity capital.

Additionally, our asset quality continues to remain robust with nonperforming assets comprising 0.22% of total assets and net charge-offs to average loans of 10 basis points on an annualized basis. Our allowance for credit losses is now at 0.93% of total loans.

Operating noninterest income after adjusting for the gain in sale of our insurance operations and the loss on the securities restructuring was $8.4 million, which is $500,000 lower than the previous quarter as a result of the sale. All other income items remain consistent with our expectations.

Operating noninterest expenses after adjusting for previously noted items totaled $32.6 million, aligning with the results from the prior quarter. We made progress again in our operating efficiency ratio, which improved to 64% compared to 66% from the previous quarter. Our ongoing commitment to expense management has allowed us to maintain a level of expense base over the past 4 quarters and continue to trend positively towards our long-term efficiency goals.

For the fourth quarter, with insurance operations removed, noninterest income is projected to be approximately $7 million and noninterest expense is expected to be in the range of $32.5 million to $33 million. Salary and benefit expenses are anticipated to range from $19 million to $19.5 million comparable to the previous quarter due to higher levels of variable compensation and anticipated costs associated with the new hires.

Both our bank and consolidated Tier 2 capital ratios increased during the quarter, primarily due to the sub-debt issuance. Our total consolidated risk-based capital ratio rose to 13.3%, up from the 11.1% in the previous quarter, and the company's TCE ratio also improved to 7.8%. Looking ahead, we are confident that our capital ratios are appropriately balanced and well positioned to sustain growth while optimizing returns on equity.

With that said, I'll turn it back over to Billy.

Thanks, Ron. I want to reiterate again, the value proposition with our company drawing your attention back to Page 7 of our deck. We are successfully executing on the leveraging phase of growth for our company. We hit our 1% and 12% ROE and ROE targets this quarter and have confidence that this will build from here as we gain even more operating leverage.

We're building a great franchise. We're in arguably some of the most attractive markets in the country and have put together a team that is rapidly moving us forward. You've heard me say before, I believe we are one of the Southeast private stories, outstanding markets strong experienced bankers coupled with a great operational and support team plus very nice complementary business lines.

We expect the remainder of 2025 to have a similar look to what we've seen in the last few quarters and I believe this will continue into 2026. Our focus will be on doubling down on this current strategy, getting deeper into our markets and our business lines. As I mentioned, pipelines are good, and I think we can continue growing at this high single digits plus pace. On talent acquisition, this continues to be a focus as well. Recruiting is a process. We've added a number of great bankers this year and have several more in our pipelines. We made some outstanding additions in the third quarter, and I believe we are included with a very small handful of banks that have built a culture where outstanding regional bankers want to work. We will continue to look for these organic growth opportunities, and we'll remain very focused on recruiting.

One of the reasons for our successful execution on adding great people is our culture. Arguably, one of the biggest highlights for the quarter for us internally was our company being named to Fortune's list of Best Workplaces. This is an honor. We don't take lightly and a big shout-out to our people team led by [indiscernible] Becker as we continue with huge accomplishments with the culture of our company. So to summarize, we are positioned well for our clients, our associates and our shareholders. We are executing, growing revenue, EPS and book value while staying prudent on expense growth. We remain optimistic around our margin as new production stays strong and as we see the tailwind coming with rate resets on our loan portfolio over the next couple of years.

Credit continues to be very sound, and we're seeing great new client acquisitions, coupled with great overall energy around our company. I appreciate the work of our SmartFinancial's SmartBank team and the efforts of all of our associates. I'm very proud of what we have going on here at SMBK. And I'll stop there and open it up for questions.

[Operator Instructions] Our first question comes from Brett Rabatin with Hovde Group.

I wanted to start, maybe, Billy, you mentioned some hires. And I think in the past, you've said the Alabama franchise could double in size over time and you felt pretty optimistic about, Alabama specifically. Can you talk maybe about where the hires were in the geographies? And then just thinking about Alabama, just any update on the growth outlook for that franchise in particular?

Yes, Brett, thanks. It has. As far as just geography, it's really been fairly evenly spread. I think -- last quarter, I think we talked about we had hired several and then we had several in the pipeline. We continue to add those. We added a couple in Alabama, added a couple in Tennessee over the last little bit. And so it's really been throughout all of our zones. I do think we're still extremely bullish on Alabama as we're getting started. We're bullish on all of our markets. But we're seeing a lot of this Alabama growth starting to catch stride, especially with some of these teams that we've got in the Birmingham, in the Albers, the Dothans, the Montgomerie those offices really are starting to generate some great momentum mobile too.

I know we've been on the road lock in the last several weeks. And so we've been in most all of those markets over the last little bit, and it's exciting, a lot of new folks coming on as we had a new ad in Panipat City, did have a new ad in Murphysboro as well. So it's really been across the board, Brett, but we're continuing to focus not just on Alabama, really all of our zones. Like I said, Florida as well, we're seeing some nice panhandle opportunity. And don't see that slowing down. Yes, it's just really been across the board.

So again, and I made the comment in here, the momentum that we've got really everywhere in the company is just really good right now. Our culture is good. We're attracting some great bankers. And our existing legacy teams are performing extremely well. So we're kind of hitting on most all selling still got -- always still got work to do and gaps to close, but it's been really good.

Okay. That's helpful. And then on the margin guidance for the fourth quarter, obviously, a lot is going into that. I wanted to make sure I understood kind of the guidance relative to the liquidity that you added in 3Q. How much of that drains out? How should we think about maybe the average balance sheet size in the fourth quarter and how that might impact NII?

Yes. Ron, do you want to talk more on the margin detail?

