Earnings call transcript: SmartFinancial beats Q4 2024 earnings expectations

SmartFinancial Inc . (NYSE:SMBK) reported stronger-than-expected earnings for the fourth quarter of 2024, with earnings per share (EPS) of $0.57 surpassing analyst forecasts of $0.50. The company also exceeded revenue expectations, posting $46.83 million against the anticipated $44.31 million. Following the release, SmartFinancial's stock rose by 1.55% in premarket trading, reflecting investor optimism.

Key Takeaways

• SmartFinancial reported a significant EPS and revenue beat for Q4 2024.
• The company's stock increased by 1.55% in premarket trading.
• Strategic investments in technology and talent contributed to operational improvements.
• The firm projects continued margin expansion and revenue growth through 2025.
• Flat deposit growth and anticipated expense increases are potential concerns.

Company Performance

SmartFinancial demonstrated robust performance in the fourth quarter, bolstered by strategic investments in technology and talent. The company's net income reached $9.1 million, translating to $0.54 per diluted share. The implementation of platforms like Encino and Salesforce (NYSE:CRM) has enhanced operational efficiency, supporting its competitive position in the financial sector.

Financial Highlights

• Revenue: $46.83 million, exceeding forecasts by $2.52 million.
• Earnings per share: $0.57, $0.07 above expectations.
• Tangible book value increased to $22.67 per share, a 19% annualized growth.
• Net interest margin expanded to 3.11%.

Earnings vs. Forecast

SmartFinancial's Q4 2024 EPS of $0.57 outperformed the forecast of $0.50 by 14%. Revenue also exceeded expectations by 5.7%, continuing a trend of positive earnings surprises in previous quarters.

Market Reaction

Following the earnings announcement, SmartFinancial's stock price increased by 1.55% in premarket trading, reaching $32.68. This movement aligns with positive investor sentiment and the company's performance within its 52-week range of $19 to $37.72.

Outlook & Guidance

Looking ahead, SmartFinancial aims to achieve $50 million in quarterly operating revenue by the end of 2025. The company anticipates further net interest margin expansion and plans to maintain a competitive loan yield. However, a projected 5-7% increase in expenses could impact future profitability.

Executive Commentary

CEO Billy Carroll remarked, "We are seeing the inflection and the movement in our numbers," highlighting the company's growth trajectory. CFO Ron Grodzinski added, "We will be creating that operating leverage throughout 2025," indicating a focus on efficiency and profitability.

Q&A

During the earnings call, analysts inquired about loan growth expectations and deposit strategies. Management addressed concerns regarding commercial real estate concentration and potential impacts from recent hurricanes in Eastern Tennessee markets.

Risks and Challenges

• Flat deposit growth may hinder future expansion.
• Anticipated expense growth could pressure margins.
• External factors, such as natural disasters, pose operational risks.
• Competitive pressures in the financial sector require ongoing innovation.
• Economic fluctuations may affect interest rates and loan demand.

Full transcript - SmartFinancial Inc (SMBK) Q3 2024:

Ezra, Conference Coordinator: Hello all and welcome to Smart Financial Third Quarter 20 24 Earnings Release and Conference Call. My name is Ezra and I will be your coordinator today. I will now hand you over to your host, Nate Stroud, Director of Strategy to begin. Nate, please go ahead.

Nate Stroud, Director of Strategy, Smart Financial: Thanks, Ezra, and good morning, everyone, and welcome to the Smart Financial's Q3 2024 earnings conference call. During today's conference call, we will reference the slides and press release that is 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 Grodzinski, our Chief Financial Officer, who will provide some additional commentary. We will be able 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, as except may be required by law. During the call, we will reference non GAAP financial measures related to the company's performance. You will see the reconciliation of these measures in the appendices of the earnings release and investor presentation filed on October 21, 2024 with the SEC.

And now I'll turn it over to Billy Carroll, our President and Chief Executive Officer to open our call. Billy?

Billy Carroll, President and Chief Executive Officer, Smart Financial: 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 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 and A. So let's jump right in.

We really had a nice quarter and executed on what we've been messaging. We posted net income GAAP and operating of $9,100,000 for the quarter or $0.54 per diluted share. I'm proud of the way our team is performing, and I'm excited to watch us gain operating leverage as we've anticipated. We had a couple of pennies of boost from a tax strategy as well that we implemented. But even without that, we had outstanding earnings trajectory.

