SmartFinancial, Inc. Aktie

Hello, everyone. Thank you for joining us, and welcome to the SmartFinancial Third Quarter 2026 Earnings Release and Conference Call. [Operator Instructions] I will now hand over to Nate Strall, Director of Investor Relations, to begin. Please go ahead.

Thanks, Erica. Good morning, everyone, and thank you for joining us for SmartFinancial's Third Quarter 2026 Earnings Webcast and Conference Call. During today's call, we will reference the slides and earnings release available in the Investor Relations section of our website at smartbank.com.

Billy Carroll, our President and Chief Executive Officer, will begin the call, followed by Ron Gorczynski, our Chief Financial Officer, who will provide additional commentary. We will be available to answer your questions at the conclusion of our call. Our comments today include forward-looking statements. These statements are subject to risks and uncertainties, and actual results may differ materially. Factors that could cause actual results to differ materially are described in our earnings release and SEC filings, which are available on our website. We undertake no obligation to update any of the forward-looking statements as a result of new information, future developments or otherwise, except as required by law.

During today's call, we may reference non-GAAP financial measures related to the company's performance. Reconciliation of these measures to the most directly comparable GAAP measures are included in the appendices to the earnings release and investor presentation filed with the SEC on October 19, 2026.

And now I'll turn the call over to Billy Carroll.

Thanks, Nate, and good morning, everyone. Great to be with you, and thank you for joining us today and for your interest in SMBK. As usual, I'll open our call with some commentary and then hand it over to Ron to walk through the numbers in greater detail. After our prepared comments, we'll open it up with Ron, Nate, Rhett, Miller and myself available for Q&A. The third quarter was another outstanding one for our company. We continue to build strong organic momentum, generated record operating revenue and expanded their return metrics. The foundation we have built over the past several years is producing the results we expected, and our team remains highly focused on disciplined growth and long-term shareholder value. So let me jump right into some of the highlights.

First, and as I always say, one of the most important metrics to me, we continue to increase the tangible book value of our company. Tangible book value per share was up, ending the quarter at $28.50. Tangible book value, excluding AOCI, increased to $30.03. That represents 15% annualized quarter-over-quarter growth, excluding AOCI. For the quarter, we posted operating earnings of $18.6 million or $1.10 per diluted share and record operating revenue of $57.5 million. We did have some -- we did have a few moving parts that netted out positive to operating earnings this quarter, including a nice credit -- tax credit transaction that Ron will discuss in a moment.

We again delivered excellent growth on both sides of the balance sheet with 15% annualized organic loan growth and 12% annualized core deposit growth. Our return metrics, though slightly aided this quarter, continued to strengthen. Operating return on average assets increased to 1.20% and operating return on average tangible common equity increased to 15.1%. Credit quality remains very sound. Nonperforming assets were only 25 basis points of total assets and annualized net charge-offs were 6 basis points. We did have a slight uptick in delinquencies in our Fountain Equipment subsidiary as higher diesel prices have strained some transportation business, but overall, very manageable as that continues to be a relatively small piece of our overall loan book.

And we were thrilled to open our full-service Columbus, Georgia Financial Center during the quarter. This is our first branch in this great state and an important step in building density in that market and supporting the strong start our Columbus team has made. Looking at the first few pages in our deck, you can see the continued progress in revenue, EPS, return metrics and tangible book value. The consistency of those trends demonstrates the strength of our organic strategy and the operating leverage we are building. A couple of additional high-level comments from me. On growth, we added $174 million in loans this quarter, representing 15% annualized. The growth remains broad-based with strong production across all regions and continued momentum in C&I lending. Our average loan portfolio yield, including fees and accretion, ticked up to 6.08%. Regarding deposits, core deposits increased $163 million or 12% annualized during the quarter. Our focus on both sides of the balance sheet continues to pay off and loan-to-deposit ratios maintained very manageable at 87%.

Deposit pricing remains competitive and higher funding costs pressured the margin modestly, but net interest income still increased nicely to $49.4 million as balance sheet growth more than offset that pressure. On expenses, operating noninterest expense was $36.4 million. The quarter included some slightly higher onetime items, along with continued investment in our people and franchise. Even with that increase, year-over-year operating revenue growth outpaced operating expense growth. We will maintain discipline around expenses, but we'll also continue making investments that support growth, including revenue-producing talent, technology and strategic facilities. So all in all, another excellent quarter of continued execution.

I'm going to stop there and hand it over to Ron to dive into the details. Ron?

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

Noninterest-bearing deposits were essentially unchanged at $920 million, representing approximately 70% of total deposits. Interest-bearing deposit costs increased 9 basis points to 2.71%, while total deposit costs increased 11 basis points to 2.26%. Loan balances increased $174 million with growth diversified across all loan categories and geographies. New loan production carried a weighted average yield of 6.37% for the quarter and was 6.78% for September. Our growth on both sides of the balance sheet reflects the consistent execution of our relationship-based strategy. Our bankers remain focused on pairing quality loan growth with broader client relationships, operating accounts and core deposits.

Turning to margin. Net interest income increased $1.3 million to $49.4 million, and net interest margin was 3.45%, in line with our stated guidance. Looking ahead, we expect continued improvement in asset yields to support modest margin expansion over time. However, near-term deposit cost pressure is expected to continue to offset some of that benefit. As such, for the fourth quarter, we currently expect net interest margin to remain around current levels in the 3.45% range. Our provision for credit losses declined to $687,000 from $1.5 million in the prior quarter. This included approximately $1.1 million of provision, partially offset by a $371,000 release from our unfunded commitments liability. The provision also benefited from a $1.7 million net release of a loan-specific reserve driven by a loan payoff.

Overall, the allowance for credit losses increased slightly to $45.6 million, and our allowance to loans ratio declined to 94 basis points. We believe the allowance is appropriate for the portfolio and current environment. Operating noninterest income was $8.1 million, up $245,000 from the prior quarter, led by service charges and mortgage banking income, together with higher net interest income, drove operating revenue to $57.5 million, reflecting continued momentum across the company. Operating noninterest expense totaled $36.4 million, up $2.4 million from the prior quarter. Approximately $1 million of this increase was attributable to sale losses and valuation write-downs on repossessed equipment in our equipment finance subsidiary.