Yes. A lot of our cash on the balance sheet today will be more deployed. We did $40 million for the sub-debt, another $100 million for brokered. And we expect to shrink some of the cash, put it to loans. So I don't think our asset size of our balance sheet is going to move anything materially. We're just going to use really the cash on hand to fund most of the production for Q4.

Okay. That's helpful. And then if I could sneak in one last one. You mentioned, Billy, tech-focused initiatives in the next year. Does that increase productivity like AI, so you can have bots doing work that maybe frees up FTEs? Or any thoughts on how much that might add to an expense base?

It really -- what we've done, Brett, over the last a little bit, as I said, we've really worked and had some very favorable outcomes with some new contract renegotiations on several different fronts across the company. But some of the stuff that we're doing in tech, I think, is allowing us to get some expense reductions, so we can reinvest. Obviously, Ron will continue to quarterly kind of give our quarterly nonexpense guidance moving forward. I don't see it having a really meaningful impact from an increase standpoint, even these new initiatives.

I think we've got those kind of built into kind of where we think run rates are today. But we've got some great platform enhancements. We're looking at AI. We started using bots. I think we will continue to do more of that. We're looking at some new things on the digital front as well from a consumer-facing digital piece. We're leveraging CoPilot a lot in our company today. And I do think it -- overall, I think it increases -- it absolutely increases efficiency. I don't know that necessarily -- I don't think it necessarily impact you from a spot where we're going to look to reduce staff. But I do think it continues to allow you not to add staff as you scale. And I think that's the biggest thing.

We're seeing a lot of tools that we're starting to use. I know we've got great support stuff going on. Our risk platform tools are very helpful. We're spending a lot of time evaluating risk, evaluating fraud near company. So a lot of those technologies, I think, will allow us to continue at current staffing levels or maybe add just a few words instead of adding a lot over the coming years. So it's kind of a mix -- it's a mixed bag. There's a lot of different moving parts to it. But I really -- I'm excited. I think our technology team is as good as we've ever had it in our company today. And I feel really good about our ability to advance that while still staying within a very reasonable expense growth.

It's as much a reallocation of the reinvestment.

Yes.

Well, additionally, the first lever of this will be, we want to provide our clients with better experience, easy to do business easier to do business with. So that's really our first focus when we're going down this path.

Our next question comes from Russell Gunther with Stephens.

I wanted to begin with just a follow-up on the expense conversation. So 6 consecutive quarters of positive operating leverage. You talked about continuing to hire bankers as the opportunity arises. We just touched on the expense initiative -- the tech initiatives. So how are you thinking about that streak of positive operating leverage going forward? Is that something we should expect to see over the course of 2026 alongside this franchise investment?

Yes. I'll start, and then, Ron, maybe you can add some additional color as well. Yes, Russell, I think so. I mean when you look at where the company is positioned today, we're really bullish on our ability to continue to grow that revenue line. Again, the production that we're seeing happened throughout all of our markets, the repricing that we've got going on, we're going to get -- we're going to continue to get that revenue lift. And it's definitely going to outweigh our expense run rates.

Now we're going to want to continue to invest and add people. But we're going to do that balanced as we grow this revenue line. I think it's really important for us right now to continue hitting these operating leverage targets over the next few quarters. We really believe we can do that. We feel good. We're starting to run our 26 models and feel very good about where our company can be.

Again, we've got to execute. We've got to do the right things to do that. But we've demonstrated our ability to do that in '24 and '25. We think we can continue that in '26. So yes, I do think we can continue to increase this consecutive streak of gaining operating leverage. But Ron, I don't have any additional comments that you got.

Yes. No, exactly right, Billy. We're probably -- again, we're not going into 2016 guidance, but we're probably keeping our band tight. We've been focused on containment for the prior 4 or 5 quarters. And we're probably looking around the $34 million, if you want numbers, $34 million to Max $35 million range for the full year next year. So yes, we will be focused on containing it with our growth.

That's good color, guys. I appreciate it. And then just switching dealers to the margin. I appreciate the sort of level set for 4Q '25, given the moving pieces in 3Q. You gave great detail in the deck around the average earning asset repricing schedule. And in the past, you've talked about how that would translate to about 2 to 3 basis points of margin expansion quarterly. Is that still sort of the range you're thinking about as we move beyond 4Q? Or have some of the actions taken this quarter changed that in any way?

No. Actually, the prior quarter was 2 to 3 basis points. We're pretty bullish on our margin expansion going into 2026. Overall, I think we're probably looking at 5 to 7 basis points expansion quarter-over-quarter for '26.

Our next question comes from Catherine Mealor with KBW.

Maybe just one follow-up on the margin on the deposit side. With gross improving as much as it has into next year. How do you think the deposit beta could be on the next 100 basis points of cuts versus what we've seen in the past 100 basis points of cuts, just given I think we'll see better growth rates come in, in the next -- over the next course of the year?

Yes. I think for the variable, we intend to, as best we can, is to really follow dollar or basis point for basis point. So we're still targeting 45%. I know we're probably in the 30s right now, but we want to target that 40% range beta.

Okay. And from the past 25% cut, I know it's early, but have you already seen the ability to do that?

Yes. Yes, we have.

Yes. We've been trying to step down, Catherine, a little bit as we work. We've got we have -- some of the deposits are tied directly to the rates or market rates. And so those come down as rates come down. Some are more correlated. That gives us the ability to move a little bit faster others too. So yes, we've been able to move those down and still pick up the growth that we've needed. So teams have done a nice job to be able to do that.

And then I think we're still staying right there in market and staying on top of what's going on in all of our different zones and each of our different zones have different competitive pressures and different competitors, but we've done a nice job being able to pull that down.

Okay. Great. And then just one question on fees. Any outlook for fees as we go into next year, just things to be aware of that could drive better fee growth? I know it's got the insurance fees that will be a little bit of a moving piece. I was just kind of curious on and how we're seeing about fee growth into '26?