Jumping into the highlights, I'll be referring to the first few pages in our deck, Pages 3, 45. 1st, and in my opinion, one of the most important metrics, we continue to increase the tangible book value of our company, moving up to $22.67 per share including the impacts of AOCI and $23.69 excluding that impact. That's a 19% annualized quarter over quarter increase including AOCI movement and 9% excluding it, very nice tangible book growth. Looking

: at

Billy Carroll, President and Chief Executive Officer, Smart Financial: the graph on the lower right on Page 5, you'll see the value increase we continue to deliver for our shares. We again had a very solid loan growth quarter, over 16% annualized and that's coming off an 11% annualized prior quarter. We saw continued growth in new relationships as well as an increase in funding online. On the deposit side of the balance sheet, we used the quarter to reposition some funding. We had an opportunity to exit a public funds relationship we felt had gotten a little larger and a little more costly than we had wanted.

So we leveraged our strong liquidity position and utilized a wholesale funding ladder to fill the gap. Net of that account and wholesale adjustments, core growth was over 5%. So when we drill down on deposits, we had a very nice core growth quarter and continue to bring in some outstanding relationships. We also saw our overall cost tick down to 2.54%. Our history of strong credit continues with the metrics holding very low at 26 basis points in NPAs.

Both NPAs and charge offs were just slightly higher than the prior quarter, but still extremely low. That movement continued to be a few lingering fountain equipment credits we've worked through in our equipment finance subsidiary. That group continues to be a very profitable arm for us and we anticipate those isolated items slowing soon. Total (EPA:TTEF) revenue came in at $44,100,000 and net interest income continued to expand with an inflection point we've discussed. We also had a stronger than expected noninterest income quarter that Ron will talk about in a bit.

Noninterest expenses were just slightly up at $30,800,000 I still feel very good that we can hold our expense growth to very reasonable levels as we look forward. The operating leverage we've talked about on prior calls is starting to happen as we continue to grow the revenue line with minimal investments on the expense end. Looking at the chart on Page 5, highlighting the operating PPNR slide, the movement up has started after a couple of flattish quarters. We're looking forward and expecting to see that trend continue. So just a couple of additional high level comments for me on growth.

We're very pleased with the results. On the loan side, we were up $114,000,000 again, about 16% annualized for the quarter and over 10% annualized year to date. Our regional sales teams are doing a very nice job growing our clients. Yields on the loan side expanded with the full portfolio's average loan yield up 15 basis points to 5.95 percent, and our loan mix was almost identical to the Q2. I mentioned the remixing of the deposit side.

I really like the work we've done here, particularly this quarter leveraging our position of strength to move out of larger, chunkier deposits to lower our overall cost and focus on replacing with more granularity. We pushed the loan to deposit ratio up to 86%, which is a nice spot for us. We also continued to hold our non interest bearing mix around 20%, not an easy feat in this environment. Our balance sheet pipelines feel very solid and I'm still holding to our past guidance of mid to high single digits on growth as we look at a couple of quarters. Even though we've been able to beat that so far this year, I also think we can pace deposits to organically fund this growth.

Also, kudos to Ron and his finance team as well as their tax advisors on executing a nice strategy that should lower our go forward tax rate. That should be a nice little tailwind added as well. So let me go and hand it over to Ron to dive into the details. Ron?

Ron Grodzinski, Chief Financial Officer, Smart Financial: Thanks, Billy, and good morning, everyone. I'll start by highlighting some key deposit results. As Billy had mentioned, during the quarter, the bank significantly reduced its exposure to a larger public fund relationship. While this was a tough decision due to our desire to support municipalities where we do business, the account was highly interest rate sensitive and service quality intensive rather than fee driven. As a result, the bank made a strategic decision to minimize this relationship and pursue temporary more cost effective brokered funding.

Our total deposits remained flat linked quarter at $4,300,000,000 which includes $195,000,000 of broker deposits added to offset the reduction from the previously mentioned relationship. Excluding this relationship impact, deposits grew over $50,000,000 during the quarter and the weighted average cost of non broker production was 3.66%. Total interest bearing cost for the deposit portfolio decreased 3 basis points to 3.20 percent and were 3.08 percent for the month of September. Non interest bearing deposits to total deposits remain relatively in line with previous quarters at 20%. In the future, we anticipate replacing our temporary broker deposits with core deposits as client liquidity balances build and our relationship managers continue to win net new deposit business.

