Q3 2025 SmartFinancial Inc Earnings Call
Speaker #1: Hello everyone , and welcome to the Smart Financial Third Quarter 2025 Earnings release and conference call . My name is Ezra and I will be your waiter today .
Speaker #1: If you would like to ask a question , please press star followed by one on your telephone keypad . And if you change your mind , press star followed by two .
Speaker #1: You will be taking questions at the end of the presentation. I will now hand you over to Nathan Strall, Director of Investor Relations.
Speaker #1: To begin , please go ahead .
Speaker #2: Thanks , Ezra . Good morning , everyone , and thank you for joining us for SMARTFINANCIAL INC. third Quarter 2020 Earnings Conference call .
Speaker #2: During today's call , we will reference the slides and press release that are available in the Investor Relations section on our website , smartbank .
Speaker #2: Billy Carroll , our President and Chief Executive Officer , will begin our call , followed by Ronald Gorczynski , our chief Financial officer , who will provide some comments , some additional commentary .
Speaker #2: We will be available to answer your questions at the end of the call . Our comments include forward looking statements . These statements are subject to subject to risks and uncertainties and the actual results could vary materially .
Speaker #2: 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 .
Speaker #2: We do not assume any obligation to update any forward looking statements because of new information . Early developments or otherwise , except as may be required by law .
Speaker #2: During the call , we will reference non-GAAP financial measures related to the company's performance . You may see the reconciliation of these measures in the appendices of the earnings release , and investor presentation filed on October 21st , 2025 , with the SEC .
Speaker #2: And now, I'll turn it over to William Carroll to open our call. William.
Speaker #3: Thanks , Nate . And good morning , everyone . Great to be with you . And thank you for joining us today . And for your interest in SMC .
Speaker #3: I'll open our call today with some commentary , then hand it over to Ron to walk through the numbers in some greater detail .
Speaker #3: After a prepared comments , we'll open it up with Ron Nate , Rhett Miller , and myself . Available for Q&A . It's been a busy quarter for us , and we've had a number of very positive things happening with our company .
Speaker #3: The focus on execution that's going on right now is outstanding . Our team continues to have a keen focus on hitting targets we've set for this year .
Speaker #3: In regard to revenue returns and prudent expense growth , and I remain very bullish on our outlook . So let me jump right into some of our highlights first .
Speaker #3: And in my opinion , one of the most important metrics we continue to increase the tangible book value of our company . Moving up to $26 per share , including the impacts of Aoci and $26.63 .
Speaker #3: Excluding that impact , that's growth of over 26% annualized quarter over quarter . For the quarter , we posted operating earnings of $14.5 million , or $0.86 per diluted share .
Speaker #3: This is our sixth consecutive quarter of positive operating leverage, and we hit our $50 million quarterly revenue target in Q3, which we had set for our team this year.
Speaker #3: We actually hit it a few months early , and I look forward to seeing that number continue to grow . We had outstanding growth on both sides of the balance sheet , posting 10% annualized growth in loans and 15% annualized growth in deposits .
Speaker #3: Our history of strong credit continues with only 22 basis points in nonperforming assets . I'm pleased to see these numbers continue at exceptionally low levels .
Speaker #3: Total operating revenue came in at $50.8 million as net interest income continued to expand , and non-interest income was solid again and non and our operating non-interest expenses also came in on target at $32.6 million .
Speaker #3: Looking at the charts on page four and five , you'll see very nice trends . We're building our return metrics and most importantly , growing our total revenue EPs .
Speaker #3: And as I mentioned earlier, tangible book value, all those charts are great graphics to illustrate our execution. I'm looking forward to and expecting these trends to continue.
Speaker #3: So just a couple of additional high level comments from me on growth . Our continued balance sheet expansion is a direct result of the focus of our sales teams .