Salary and benefit expenses also increased primarily due to higher production-related variable compensation. Professional service expense included approximately $300,000 of consulting and placement costs associated with our tax credit purchase. Adjusting for the equipment finance and tax credit expenses, our noninterest expenses were in line with our stated guidance. Our operating efficiency ratio increased to approximately 63% from 60% in the prior quarter. Although the ratio was elevated this quarter due to the aforementioned items, we expect to generate positive operating leverage over time as our recent investments contribute more meaningfully to revenue. We will continue making targeted investments in our expanding markets while maintaining discipline across the broader expense base. For the fourth quarter, we expect operating noninterest income of approximately $7.5 million and operating noninterest expense of $35 million to $35.5 million. Salary and benefit expenses are expected to range from $21 million to $21.5 million, reflecting production-related incentive compensation and additional hiring. Incentive compensation accruals will vary with performance.

Turning to taxes. Income tax expense was $1.9 million compared with $4.2 million in the prior quarter. During the quarter, we purchased $36 million of transferable energy tax credits at a discount to pace, resulting in a $2.6 million income tax benefit. Looking ahead, we may consider similar transactions from time to time as part of our tax planning. Our effective tax rate going forward will be in the range of 19.5% to 20.5% I'll wrap up with capital. Our tangible common equity ratio was 7.8% compared with 8% in the second quarter. The decline in the tangible common equity ratio was primarily attributable to changes in AOCI as rising interest rates reduced the fair value of our bond portfolio during the quarter. In contrast, our estimated common equity Tier 1 ratio increased to 9.8% and our estimated total risk-based capital ratio was 12.6% at quarter end. Our capital position remains solid and provides flexibility to support organic growth, maintain balance sheet strength and continue building long-term shareholder value.

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

Thanks, Ron. As you can tell from Ron's comments, we continue to execute successfully in the leveraging phase of our company's growth. Our outlook remains centered on the strategy that has brought us here, getting deeper in our markets, growing share, expanding high-value relationships, recruiting great bankers and leveraging the infrastructure and capabilities we have built. Our pipelines remain solid, and we continue to see opportunities across our footprint. The higher rate forecast does present some added challenges as we look ahead, but I'm going to continue to stick to our high single digits plus growth guidance, even though we've bettered that in recent quarters.

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

To summarize, we're positioned very well. We are executing, posting record operating revenue this quarter. We are producing, posting double-digit organic growth on both sides of the balance sheet. We are managing risk as credit remains very sound, and we are winning on talent as we continue to add outstanding new team members. I also want to close with a huge shout out to our associates as our company was recently named to Great Place to Work list of top 50 midsized companies in the country. And we also ranked #11 nationally in the financial institutions category. This is another great statement on the culture that this team is creating.

Our future is bright, and I appreciate the work of our SmartFinancial and SmartBank team and the efforts of all of our associates. I'm extremely proud of what we're building here at SMBK.

I'll stop there, and we'll open it up for questions.

[Operator Instructions] Your first question comes from the line of Will Jones with KBW.

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

Ron, do you want to jump in on that one?

Yes. We did get a pickup really for Q3 is throughout the board, not only new relationships, but building of the old -- building of the existing client base. So I think we're still looking for a good growth quarter for fourth, and we're out of our seasonality trend, our historical trend to that.

Yes. Got it. Okay. And then I think Ron, I heard you say the new deposits in the quarter were 3.30%. Is that -- did I hear that right?

Correct. 3.33% for the quarter, yes.

Okay. And as we just kind of model out and think about deposit betas moving forward, could you just maybe walk us through where you would level set expectations there and hear you that margin may be more stable over the near term as some of your repricing on the asset side is offset by deposit costs. Is that how we should kind of think about additional incremental hikes from here?

I know the forward curve would imply maybe a few more hikes coming into 2027. Is kind of a stable margin where you would kind of peg margin performance as we think about additional hikes in the future?

Yes. First, we're about -- since the new -- since the rates hiked again, we're probably running around 70% beta at this point of time. We're really so neutral. We're really not going to be affected by rate hikes or rate decreases at this point. A lot of our expansion that's our modest expansion throughout 2027 is really due to our repricing book. We will see incremental lift going through 2027. So as far as rate hikes, we should be fairly neutral throughout each rate hike, which, by the way, our guidance does include a rate hike in December.

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

Yes. Will, I think you're spot on. Really, you shake out kind of the ebbs and flows of this quarter, really a solid quarter. And we still feel very good about our ability to kind of hit that 4x4 challenge that we've stated publicly hitting that dollar run rate. We're still on that trajectory and feel really good about our ability, not just hit that, but our ability to continue to move EPS higher as we look into next year. Again, we talked about it a lot. I mean our focus on just continuing to grow EPS and revenue and book value, that's kind of where we're sitting. And the team has done a great job on that. So yes, I think we're moving in that direction and feel pretty good about the chances of getting that here pretty soon.

Yes, certainly. Well, the momentum is certainly still very much evident.

The next question comes from the line of Russell Gunther with Stephens.

I wanted to start on the loan growth side of things. Another enviable organic growth quarter and guide. Maybe a more intermediate question on my end. As you guys think about potential Fed rate hikes and the absolute level of interest rates, is there a threshold where you would expect to see some pipeline fallout that would put that kind of high single, low double-digit growth profile at risk?

Yes, that's a really good question, Russell. Yes, obviously, if rates edge up and we're -- quite frankly, we're talking about that a lot with our division and regional leadership. We're talking about pipelines and thinking about '27 and starting to lay out our forecast. And right now, even with kind of the current rate environment, we've not -- pipelines still feel pretty good. Now I do agree. I think if you're going to see another 2 to 3 hikes, could that have some impact as we look into '27?

Absolutely. I think the macro is the macro. And so we've got to deal with that just like everybody else. What I will say is that I call it the hustle factor that our guys and guys have across our board of just getting out and bringing in new relationships. I don't think that will slow down. So it might slow a little bit of just what I call just maybe some of the new projects that are going on that we see. But I still think we have got a great shot at continuing to bring in new relationships, new deposit accounts and new funded debt as we hopefully move things from other entities.

