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 earnings exceeding $51 million for the year [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 [7][8] 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 loan-to-deposit ratio at quarter-end was 85%, indicating a strong liquidity position [12] - Non-performing assets comprised only 0.22% of total assets, reflecting strong asset quality [14] Company Strategy and Development Direction - The company plans to expand into the Columbus, Georgia market, leveraging existing relationships and local banking expertise [10][11] - The focus remains on organic growth, with a target of high single-digit growth rates for loans and deposits in 2026 [19][25] - The company aims to achieve a $4 EPS run rate by the end of 2026, emphasizing disciplined expense management and operational efficiency [22][63] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining strong growth and profitability, with expectations for continued positive operating leverage [18][21] - The company anticipates stable net interest margins and a gradual increase in the allowance for credit losses as they transition to a new allowance model [15][17] - Management highlighted the importance of recruiting talent that aligns with the company culture to support growth initiatives [25][46] Other Important Information - The operating efficiency ratio improved to 60%, down from 64% in the previous quarter, due to margin improvement and expense management [16] - The company remains well-capitalized, with a total consolidated risk-based capital ratio of 12.67% [17] Q&A Session Summary Question: Sustainability of Loan Growth - Management indicated that while double-digit growth was achieved in 2025, they expect to target high single-digit growth rates in 2026 as the balance sheet expands [24][25] Question: Expense Growth Rate - The company expects overall expense growth to be around 5% year over year, targeting a range of $34.5-$35 million [27][29] 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 stabilize around 3.40%-3.45% [34][36] Question: Hiring Plans in Columbus - The initial hiring in Columbus will depend on finding the right talent, with no significant impact on expense growth anticipated [45][48] Question: M&A Strategy - Management stated that they are focused on organic growth and would only consider M&A if a unique opportunity arises [49][50]