Speaker #3: I've enjoyed watching this company transform into a very good organic grower , as we have hired well over the last several years . We've also built an outstanding foundational process that includes aggressively going after new client relationships , growing existing ones , along with a very diligent prospecting process .
Speaker #3: As I stated , we grew our loan book at a 10% annualized rate quarter over quarter as sales momentum stays strong and balanced across all of our regions .
Speaker #3: Our average portfolio yield , including fees and accretion , was up to 6.14% , and our new loan production continues to come onto the books accretive to our total portfolio yield levels .
Speaker #3: Regarding deposits . Again , deposits were up 15% annualized or $179 million for the quarter , inclusive of reducing some of our brokered CD positions .
Speaker #3: It's important to recognize how we're building this bank with core relationships , as we have an intense focus on both sides of the balance sheet .
Speaker #3: We've made investments in our treasury management team over the last several quarters, and it's nice to see this line of business gain outstanding momentum.
Speaker #3: And a loan to deposit ratio is at 84% , which is actually down quarter over quarter . Even with 10% loan growth , this strong position gives us continued flexibility to leverage a great balance sheet .
Speaker #3: Our pipelines continue to look good , and I'll discuss these a little bit more in my closing comments . But also when you look at the highlight bullets in our earnings release , we've had a lot going on this quarter .
Speaker #3: All of it tied back to building the foundation of a bank that is on track to becoming one of the Southeast's strongest regional community banks.
Speaker #3: Everything accomplished this quarter is part of our focus on efficiency and growth . A well-executed subnet issuance , a sale with a subsequent minority reinvestment on our insurance platform , a repositioning trade with our bond portfolio that did not impact our book value as we leveraged the gain off the insurance deal and continued contract evaluations and renegotiations , including our core data processing vendor interchange , payment rails , and some new tech focused , tech focused initiatives .
Speaker #3: Looking into 2026 . So all in all , a very nice third quarter for our company . And I'm going to stop there and hand it over to Ron to let him dive into some greater detail .
Speaker #3: Ron .
Speaker #4: Thanks , Bill , and good morning , everyone . I'll start by highlighting some key deposit results for the quarter . We had strong non-brokered deposit growth of 283 million , representing more than 24% growth on an annualized basis .
Speaker #4: This increase resulted from both new deposits production and seasonal client liquidity build, following the previous quarter's outflows. The cost of new non-brokered production was 3.47%.
Speaker #4: This growth gave us the opportunity to pay down 104 million of brokered deposits , which had a weighted average cost of 4.27% . Our overall interest bearing cost rose by three basis points to 2.98% , but were down to 2.93% for the month of September .
Speaker #4: Despite funding almost $100 million in loan growth and paying down $104 million in brokered deposits, our overall liquidity position, which includes cash and securities at quarter end, was approximately 21%.
Speaker #4: Included in our liquidity position was 98 million . In net proceeds from our issuance , which closed in August . As we look ahead to Q4 , we anticipate our liquidity position normalizing as we already retired 40 million or 40 million in our existing stub debt on October 2nd , and we expect to pay down an additional 111 million in brokered deposits , with a weighted average rate of 4.28% during the fourth quarter .
Speaker #4: As Billy mentioned , we utilized the gain generated from our insurance operations to offset losses associated with selling 85 million of securities with a weighted average rate of 1.40% .
Speaker #4: The proceeds of the securities sale were reinvested in securities , yielding 4.95% , which will generate 2.6 million of additional annual interest income and increase our overall weighted average securities portfolio yield to 3.70% during the quarter .
Speaker #4: Our net interest margin experienced some temporary compression , declining four basis points to 3.25% , primarily as a result of timing differences between issuing new sub debt prior to paying off our existing sub debt and higher rates for new deposit production .
Speaker #4: However , the average rate of new loan production was 7.11% , which continues to push the yield on our overall portfolio higher . Furthermore , any future cuts to the federal Rates Fund will positively impact our deposit portfolio costs as approximately 45% is variable cost adjusting in lockstep with any fed actions .