Yes. I'll start and, Ron, I'd love to get your -- some color for Catherine as well on that. We've got several things. Again, we'll kind of reset now without that insurance component line item going forward. But yes, we've got -- I think we still got some really good plans. When you look at fees for us on the whole, we continue to think that, that's going to have the ability to trend up. I know -- we've talked a little bit about payment rails and renegotiation. I think we've got some things that we're working on, on our interchange income. I think there's some opportunities there. And I did -- in my comments, I did mention our mortgage unit. I'll tell you, our mortgage unit is having probably as good a year as we've ever had and really excited about what that mortgage team is bringing to the company.

We're seeing -- as we've grown our footprint, grown our platform, we continue to add some great new sales team numbers on the mortgage side, and our legacy team continues to perform well. So that's, I think, that will be a plus. Our investments arm continues to really execute -- continue to grow our AU in there. We've added a really nice producer in one of our Alabama markets, new FA down there this year.

And Ron, I know we always talk about TM. while TM is a piece of it is we continue to grow that TM platform. I know that those dollars continue to just kind of build and become a really nice annuity. So Catherine, I think there are several pieces. I don't know, Ron, if there's any others that you think of, but I do think we'll continue to get some nice growth. We'd love to see that accelerate. That's going to be a strategic focus for us next year. But I don't know, Ron, any comments on that from you?

Other than more looking at the customer fees and making sure more market. But no, you hit all the highlights, Billy.

Yes.

Our next question comes from Steve Moss with Raymond James.

Maybe just starting here on loans. Just on the pipeline here, Billy, you sound really optimistic on things. So I'm assuming it's going to be likely to be a really good fourth quarter. Just kind of curious as to, is that pipeline enough to support double-digit growth into 2026 here?

Yes. Again, I keep guiding to kind of the high singles. We've been able to beat that a little bit. And I think we'll be right there. I think we'll be right there at that plus/minus 10 number. And that's a big boat as we get larger. I'll tell you, one of the things that we talk about a lot internally, the production levels that we've had have really just been outstanding.

Again, the teams are doing a nice job. We're still seeing the payoffs and pay downs that a lot of our -- as we read and look at other releases and see a lot of other things go on in the market. We're not immune to that. We're getting a lot of payoffs to pay down. It's just our production is so strong it's still allowing us to get up here and kind of hit this 10%-ish number. So that's a lot to continue to ask our team to do. But as we look over the -- at least the near term, I do think we can continue at or around that pace.

Again, pipelines are solid. When you're out -- we're out in these markets and we're renting a lot of them, [indiscernible] I are a lot of them. I mean we're out and there's just -- there's an energy and a really good calling effort going on throughout the company. So yes, I think we can continue that. There might be a quarter that were a little lighter, a little heavier. But I still think we'd be right around that plus/minus $10 million.

Yes. I like the markets and they're just all so positive and the teams seem to be so positive. It does get harder to feed the beast, but I think we're certainly.

Great. And maybe just in terms of fee and the beast, I hear you guys in terms of hiring as well. Just curious, as you think about -- I know you guys are always opportunistic, but you obviously have merger disruption in your markets kind of -- do you think there's a possibility of a step-up in hiring over the next 12 months? Just kind of curious. I know you guys are talking about positive operating leverage, but -- just curious on that aspect.

Yes. I'll tell you, Steve, we're very selective as we go through this hiring process. I don't necessarily think it's going to pick up dramatically. And I think a couple of reasons. I think the disruption that we see in the market, I mean, these are good banks, and they're going to be fighting hold on to good talent. And I just -- I think over the over a period of time, you may see some dislocation in some different bankers and some of those different markets throughout the Southeast. But I don't think there's a lot.

I think we're just going to continue to be diligent in trying to find just incrementally good bankers that fit our culture, that fit our teams. And I think we're probably going to be, I would imagine, looking into '26 kind of keeping the same type pace that we saw in '25, which will just be just add great talent, and we find it. Like I said, I think we probably are in the process. I think we've added -- I think we stop we're probably maybe 12 to 15 net for kind of what we've done in the pipeline or that we've added this year. I think we'll continue to do that. And I think, Steve, for us, it's just going to be just continuing to be diligent, again, find the right types of bankers that fit the types of deals that we want to look at.

Billy talks often about ABR, always be recruiting, always be recruiting, that's talent and clients. And -- but I think it takes a special -- we're recruiting the quality, not the quantity. And I think that's important for us. The culture fit who they are.

Yes. All right. I appreciate that color there. Maybe just 1 more for me here on the loan loss reserve release. Did I understand that frankly that because -- did I hear it correctly that you downstreamed some capital and, therefore, with a lower reserve ratio -- lower CRE concentration ratio, that was kind of one of the qualitative factors that drove the reserve lower?

Our CRE concentration ratio 1 of our qualitative factors was our -- because we're over to $300 million. Now that we downstream $45 million from the parent to the bank, it lowered it to $271 million . That was one of the main factors.

Okay. Okay. So going forward, relatively stable to maybe a modest build on the reserve ratio as you continue to grow here.

Yes, sir, correct.

Okay. Awesome. I'll step back in the queue. I really appreciate all the color here and a nice quarter, guys.

[Operator Instructions] Our next question comes from Stephen Scouten with Piper Sandler.

I just wanted to clarify a couple of things real quick. Ron, did you say that 45% of your deposits are variable costs? And is that to say if I heard that right, that those are directly indexed?

We have the ability to move 45%. We have about 32% that are directly indexed and we have the remainder that's tied to an internal index that will move with the rate moves. So yes, 45% all in, no.

