SmartFinancial Earnings Call Highlights Profitable Growth Ahead

SmartFinancial, Inc. ((SMBK)) has held its Q4 earnings call. Read on for the main highlights of the call.

SmartFinancial’s Earnings Call Signals Strong Growth With Manageable Risks

SmartFinancial, Inc. struck an upbeat tone on its latest earnings call, underscoring a year of record profitability, accelerating revenue growth and solid credit performance, while acknowledging a handful of contained headwinds. Management highlighted strong organic loan and deposit growth, expanding margins and a sharp improvement in efficiency, all backed by pristine asset quality metrics. The few negatives discussed—tied mainly to a niche loan segment, slight yield compression and seasonal expense bumps—were framed as manageable and already being addressed, leaving investors with a predominantly positive story.

Record Earnings Underscore Momentum

SmartFinancial reported record full-year 2025 earnings of more than $51 million, capped by robust fourth-quarter operating earnings of $13.7 million, or $0.81 per diluted share. The results reflect both top-line growth and disciplined cost control as the bank scales its franchise. Management emphasized that these earnings are being driven by core operations rather than one-time items, a point that supports the durability of the current run rate and underpins confidence in long-term performance.

Tangible Book Value Climb Signals Balance Sheet Strength

Tangible book value per share reached $26.85, rising more than 13% on an annualized basis quarter-over-quarter and 17% for the full year. This steady growth in shareholder equity reflects retained earnings and prudent capital management. For investors, the tangible book value trajectory is a key indicator that the company is not only growing earnings but also building intrinsic value per share, which can support the stock over time.

Broad-Based Loan and Deposit Growth

Loan growth remained a standout, increasing at a 13% annualized pace quarter-over-quarter, with net balances up $457 million, or 12%, for the year. On the funding side, core deposits rose by $626 million, a 14% increase when excluding brokered CDs. This combination of healthy loan demand and strong core deposit gathering suggests SmartFinancial is gaining share in its markets while maintaining a balanced, relationship-based growth profile—key for sustaining margins and managing funding costs.

PPNR Expansion Highlights Earnings Power

Pre-provision net revenue (PPNR) climbed from $14.5 million in the fourth quarter of 2024 to a record $20.9 million in the fourth quarter of 2025, a 44% year-over-year jump. This metric strips out credit costs and shows the underlying earnings capacity of the franchise. The sharp increase demonstrates that the bank’s revenue engine—spread income plus fees—is scaling faster than expenses, providing a larger cushion to absorb credit or rate shocks and still drive EPS growth.

Net Interest Margin Rebound and Funding Cost Tailwinds

SmartFinancial’s net interest margin (NIM) improved by 13 basis points to 3.38% in the quarter, supported by a meaningful drop in funding costs. Interest-bearing deposit costs fell 19 basis points to 2.79%, and new deposit production came in at 2.60%, down a striking 87 basis points from the prior quarter. Management guided to a first-quarter 2026 NIM of 3.40%–3.45%, with a goal of reaching roughly 3.50% or higher by year-end, indicating further upside if funding trends continue to improve.

Reducing Brokered Funding and Upgrading Deposit Mix

The company continued to reshape its funding base, growing non-broker deposits by $214 million—nearly 18% on an annualized basis—while paying down $112 million of higher-cost brokered deposits carrying an average rate of about 4.27%. Another $44 million reduction is planned in the first quarter, which will leave only around $8 million in brokered balances. This shift toward lower-cost, core relationship deposits should further support NIM expansion and reduce sensitivity to wholesale markets.

Efficiency Gains and Expense Discipline

Operating noninterest expenses were essentially flat at $32.5 million, while the operating efficiency ratio improved to 60% from 64% in the prior quarter. Management reiterated a target of roughly 5% year-over-year expense growth and guided first-quarter consolidated noninterest expense to $33.5–$34 million. These numbers suggest SmartFinancial is investing in growth without allowing costs to outpace revenues, a combination that enhances profitability and operating leverage over time.

Asset Quality Remains a Key Strength

Credit quality remains a bright spot, with nonperforming assets at only 0.22% of total assets and net charge-offs just 8 basis points of average loans for 2025. The allowance for credit losses stood at 0.94% of total loans at quarter-end, leaving a solid reserve buffer. Management emphasized that credit trends across the core portfolio remain benign, which supports the bank’s ability to grow loans without taking on outsized risk.

Capital and Liquidity Positioned for Continued Growth

SmartFinancial remains well capitalized, with a consolidated risk-based capital ratio of 12.67% and a tangible common equity ratio that improved 15 basis points to 7.9%. The loan-to-deposit ratio stands at a conservative 85%, and securities are expected to remain around 11%–12% of assets. This balance sheet configuration provides ample liquidity and flexibility to support further loan growth while staying within regulatory and internal risk limits.