Our net interest margin expanded quarter over quarter, increasing 14 basis points to 3.11 percent. This expansion is attributable to several factors, including the previously mentioned deposit repositioning efforts and the favorable 7.40 weighted average yield on new loan originations, resulting in a total portfolio yield increase to 6.02%, which includes accretion and fees for the quarter. Looking ahead, we expect consistent margin expansion into 2025, primarily driven by new loan production, lower yielding fixed and adjustable rate loan amortization and maturities and the Bank's liability sensitive interest rate position. The Bank's balance sheet is in a strong position for enhanced profitability in the event of any future Fed rate cuts. As a result of these factors and current market conditions, we anticipate a margin in the 3.1% to 3.15% range.

Our quarterly provision expense for credit losses were elevated, primarily as a result of higher than forecasted loan growth and a slight increase in charge offs stemming from our equipment finance division. Overall, the bank's asset quality remains very strong with non performing loans to total loans at 0.26%. Operating non interest income for the quarter reached $9,100,000 reflecting solid performance across all categories. Notably, the bank generated significantly higher income from customer swap transactions and investment services, which rose by $940,000 $579,000 respectively. Operating expenses were $30,800,000 slightly elevated from our previous guidance.

The increase was primarily attributable to increases in our performance based incentive accruals and commissions and the hiring of several commercial sales team associates. Moving forward, we will continue our focus on expense control as part of our ongoing cost management efforts. Looking ahead to the Q4, we are forecasting non interest income in the mid to high $7,000,000 range and non interest expense in the range of $31,000,000 to $31,500,000 with salary and benefit expenses comprising $19,000,000 to $19,500,000 as accruals for performance based incentives fluctuate. Additionally, during the quarter, the bank established a newly formed real estate investment trust subsidiary to monitor and manage the performance of certain real estate loans and to create a more tax favorable structure. The REIT subsidiary will result in a lower effective tax rate during future periods by lowering the bank's state income tax expense.

As a result, we anticipate a future corporate effective tax rate of approximately 20%. I'll conclude with capital. The company's consolidated TCE ratio increased 33 basis points to 8.0 percent and total risk based capital ratio decreased slightly by 5 basis points to 11.6%. Overall, we continue to be in a well capitalized position with an optimistic credit and earnings outlook. With that said, I'll turn it back over to Billy.

Billy Carroll, President and Chief Executive Officer, Smart Financial: Thanks, Ron. I want to reiterate again the value proposition with our company, drawing your attention back to Page 7 of our deck. We've been on the road a lot in 2024, reminding our investors and our stakeholders of what we've accomplished recently. We are seeing the inflection and the movement in our numbers, and we have clear vision of our return targets after absorbing the investments we've made. When you look at the franchise we're building, we're in arguably some of the most attractive markets in the country and have put together a team that is moving this company forward in a great way.

What I saw this quarter from our sales teams was really, really good and a byproduct of the work we've done this year on our sales and prospecting process. We're now leveraging the functionality of our Encino platform and utilizing the sales force front end to consistently create a stronger prospecting process for our sales team. And we're also leaning on the pricing profitability systems to coach our teams in the value of full relationships. The regional presence structure we have and the accountability we're putting on those zones is really starting to bear fruit. We are continuing to look to add sales talent that fits our culture.

We've added 15 new sales team members this year and have several currently in our talent pipeline. We're adding some outstanding regional bankers to our team as I believe we continue to be one of the region's banks of choice for great bankers. I also want to mention the execution of our operations group. Our ops teams are doing some great work as they refine our back of the house and move to KPI driven workflows and management. It's things like this that people don't see that we'll be paying big dividends for us as we look ahead.

So to summarize, I love where we're sitting. We are executing, growing our revenue line and gaining the operating leverage we are expecting. Margin is expanding back. Credit continues to be very sound, and we're seeing great new client growth and the sales energy is outstanding. All said, a very nice quarter for our company as we continue to build a profitable and attractive franchise.

I appreciate the work of our Smart Financial, Smart Bank team and the efforts of our near 600 associates. This team is continuing to perform well and build a great culture as evidenced by our recent Great Place to Work certification. I'm very proud of what we have going on here at SNDK. So we'll stop there and open it up for questions.

Ezra, Conference Coordinator: Thank you very much. We'll Our first question from Russell Demeter with Stephens. Russell, your line is now open. Please go ahead.

Russell Demeter, Analyst, Stephens: Hi, good morning guys.

Billy Carroll, President and Chief Executive Officer, Smart Financial: Good morning. Good morning, Russell.

