SmartFinancial(SMBK) - 2025 Q2 - Quarterly Results

Executive Summary & Financial Highlights Overall Performance SmartFinancial, Inc. reported strong financial results for Q2 2025, with significant increases in net income and diluted EPS compared to both the prior quarter and the same quarter last year, demonstrating sustained growth and positive operating leverage Q2 2025 Financial Performance Overview | Metric | Q2 2025 | Q1 2025 | Q2 2024 | YoY Change (Q2 2025 vs Q2 2024) | QoQ Change (Q2 2025 vs Q1 2025) | | :----------------------- | :-------- | :-------- | :-------- | :-------------------------------- | :-------------------------------- | | Net Income | $11.7M | $11.3M | $8.0M | +46.25% | +3.54% | | Diluted EPS | $0.69 | $0.67 | $0.48 | +43.75% | +2.99% | | Operating Earnings | $11.7M | $11.3M | $7.8M | +50.00% | +3.54% | | Operating Diluted EPS | $0.69 | $0.67 | $0.46 | +50.00% | +2.99% | - The Company delivered five consecutive quarters of positive operating leverage, indicating efficient growth[3] - Asset quality remains solid with non-performing assets at 0.19% of total assets[3] Key Highlights for Q2 2025 Key achievements for the second quarter of 2025 include strong loan growth, improved tangible book value, and continued recognition for its workplace culture - Net organic loan and lease growth of $132 million, representing a 13% annualized quarter-over-quarter increase[6] - Quarter-over-quarter tangible book value per share growth of 13.7%[6] - Recertified as a Great Place to Work by over 92% of SmartBank associates[6] - Three business production team members added to Commercial and Private Banking teams[6] Financial Performance Analysis Net Interest Income and Net Interest Margin Net interest income increased to $40.3 million in Q2 2025, driven by growth in average earning assets, particularly loans and leases, and an improved tax equivalent net interest margin of 3.29% Net Interest Income and Margin Trends | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :-------------------------- | :-------- | :-------- | :----------- | | Net Interest Income | $40.3M | $38.2M | +$2.1M | | Average Earning Assets | $4.96B | $4.87B | +$87.8M | | Tax Equivalent Net Interest Margin | 3.29% | 3.21% | +0.08% | | Yield on Loans and Leases (FTE, excl. fees) | 5.99% | 5.88% | +0.11% | | Cost of Total Deposits | 2.39% | 2.37% | +0.02% | | Cost of Interest-Bearing Liabilities | 2.99% | 2.97% | +0.02% | - The increase in average earning assets was primarily due to a $109.2 million increase in average loans and leases and $9.9 million in securities, partially offset by a decrease in interest-earning cash[4] - The net interest margin was positively impacted by increased yield on interest-earning assets, despite an increase in the cost of interest-bearing liabilities[5] Selected Interest Rates and Yields Yields on earning assets and loans increased quarter-over-quarter, while the cost of deposits and interest-bearing liabilities also saw slight increases Selected Interest Rates and Yields (QoQ) | Selected Interest Rates and Yields | Jun 2025 | Mar 2025 | Increase (Decrease) | | :--------------------------------- | :------- | :------- | :------------------ | | Yield on loans and leases, excluding loan fees, FTE | 5.99 % | 5.88 % | 0.11 % | | Yield on loans and leases, FTE | 6.07 % | 5.97 % | 0.10 % | | Yield on earning assets, FTE | 5.65 % | 5.56 % | 0.09 % | | Cost of interest-bearing deposits | 2.95 % | 2.92 % | 0.03 % | | Cost of total deposits | 2.39 % | 2.37 % | 0.02 % | | Cost of interest-bearing liabilities | 2.99 % | 2.97 % | 0.02 % | | Net interest margin, FTE | 3.29 % | 3.21 % | 0.08 % | Provision for Credit Losses and Credit Quality The allowance for credit losses remained stable at 0.96% of total loans and leases, while the provision for credit losses increased significantly quarter-over-quarter. Credit quality metrics, including nonperforming assets, remained solid Provision for Credit Losses Rollforward (QoQ, $ thousands) | Provision for Credit Losses on Loans and Leases Rollforward | Jun 2025 | Mar 2025 | Increase (Decrease) | | :-------------------------------------------------- | :------- | :------- | :------------------ | | Beginning balance | $38,175 | $37,423 | $752 | | Net charge-offs | $(146) | $(91) | $(55) | | Provision for credit losses | $1,747 | $843 | $904 | | Ending balance | $39,776 | $38,175 | $1,601 | | Allowance for credit losses to total loans and leases, gross | 0.96 % | 0.96 % | - % | - Nonperforming loans and leases as a percentage of total loans and leases slightly decreased to 0.19% from 0.20% in the prior quarter[11] - Total nonperforming assets as a percentage of total assets remained stable at 0.19% quarter-over-quarter[11] Credit Quality Details Detailed credit quality metrics show a slight increase in nonaccrual loans and leases, but an overall stable nonperforming asset ratio Credit Quality (QoQ, $ thousands) | Credit Quality | Jun 2025 | Mar 2025 | Increase (Decrease) | | :--------------------------------------- | :------- | :------- | :------------------ | | Nonaccrual loans and leases | $7,889 | $7,624 | $265 | | Loans and leases past due 90 days or more and still accruing | $32 | $183 | $(151) | | Total nonperforming loans and leases | $7,921 | $7,807 | $114 | | Total nonperforming assets | $10,462 | $10,365 | $97 | | Nonperforming loans and leases to total loans and leases, gross | 0.19 % | 0.20 % | (0.01)% | | Nonperforming assets to total assets | 0.19 % | 0.19 % | - % | Noninterest Income Noninterest income increased by $301 thousand to $8.9 million in Q2 2025, primarily driven by increases in mortgage banking income, insurance commissions, and interchange and debit card transactions Noninterest Income (QoQ, $ thousands) | Noninterest Income | Jun 2025 | Mar 2025 | Increase (Decrease) | | :-------------------------------- | :------- | :------- | :------------------ | | Service charges on deposit accounts | $1,766 | $1,736 | $30 | | Mortgage banking income | $633 | $493 | $140 | | Investment services | $1,440 | $1,769 | $(329) | | Insurance commissions | $1,554 | $1,412 | $142 | | Interchange and debit card transaction fees | $1,342 | $1,220 | $122 | | Other | $2,167 | $1,967 | $200 | | Total noninterest income | $8,898 | $8,597 | $301 | Noninterest Expense Total noninterest expense increased slightly to $32.6 million in Q2 2025, mainly due to higher salaries and employee benefits, partially offset by a decrease in professional services Noninterest Expense (QoQ, $ thousands) | Noninterest Expense | Jun 2025 | Mar 2025 | Increase (Decrease) | | :-------------------------------- | :------- | :------- | :------------------ | | Salaries and employee benefits | $19,602 | $19,234 | $368 | | Occupancy and equipment | $3,432 | $3,397 | $35 | | FDIC insurance | $992 | $960 | $32 | | Other real estate and loan related expenses | $757 | $658 | $99 | | Professional services | $1,153 | $1,368 | $(215) | | Total noninterest expense | $32,569 | $32,296 | $273 | - The increase in salaries and employee benefits was attributed to additional incentive accruals[14] Income Tax Expense Income tax expense for Q2 2025 was $2.6 million, an increase of $250 thousand from the prior quarter Income Tax Expense (QoQ) | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :------------- | :-------- | :-------- | :----------- | | Income Tax Expense | $2.6M | $2.3M | +$0.25M | Balance Sheet Overview Balance Sheet Trends Total assets and liabilities showed growth at June 30, 2025, primarily driven by increases in loans and leases and total deposits Balance Sheet Trends (YoY) | Metric | Jun 30, 2025 | Dec 31, 2024 | Increase | | :---------------- | :----------- | :----------- | :------- | | Total Assets | $5.49B | $5.28B | $215.0M | | Total Liabilities | $4.97B | $4.78B | $187.3M | - The increase in total assets was mainly due to a $217.7 million increase in loans and leases and $17.7 million in securities, partially offset by a $22.5 million decrease in cash and cash equivalents[17] - Total deposits increased by $185.6 million, driven by increases in other time deposits, money market deposits, interest-bearing demand deposits, and brokered deposits, partially offset by a decline in noninterest demand deposits[18] Shareholders' Equity Shareholders' equity increased by $27.7 million from December 31, 2024, primarily due to net income and a positive change in accumulated other comprehensive loss Shareholders' Equity Metrics | Metric | Jun 30, 2025 | Dec 31, 2024 | Increase | | :------------------------------------ | :----------- | :----------- | :------- | | Total Shareholders' Equity | $519.1M | $491.461M | $27.7M | | Tangible Book Value per Share | $24.42 | $22.85 | +$1.57 | | Tangible Common Equity to Tangible Assets | 7.71% | 7.48% | +0.23% | - The increase in equity was driven by $23.0 million in net income for the six months ended June 30, 2025, and a $6.4 million positive change in accumulated other comprehensive loss, offset by $2.7 million in dividends paid[19] Selected Balance Sheet Information The table provides a snapshot of key balance sheet items, showing growth in total assets, liabilities, equity, loans, and deposits from December 2024 to June 2025 Selected Balance Sheet Information (YoY, $ thousands) | Selected Balance Sheet Information | Jun 2025 | Dec 2024 | Increase (Decrease) | | :--------------------------------- | :------- | :------- | :------------------ | | Total assets | $5,490,863 | $5,275,904 | $214,959 | | Total liabilities | $4,971,736 | $4,784,443 | $187,293 | | Total equity | $519,127 | $491,461 | $27,666 | | Securities | $626,670 | $608,987 | $17,683 | | Loans and leases | $4,124,062 | $3,906,340 | $217,722 | | Deposits | $4,872,120 | $4,686,483 | $185,637 | | Borrowings | $6,966 | $8,135 | $(1,169) | Composition of Loans and Leases The loan portfolio shows continued growth across most categories, with commercial real estate (non-owner occupied and owner occupied) and consumer real estate being the largest segments Composition of Loans and Leases ($ thousands) | Composition of Loans and Leases | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :-------------------------------- | :------- | :------- | :------- | :------- | :------- | | Commercial real estate, total | $2,073,122 | $2,002,788 | $1,948,082 | $1,899,785 | $1,815,363 | | Consumer real estate | $803,270 | $784,602 | $741,836 | $690,504 | $678,331 | | Construction & land development | $391,155 | $357,393 | $361,735 | $315,006 | $294,575 | | Commercial & industrial | $778,754 | $768,454 | $775,620 | $731,600 | $701,460 | | Leases | $62,495 | $64,208 | $64,878 | $67,052 | $70,299 | | Consumer and other | $15,266 | $14,762 | $14,189 | $13,531 | $14,130 | | Total loans and leases | $4,124,062 | $3,992,207 | $3,906,340 | $3,717,478 | $3,574,158 | Capital Ratios SmartFinancial Inc. and SmartBank maintained strong capital ratios, with Tier 1 leverage and total capital ratios well above regulatory minimums, indicating a solid capital base Capital Ratios (Estimated) | Capital Ratios (Estimated) | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :------------------------- | :------- | :------- | :------- | :------- | :------- | | SmartFinancial, Inc. | | | | | | | Tier 1 leverage | 8.25 % | 8.16 % | 8.29 % | 8.44 % | 8.32 % | | Common equity Tier 1 | 9.68 % | 9.79 % | 9.76 % | 10.06 % | 10.06 % | | Tier 1 capital | 9.68 % | 9.79 % | 9.76 % | 10.06 % | 10.06 % | | Total capital | 11.05 % | 11.18 % | 11.10 % | 11.62 % | 11.68 % | | SmartBank | | | | | | | Tier 1 leverage | 8.88 % | 8.76 % | 8.94 % | 9.17 % | 9.11 % | | Common equity Tier 1 | 10.43 % | 10.51 % | 10.51 % | 10.92 % | 11.02 % | | Tier 1 capital | 10.43 % | 10.51 % | 10.51 % | 10.92 % | 11.02 % | | Total capital | 11.27 % | 11.35 % | 11.30 % | 11.69 % | 11.79 % | Company Information Conference Call Details SmartFinancial hosted a conference call on July 22, 2025, to discuss Q2 2025 earnings, with replay available until September 20, 2025 - Conference call held on Tuesday, July 22, 2025, at 10:00 a.m. ET[21] - Access dial-in: (833) 470-1428 or (404) 975-4839, access code: 342904[21] - Replay available through September 20, 2025, dial-in: (866) 813-9403 or (929) 458-6194, access code: 216208[21] About SmartFinancial, Inc. SmartFinancial, Inc. is a Knoxville, Tennessee-based bank holding company for SmartBank, a full-service commercial bank operating across Tennessee, Alabama, and Florida, known for its strategic growth and client service - SmartFinancial, Inc. is the bank holding company for SmartBank, a full-service commercial bank founded in 2007[22] - SmartBank operates branches across Tennessee, Alabama, and Florida[22] - Success is attributed to recruiting top talent, exceptional client service, strategic branching, and disciplined lending[22] Investor Contacts Key investor contacts are Billy Carroll, President & CEO, and Nathan Strall, VP and Director of Strategy & Corporate Development - Billy Carroll, President & Chief