Okay. Great. Perfect. And then on the NIM trajectory, I think you said 5 to 7 basis points a quarter in '26. Is that your expectation each quarter in 2026? Or I just want to make sure I'm hearing that right.

Yes, each quarter in 2026.

Great. Fantastic. Okay. And then last thing, I think I know Catherine maybe had asked this on the fee revenues and insurance. Did you give a guidance for expected fourth quarter overall fee revenues?

Yes, $7 million.

$7 million, great. Okay. Perfect. And then on the broker deposit front, you obviously had some nice reductions here this quarter. It sounds like, I think you said maybe another $111 million next quarter. So I'm doing math remotely correct. Looks like maybe $120 million or so left in that ballpark. What's the plan for the remaining brokered deposits? Would the objective still to get those down from here? Or is that kind of an acceptable level moving forward?

Yes. We were at $268 million in June, September at $164 million, minus the $111 million. We intend to -- as soon as they are due, we're going to pay those down. So yes, we're looking not to have brokered deposits at some day. That's our goal objective is to not have those.

Okay. Great. And then I guess last thing for me. The stock's been trading fantastically. The results have been great, kind of ahead of schedule in that operating revenue line. It sounds like hiring has continued well. Do you think about M&A as a piece of that puzzle at all? I think there was some -- a note maybe in the slide deck that said, maybe more, trying to find the verbiage, maybe more strategic than it was previously, M&A focus shifted to strategic and/or needle-moving opportunities. I guess maybe if you could kind of speak to that comment and what that might look like.

Yes. Yes, Stephen, for us, it really -- in my comments, I said we -- our strategy really hasn't changed a ton. A lot of it is just, again, doubling down on this organic strategy, getting deeper into the market. So that's Strategy 1a.

Yes, I think we're really not shifting that to really look at M&A. But we've said and continue to say, we will evaluate needle-moving opportunities that make sense. I've said before we don't necessarily -- we don't want to do M&A just to be bigger. We want -- if we did it, we'd want it to make us better. And sometimes that's just tough to find. If we find that unicorn, we find the right piece that fits us, yes, we would evaluate. But really, I mean, it's -- I say that because you never know what could come down the road. But man, our strategy is really focused on continuing just to lever this balance sheet and grow as we've done in the last couple of years, the way we've done it. That's the primary goal.

Yes. You can't ever say you're not going to look. I think we are open to look. But Billy talks often about now organic is 1a and M&A would be 1b. M&A might be 1c, but we're continuing to look.

Yes, that makes a lot of sense. Well, the strategy is working. So I guess if it ain't broke, don't fix it, right? So great job, guys.

It is. But I do think and as we've talked to you and a lot of your colleagues, I mean, it's just -- it's really important for us to message what we've messaged. It's -- we've built this company by design. We were, again, a little bit kind of mile wide HD by design for a reason. And we -- it's been very important for us to gain this operating leverage and do that. And that's -- we've done that. We've executed well. We're executing well. We still got room to grow. And we've got -- we want to continue to see this move forward.

So not really changing anything on our outlook moving forward. It's just -- we're going to just keep doubling down on what we're doing.

Thank you very much. We currently have no further questions. So I will hand back over to Miller for any closing remarks.

Thanks, Ezra, and thanks, everybody, for being part of the call today. We are very excited about where we are and where we're going. Thank you for being part of the SmartBank family. And have a great day.

Thank you very much, Miller, and thank you to all the speakers for joining today's line. That concludes today's conference call. Thank you, everyone, for joining. You may now disconnect your lines.

Hello, everyone, and welcome to the SmartFinancial Second Quarter 2025 Earnings Release and Conference Call. My name is Ezra, and I will be your coordinator today. [Operator Instructions] I will now hand you over to the host, Nate Strall, Director of Investor Relations, to begin. Please go ahead.

Thanks, Ezra. Good morning, everyone, and thank you for joining us for SmartFinancial's Second Quarter 2025 Earnings Conference Call.

During today's call, we will reference the slides and press release that are available in the Investor Relations section on our website, smartbank.com. Billy Carroll, our President and Chief Executive Officer, will begin our call, followed by Ron Gorczynski, our Chief Financial Officer, who will provide some additional commentary. We will be available to answer your questions at the end of the call.

Our comments include forward-looking statements. These statements are subject to risks and uncertainties, and the actual results could vary materially. We list these factors that might cause the results to differ materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements because of new information, early developments or otherwise, except as may be required by law.

During the call, we will reference non-GAAP financial measures related to the company's performance. You may see the reconciliation of these measures in the appendices of the earnings release and investor presentation filed on July 21, 2025, with the SEC.

And now I'll turn it over to Billy Carroll to open our call.

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

So let's jump in. Another very nice quarter for us as we execute on what we've been messaging. You've heard us talk about execution over the last several quarters, and that's what we're doing. Our team has a keen focus on hitting the targets we've set out for our company this year in regard to revenue, returns and prudent expense growth. As you'll hear on this call, our company is performing very well, and we're remaining bullish on where we're headed.

For the quarter, we posted net income GAAP and operating of $11.7 million or $0.69 per diluted share. I continue to be proud of our performance, and I'm excited to watch us gain operating leverage. This is 5 consecutive quarters of positive leverage.

Jumping into the highlights, I'll be referring to the first few pages in our deck. First, and in my opinion, one of the most important metrics, we continue to increase the tangible book value of our company, moving up to $24.42 per share, including the impacts of AOCI and $25.43, including that impact. That's growth of over 13% annualized quarter-over-quarter. Our balance sheet growth was strong.

On the loan side, we grew at a 13% annualized pace for Q2, a little ahead of our expectations as our market teams are continuing to add outstanding new relationships. On the deposit side, growth was sound at 5% quarter-over-quarter annualized. I continue to be very pleased with the deposit side of our balance sheet as we add outstanding new relationships there as well. We also continue to hold our noninterest-bearing percentage. The second quarter is usually a little softer with some seasonality, but we held up well, and Ron will provide more details on that in a moment.