Russell Demeter, Analyst, Stephens: My first question would be good morning.

Analyst: My first question would be on loan growth. So I appreciate all of the color, as well as the expectations over the next couple of quarters for mid to high single digits. You've certainly out punched that over the past 2. So wondering if you could just share whether it's a sense of conservatism built in to the near term outlook. Are you expecting an acceleration or normalization of pay downs that might weigh?

Just trying to piece together the outlook relative to what has been a much stronger result over the last couple of quarters.

Billy Carroll, President and Chief Executive Officer, Smart Financial: Yes. I'll start and then I'll ask Brett to give a little color too, Russell. Yes, for us, the growth has been really solid. We've had 2 back to back and really Q1 went bad, really. We had 2 really back to back nice quarters.

I think as we look, I think you always anticipate we didn't we had some payoffs and paydowns this quarter. We were able to kind of get through that and still post a great growth quarter. But I think we always try to anticipate some additional paydowns. If we don't get some paydowns, we could be a little bit higher. But I think just trying to be conservative in our projections and in our estimates and our guidance is where we like to stay.

But as I mentioned, the sales teams are doing a nice job. And Rick, you might give some color on kind of what you're seeing in the pipeline as well as you look ahead in the next few months.

Rick: Yes. Billy, I think you're right on. I mean, our pipelines continue to stay relatively strong quarter to quarter. Even as we close what was in the pipeline, we're seeing consistent new activity rolling into the pipeline for future periods. So we're very optimistic that that trend will continue.

I think a lot of that is just supported by just strong economics in the footprint we operate in. Our markets are continuing to do well. Our clients are continuing to do well. And so as we progress towards the end of the year, the Q1, we still are seeing quite a bit of new opportunity requests coming through the different markets. It's very spread across our geography.

We're not really concentrated in any particular segment of our footprint. All of our markets are seeing good strong activity. And then on the payoff side, to Billy's point, we had a little higher volume of that earlier in the year than we've seen in the really the past quarter. Mike, we have a few more coming in Q4. It's always a possibility.

We do have still a very robust real estate market in our footprint. So our clients are seeing opportunities to sell assets here and there. And so we do get payoffs from time to time primarily from asset sales by our client. But we still feel optimistic about these projections.

Analyst: That's great color guys. I really appreciate it. And then switching gears to the margin, another really good result this quarter. You laid out an expectation for the NIM, I believe, call it $310,000,000 to $315,000,000 And was just curious if that is a near term Q4 projection or does that extend into 2025? And with that, if you could just give us a sense of what your Fed cut projections are as well as how you'd expect the deposit beta to trend as rates reduce?

Billy Carroll, President and Chief Executive Officer, Smart Financial: Yes. Ron, you want to take that?

Ron Grodzinski, Chief Financial Officer, Smart Financial: Sure. Yes. Our 3.10% to 3.14% margin is excuse me, 3.15% margin is for 4th quarter. As we said last call, our trajectory is such that we're expecting margin expansion throughout 2025 with or without a rate cut. With that said, we're looking at our rates up beta.

We probably were in the 45%, 50% range. Our goal was we'll probably see the same on the downward side. Well, at this point, we're modeling near 40% beta on the way down. We're not giving 2025 guidance. There's still a lot of variables and bouncing items, but we still feel very strong of our trajectory going forward.

Ezra, Conference Coordinator: Our next question is from Brett Rabatin with Hovde Group. Brett, your line is now open. Please go ahead.

Russell Demeter, Analyst, Stephens: Hey, good morning, everyone. Wanted to start on fee income. Hey, guys. Wanted to start on fee income and just obviously really good quarter on swaps and investment product this quarter. Any thoughts on just the strength of those two items in 3Q?

And then obviously with the guidance in the 4th quarter, is were those kind of onetime nature transactions? Or just any thoughts on those businesses specifically going forward?

Billy Carroll, President and Chief Executive Officer, Smart Financial: Yes. Fred, I'll start and then I'll hand it over to Ron to maybe talk a little bit about kind of the onetime versus continuing. I think for us and we've talked about it on some prior calls, but from the investment side, I'll start there. The investment side has been really good as we continue to really add some talented financial advisors to our platform over the last couple of years and getting those folks kind of up on plane, we're seeing that consistency in our Smart Bank Investments group continue to grow. We're doing a nice job in cross selling that into our private banking pipeline now.