Got it. That's very helpful. And then I always have that great slide in the deck that flushes out your back book repricing opportunity. Ron, you mentioned the reinvestment rates on the loan side. Could you just share where you're reinvesting on the investment securities front? And then on the other side, it would be helpful to get a sense for just kind of where spot end-of-period deposit rates ended the quarter.

Yes. At this point, our -- we're buying bonds SOFR plus 85, so in the 5-plus range. Again, a lot of our -- we're just kind of just keeping our balance of our investments pretty stable over time. And the spot deposit pricing, our CDs were today around 4.10% for 7-month CDs. Our 13-month CDs are 4.15% and our money markets are in the 3.60% to 3.70% range at this point. We try to target 95% of Fed funds.

Okay. Fantastic. And then just last one for me, if you don't mind. I appreciate the near-term expense outlook. But how are you guys thinking about a core expense growth rate on a more intermediate-term basis as you guys balance franchise investment and talent and tech with the goal of delivering positive operating leverage?

Yes, great question. We -- and again, we're having these exact same conversations, Russell, as we're kind of going through our '27 forecast. We -- again, you used the word, it is balanced. We're continuing to grow, continuing to add team members. When we look at -- we kind of look at it almost in a little bit of, I call it, same-store sales when you kind of factor out some of the new adds. I think if you factor out kind of some of that and you just look at where we are moving forward, I think we can stay pretty reasonable on the expense growth.

Now Ron, I know we're talking about, you've got -- we're probably not prepared to really lay -- I know we're working through forecast right now, probably not ready to give '27 guidance. But I mean, percentage-wise, you got a range that you could maybe share?

For both, I think we're going to be in the 5% to 6% growth range going off of a fourth quarter's run rate. But again, we will be providing continuous leverage and sustainability in our workforce and our franchise. We benefited from keeping our expenses to a tight band, but our franchise is growing. So we will have incremental growth in our noninterest expenses.

The next question comes from the line of Stephen Scouten with Piper Sandler.

Ron, I appreciate the information you gave there on CD and money market costs there. Can you talk a little bit about maybe what you're seeing all-in kind of blended rates come in at on the deposit side and kind of how you're seeing spreads overall and any sort of directional trends there, whether you're seeing spreads compress given competition or what have you?

Yes. We've always -- over the last couple of quarters, we were probably on our side of the house, kind of quiet getting the phone calls of pricing to get the pricing competition is real. We're coming into the 3.35% range all in. That's kind of what we expect. I don't know how much incrementally higher we're going to go at this point, but that's to be determined. The market is real, and we're getting more calls every day for exception pricing. So -- that's about the best I can tell you at this point.

But I'll add, too, Stephen. I think the team is also doing a really nice job on the asset side. We're sitting down and really looking at watching that and kind of fighting for every basis point on the asset side. Loan growth is competitive, too, but we've been able to continue to eke out pretty nice incremental rates on our loan growth as well. So while -- yes, a little more deposit funding than we'd like to see, we're doing a nice job balancing it with the growth that we're getting.

Yes. Yes. I mean the growth is a huge tailwind there. And I think that the average yield is what 6.08% currently. And I'm not sure if you noted this or if it's in the slide deck, apologies if I missed it, but new loan yields are coming on around where all in?

Yes. September was 6.78%. So for the quarter it was 6.37%. So we are getting some nice lift from the rate increase.

Yes, that's fantastic. Okay. Great. Appreciate that. And I think, Billy, you mentioned the $1 run rate and your progression there. Do you guys have or do you think you'll maybe be putting out some longer-term profitability targets from here? You guys have made just obviously tremendous strides over the last couple of years. Just kind of curious where you think you can continue to head from here? What's possible for the franchise?

Yes. Yes, Stephen, we will. I think we're spending a lot of time. We've worked through kind of our executive team's planning meetings over the last few weeks and got Board strategy coming up here in a couple of weeks. And so we're laying out the forecast. We -- as you all know, we're pretty transparent. We've demonstrated our ability to kind of challenge ourselves internally and execute on that. That's worked pretty well. So we're kind of working through what that next challenge is going to be for our group, but we will. We'll be sharing that at the appropriate time.

But again, I remain so excited about what we're seeing in this company. The energy, the -- again, I mentioned the recruitment. I mean we're adding some great bankers to this platform just strategically, just strategically and in some key markets. So I love our ability to continue executing. And so yes, we'll be laying out. We've got Nate kind of our marketing guy when it comes to kind of crafting these -- the mantra for the challenges. So we're trying to figure out exactly what we want to lay out for '27, but stay tuned.

And I do think the whole team is up for the challenge. I mean, they push us...

Absolutely.

They want us to stay on that. It's a good mix of driving for hire.

Yes. It seems like you have a group that likes the challenge. So that's fantastic. I guess last thing for me, and I think I kind of asked you this last quarter as well, but M&A possibilities, I mean, does any of this change? You continue to have strength from a pricing power perspective. You're now in Columbus. I mean, do you think about maybe changing direction at all or putting that back on the table in any way, shape or form, given maybe a desire to get more scale and density in newer markets?

I think our focus continues to be, A, on what we've done. This organic strategy and just adding great regional bankers is really where we want to focus. We're watching what's going on in the world. I mean it's a -- we -- there are opportunities out there. And I've said it before, and I kind of -- I'll reiterate it. I think it would have to be something that was really unique that made us better and not just bigger if we were ever to look at something because, again, we've kind of got this thing built to where we can punch up. And we've got -- when you look at our products and our services and our ability to compete against the larger regional banks. We can do that now at $6 billion. And so I think for us, it would have to be really unique for us to consider it. But we're always keeping our eye open on what's happening, but organic continues to be one.

I think it's intriguing to look at, obviously, always fun to run the numbers. But man, we are pretty darn focused on what we're doing now. And I echo what Billy said, it would have to be super, super attractive for us to deviate from the current strategy.

The next question comes from the line of Brett Rabatin with StoneX Group.

If I heard the guidance correct, the guidance for 4Q fee income was $7.5 million. One, is that the right number? And then two, it's a little softer than 3Q, if so? And just any thoughts on the fourth quarter level of fee income?

Yes, Brett. Yes, fourth quarter, we're projecting $7.5 million, and it is softer. It's really the mortgage -- our mortgage unit, the seasonality of it. Could we do better? Maybe from what's in the pipeline. But right now, we're -- usually, we do start slowing down, and that's been a pretty decent lift for us quarter-over-quarter. So that's really the only item that's really causing that.