Speaker #4: We believe these factors , in conjunction with anticipated brokered deposit paydowns and enhanced yields on our overall securities portfolio , has our balance sheet well positioned heading into the fourth quarter and into 2026 .
Speaker #4: Looking ahead , we're projecting our fourth quarter margin to be in the 3.3 to 3.35% range . Our quarterly provision expense decreased to 227,000 from 2.4 million reported in the previous quarter .
Speaker #4: The growth related provision this quarter was offset by an adjustment to our qualitative factors , specifically an improvement in our CRE concentration ratio , which decreased to 271% from 301% in the previous quarter .
Speaker #4: This decrease was due to the downstream of 45 million of proceeds from our issuance to the bank , as equity capital . Additionally , our asset quality continues to remain robust with non-performing assets comprising 0.22% of total assets and net charge offs to average loans of ten basis points on an annualized basis .
Speaker #4: Our allowance for credit losses is now at 0.93% of total loans . Operating non-interest income . After adjusting for the gain on sale of our insurance operations and the loss on the securities restructuring was 8.4 million , which is 500,000 lower than the previous quarter .
Speaker #4: As a result of the sale . All other income items remain consistent with our expectations . Operating non-interest expenses after adjusting for previously noted items , total 3.3 2.6 million .
Speaker #4: Aligning with results from the prior quarter, we made progress again in our operating efficiency ratio, which improved to 64% compared to 66% from the previous quarter.
Speaker #4: Our ongoing commitment to expense management has allowed us to maintain a level expense base over the past four quarters and continue to trend positively toward our long-term efficiency goals.
Speaker #4: For the fourth quarter , with insurance operations removed , non-interest income is projected to be approximately 7 million , and non-interest expense is expected to be in the range of 32.5 to 33 million .
Speaker #4: Salary and benefit expenses are anticipated to range from 19 to 19.5 million , comparable to the previous comparable to the previous quarter due to higher levels of variable compensation and anticipated costs associated with the new hires .
Speaker #4: Both our bank and consolidated tier two capital ratios increased during the quarter , primarily due to the subdued issuance . Our total consolidated risk based capital ratio rose to 13.3% , up from the 11.1% in the previous quarter , and the company's TCE ratio also improved to 7.8% .
Speaker #4: Looking ahead , we are confident that our capital ratios are appropriately balanced and well positioned to sustain growth while optimizing returns on equity .
Speaker #4: With that said , I'll turn it back over to Billy .
Speaker #3: Thanks , Ron . I want to reiterate again the value proposition with our company . Drawing your attention back to page seven of our deck .
Speaker #3: We are successfully executing on the leveraging phase of growth for our company . We hit our 1% and 12% ROE and ROE targets this quarter and have confidence that this will build from here .
Speaker #3: As we gain even more operating leverage, we're building a great franchise. We're in arguably some of the most attractive markets in the country and have put together a team that is rapidly moving forward.
Speaker #3: You've heard me say before , I believe we are one of the southeast brightest stories . Outstanding markets , strong experienced bankers , coupled with a great operational and support team , plus very nice complementary business lines .
Speaker #3: We expect the remainder of 2025 to have a similar look to what we've seen in the last few quarters, and I believe this will continue into 2026.
Speaker #3: Our focus will be on doubling down on this current strategy , getting deeper into our markets and our business lines . As I mentioned , pipelines are good and I think we can continue growing at this high single digits .
Speaker #3: Plus pace . On talent acquisition . This continues to be a focus as well . Recruiting is a process we've added a number of great bankers this year and have several more in our pipelines .
Speaker #3: We made some outstanding additions in the third quarter , and I believe we are included with a very small handful of banks that have built a culture where outstanding regional bankers want to work .
Speaker #3: We will continue to look for these organic growth opportunities and will remain very focused on recruiting . One of the reasons for our successful execution on adding great people as our culture .