So it's nice to see that AUM grow and we've moved to a more of a fee based versus transactional base in that business over the last couple of years. So I think we feel good about that continuing as long as the end market obviously has been good. So that doesn't hurt as well. But overall, the investment side, we continue to be bullish on. We think there's some consistency in that number as we move forward.

I'll let Ron talk a little bit about swaps as he works primarily with the capital market. That one's a little more of a function of what rates and kind of what some of the curves are doing as to lengthening some of these terms to get some attractive fixed rates. But Ron, do you want to talk about that and maybe thoughts around that swap fee and what that might look like looking ahead?

: Yes, sure.

Ron Grodzinski, Chief Financial Officer, Smart Financial: Right now, we did came down our non interest income projection. We did have an excellent third quarter. Swaps for Q3, we had a lot of opportunities due to our loan originations and the shape of the inverted yield curve led us to place more swaps. We won't be doing $1,000,000 plus Q4. We do have a pipeline, but not as strong as what we've seen in Q3.

So other than that, we don't see any other opportunities at this point that will really lead to a higher non interest income as what we've seen in Q3.

Russell Demeter, Analyst, Stephens: Okay. That's helpful. And then just on deposits, can you guys maybe you talked about growing core deposits to replace some brokered CDs. Can you maybe just talk about initiatives on the deposit front and just, if you've already lowered deposit rates, what you're seeing maybe competitively in some of your key markets?

Billy Carroll, President and Chief Executive Officer, Smart Financial: Yes. I'll take that. And guys, anybody can chime in. Yes, I think what we've seen and we do we feel very good about our ability to grow deposits. As I commented earlier, we really had a nice core deposit growth quarter.

It was masked a little bit by just some of the mix shift that we did. And so as we've really started working our teams, our sales teams are doing a nice job of bringing in both sides of the balance sheet. Obviously, we were in a position of strength at the beginning of the year with some with a little bit of a stronger liquidity position. We've been able to leverage that a little bit in 2024. So kind of looking ahead for us, we're going to continue to really try to balance it.

We need to we want to grow the deposit side, but we also want to do it conscious of where the rate environments are. So we're fortunately from a competitive standpoint, you're still seeing some what offs and some outliers do some above market pricing. But for the most part, it feels like that a lot of that is settling down in some of the markets. So we've been able to push our rates down. I think we can continue to do that if fed cuts continue.

But from our standpoint, I think we're just going to really try to strike this right balance of getting the growth and doing it at the right rate levels. But Ron, any thoughts you've got around that? You're working on the deposit pricing groups day to day.

Ron Grodzinski, Chief Financial Officer, Smart Financial: Yes. We've I think we're finishing up on a deposit promo now. We took the opportunity to lower some of our high tier deposits and we didn't get much client pushback. Again, we are really still in market rates. Our reductions are roughly in line with Fed cuts and we haven't really got much pushback on that.

And again, the momentum of the sales team on where deposits are coming from is pretty positive.

Billy Carroll, President and Chief Executive Officer, Smart Financial: Yes. Well, and Brent, I'll add too. I think that's one of the things and we've been talking about it a lot is we're starting to do our forecasting for 'twenty five is continue to focus on that and put more emphasis on that and our producer incentive plans and those things. So that's the reason we continue to feel very optimistic there. Our team members, the bankers that we've hired understand selling both sides of the balance sheet.

And I'm really pleased with how that's going and kind of what that outlook appears

: to be.

Analyst: Okay. Great. Appreciate all the color.

Billy Carroll, President and Chief Executive Officer, Smart Financial: Thanks, Brent. Thanks.

Ezra, Conference Coordinator: Our next question is from Steve Moss with Raymond (NSE:RYMD) James. Steve, your line is now open. Please go ahead.

: Hi. Good morning, guys.

Billy Carroll, President and Chief Executive Officer, Smart Financial: Good morning, Steve.

: Starting

Ron Grodzinski, Chief Financial Officer, Smart Financial: here on morning, start on

Billy Carroll, President and Chief Executive Officer, Smart Financial: loan pricing here, just kind

Steve Moss, Analyst, Raymond James: of curious, we've had fair amount of volatility in the 5 year and obviously expectations around more Fed rate cuts. Curious as to where you're seeing new loans priced today and any color you can give there?

Billy Carroll, President and Chief Executive Officer, Smart Financial: I'll start and then guys just any anecdotal color you can give. Obviously, with the cut, we've seen a little bit of reduction in ongoing yields. Overall, we're doing a pretty good job of holding the rate levels. I think, obviously, competition is going to impact that. The Fed cut had a little bit of an impact.