Noninterest Income Adds Valuable Diversification

Operating noninterest income reached $8.2 million in the fourth quarter, beating internal expectations. The upside came from strong mortgage banking revenue and healthy customer swap fee income from the Capital Markets business. This revenue diversity reduces reliance on spread income alone and gives SmartFinancial additional levers to support earnings when interest-rate dynamics are less favorable.

Geographic Expansion and Talent Hires Fuel Organic Growth

Strategic expansion remains central to SmartFinancial’s growth story. The company announced plans to enter the Columbus, Georgia market with experienced local bankers, while continuing to recruit talent across core markets such as Nashville and Birmingham. Management positioned these hires as key drivers of future loan and deposit growth, reinforcing the bank’s emphasis on relationship banking and market-by-market share gains.

Isolated Credit Pressure in Fountain Equipment Loans

While overall asset quality is strong, SmartFinancial did flag a pocket of credit pressure in a small fountain equipment loan portfolio. Provision expense included roughly $2.4 million tied to this segment, contributing to a total provision of $4.1 million, including $408,000 for unfunded commitments. Management responded by adding to reserves to fully cover this exposure, stressing that the issue is limited in scope and not indicative of broader credit deterioration.

Yield Compression on Loans and Interest-Earning Assets

Despite margin improvement driven by funding costs, yields on interest-earning assets fell 3 basis points in the quarter, and loan yields declined about 6 basis points, even though new loan production carried a healthy 6.58% yield. This modest compression could exert pressure on NIM if funding costs stop falling. Investors should watch this dynamic, as further margin gains will depend on the interplay between asset yields and the pace of repricing on deposits and borrowings.

Seasonal and Structural Near-Term Expense Pressures

Management flagged near-term cost pressures, particularly in the first quarter of 2026, with noninterest expense guided to $33.5–$34 million and salary and benefit costs expected between $20.5 million and $21 million. Drivers include annual merit increases, payroll tax resets, variable compensation and new hires. The shorter first quarter is expected to result in slightly flatter operating leverage, but the team reiterated its focus on keeping overall expense growth near 5% for the year.

Allowance Model Update to Modestly Lift Reserves

The company plans to transition to a new allowance for credit losses model by the end of the first quarter, which is expected to nudge the ACL ratio up by a few basis points from the current 0.94% of loans. While this will modestly increase provision needs, management framed the change as largely model-driven rather than reflective of worsening credit. For investors, the takeaway is a slightly more conservative reserve stance, not a material shift in risk profile.

Margin Outlook Tied to Stable Rate Environment

SmartFinancial’s margin and funding outlook assumes a relatively steady interest rate backdrop. Management acknowledged that significant rate moves or unexpected changes in deposit behavior could temper NIM expansion. The current guidance for continued funding cost declines and a march toward a 3.50%+ margin by year-end is therefore somewhat market-dependent, underscoring the importance of macro conditions alongside the bank’s internal execution.

Guidance: Steady NIM Builds, Loan Growth and EPS Ambition

Looking ahead to 2026, SmartFinancial guided to a first-quarter NIM of 3.40%–3.45%, with funding costs expected to decline another 17–18 basis points, and modest further NIM expansion to around 3.50% or higher by year-end. The bank is targeting high-single-digit loan growth of roughly 8%–9% annualized and plans to keep the securities portfolio at about 11%–12% of assets. First-quarter operating noninterest income is forecast at about $7.6 million, with noninterest expense of $33.5–$34 million and full-year expense growth around 5%. Management expects core deposit strength to continue, with noninterest-bearing deposits stabilizing near 19% of total deposits, and will push ahead with another $44 million reduction in higher-cost brokered deposits, leaving only about $8 million in such funding. Liquidity is set to remain solid with a loan-to-deposit ratio near 85%, and the updated allowance model is expected to push reserves up a few basis points. Importantly, the company reiterated its longer-term goal of achieving a $4.00 EPS run-rate by the end of 2026, signaling confidence in its growth and profitability trajectory.

In sum, SmartFinancial’s latest earnings call painted a picture of a bank in strong operating health, with record earnings, rising tangible book value, expanding PPNR and excellent credit metrics. While isolated credit issues, slight yield pressure and near-term expense bumps present some watch points, they appear contained relative to the broader growth and margin story. For investors focused on regional bank names, SmartFinancial’s combination of disciplined balance sheet management, profitable growth and clear earnings targets stands out as a constructive setup heading into 2026.