Our history of strong credit continues with the metric at just 19 basis points in NPAs. Credit is always a focus for our company, and I'm pleased to see these numbers continue at exceptionally low levels. Total revenue came in at $49.2 million as net interest income continued to expand as we had anticipated. We also had another very nice noninterest income quarter. Noninterest expenses also came in on target again at $32.6 million. Looking at the charts on Pages 4 and 5, you'll see nice trends. We're building on our return metrics and most importantly, growing total revenue, EPS and as I mentioned earlier, tangible book value. All of those charts are great graphics to illustrate our execution, and I'm looking forward to and expecting these trends to continue. So a couple of additional high-level comments for me on growth.

Our growth was a direct result of the focus of our sales teams. We've hired well over the last several years, and we've also built an outstanding foundational process that includes aggressively going after new client relationships, growing existing ones along with a diligent prospecting process. As I stated, we grew our loan book at 13% annualized for the quarter as sales momentum stayed strong and balanced across all of our regions. Our average portfolio yield, including fees and accretion, was up to 6.07% and our new loan production continues to come on to the books accretive to our total portfolio yield levels.

In regard to deposits, I mentioned a moment ago, I'm very proud of where we've done -- what we've done on the deposit front. Our loan-to-deposit ratio is 85%, which is still a nice spot for us. This strong position gives us continued flexibility to leverage our strong balance sheet. Our balance sheet pipelines continue to feel good. I'll discuss this a little more in my closing comments. But all in all, a really nice way to wrap up the first half of 2025.

I'm going to stop there and hand it over to Ron to let him dive into some details for us. Ron?

Well, thanks, Billy, and good morning, everyone. I'll start by highlighting some key deposit results. Our deposit growth during the quarter was affected by typical seasonal outflows, including tax payments and the utilization of public funds. As a result, net balance non-brokered deposit growth was $14 million.

Offsetting these outflows was $116 million of new nonbrokered production generated at a weighted average cost of 3.24% Total interest-bearing costs rose by 3 basis points to 2.95% and were 2.96% for the month of June. Our loan-to-deposit ratio ticked up to approximately 85% with our deposit composition remaining stable and having noninterest-bearing deposits at 90% of total deposits. Importantly, we saw very little account attrition or client loss throughout the quarter. Rather, we saw a continuation of last quarter's trend, whereby clients continue to utilize excess deposit funding for projects and working capital.

While deposit balance drawdowns are impactful, we expect to recoup balances as project investments slow and those seasonal outflows return. Our net interest margin increased to 3.29%, representing an improvement of 8 basis points over the previous quarter as higher loan yields more than offset the 3 basis point increase in deposit costs. The average rate on new loan production was 7.11%, resulting in a quarterly portfolio yield of 6.07%. As a result, net interest income expanded by $2.1 million, totaling $40.3 million for the current quarter.

Looking forward, we are maintaining our previous quarter's guidance of 2 to 3 basis points of margin expansion per quarter for the second half of 2025. Although we anticipate an increase in overall deposit portfolio costs, primarily due to higher cost of new production, our new loan originations along with the amortization maturities of lower-yielding loans are expected to have a positive contribution in our margin expansion.

Taking these into account and considering current market conditions, we are forecasting a third quarter margin in the 3.3% to 3.35% range. Our quarterly provision expense for credit losses reached $2.4 million, mainly from higher loan growth. Net charge-offs to average loans stayed at 0.01% annualized. Asset quality remains solid with nonperforming assets at 0.19% of total assets and the allowance for credit losses remained steady at 0.96% of total loans.

Operating noninterest income rose by $300,000 to $8.9 million, exceeding our projections. Consistent with the previous quarter, this positive variance was largely attributable to higher-than-expected insurance and mortgage banking revenues as well as sustained robust performance from our capital markets group. Moving on to operating expenses. We maintained our focus on expense containment, recording operating expenses of $32.6 million, the low end of our guided range and a modest increase from the prior quarter. The majority of this increase was attributable to the recognition of the first full quarter of merit increases and additional accruals for incentive-based compensation related to strong associate performance.

Overall, we are satisfied that expenses remained at the lower end of our projected guidance range. For the third quarter, noninterest income is projected to be approximately $9 million and noninterest expense is expected to be in the range of $33.8 million and $34 million. Salary and benefit expenses are anticipated to range from $20.5 million to $21 million, reflecting an increase from the previous quarter due to higher levels of variable compensation and anticipated costs associated with new hires.

I'll conclude with capital. The company's consolidated TCE ratio increased to 7.7%, and our total risk-based capital ratio remained well above regulatory well-capitalized standards at 11.1%. Overall, we believe our capital levels remain optimally balanced to continue to support growth while maximizing returns on equity.

With that said, I'll turn it back over to Billy.

Thanks, Ron. I want to reiterate again the value proposition with our company, drawing your attention back to Page 7 of our deck. We are successfully moving into the leveraging phase of growth for our company. We are seeing the inflection in the movement of our numbers and now as we have clear vision of our return targets. We're building a great franchise. We're in arguably some of the most attractive markets in the country and have put together a team that is rapidly moving us forward.

You've heard me say before, I believe we are one of the Southeast's brightest stories, outstanding markets, strong experienced bankers, coupled with just as experienced and strong operational and support teams, along with some great complementary business lines. We expect the second half of 2025 to have a similar look to the first half as we focus on continued growth in our EPS line and hitting our near-term revenue and return targets that are clearly in sight. As I mentioned, pipelines are solid, and I think we can continue growing at that mid- to high single-digit pace.