Speaker #3: Arguably one of the biggest highlights for the quarter for us internally was our company being named to Fortune's list of best Workplaces . This is an honor we don't take lightly , and a big shout out to our people team , led by Becca Boyd .
Speaker #3: As we continue with huge accomplishments with the culture of our company . So to summarize , we are positioned well for our clients , our associates , and our shareholders .
Speaker #3: We are executing, growing revenue, EPS, and book value while staying prudent on expense growth. We remain optimistic around our margin as new production stays strong and as we see the tailwind coming with rate resets on our loan portfolio over the next couple of years.
Speaker #3: Credit continues to be very sound, and we're seeing great new client acquisitions coupled with great overall energy around our company. I appreciate the work of our smart financial Smart Bank team and the efforts of all of our associates.
Speaker #3: I'm very proud of what we have going on here at SMBC , and I'll stop there and open it up for questions .
Speaker #1: Thank you very much. If you would like to ask a question, please press star, followed by one on your telephone keypad.
Speaker #1: Now . And please ensure your device is unmuted locally . If you change your mind or your question has already been answered , press star followed by two .
Speaker #1: Our first question comes from Brett Robertson with Hovda Group . Your line is now open . Please go ahead .
Speaker #5: Hey , good morning guys . Thanks for the question . Wanted to start . Maybe . Billy , you mentioned some hires and I think in the past you've said , you know , the Alabama franchise could could double in size over time and you felt pretty optimistic about Alabama specifically .
Speaker #5: Can you talk maybe about where the hires were , you know , in the geographies ? And then just thinking about Alabama , just any update on the growth outlook for that franchise in particular ?
Speaker #3: Yeah . Brett , thanks . It has , you know , as far as just geography , it's really been fairly evenly spread .
Speaker #3: You know , I think last quarter I think we talked about we had we had hired several and then we had several in the pipeline .
Speaker #3: We continue to add those . We added a couple in Alabama , added a couple in Tennessee over the last little bit . And so it's really been been been throughout all of our zones .
Speaker #3: I do think we're still extremely bullish on Alabama as we're getting started . We're bullish on all of our markets , but we're we're seeing we're seeing a lot of this a lot of this Alabama growth starting to catch stride , especially with some of these teams that we've got in the Birmingham's in the Auburn's the Dothan's , the Montgomery's those those offices really are starting to generate some great momentum .
Speaker #3: Mobile two I know Miller and I have been we've done we've been we've been on the road a lot the last several weeks .
Speaker #3: And and so we've been in most all of those markets over the last little bit . And it's it's exciting . A lot of new folks coming on .
Speaker #3: I did have we had a new ad in Panama City . Did have a new ad in Murfreesboro as well . So it's really been it's really been across the board .
Speaker #3: Brett . But but we're we're continuing to focus , not just on Alabama , really all of our zones that had a , you know , like I said , Florida as well .
Speaker #3: We're seeing some nice panhandle opportunities.
Speaker #6: And don't see that slowing down .
Speaker #3: Yeah . It's just really been across the board . So again , and I made the comment in here , the momentum that we've got really everywhere in the company is , is just really good right now .
Speaker #3: Our culture is good . We're , we're we're attracting some great bankers and you know and and our existing legacy teams are performing extremely well .
Speaker #3: So we're kind of hitting on most all cylinders . Still got always still got work to do . And gaps to close . But but but it's it's been it's been it's been it's been really good .
Speaker #3: .
Speaker #5: Okay . That's that's helpful . And then on the margin guidance for the fourth quarter obviously a lot going into that . Wanted to make sure I understood kind of the guidance relative to the liquidity that you added in three .
Speaker #5: Q you know how much of that drains out ? You know , how should we think about maybe the average balance sheet seat sheet size in the fourth quarter , you know , and how that might impact NII ?
Speaker #3: Yeah , Ron , you want to you want to talk a little more on the margin detail .