Executive Officer: Phone (865) 868-0613, Email billy.carroll@smartbank.com[24] - Nathan Strall, Vice President and Director of Strategy & Corporate Development: Phone (865) 868-2604, Email nathan.strall@smartbank.com[24] Non-GAAP Financial Measures Definition and Purpose SmartFinancial uses Non-GAAP financial measures to provide additional insights into its performance, excluding non-operating items and the impact of goodwill and other intangibles, to facilitate comparisons with peers and period-to-period results - Non-GAAP measures are used by management to evaluate ongoing performance and provide meaningful comparisons to peers[27] - These measures exclude non-operating related income and expense items, as well as goodwill and other intangible assets, from GAAP figures[26] - Non-GAAP measures should not be considered an alternative to GAAP measures and have limitations as analytical tools[28] Non-GAAP Reconciliations The report provides detailed reconciliations for various Non-GAAP measures, including operating earnings, operating noninterest income and expense, operating PPNR earnings, tangible common equity, and tangible book value per common share, to their most directly comparable GAAP financial measures Operating Earnings Reconciliation (QoQ, $ thousands) | Operating Earnings | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :----------------- | :------- | :------- | :------- | :------- | :------- | | Net income (GAAP) | $11,705 | $11,254 | $9,640 | $9,140 | $8,003 | | Operating earnings (Non-GAAP) | $11,708 | $11,254 | $9,593 | $9,140 | $7,793 | Tangible Common Equity Reconciliation (QoQ, $ thousands) | Tangible Common Equity | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :--------------------- | :------- | :------- | :------- | :------- | :------- | | Shareholders' equity (GAAP) | $519,127 | $505,941 | $491,461 | $489,023 | $472,465 | | Less goodwill and other intangible assets | $103,588 | $104,154 | $104,723 | $105,324 | $105,929 | | Tangible common equity (Non-GAAP) | $415,539 | $401,787 | $386,738 | $383,699 | $366,536 | Operating Efficiency Ratio Reconciliation (QoQ) | Operating Efficiency Ratio | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :------------------------- | :------- | :------- | :------- | :------- | :------- | | Efficiency ratio (GAAP) | 66.14 % | 68.96 % | 68.98 % | 69.83 % | 72.25 % | | Operating efficiency ratio (Non-GAAP) | 65.66 % | 68.46 % | 68.58 % | 69.28 % | 72.13 % | Forward-Looking Statements Disclaimer and Risk Factors The report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially from expectations. These risks include those related to growth strategy, litigation, M&A, economic conditions, interest rate changes, technology, credit risk, and regulatory actions - Forward-looking statements are based on management's current estimates and expectations and are subject to risks and uncertainties[30] - Key risk factors include: risks associated with growth strategy, claims and litigation, general risks related to merger and acquisition activity, changes in economic or political conditions (including inflation and interest rates), ability to anticipate interest rate changes, increased technology and cybersecurity risks, credit risk, and changes in applicable laws or regulations[32] - SmartFinancial disclaims any obligation to update or revise any forward-looking statements[31] Condensed Consolidated Financial Information (Tables) Balance Sheet This section presents the condensed consolidated balance sheet, detailing assets, liabilities, and shareholders' equity over several quarters, highlighting the company's financial position Condensed Consolidated Balance Sheet (Selected Quarters, $ thousands) | | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :------------------------------------ | :------- | :------- | :------- | :------- | :------- | | Total assets | $5,490,863 | $5,411,217 | $5,275,904 | $4,908,934 | $4,891,009 | | Loans and leases, net | $4,084,286 | $3,954,032 | $3,868,917 | $3,681,869 | $3,539,468 | | Total deposits | $4,872,120 | $4,808,659 | $4,686,483 | $4,322,491 | $4,316,656 | | Total liabilities | $4,971,736 | $4,905,276 | $4,784,443 | $4,419,911 | $4,418,544 | | Total shareholders' equity | $519,127 | $505,941 | $491,461 | $489,023 | $472,465 | Income Statement This section provides the