Okay. And any thoughts on the third quarter strength versus what I've seen from some other banks on mortgage has been tough given rates?

I'm sorry, Brett, was that mortgage that was your mortgage specific?

Yes. Just the mortgage banking line item was stronger in 3Q than 2Q and 1Q. And it just seems like others have had some pretty tough comps in 3Q, just given rates. So I was just curious what the strength was related to 3Q.

Yes. I'll do that and then Ron or I mean, any chime in. But yes, overall, I think a lot of it has just been -- our mortgage group has really had just an overall really good year. We've continued to add some really good mortgage bankers over the course, especially early in the year. Those folks have kind of ramped up and have kind of gained momentum even in an environment, we're actually talking with one of our mortgage team members yesterday about kind of prospects. And Ron said, you do get a little bit of seasonality as you don't have as many closings usually in Q4.

But our pipelines feel pretty good. We're still getting while some 1 to 4 pockets may be a little bit softer in some different spots, we've been able to continue to eke out really good growth been real pleased with what we've been able to accomplish this year on mortgage. So I think a lot of it is just, number one, the team is very focused and sales side is doing a great job there. And then probably number two is just we've been able to do it with some really good new mortgage banker additions this year. I don't know, Ron, any additional color on that from you guys?

No, you're spot on. I mean our volume -- we have been putting more originators out on the deal. So our volume has increased. So we just -- it's been working for us.

The production side, to your point, Bill, the new hires has been a key driver. And then I think that team's ability to just continue to process activity very efficiently is also -- it helps with the new producer. We're able to get deals turned around quickly, get responses back and business.

Okay. That's super helpful. And then the other question I had was just around Slide 14. And if you could just refresh my memory on -- you've got nearly $0.5 billion of fixed rate loans yielding slightly under 5% that mature by the end of next year and a little over $100 million of adjustable rate loans at a similar rate. Do those loans -- I mean, I assume those are all kind of more fixed rate commercial real estate type properties. Do those loans, do you think reprice to a higher level? Or do you think that those loans end up repricing someplace else with another institution? Or just any thoughts on that Slide 14, those loans that are repricing over the next year?

Yes, I'll start. What we have seen for our renewals and repricing, we are getting -- one, we're getting about 100, 110 basis points over the original rate. Two, for the renewal side, we are keeping around 80%, 85% of those in-house. So we're very successful in keeping those nice retention and a lot better rates than what we've had. So it's been something we've been working at for a while and quarter-over-quarter. So we don't see why that would defer or change going forward either. So...

Okay. If I can ask one last quick one just around demand. And I've had folks asking about maybe demand being quelled by higher rates, and you guys obviously have an origination rate in September close to 7%. Have you guys seen any of that where higher rates might be starting to slow demand a little bit? Or is it just not a factor at this point?

We're watching it, Brett. I know, I know we talk about pipelines a lot and just trying to project growth over the near term as good as you can project off the pipelines. But we've usually been pretty accurate around that. We're not seeing it slow yet. I think if you do get a couple of more rate increases in there, could you see some slowdown as we look into '27? Absolutely.

Again, I'll kind of go back to my comment that I made earlier, it is not slowing our team's calling efforts down and our prospecting efforts. And so even though you might get a little bit of softness maybe in some new projects, I think our ability to move clients over and to move deals over remains pretty good. I don't know, Rhett, anything that you would add to that?

No, I think that's spot on, Bill. I would say our -- what we're seeing in opportunities, I don't think has really slowed when you combine our calling efforts and our new team members and visions we've had across the footprint. We're still seeing a very steady pipeline.

The next question comes from the line of Steve Moss with Raymond James.

Maybe to start on the -- on the equipment finance here, just with Fountain, I think I heard you Billy talk about some challenges within that portfolio regarding higher default. Just kind of curious how large is that portfolio? And any color you can give there?

Yes. I'll give a just a little high level and Rhett, maybe you can walk through specifics on portfolio balances. Yes, overall, yes, my comments were you saw -- we saw a little bit of delinquency creep in that book. A lot of that's just some of these smaller mom-and-pop transports, just a little bit of strain there. We've been able to kind of navigate that pretty well internally. So with diesel prices up, it might stay -- we might have a little bit more delinquency. But overall, we think it continues to be very manageable as it's a small piece of the book. Rhett, any portfolio specifics?

No, I'd just say it's about $145 million or so is the entire, I would say.

Okay. Great. Appreciate that color there. And then just on thinking about NII growth here going forward, given the 70% deposit beta, it sounds like you'll have another good quarter of loan growth. So obviously, like a mid-teens type year for you guys. For NII in the upcoming quarter, margin only 3.45%, is that like a 2% type NII number for you guys here?

NII growth, we probably had -- we were probably a little better than that this quarter. I think we probably haven't looked at it from a percentage standpoint. We probably calculate pretty quick. But I think it's probably -- I think we're a little better than that this last quarter, but that's probably in the right range. Ron, you got a quick math on that.

We're probably looking at the NII change about pretty closer to 3% growth for Q4.

Okay. So maybe a little bit -- so maybe loan growth similar to the current quarter for the fourth quarter here?

Yes, yes. Probably maybe a high, but yes sir.

Okay. And just in terms of -- you guys have managed down your securities and liquidity a bit. It kind of seems like we're hitting the floor here. Just curious, are you guys willing to run it a bit lower to fund loan growth? Or have we hit the floor, I should what I'm trying to say ask.

Yes. I still think we have a little bit. Probably we can probably go $80 million less, but we're getting near our floor at this point. So we've got a little bit more ammo, but we just keep reinvesting in the portfolio. So...

The next question comes from the line of Christopher Adamo with Brean Capital.

This is Chris Adamo on for Chris Marinac. I got a quick one for you on the credit front. So I guess what would you guys -- could you provide any color, I guess, into the CRE loss rate for the quarter? And also, I guess, how do you kind of see that going forward and impacting future provision and overall reserve levels going forward as well?

I guess just to make sure I had to clarify the right question, Chris. It was -- you're saying loss levels. Is that what, I guess, just -- how do we view loss levels going forward? Is that correct?