So we're seeing, especially the variable rates, pricing on spread, the variable numbers are coming down a little bit. But overall, we think we can continue to hold reasonable levels. Ron, I don't know if you've got any color on kind of what you're seeing kind of going on here just in the last few weeks. But a little bit lower, I think, but overall still pretty solid.

Ron Grodzinski, Chief Financial Officer, Smart Financial: Yes. As I referenced, for the quarter, originations were in the 7.40 range. But for September, we're prior 10 basis points less. So we'll probably see that. I do believe for the probably the remainder of the quarter, we should probably see above 7% range.

So we'll see a little bit of decreasing rates, but not looking at much at this point in time.

Steve Moss, Analyst, Raymond James: Okay, great. Appreciate that. And then I guess my other question here, just curious, I know you guys talked a lot about building positive operating leverage and definitely seeing this quarter's results, you're showing momentum there. Just curious as you head towards $4,500,000 if you're thinking of any investments or any additional talent, just kind of your thought process around expenses here?

Billy Carroll, President and Chief Executive Officer, Smart Financial: Ron, I mean, we again, I don't think we're trying to we're currently working through our final forecasting and budgeting for 'twenty five, but really not a lot, Steve. I think for us, we've messaged that we're just kind of we're hunkered down to make sure that we can drive the growth. We'll have some just overall cost of just inflation and contract increases and things along those lines. So but that we think that should be pretty minimal. I think the increases that we'll see going into 'twenty five will be probably more on the talent side of the house, if anything.

But I think overall, I think we can hold these expense lines in a pretty reasonable range as we look into 'twenty five, again, allowing the balance sheet time to kind of reset with rates, get this new production on, let some of the lower rate stuff that's on there roll off and amortize down. So when you look at when we look out in the latter part of 'twenty five and especially as you look we start to kind of glimpse into 'twenty six now, we feel really good about where we can go with this operating leverage. I don't know, Ron, any additional color there?

Ron Grodzinski, Chief Financial Officer, Smart Financial: No. You said it all. We will produce I look at it as a percentage of expense to net revenue. We will be creating that operating leverage throughout 'twenty five and going forward. So operationally, we're in great shape.

So as you said, just our ability to execute.

Rick: Good quality bankers are always being recruited and welcomed.

Billy Carroll, President and Chief Executive Officer, Smart Financial: Yes. Well, and I think that is and I think that's a great point, Miller. I think and we are. I mean, we're saying again we're selective. We're very selective in our recruiting.

I mean and we've always been that way, and we're going to continue to be that way. But we're always looking for great opportunities to bring in folks that fit our culture. We've been able to find some of that this year. We asked to Miller's Point, we think we can continue to do that as we go forward. So we're going to continue to invest in key talent.

Quality versus quality. Yes, key talent. And we've never been ones that go out and just add tons of people. But if we can find good folks, we're going to look to add them. And we've been able to do that here over the last couple of quarters.

Steve Moss, Analyst, Raymond James: Okay, great. I really appreciate all the color and nice quarter.

Nate Stroud, Director of Strategy, Smart Financial0: Thank you. Thanks, Steve.

Ezra, Conference Coordinator: Thank you. Our next question is from Stephen Scouten with Piper Sandler. Stephen, your line is now open. Please go ahead.

: Hey, good morning, everyone.

Russell Demeter, Analyst, Stephens: Because on the expense

: side, just moving forward, you talked about a lot of any potential expense growth would come from new hires, which obviously should produce revenue as well. Is it fair to think about expense growth similar to the last couple of years, like 6%, 7% range? Again, I know you're not trying to give guidance, but is that just kind of a fair ballpark of what the franchise should trend towards over the long term?

Billy Carroll, President and Chief Executive Officer, Smart Financial: Ron, do you want to kind of give your thoughts around that?

Ron Grodzinski, Chief Financial Officer, Smart Financial: Yes, sure. Exactly that. Probably 5% to 7%, that's a good goal, a good range for that.

: Okay, great. Great. And then on the CRE concentration, I think if I was looking at that correctly, maybe up to 288%. Does that limit potential CRE growth from here at all? Or does it make you push into other verticals more so than you would have up to this point?

Just curious if that's a headwind at all to future growth?