Speaker #4: Yeah . You know , a lot of our cash on the balance sheet today will be , you know , more deployed . You know , we did 40 million for the sub debt , another 100 million for brokered .
Speaker #4: And we expect to to shrink some of the cash put into loans . I don't think our asset size of our balance sheet is going to move anything materially .
Speaker #4: We're just going to use the cash on hand to fund most of the production for Q4.
Speaker #5: Okay . That's helpful . And then if I could sneak in one last one , you mentioned Billy , you know , tech focused initiatives .
Speaker #5: And next in the next year , does that increase productivity at like AI ? So you can have bots doing work that that may frees up FTEs or any thoughts on how much that might add to an expense base .
Speaker #3: You know , it really . You know what we've what we've done over the last little bit . As I said , we've really worked and had some very favorable outcomes with some , some , some new contract renegotiations on several different fronts across the company .
Speaker #3: But some of the stuff that we're doing in tech . I think , is allowing us to get some expense , get some expense reduction so we can reinvest .
Speaker #3: Obviously , Ron will continue to quarterly kind of give our quarterly , you know , noninterest expense guidance , moving forward . I don't see it having a really meaningful impact from an increase standpoint .
Speaker #3: Even with these new initiatives, I think we've got those kind of built in to where we think run rates are today.
Speaker #3: But we've got some great platform enhancements. We're looking at AI; we've started using bots. I think we will continue to do more of that.
Speaker #3: You know , we're looking at some some new things on the digital front as well from a consumer facing digital piece . You know , we're we're leveraging Copilot a lot in our in our company today .
Speaker #3: And and I do think it overall I think it increases it absolutely increases efficiency . I don't know if it doesn't necessarily I don't think it necessarily impacts you , impacts you .
Speaker #3: And from a spot where we're going to look to reduce that. But I do think it continues to allow you not to add staff as you scale.
Speaker #3: And I think that's the biggest thing we're seeing a lot of tools that we're starting to use . I know we've got , you know , great support stuff going on .
Speaker #3: Our risk platform tools are are very helpful . We're spending a lot of time . You know , evaluating risk , evaluating fraud and your company .
Speaker #3: So, a lot of those technologies, I think, will allow us to continue at current staffing levels or maybe add just a few instead of adding a lot over the coming years.
Speaker #3: So it's a it's kind of a mixed it's a mixed bag . There's a lot of different moving parts to it . But but I really am excited .
Speaker #3: I think our technology team is as good as we've ever had it in our company today. And I feel really good about our ability to advance that while still staying within a very reasonable expense.
Speaker #6: It's as much a reallocation and reinvestment as it is . Well .
Speaker #4: Additionally , and the first sliver of this will be , you know , we want to provide our , our , our clients with better experience , easy to do business , easier to do business with .
Speaker #4: So that's really our first focus when we when we're going down this path .
Speaker #5: Okay . That's all really helpful . Thanks so much guys .
Speaker #6: Thanks , Brett .
Speaker #1: Our next question comes from Russell Gunther with Stephens . Your line is now open . Please go ahead .
Speaker #7: Hey good morning guys . I wanted to begin with just a follow up on the expense conversation . So six consecutive quarters of positive operating leverage .
Speaker #7: You've talked about continuing to hire bankers as the opportunity arises. We just touched on the expense initiative and the tech initiatives. So, how are you thinking about that streak of positive operating leverage going forward?
Speaker #7: Is that something we should expect to see over the course of 2026 , alongside this franchise investment ?
Speaker #3: Yeah , I'll start . And then , Ron , I'd maybe you can you can add some additional color as well . Yeah .
Speaker #3: Russell I think so . I mean , when you look at when you look at where the company's position today , we're really bullish on our ability to continue to grow that revenue line .
Speaker #3: Again , the production that we're seeing happen throughout all of our markets , the repricing that we've got going on , we're going to get we're going to continue to get that that revenue lift .