Yes, yes, yes. That's correct.

I'll just -- yes, I'll make a high-level comment and then let Rhett jump in. Overall, we still feel really good about the credit book. Again, when you look at what little we had in the way of losses so far this year, most of that has been our equipment finance subrelated, which is usually typical. We'll have a little bit more than that just because we get the yield for it. But I don't anticipate anything unusual going forward, Rhett. Anything on your side as far as just kind of expected thoughts around credit in the next couple of quarters?

No. Billy, I would say absolutely for purposes of the outlook, I mean, I think it's really, to your point, I mean, our strain is in that equipment portfolio and wouldn't anticipate to see any significant changes there as far as larger additional losses. I mean it's -- we'll work through that book as we go through this cycle in the transportation space, but don't anticipate it having any significant impact. I mean we feel like our allowance is positioned very well with where we are today. So I don't see it being significant.

So yes, I think, Chris, loss rate stable moving forward.

There are no further questions at this time. I will now turn the call back to Miller Wellborn, Chairman of the Board, for closing remarks.

We really appreciate you all joining us today. Thank you for your interest in what we're building here at the bank and for our team. And I hope you all each have a great day. Talk to you soon. Thanks.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the SmartFinancial Second Quarter 2026 Earnings Release and Conference Call. [Operator Instructions] I will now hand over to Nate Strall, Director of Investor Relations to begin. Please go ahead.

Thanks, Eric. Good morning, everyone, and thank you for joining us for SmartFinancial's Second Quarter 2026 Earnings Webcast and Conference Call. During today's call, we will reference the slides and earnings release available in the Investor Relations section of our website at smartbank.com. Billy Carroll, our President and Chief Executive Officer, will begin the call, followed by Ron Gorczynski, our Chief Financial Officer, who will provide additional commentary. We will be available after the call to answer your questions.

Our comments today include forward-looking statements these statements are subject to risks and uncertainties, and actual results may differ materially. Factors that could cause these actual results to differ materially are described in our earnings release and SEC filings, which are available on our website. We undertake no obligation to update any forward-looking statements as a result of new information, future developments or otherwise, except as required by law.

During today's call, we may reference non-GAAP financial measures related to the company's performance. Reconciliations of these measures to the most directly comparable GAAP measures are included in the appendices to the earnings release and investor presentation filed with the SEC on July 20, 2026. And now I'll turn it over to Billy Carroll.

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 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.

We followed a strong first quarter with an even better second quarter as our team continued to build outstanding organic momentum. The foundation we have worked so hard to build over the past several years is clearly demonstrating its strength as we continue to grow operating leverage. Our team's focus on this execution remains outstanding, and the second quarter of 2026 was yet another clear example of that. So let me jump right into some of our highlights.

First, and as I always say, 1 of the most important metrics to me, we continue to increase the tangible book value of our company, which is now at $28.22 per share up from $26.86 at year-end. For the quarter, we posted operating earnings of $16.3 million or $0.96 per diluted share with total revenue coming in at $55.9 million. We continue to execute with outstanding growth on both sides of the balance sheet posting 15% annualized growth in loans and 6% annualized growth in core deposits.

Our history of strong credit continues with only 23 basis points in nonperforming assets down 2 basis points from the prior quarter. 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 just under $34 million as we continue to exhibit our expense discipline.

Looking at the first few pages in the deck you'll see our continuation of some very nice trends. We're building on our return metrics and most importantly, growing total revenue, EPS and TBD. All of those charts are great graphics to illustrate our execution. So a couple of additional high-level comments for me. On growth, our balance sheet expansion continues. We are building a strong foundational sales culture led by our divisional and regional presidents, along with our collaborative credit leadership.

The work of these teams has been outstanding and the energy and hustle they exhibit as they focus on new client acquisition is exciting to see. I continue to believe we are among a select top-of-class group of top-performing banks when it comes to pure organic growth. As I stated, we grew our loan book 15% 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 6.07%.

Regarding deposits. Again, core deposits were up 6% annualized. Even with some expected second quarter seasonality, we continue to drive nice core deposit growth. It's important to note how we're building this bank with core relationships as we have a keen focus on both sides of the balance sheet. A couple of other key highlights noted in the release bullets include crossing the $6 billion in asset mark, another nice milestone for our team as we grow strategically and profitably. And as I mentioned, our tangible book value per share grew at 13% annualized for the quarter.

But in addition to great numbers, I'm also very proud of our Great Place to Work for certification. It is great to be recognized for the outstanding culture we are building and the tireless work of our associates in these efforts. As you can see, we are gaining operating leverage but also gaining momentum and we're balancing that with appropriate investment in our franchise. We will keep investing in people, technology and strategically in facilities, but do so while maintaining positive leverage.

We are seeing some nice opportunities right now with the disruption taking place in the Southeast, and we want to take advantage of that. The franchise we've built is positioned to effectively compete for business against larger regional players, but also nimble enough to flex down when we need to. It's a pretty nice position to be in. Gaining share and getting deeper in these great markets continues to be our primary focus.

So all in all, a very nice way to wrap the first half of 2026. So I'm going to stop there and hand it over to Ron to dive into some details for us. Ron?

Thanks, Billy, and good morning, everyone. I'll start by highlighting some key deposit results. During the quarter, we continued our momentum in client relationship expansion and new account growth. Non-broker deposits grew $83 million while new deposit reduction costs increased 8 basis points to 2.90%. While our deposit growth was strong, loan growth of $165 million exceeded deposit production resulting in the use of $106 million of short-term brokered deposits. Seasonal activity reduced noninterest-bearing deposits to 17% of total deposits, reflecting normal second quarter activity, including cash use for tax payments.

We also experienced some portfolio mix shift as clients continue to optimize balances between interest-bearing and noninterest-bearing accounts. Even with these dynamics, interest-bearing deposit cost rose just 2 basis points to 2.62% and liquidity remains strong with a loan-to-deposit ratio of 87%.

Looking ahead, we expect competition for deposits to remain elevated, which may continue to pressure funding costs in the near term. Turning to our margin. Net interest income was $48.1 million, up $2.2 million from the first quarter, our net interest margin expanded to 3.52% compared with 3.48% last quarter. The margin improvement was driven by asset yields outpacing the modest increase in funding costs.