Billy Carroll, President and Chief Executive Officer, Smart Financial: Yes. We've taken the advantage to add some good real estate loans to the portfolio over the last couple of quarters, and we see that. I'll let Rhett give some color there, Stephen. But overall, I don't view it as a headwind. Obviously, when we're doing that and we have, we're going to continue to do it.

We want to make sure that it's not transactional real estate, that it's full relationship type of CRE lending, which we've been able to do. And again, making sure it's priced accordingly. But Rhett, you want to give any color kind of on CRE growth? I think we anticipate having a little bit more of that and we see a little bit in the pipeline. Do you want to give any feedback?

Rick: Yes. I would say that we probably will see the metric tick up a little from where it is here today. We do certainly focus to manage that within the Fed guidance. That's always been a target of ours. And some of the growth is just the timing of different projects we do have.

We have some projects that will be completing funding and then either paying off as they sell it down or potentially transition out. So we are, I would say, maybe a little bit of backfilling there, knowing some of the projects that will transition out of the buckets in the near term. But I do think we'll still continue to see activity. The other upside there is because of the opportunities that we're seeing in space, it also adds our ability to continue to be very staunch in our credit standards. I mean, we're picking the best apples on the tree, so to speak, on the opportunities we're funding.

So we feel very good about what we are putting. Yes. That's

: really good color. Thank you for that. And then just last thing for me. I know we've talked about in the past, in past calls trying to reach towards a $50,000,000 operating number for 3Q 'twenty five in that range. Given the current environment, maybe where the Fed has moved, do you think there's any sort of timing impediment to getting to that number?

Or you still think that's an achievable path forward in the medium term?

Billy Carroll, President and Chief Executive Officer, Smart Financial: Yes. I definitely think so. I think as we forecast, obviously, rates, if rates stay rates don't move down at all, then might put a little bit of a headwind there. But really, no, that $50,000,000 revenue number that we kind of said publicly is something we're still shooting for the end of next year and on a quarterly run rate basis. And still feel very good about that.

I mean, obviously, we've got to continue to execute

: on

Billy Carroll, President and Chief Executive Officer, Smart Financial: leveraging this balance sheet and growing loans, growing deposits. But yes, no, I don't think there's anything that we're seeing right now that causes us to want to change the target dates on that.

Analyst: Perfect. Thanks, Billy. Appreciate all the time today.

Nate Stroud, Director of Strategy, Smart Financial0: Yes. Thanks, David. Thanks, David.

Ezra, Conference Coordinator: Our next question is from Christopher Marinac with Janney Montgomery Scott. Christopher, your line is now open. Please go ahead.

Nate Stroud, Director of Strategy, Smart Financial1: Thanks very much and thanks for hosting us all this morning. I wanted to get into kind of the net customer gains you've had this year because it clearly seems that you're picking up market share if you look cumulatively over the last 3, 4 quarters. And just kind of curious on how you see that and kind of how that can evolve the next year?

Billy Carroll, President and Chief Executive Officer, Smart Financial: Yes. It's a great comment, Chris. And yes, we are I think we're continuing to gain share in really all these zones. And a lot of it, I commented on it, it's just the sales side that we've really worked hard, the process that we put in place over the course of this year is really starting to take shape. So we're going out and we're looking at every one of our markets, every one of our regions.

We're identifying the clients that we want to go target. Now some of those sales cycles are longer. So yes, I mean we're working really hard on clients that we don't have in the pipeline today, but we feel very good about the ability to get them in the pipeline in 2025. And so I think you will continue to see our markets gain share and grow again. And Rhett alluded to this.

I think it's really an important point too. And it's not just our new stuff. We've got a lot of newer markets that we've added over the last couple of years and made some big investments in those markets. And those markets are really performing extremely well, but our legacy markets are also continuing to perform well. I think just as we're continuing to build this franchise, build our brand in these markets, especially with the size that we are now, I think we can operate from a position of strength in a number of these situations.

And it's really been good for us. And I do think we can continue to gain share.

Nate Stroud, Director of Strategy, Smart Financial0: Yes. Christopher, I appreciate you mentioning that and calling that out because we have done a good job of client acquisition and working on clients. The sales side gets a lot of credit, but I want to give a thank you to the ops side because the sales side couldn't do what they do with the scale they do with that ops support and supporting them tremendously. But it's a great team effort for sure.

Nate Stroud, Director of Strategy, Smart Financial1: Good. Thanks for expanding on that guys. I appreciate it. And just a follow-up about the hurricane last month or in late September. What can you see from your Eastern franchise?

