SmartFinancial(SMBK) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The tangible book value increased to $26.85 per share, representing over 13% annualized growth quarter over quarter and 17% for the year [5] - Operating earnings for the quarter were $13.7 million or $0.81 per diluted share, with record annual earnings exceeding $51 million [5] - Total operating revenue for the quarter was $53.3 million, with pre-provision net revenue growing from $14.5 million in Q4 2024 to a record $20.9 million in Q4 2025, a 44% year-over-year increase [6] Business Line Data and Key Metrics Changes - Loan growth was 13% annualized quarter over quarter, with an average portfolio yield of 6.08% [9] - Deposits increased by 8% annualized, with core deposit balances growing by $626 million or 14% for the year, excluding brokered CD activity [9] - Operating non-interest income reached $8.2 million, driven by elevated mortgage banking revenue and customer swap fees [15] Market Data and Key Metrics Changes - Non-brokered deposits grew by $214 million, nearly 18% annualized, with interest-bearing deposit costs declining to 2.79% [11] - The net interest margin increased by 13 basis points to 3.38%, primarily due to a reduction in funding costs [12] - Non-performing assets comprised only 0.22% of total assets, indicating strong asset quality [14] Company Strategy and Development Direction - The company plans to expand into the Columbus, Georgia market, leveraging existing relationships and market opportunities [10] - The focus remains on organic growth, with a target of high single-digit growth rates for 2026 [19] - The company aims to maintain a strong liquidity position while reducing reliance on expensive wholesale funding [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving a $4 EPS run rate by the end of 2026, emphasizing the importance of continued execution and organic growth [21] - The company anticipates maintaining strong credit quality and a stable operating environment, with expectations for net interest margin to remain in the 3.4%-3.45% range [13][19] - Management highlighted the importance of recruiting talent that aligns with the company culture to support growth initiatives [24] Other Important Information - The allowance for credit losses was 0.94% of total loans, with expectations for a slight increase as a new allowance model is implemented [15] - Operating efficiency ratio improved to 60%, down from 64% in the previous quarter, reflecting continued expense management [16] - The company remains well-capitalized, with total consolidated risk-based capital at 12.67% and tangible common equity ratio improving to 7.9% [17] Q&A Session Summary Question: Sustainability of Loan Growth in 2026 - Management indicated that while double-digit growth was achieved in 2025, they expect to target high single-digit growth rates in 2026, estimating around 8%-9% [23] Question: Core Expense Growth Rate - The company expects overall expense growth to be around 5% year over year, targeting a range of $34.5-$35 million for the year [27] Question: Net Expansion and Loan Repricing - Management believes that as long as rates remain stable, net expansion can continue, with expectations for net interest margin to reach around 3.50% by year-end [33][40] Question: Hiring Plans in Columbus - The company plans to recruit talent in Columbus without a material impact on expense growth, balancing hiring with production [41] Question: M&A Strategy - Management reiterated that they are focused on organic growth and would only consider M&A if a unique opportunity arises [43]