A couple of comments on talent acquisition. One of the areas where we are focusing and one that I continue to be very excited about is our ability to recruit outstanding new team members. The majority of the expense growth looking forward should be primarily talent related, along with some appropriate investment in our platform. We've either added or are in the process of adding 10 new revenue-producing team members during the first half of the year, primarily in commercial banking, private banking and treasury management. I believe we are included in a very small handful of banks that have built a culture where outstanding regional bankers want to work. We will continue to look for these organic growth opportunities and remain very focused on recruiting.

On the culture front, we've been recertified as a great place to work this year, and our associates have created an outstanding positive energy around this company. So to summarize, I love where we are setting. We are executing, growing our revenue line, EPS and book value while staying prudent on expense growth. We remain optimistic around our margin as new production stays strong and as we see the tailwind coming with rate resets in our loan portfolio over the next couple of years.

Credit continues to be very sound, and we're seeing great new client acquisitions, coupled with a great sales energy. I appreciate the work of our SmartFinancial SmartBank team and the efforts of our 600-plus associates, and I'm very proud of what we've got going on here at SNBK.

So I'm going to stop there, and we'll open it up for questions.

[Operator Instructions] Our first question comes from Stephen Scouten with Piper Sandler.

Great quarter, guys. So Billy, talking about the loan growth and it sounds like pipelines are still solid, kind of talking about mid-single digits. What do you think keeps you at a level like in this kind of low double-digit range we've been seemingly operating at lately. Do you think that upside potential is still there, especially if these new hires come to fruition?

Stephen, yes, I do. We have -- the last few quarters, we've been able to kind of bring it in at that lower double-digit level. I still think that is very feasible. I hedge a little bit just because we've seen a lot of payoffs and paydowns around our space. We've been pretty fortunate that we have not been hit with kind of some of those unanticipated payoffs or paydowns.

So I hedge a little bit just in the anticipation that you get a -- if you get a little bit more of that than we anticipate, that could drop us down into the high singles. But I still think we're at that kind of that high single, possibly low doubles if we get it. You mentioned the new production team members. We're continuing to add. So I like our ability to grow. I think we've got the ability to continue to grow both sides of this balance sheet at a nice level. But I still lean a little bit more toward high singles. But yes, we could potentially do low doubles as well.

Got it. And with the new hires, is there any sort of geographic bent towards where those folks are coming from or any verticals that you're targeting more so than others? Or just give us a feel for where those people are coming, where they're going to be producing...

Spread out really throughout really our whole platform. We're just seeing some great opportunities with some bankers that we've been -- some that we've recruited for a while. Some opportunities have just kind of popped up. And -- but it's really not in any one specific region. We've added really throughout Tennessee, Alabama and our Gulf Coast region over the course of the last few months. As I mentioned in my commentary, we've also got -- we're in the process of adding some other really nice team members as well. So things have been good, and we've been able to continue to attract the opportunity to add some great talent to the team. But it's pretty well spread out throughout the whole company.

Got it. And then from a forward financial perspective, I mean, you guys have basically hit the guidance and kind of the bogey of operating revenue that you had laid out a number of quarters back, which is truly impressive. And not to like say you hit it and move right past it. But in a way, like what's the next bogey for you guys? What's the next target? And how do you get there? Is it more just like, hey, we're in great markets. We got really good people. Let's just deepen ourselves in the markets we're in? Or do you start thinking about de novo expansion through team lift-outs? Or what's kind of the path to the next leg up from here after reaching this important milestone?

Great question. And yes, it has been. We're knocking on the door of the targets that we have set out to hit in '25. So as I've mentioned, those targets are clearly in our sight, and we feel like we can hit and get those surpassed here in the near term. I think the next thing for us, and you said it, and I've said this on calls in the past. I think for us, when you look at the way we built this company, and we built it from Tennessee through Alabama through this Gulf Coast region. We've got a phenomenal footprint. We just need to get deeper.

And by design, we built the company kind of, as you all heard me say, kind of mile wide inch deep because we wanted to get into these regions. We had these opportunities that we wanted to take advantage of. Well, now we just need to get deeper. We're -- not that we wouldn't look at a market expansion, but that would be secondary. And if it would be, it would be something that would make some sense to us. I think we just need to double down, get deeper on what we're doing.

To your point, we're already starting our 2026 planning. We're doing that now with our team and kind of looking at where we want to position that next set of goals for us. And so we'll be coming out with those over the next couple of quarters as we finalize our '26 forecast. But as I said, I love where we're sitting. We can really move the -- again, the revenue, the EPS, the tangible book, those pieces, those -- that's what's driving the stock price. And that's what we want our investors to understand. That's where our focus is. And I think everything you'll see us do is going to be focused around those metrics moving forward. Yes. I think you know we're a branch-light model. And I would say these single office locations that we have in most of our markets, we have made a lot of progress, but we've got the opportunity to double or triple the size of most all of those markets in the coming near future.

Our next question comes from Catherine Mealor with KBW.

I wanted to just dig into the margin a little bit. And I know you mentioned that deposit costs will probably come up a little bit moving forward just as growth picks up. Can you talk a little bit about where new deposit costs are coming on, on average? And then on the other side, where new deposit -- I mean, excuse me, where new loan yields are coming and just kind of where that incremental margin is coming on right now?

Ron, do you want to jump in and dive into those details?

Sure. For the second quarter, our total deposits cost came in at 2.39%, that includes noninterest-bearing. Overall, our new production for June was a little escalated. It came in at 3.62%, but we did have a larger relationship that we paid a little bit higher interest rates to. So I think new production overall should be in that 3.50%, 3.60% range. As far as the loans for the quarter, we're at 7.11% and for June, just slightly north of 7%, 7.02%. So we're still maintaining the higher level above 7% for our loan side.