What type of influx of new business and insurance proceeds can that have? And do you see that being a slight benefit in the future?

Billy Carroll, President and Chief Executive Officer, Smart Financial: Yes, just a devastating situation in a number of our Upper East Tennessee counties. We don't offer we don't have offices in a number of those, but we've got clients in a number of those. And so we're kind of seeing a little bit more of the impacts on the periphery. So from our standpoint, we don't anticipate any direct impact. We actually had probably a little bit of direct impact, Brett.

I know we had some payments that got delayed. And that's one of the reasons we had a small tick up in some past dues because your payments were delayed with over the because of rental issues over quarter end. But yes, I think for us, I think a lot of it is just going to be just trying to figure out how to support some of those efforts up there. I was talking with yesterday, I was talking with a foundation that's a client of ours that's doing a lot of work up in that area. They've been very public about their fundraising efforts and they've put together some great fundraising partners over the last few weeks.

And so a lot of us are just going to be just trying to help facilitate some of that. So from our standpoint, from a balance sheet standpoint, probably just a little bit of near term deposit growth with some of that funding. But fortunately, that money should be going right back out and helping these folks in need.

Nate Stroud, Director of Strategy, Smart Financial1: Sounds good, Billy. Thanks again.

Billy Carroll, President and Chief Executive Officer, Smart Financial: Yes. Thank you, Chris.

Nate Stroud, Director of Strategy, Smart Financial0: All right.

Ezra, Conference Coordinator: Our next question is from Catherine Mealor with KBW. Catherine, your line is now open. Please go ahead.

: Thanks. Good morning.

Steve Moss, Analyst, Raymond James: Good morning, Catherine.

: I want to ask just a follow-up on the margin. You have great your repricing schedule slide is really helpful. And so I feel like we can model the loan yields on the deposit costs. I really appreciate your just kind of forward look into the cumulative beta being about 40% over the cycle. But any kind of near term commentary you can give us on deposit costs, maybe where spot rates were at the end of the quarter and what you're seeing in specific kind of deposit categories with the 1st 50 that move?

Billy Carroll, President and Chief Executive Officer, Smart Financial: Ron, you want to jump in on what we saw during that first cut and maybe some spot rate color?

Ron Grodzinski, Chief Financial Officer, Smart Financial: Yes, we've managed to being let's take a step back. Our deposits are 24% of our deposit base is indexed to an indices. The remaining another 14% is kind of an internal indices. So we have about 40% of our deposits that will move with the rate movements and we're able to achieve that without we didn't get really any pushback on that whatsoever. We expect to continue that as we go forward.

Again, a lot of this is market driven, Catherine, and we have to pay attention to our competitors and how they're pricing. But right now, we expect to apply the same methodology going forward and just manage and monitor our customer accounts, making sure the outflows aren't leaving because of rate. Other than that, I think we're in a good shape going forward with our if there are rate cuts to keep our deposit portfolio steady.

Billy Carroll, President and Chief Executive Officer, Smart Financial: Spot rate guide there, spot rate thoughts in September?

Ron Grodzinski, Chief Financial Officer, Smart Financial: Yes. Our new production for September was 3.81%, but that did include brokered deposits. So it's excuse me, it was 3.81% without brokered deposits. So I think because we ran some promos near the end of September from the relationship exit. So I don't have any spot rate going forward, but we are seeing the deposit rates going down accordingly.

: Okay. And just given the amount you have indexed, would it be fair to model that 40% data to show up pretty quickly or how much of a lag do you feel like there is in that?

Ron Grodzinski, Chief Financial Officer, Smart Financial: No, we will show pretty quickly There will not be a lot with that 40%.

: Great. All right. That's all I got. Appreciate it. Great quarter, guys.

Nate Stroud, Director of Strategy, Smart Financial0: Thank you, Kathy. Thanks, Kathy.

Ezra, Conference Coordinator: Thank you very much. That ends our Q and A session. We do not have any more questions. So I will hand back to Miller for any closing remarks.

Nate Stroud, Director of Strategy, Smart Financial0: Thanks, Ezra. We appreciate each of you, investors, analysts and associates, for your continued support. We look forward to finishing 2024 strong and feel free to reach out to any of us if you have any further questions or comments. Have a great day.

Ezra, Conference Coordinator: Thank you very much, Miller, and thank you everyone for joining. That concludes today's call. You may now disconnect your lines.

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