Loan yields increased 5 basis points, assisted by new production coming on above the portfolio yield, continued loan portfolio repricing activity and higher loan fees from certain loan prepayments. Excluding the loan prepayment fees, our normalized net interest margin was 3.58% for the quarter, in line with our expectations.

New loan production remained steady with a weighted average yield of 6.40% for the quarter. Overall, our margin story continues to be about disciplined pricing, good balance sheet management and the benefit of loan pricing in this rate environment.

Looking ahead, we expect continued improvement in asset yields to support modest margin expansion over time. However, near-term deposit cost pressure may reduce third quarter margin by a few basis points, which would result in a forecasted margin in the 3.45% range.

Turning to credit. Our provision for credit losses was $1.9 million, down from $3.2 million last quarter. After a $392,000 reduction in the liability for unfunded commitments, total provision expense was $1.5 million, primarily from loan growth. As a reminder, the higher provision last quarter was driven by CECL modeling changes that we discussed on our prior earnings call. Our allowance to loans ratio remained stable at 97 basis points, which we believe is appropriate for the portfolio and current environment.

As Billy had mentioned, our asset quality metrics remained strong with nonperforming assets of just 0.23% of total assets while net charge-offs were limited to 5 basis points. We remain confident in the quality of our loan portfolio and in the discipline, our bankers and credit team continue to demonstrate as we grow. Operating noninterest income was stable at $7.9 million for the quarter, Higher mortgage banking income and stronger interchange and debit card fees helped offset lower capital markets revenue.

On expenses, operating noninterest expenses increased slightly at $34 million, the low end of our guidance. This increase was primarily driven by salary and benefit expenses, reflecting stronger production-related variable compensation and a full quarter's expense from our annual merit increases. FDIC insurance expense also returned to its normalized run rate. Our operating efficiency ratio remained in the low 60% range.

We do expect some expense growth as we invest in our expanding markets, including some branch facility expansion, but we will continue to manage the broader expense base carefully and remain focused on improving efficiency over time. For the third quarter, we expect noninterest income to be approximately $8 million and noninterest expense is expected to be in the range of $34.5 million to $35 million. Salary and benefit expenses are expected to range from $21 million to $21.5 million, reflecting both stronger production levels and related to incentive compensation and additional new hires.

As always, incentive-based compensation accruals will move with performance and may vary throughout the year. I'll wrap up with capital. Our capital position remains strong for the consolidated TCE ratio of 8% and total risk-based capital ratio of 12.7% well above well-capitalized standards. This position provides flexibility to support growth, maintain balance sheet strength and continued building long-term shareholder value.

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 return metrics, we've moved through the 1% ROA target and feel good about seeing that 13% plus number on ROE. You've heard me discuss on our last couple of calls, our internal 4x4 talent of ending a $4 EPS run rate by the fourth quarter of 2026, so basically hitting $1 per share EPS by Q4 of this year.

This quarter has been an excellent step towards reaching this target. We've still got a little bit of work to do as higher funding might pressure margin a bit more than expected, but I really like our chances of accomplishing this goal. The second half of 2026 will probably look a lot like the first half with focus on organic growth and increasing share in our markets. Pipelines are very solid, and I think we can continue growing at a high single-digit plus pace or possibly a little better.

Talent acquisition continues to be a high priority for our company. The current market disruption is opening the door and over the last few months, we've added some great bank talent in Nashville, Tennessee; Huntsville, Alabama, Tallahassee, Florida and Columbus, Georgia. We're seeing this opportunity throughout our footprint. And speaking of specifically on Columbus, we're thrilled with what that team is doing right out of the gate, and we're not even in our permanent facility yet. We're very bullish on this new market.

So we will continue to look for these organic growth opportunities and remain very focused on recruiting. I believe we have a lot to offer talented bankers as we continue to be one of the brightest banking stories in the Southeast, outstanding markets that grow paired with strong experienced bankers and a very focused team.

To summarize, we've had a very solid first half of 2026, and we're very well positioned. We are executing, growing revenue, EPS and book value while staying improved nonexpense growth. We remain optimistic about our ability to add balance sheet growth and still have a nice tailwind coming from rate resets in our loan portfolio over the coming quarters. Credit continues to be very sound. And on goal setting, we are executing on this year's 4x4 initiative as we have clear line of sight to a $4-plus earnings per share target.

Our future is bright, and I appreciate the work of our SmartFinancial SmartBank team and all the efforts of our associates. I'm very proud of what we have going on here at SMBK. We'll stop there and open it up for questions.

[Operator Instructions] Your first question comes from the line of Brett Rabin from StoneX Group.

I wanted to start off -- I want to start on just obviously really strong balance sheet growth this quarter. I wanted to start on the deposit side. And just if I heard you correctly, Ron, I think you said 2.9% cost of new deposits. Was that the right number? And then just wanted to get a little more color around the narrative that everyone's talking about with deposit costs possibly increasing from here. Just how you guys see that affecting possibly your growth and what you're seeing in terms of new funding?

Ron, do you want to start with the spot yield question.

Yes. Yes, it, our production for Q2 was 2.90% less broker, we were always modeling a 1 to 2 basis point increase in our cost going forward. I think the lower guidance, possibly lower guidance this quarter is we did lay in some brokered funding support our strong loan growth. While broker funding does carry a higher cost, we view it as a discipline and temporary tool for our funding. So for the most part, we're still looking -- going forward, we're looking about 1.5 to 2 basis points per month, at least and then we think we'll back that up as we can increase our deposit reduction and wean off the broker side of it.

I'll also add, Brett, we -- like I said, we -- I'll tell you the deposit -- just pure per deposit production has really been pretty solid for us. A little bit of a gap. I alluded to it too, we get a little bit of seasonality in Q2. We do think when you look at our trends historically, we make up a lot of that gap in the second half of the year. So yes, I think we're optimistically hoping we can come in at a pretty good clip as some of that seasonality then that balance growth picks back up.

But yes, and I think you alluded to other comments that you've heard on growth. I think it is. I mean, obviously, with rates staying a little bit higher, deposit growth pressure has been probably a little more prevalent than we had originally thought. But it's not anything that we don't feel like we can manage. We may just -- margins, as Ron said, margin might just be a little flatter as you look out for the next quarter. But still feel good about our ability to expand that going forward.