Okay. That's great. And then in your guidance where you still think we'll have 2 to 3 bps of NIM expansion every quarter. What are you assuming for rate cuts within that? And I assume if we get rate cuts, that's going to make that number better.

Yes, correct. We're -- at this point, we're assuming a 25 basis point in September and then 1 in December, which really doesn't affect the guidance. It's so late in the year. And yes, being liability sensitive, we do expect to get probably around this point, 1 to 2 basis points of additional lift from the rate cuts. So we're in a really good spot with our margin at this point going forward. We're going to -- our margin will expand naturally with or without the rate cuts.

Great. Okay. Very helpful. And then you may have mentioned it earlier, but I might have missed it. Can you remind us your expectations for expense growth in the back half of the year?

Yes. We are looking to increase it to -- sorry about that. We're increasing it to about [ $33.8 million to $34 million ] band. That's for Q3 and pretty much the same guidance for Q4. Again, the heavier lift was in the salary range going forward, but still keeping it tight for Q3 and Q4.

Okay. Great. And maybe one more just on that. You talked Billy, about how you had 5 quarters of positive operating leverage. Is that still a focus as we go into '26? As we look at '26, is it fair to continue to look at revenue growth being faster than your expense growth?

Yes. Yes, absolutely. As we said a little bit in the call, when you look at the way this balance sheet is positioned, our ability -- our continued ability to grow organically in these markets, Miller alluded to getting deeper. We're in so many just great markets where we've got relatively small share. We've got some really nice share in several markets. We've got some expansion markets where we've got phenomenal share growth opportunities. And so our whole focus is going to be getting deeper.

So I think that in itself is going to generate, I think, outsized growth. layer in on top of that, Catherine, what Ron has alluded to with kind of the repricing of the loan book. So for us, we think we can hold these expense levels very reasonable. As we said, a lot of it is just going to be talent related from a hiring standpoint and then just continue to see that operating leverage continue over the next few quarters.

Our next question comes from Russell Gunther with Stephens Inc.

Just to quickly circle back to the loan growth discussion. You really do have to go back to the first quarter of '24 to see a mid-single-digit result out of you guys. So hear you loud and clear on that kind of high single digit, maybe low double. And to that end, could you just give us a sense for where commercial pipelines stand today versus the linked quarter and what, if any, sentiment shift you're getting from your commercial borrowers?

Yes. I'll make a couple of comments, and I'll ask Rhett to jump in and talk a little bit about kind of what he's seeing kind of coming through the pipeline. But pipelines continue to be pretty solid. I would say they are probably at or as good as the levels that we've seen over the last couple of quarters. And again, it goes back -- I alluded to it in my comments, the focus that we have on the sales side of the house is -- I think it's as good as it's ever been in our company. Team members get it.

Our division president leadership structure that we've moved to this year has really worked well. There's just -- number one, we've got great team members, but there's also just a real intensive focus on bringing in new clients. And so that said, our pipelines are as good. And then Rhett, maybe you can have some color on kind of what you're seeing, what those pipelines are looking like a little bit, maybe any other color that you've got on that side.

Yes. To Billy's point, I mean, our pipeline today really is positioned as strong as it has been pretty much throughout the course of the year. So it's -- here at the middle part of the year, we've still got basically a similar amount and opportunity sitting in our pipeline that we started the year with. You've seen the result in the growth we've seen thus far. As far as the format of that pipeline, the best way I know to put it is we look at the mix of what's in the pipeline, both geographically with product type, et cetera, and it is tracking extremely near the way our portfolio mix sets today. So the type of deals in the pipeline, the location of the deals in the pipeline, there's nothing in there that would give any indication that it would change any degree of concentration within our portfolio at all. So we are continuing to see a very broad mix across every market and every product type we generate business in.

Great. And then you spoke about continuing to leverage the current platform organically as well as continuing to recruit top talent. So could we get a sense for sort of where the recruitment pipeline stands today? And then as you work to get deeper versus that mile wide inch deep, are there any particular markets where you're more focused than others?

Yes. Yes. I think we're focused everywhere -- we said it a second ago. When you look at our company, we've got a number of markets where we've either grown from a legacy standpoint or where we've acquired really good banks with larger legacy footprints. And we've had a lot of these expansion markets that we've seen. So the expansion markets are where our market share numbers have really tremendous upside. So we're going to probably focus a little more of the recruitment in those markets. And then you take a look at whether it's Nashville MSA, Birmingham MSA, for example, you look down in our coastal region with markets like Mobile, Alabama, great growth opportunities that we see. There are others as well.

But just those in itself, I mean, those markets, we've just got tremendous opportunity to bring in. We've already added some great bankers to look to bring in some additional bankers to our team in those markets. So when you look at just markets like those that I mentioned, my gosh, the market share upside and just those by themselves could fuel a lot of growth for us. So yes, I think that's probably where our focus is going to be, but we'll look to figure out where we'll add talent wherever it fits.

Yes. This is Miller. And I would add that we are ABR, always be recruiting, and we are consistently own it with the executive team spends a ton of time in the markets, recruiting bankers. Our division presidents are all over at recruiting. That's as big a focus as new clients and new relationships. It's great bankers we want on our team.

Excellent. All right. And then last one for me would just be back to the revenue target. I appreciate kind of waiting a quarter or 2 to get the '26 outlook, but you did get where you needed to go perhaps a quarter earlier than you otherwise might have. We're still shy of the 1% ROA target. So it would be helpful to get your sense as to whether that's something you still think you will be able to achieve in the back half of this year.