condensed consolidated income statement, detailing revenues, expenses, and net income for the three and six months ended June 30, 2025, and comparable periods Condensed Consolidated Income Statement (Selected Quarters, $ thousands) | | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :------------------------------------ | :------- | :------- | :------- | :------- | :------- | | Total interest income | $69,453 | $66,376 | $66,096 | $63,956 | $61,285 | | Total interest expense | $29,110 | $28,138 | $28,313 | $28,924 | $28,471 | | Net interest income | $40,343 | $38,238 | $37,783 | $35,032 | $32,814 | | Provision for credit losses | $2,411 | $979 | $2,135 | $2,575 | $883 | | Total noninterest income | $8,898 | $8,597 | $9,030 | $9,139 | $7,604 | | Total noninterest expense | $32,569 | $32,296 | $32,291 | $30,846 | $29,201 | | Net income | $11,705 | $11,254 | $9,640 | $9,140 | $8,003 | | Diluted EPS | $0.69 | $0.67 | $0.57 | $0.54 | $0.48 | Yield Analysis (Quarterly) This table provides a detailed yield analysis for interest-earning assets and interest-bearing liabilities for the three months ended June 30, 2025, March 31, 2025, and June 30, 2024, showing trends in yields, costs, and net interest margin Yield Analysis (Three Months Ended, $ thousands) | | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------------------------ | :------------ | :------------- | :------------ | | Yield/Cost - Loans and leases, including fees | 6.07 % | 5.97 % | 5.87 % | | Yield/Cost - Total interest-earning assets | 5.65 % | 5.56 % | 5.52 % | | Yield/Cost - Total interest-bearing deposits | 2.95 % | 2.92 % | 3.23 % | | Yield/Cost - Total interest-bearing liabilities | 2.99 % | 2.97 % | 3.29 % | | Net interest income, taxable equivalent | $40,693 | $38,578 | $33,165 | | Tax equivalent net interest margin | 3.29 % | 3.21 % | 2.97 % | Yield Analysis (Six Months) This table presents the yield analysis for interest-earning assets and interest-bearing liabilities for the six months ended June 30, 2025, and June 30, 2024, offering a broader view of interest rate trends Yield Analysis (Six Months Ended, $ thousands) | | June 30, 2025 | June 30, 2024 | | :------------------------------------ | :------------ | :------------ | | Yield/Cost - Loans and leases, including fees | 6.02 % | 5.84 % | | Yield/Cost - Total interest-earning assets | 5.61 % | 5.44 % | | Yield/Cost - Total interest-bearing deposits | 2.93 % | 3.19 % | | Yield/Cost - Total interest-bearing liabilities | 2.98 % | 3.26 % | | Net interest income, taxable equivalent | $79,272 | $64,979 | | Tax equivalent net interest margin | 3.25 % | 2.91 % | Asset Quality and Performance Ratios This section provides detailed asset quality metrics and key performance ratios, both GAAP and Non-GAAP, offering insights into the company's operational efficiency and profitability Asset Quality and Additional Loan Data (Selected Quarters, $ thousands) | Asset Quality and Additional Loan Data | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :------------------------------------- | :------- | :------- | :------- | :------- | :------- | | Nonperforming loans and leases | $7,921 | $7,807 | $7,872 | $9,491 | $6,642 | | Total nonperforming assets | $10,462 | $10,365 | $10,088 | $12,619 | $9,975 | | Net charge-offs to average loans and leases (annualized) | 0.01 % | 0.01 % | 0.02 % | 0.15 % | 0.05 % | | Allowance for credit losses to loans and leases | 0.96 % | 0.96 % | 0.96 % | 0.96 % | 0.97 % | | Nonperforming assets to total assets | 0.19 % | 0.19 % | 0.19 % | 0.26 % | 0.20 % | Selected Performance Ratios (Annualized) | Selected Performance Ratios (Annualized) | Jun 2025 | Mar 2025 | Dec 2024 | Sep 2024 | Jun 2024 | | :--------------------------------------- | :------- | :------- | :------- | :------- | :------- | | Return on average assets | 0.88 % | 0.87 % | 0.75 % | 0.74 % | 0.66 % | | Return on average shareholders' equity | 9.19 % | 9.17 % | 7.84 % | 7.60 % | 6.90 % | | Efficiency ratio | 66.14 % | 68.96 % | 68.98 % | 69.83 % | 72.25 % | | Operating return on average assets | 0.88 % | 0.87 % | 0.75 % | 0.74 % | 0.64 % | | Operating efficiency ratio | 65.66 % | 68.46 % | 68.58 % | 69.28 % | 72.13 % | | Net interest margin, FTE | 3.29 % | 3.21 % | 3.24 % | 3.11 % | 2.97 % | | Net income, diluted | $0.69 | $0.67 | $0.57 | $0.54 | $0.48 |