Okay. That's helpful. And then just Billy, you've kind of talked about feeling pretty comfortable being a high single-digit grower and possibly better. But obviously, the last 2 quarters, in particular, have been a lot stronger than that. Does the pipeline suggest you could continue to have that and maybe you're just being a little cautious with payoffs or lending competition on rate possibly being a factor. Maybe if you could just give any thoughts on double versus a notes.

Miller as a stand back a little bit, but I really -- we do build -- we try to build in some payoffs and paydowns into those modeling assumptions. And one of the things we've we have been really good at is especially a lot of this back book repricing. I think we've built in a little less -- a little lower percentage of that retention, we're getting a lot of retention in that back book reprice. And so teams are doing a really nice job elevating those yields at renewal, and we're keeping most of that business.

Yes. I mean rate competition is still tough right now. We're just looking at pipelines before the call, just to kind of refresh our numbers. And we feel good about the pipelines. I'll tell you, or -- and I alluded to it, I mean the sales teams and credit teams, I said that too. I think a lot of the credit of this goes to our credit team, the collaboration that we're working together and trying to get these deals in and through the pipeline, feel really good about our ability to keep doing that. And -- but yes, I still think we could be at that plus/minus 10% number, just depending on payoffs and pay downs.

It's all across the markets, too...

Yes, it's pretty equally balanced across our zones. I'll tell you all of our markets, all of our teams are executing really well right now.

Your next question comes from the line of Russell Gunther with Stephens.

I want to follow up on the margin discussion, maybe the flip side to the Brett's question, just get some help for where directionally you'd expect loan yields to head from here level set us in terms of where new production came on in 2Q, kind of where that pipeline yield sits today would be helpful.

Yes. Ron, do you want to take that?

Yes. We've been -- good question. We've been consistently in the 6 new production, bringing on about the 640 range. We think -- we believe that will continue basically due to the portfolio of churn, we think we should be able to increase our portfolio yields probably 3 to 4 basis points quarterly from here on for the next few quarters that's -- even though Q3 may be flat, we see further expansion as we look into the future. So we're in a good spot with our loan book.

That's helpful, Ron. And then for my follow-up, guys, I appreciate the near-term expense outlook, but perhaps kind of more intermediate term as you guys think about balancing franchise investment and talent, which it sounds like you've made some great strides in as well as potentially tech -- how should we think about a normalized core expense growth rate for SmartBank with that goal of delivering positive operating leverage?

Brian, do you want to talk a little bit about just kind of the expense growth forecast or thoughts over the next few quarters, and I'll add some color to it.

Yes. For Q3, we did see an uptick, variable compensation due to our production is always there. We do have layered in some new hires and support growth. And we see that incrementally throughout Q3. We do have some seasonality in our expenses primarily occupancy going through the hot summer months here down in our footprint. And then normal forecasting ebbs and flows due to franchise growth. We're looking to keep our expenses within a $35 million plus or minus range over the next quarter or 2. But again, that's all subject to our production-related comp. But we watch expenses pretty tightly here.

Yes. And I'll just add, Russell, this is something I know, Ron and I spend a lot of time talking about it, and we communicate with our team. I think the key to it now is to kind of keep a fairly tight band on that while continuing to make the appropriate investments like we said. I think we can do that over the next several quarters as we get a new branch or 2 in the system and then add a couple of revenue-producing hires in some of our zones.

So feel really good about our ability to do that. We also have, again, like Nate put a nice slide in the deck or repricing. I do think we still got some -- we've still got some nice tailwind coming second half, especially as you look into Q4 with rate reset, some of the back book and then into the first part of '27. So we think the revenue side is going to continue to keep pace and allow us to keep that positive leverage going.

Your next question comes from the line of Catherine Miller with KBW PAUSE Kate.

I wanted to -- could you -- I know you speak to this, but the loan fees that were in loan yields this quarter. Can you repeat what that impact was?

Yes. We had a specific relationship that it was an acquired loan that we had a credit mark embedded in the amount. So when it paid off, we accreted that through the income, isolated but a decent amount. It equated to about $500,000 or $400,000 to $500,000. I'm sorry, 4 basis points...

Four basis points. And that's the NIM or 4 bps to loan yields?

It was the loan yield.

Okay. Perfect. The way to think about that is you strip that out, but then you've got kind of core expansion next quarter, you're kind of stable at this level into next quarter. Is that kind of a fair way to think about it?

Yes.

Okay. Perfect. And this is a bigger picture question. I mean you're well on your way to your $1 EPS target in the fourth quarter. You've hit a 1/1 ROA and you're at the 13% ROE. Is the way to think about -- you've been such a great story of profitability improvement over the past 1.5 year and you've hit all these targets. Is the path from here that we're just kind of stable at these profitability levels but with really strong 10% balance sheet growth? Or do you see other ways to improve profitability levels over the course of the year?

I think we continue to improve, especially as you look out, especially Catherine, as you look out into '27. So as we look -- obviously, tougher to forecast, not know exactly what rates are going to do. But from our standpoint, over the next 4 quarters or so, we think we can continue to expand that ROA number up. I think we're going to continue to pick up some EPS growth, continue to move those ROA targets a little bit higher. And so we feel like as we look ahead and think about already starting to think a little bit about '27, we've still got some room to move up and as long as a team, we continue to -- as we talked about hold expenses within a reasonable range and pick up this -- the repricing plus the new growth, we can expand these return targets a little bit here in the near term.

The next question comes from the line of Stephen Scouten PAUSE with Piper Sandler.

Kind of following up a little bit on Catherine's question there. The positive momentum over the last couple of years has been tremendous. And I think you said earlier, but you feel like you're even gaining momentum today. So I mean, is there anything out there that would give you pause about something that would maybe derail that momentum? Or just are you getting to a point where capacity become strained at any point? Or what would kind of this positive momentum, if anything?

Steve, that's a good question. I really -- obviously, something outside of Air Control being sort of a macro level event loan question. I know. Yes, even let's get positive. We got to stay positive.

I didn't mean negative.