Yes. Yes, I think we'll be close, Russell. I think we'll be real close on the one. I think when you take a look at the numbers, again, a little more on the expense side. If you take a look at the PPNR numbers, a little more in reserve that we put in just because of growth this year. So I think as you normalize the growth a little bit, I think that we -- you should see that number kind of just move up into the mid-90s pretty easily over the next quarter or so. And then we'll be knocking on the door of that 1. We've kind of target, as you've heard us talk about kind of the 1 in 12 on the ROA and the ROE. We're pretty much there on the ROE. The ROA is maybe a couple of basis points behind that. But as we continue to execute, I think that the one -- we'll move through that pretty quickly over the next several quarters.

Our next question comes from Steve Moss with Raymond James.

This is Thomas on for Steve. Most of my questions have been asked and answered at this point. But I mean, maybe just on credit. Credit metrics remain really strong here. Are you seeing any signs of weakness whatsoever? It looks like you have some -- maybe some lower-yielding fixed rate loans maturing in the fourth quarter of this year at looks like 440 based on the slide deck. Have you stress tested those for the rate shock? And what do you -- just broadly speaking, credit front, what are you thinking?

Yes. And Rhett's like a Maytag repair man over here. So we'll give him an opportunity to talk a little bit. But now credit is good, but I'll let him talk a little bit about what he's seeing on that side, any potential weakness. I don't think we're seeing much there. But -- and then maybe also just talk about -- I know our team has done a lot of stress testing on the loans as these renewals are coming up with different rates. Comment on that, Rhett.

Sure, Thomas. We have -- first question, as far as the book itself, we really have not seen any signs of weakness in any particular sectors as we're getting information in from our clients, both prior year-end and year-to-date, still seeing consistent performance throughout our existing book in pretty much every area. So we are not forecasting or looking at anything specific right now that we have identified as, I would say, a primary area of concern. As it relates to those lower-yielding assets that are going to be maturing, we have -- we started a project to do some forward-looking stress testing, performance stress testing on that book. Really about 18 months, almost 2 years ago. And we have consistently done that sort of looking out in the 6- to 12-month window of those maturities.

And thus far, with what we're looking at, obviously, in a few cases, we may have a few that will show some tighter coverage numbers than they were at origination, but nothing that is any indication of inability to service a modified transaction. And so we're very optimistic about that and still feel like the book is positioned well to absorb any -- absorb those rate increases for the borrower, which also benefits the bank.

[Operator Instructions] Our next question comes from Christopher Marinac with Janney Montgomery Scott.

I wanted to ask about recruiting across state lines and pushing this geography, whether it's in the Carolinas or other states. I know you've got a lot to do in your existing footprint, as you've talked about a few times today. Just curious on recruiting people or dislocations that you see in other markets that could be an opportunity as time passes.

Yes. Obviously, as you see a little bit of change going on, obviously, M&A comes into play in some of that. I think we've -- we've demonstrated our ability to really execute on some nice lift outs when we've seen a little bit of market disruption.

So Chris, I think for us, a lot of it is just kind of waiting and watching. I think we're all -- and Miller alluded to this. I think the thing is we've really shifted to a stronger organic model over the last few years. Recruiting has really ramped up as far as kind of importance in our company. So as Miller said, he and myself, our division presidents, we're all out just continuing to drip on talent that we think would be good culture fits for our company.

And so I think that is, first and foremost, in the markets where we are. I really don't -- I don't see us looking to do any, what I would call, major market moves from that standpoint, like we did several years back when we had the opportunity with all those Alabama -- that was such a unique opportunity that gave us the chance to really just fill in the density piece that was missing in our footprint. And so that was a big lift for us as we've talked about. That was a huge lift for us to all those de novo markets in a real, real short period of time. But for us, I think a lot of it -- and again, I said it earlier, is just getting deeper. I think we need to be focused on getting deeper in these great zones where we are. We're always going to take a look at opportunities, but we've got plenty on our plate, I think, in front of us now. And so the recruiting, I think you will see us probably just stay really close to the zones where we are today.

Yes. If you think about it, Chris, the markets we're in these college towns, school [ season ] start back third quarter, there's football season starting back. The businesses in these zones we're in are all very optimistic about the third and fourth quarters that they have ahead. And just people are excited about being in business. And I just think it's -- they want to be in our markets if we get some bankers that want to move here or we're glad to have them. But we love where we are, and we love doubling and tripling down on where we are.

Sounds good. And just one curiosity. Do you see the average loan size in the portfolio kind of pushing higher as the next several quarters develop? It's not just a near-term question. kind of curious kind of where that's going to go over time.

Yes. And I'll ask Rhett. I don't have the stat in front of me on loan size. I think just as we've gotten bigger, our loan size has moved up and some, but I don't think it's really moved up materially, Rhett, would you comment on that?

Yes, I would say not from an average perspective. I mean we certainly do -- as we continue to get larger, it has provided us the opportunity to look at and be engaged in some larger transactions. But I would say from an average perspective, I don't really see that number moving considerably.

We still focus, Chris, I think we still do a lot of really nice work focusing on singles and doubles. I think when you look at a lot of these really nice solid Tier 2 MSAs that we're in. We're growing a lot in some of our larger ones. But we're in a lot of these great tertiary MSAs where we're just -- we're still kind of just hitting singles and doubles. And it's nice. And I like building the company that way. I think it's more sustainable. It's less impact to swings and whipsaw effects. And so -- but to Rhett's point, yes, we're doing some larger credits. So it might move up a little bit, but I don't think the average is moving up in time.

Payoffs and paydowns are sting as much.

That's true.

Thank you very much. We currently have no further questions. So I will hand back over to Miller for any closing remarks.

Thank you, Ezra, and thank you all for being on the call today and for supporting SmartBank as we work hard every day to grow this bank for our shareholders. Have a great day.

Thank you very much, Miller, and thank you to all our speakers on today's call. We appreciate everyone for joining. That concludes our call. You may now disconnect your lines.