Yes. Now from my standpoint, I think the biggest thing would be we're hoping to continue to grow margin a little bit Ron alluded to, we've hit it a couple of times here. I think rates stay up and funding becomes a little more challenging, maybe a little bit heavier fight on NIM. That may hurt us, even though we're positioned very well from an AL standpoint, very neutral. I mean, so -- but obviously, if rate, your funding cost pressures probably something that could nip at us a little bit.

I really feel good about the team's ability to keep growing. I talked about the disruption. We've kind of got this thing built right now and really just start to hit on most of our cylinders. We've still got some gaps that we want to close. They're working on some technology initiatives and things like that. But I don't think any of that would impede us from hitting our growth targets.

Yes. I think you live in the Southeast like the rest of us, Stephen. And it's just hard to argue that every 1 of the markets is doing well. The economy is doing good, and our folks are out working everybody else out there. And I just think it's barring some crazy macro event. We're going to continue the progress we're making and excited about it.

Yes. No, that's a really good answer. And I think the idea of just kind of starting to hit on the cylinders, not that you're already firing all cylinders as kind of the best conveyance of the continual momentum there. So I appreciate that. And this question probably gets answered by that statement alone.

But the stock has been performing so well given your trends. I mean, does M&A start to come back on the table at any point in time, just given the relative strength of your currency now and maybe accelerate that trajectory even further add some cylinders to the engine, if you will.

Yes. Right now, as we alluded to, we're still very focused on this organic strategy. Obviously, with the valuation lift, it's something that I think we could start to think about a little more as we look into our quarters. But right now, we're pretty well singularly focused right now on this organic strategy. And as we get into doing some planning out for '27, then obviously something that we would consider, watch the markets.

I think we're always looking to see what's happening out there. But something that we've got -- it's a card that we could play now more so than before, especially with valuations, but we still like this organic strategy is [indiscernible].

That to be pretty special to make us a lot better, not just bigger.

Yes. Makes a lot of sense. Okay. Appreciate it. And congrats again, a great quarter, great couple of years, obviously.

Eric, are you there?

Yes. Your next question comes from the line of Steve Moss with Raymond James. Please go ahead.

Starting here on just going back to the margin dynamics here. I guess maybe first on the securities book. Is this kind of as low as you guys think it will go? Or could we see a little more runoff in the book given deposit competition here?

Yes. I think our book is stabilized. It could drift slightly lower, but we're in a good spot basically, your percent of investments to on balance sheet assets and rest for pledging, we're going to stay within the 10%, 12% range of the assets. So not much less. But we still have on balance sheet cash. We're probably $75 million to $100 million heavy with the late quarter brokered entrance. So we saw some -- we still can use some balance sheet cash going forward.

Okay. Great. And then Ron, did I hear you correctly, flattish loan yields for 3Q? And then just given the back book repricing, probably 6 or 7 bps in the fourth quarter.

Yes. In the fourth quarter, yes.

Okay. And so then kind of like probably close to mid-50s type margin in the fourth quarter?

No. Our base is about [indiscernible]. So we're probably targeting probably closer to the $350 million plus or minus?

Okay. Got you. Great. And then in terms of just kind of maybe just 1 more circling back to the loan pipeline here, good growth across the board. I hear you guys geographically, it's very strong. Going forward, is the pipeline mix more tilted towards C&I? Or is it still kind of balance? Just kind of curious like what the pipeline color is there.

Yes. We were actually -- Steve, we're actually talking about the, Why don't you give some color on that? I know we talked about geography mix and type, Composition, you want to give you some color there?

Sure, Steve. If you noticed on the chart in the package. Our portfolio continues to just be stable with regard to the mix of the portfolio as a whole and the pipeline really is a good representation of that same trend. We've got a good mix of geographies across our footprint as well as product type. So we're really expecting the throughput from the pipeline to kind of keep that same trend going where it will stay pretty consistent in forward-looking quarters.

Okay. Great. Appreciate that there. And just thinking about loan pipeline is good. I know we talked about sandbagging a little bit here earlier. It seems like this 3.5% loan growth linked quarter is sustainable here for the second half?

Yes, I think so. Yes, I think we're right there. Again, plus/minus. We always try to hedge a little bit on some paydowns. But when we look at pipelines, Steve, we feel good about where that reason we really like this organic strategy, just keep doing what's working and so we're just -- we're going to keep supporting our teams to help bring those clients on. But yes, I think we can get in that -- I think we stay in that 3% plus/minus, maybe 3.5% on a quarter-over-quarter basis.

Okay. Great. And last one for me. Just curious on what the effective tax rate here you guys are expecting going forward.

Good question. Going forward, about 19.5%. Second quarter, we had to do some catch-up from the first quarter. So again, going forward, 19.5%.

Your next question comes from Christopher Marinac with Brean Capital.

I wanted to ask about the reserve level and is there flexibility given the low charge-offs within your seasonal modeling and kind of framework over many years through the reserve to kind of incrementally fall in the future or do you just see sheet right where it is.

The CECL model question. That question is so easy. Chris, I'm going to let Ron take that. Go ahead.

We probably don't see where it's going to go lower again, we've been targeting 97, 98 basis points and with our qualitative factors. So I think we're very comfortable where it's at. And everyone seems to like that range. So yes, I don't envision it going lower from here at this point, at least not in the near future.

No, that's great, Ron. I appreciate that. And Billy, back to you for a second. As you've had success in markets like Columbus, are you seeing other new entrants in that same market? Are you pretty much alone in your end tuner.

I think we have not seen new entrants. We've seen folks flexing into that zone a little bit more down there. Again, it's just -- it's a really -- it's a good zone. And as we've gotten to know that market well over the last year, we're very excited about the team that we have and the opportunities that we have. But I think Columbus is probably a lot like several other zones that we're in. These markets that are strong. We're just seeing increased presence and folks trying to recruit and add bankers.

But I like our chances. I like our teams, and I think we've got a good path ahead on it really in just about all of our zones, really all of our zones, but we're really excited about what we've got going on in Columbus.

I agree that lift out that team models and fits and mimics a lot of our other markets and culture and it's just been a good bit.

There are no further questions at this time. I will now turn the call back to Miller Welborn, Chairman of the Board for closing remarks.

Thanks so much. I appreciate everybody joining us today. Thanks for listening in. Thanks for caring about the franchise we're building, and we hope you have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

[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.