Speaker #3: You know , and and it's definitely going to outweigh our expense run rates . Now we're going to want to continue to invest and add people .
Speaker #3: But but we're going to do that balanced as we grow this as we grow this revenue line , I think it's really important for us right now to continue hitting these operating leverage targets over the next few quarters .
Speaker #3: We really believe we can do that . We've we feel good . We're starting to run our 26 models and feel very good about where our company can be .
Speaker #3: Again, we've got to execute. We've got to do the right things to do that. But we've demonstrated our ability to do that in 2024 and 2025.
Speaker #3: We think we can continue that in 26 . So yes , I do think we can continue to to to increase this consecutive streak of gaining operating leverage .
Speaker #3: But Ron , I don't know any additional comments that you've got .
Speaker #4: Yeah . No . Exactly right . Billy . You know , we we're probably you know , again we're not going into 26 guidance , but we're we're probably , you know keeping our band tight .
Speaker #4: We've been focused on containment for the prior four , 4 or 5 quarters . And we're probably looking at around the 34 if you want numbers 34 to max , 35 million range for the for the full year next year .
Speaker #4: So yes, we will be focused on containing it with our growth.
Speaker #7: That's great color guys . I appreciate it . And then just switching gears to the margin , appreciate the sort of level set for for Q25 , given the moving pieces in three Q you give great detail in the deck around the average earning asset .
Speaker #7: Repricing schedule . And in the past you've talked about how that would translate to about 2 to 3 basis points of margin expansion .
Speaker #7: Quarterly. Is that still sort of the range you're thinking about as we move beyond Q4? Or have some of the actions taken this quarter...?
Speaker #7: Change that in any way ?
Speaker #4: No , actually , you know , the prior quarters was 2 to 3 basis points . We're pretty bullish on our margin expansion going into 2026 .
Speaker #4: Overall, I think we're probably looking at a 5 to 7 basis points expansion quarter over quarter for Q3 2026.
Speaker #7: That's very helpful. Thank you, guys. Okay, thanks for taking my question.
Speaker #6: Thanks , Russell .
Speaker #1: Our next question comes from Katherine Miller with KBW . Your line is now open . Please go ahead .
Speaker #8: Thanks . Good morning .
Speaker #6: Good morning .
Speaker #8: This is just one follow-up on the margin on the deposit side. You know, with gross improving as much as it has into next year, how do you think the deposit beta could be on the next 100 basis points?
Speaker #8: Points of cuts versus what we've seen in the past , 100 basis points of cuts , just given I think we'll see better growth rates coming in the next over the next course of the year .
Speaker #4: Yeah , I think I think for the variable we intend to as best we can is to really follow dollar or basis point for basis point .
Speaker #4: So we're still targeting 45% . I know we're probably in the 30s right now , but we want to target that 40% range .
Speaker #4: Beta .
Speaker #8: Okay. And from the past 25 cuts, I know it's early, but have you already seen the ability to do that?
Speaker #4: Yes , yes , we have .
Speaker #3: Yeah . We've been trying to step down a little bit as we as we work . You know , we've got we have we have some of the deposits are , are , are tied directly to the rates or market rates .
Speaker #3: And so those come down as rates come down . Some are more correlated . And that gives us the ability to move a little bit faster in some others too .
Speaker #3: So yeah , we've been able to we've been able to move those down and still pick up the growth that we've needed . So teams have done a nice job to be able to to do that .
Speaker #3: And I think we're still staying right there in market and staying on top of what's going on in all of our different zones and each of our different zones have different competitive pressures and different competitors .
Speaker #3: But we've done a nice job being able to pull that down.
Speaker #8: Okay , great . And just one question on fees . Any outlook for fees as we go into next year ? Just things to be aware of that could drive better fee growth .
Speaker #8: I know we've got the insurance piece that'll be a little bit of a moving piece , but just kind of curious on on how we think about fee growth into 26 .
Speaker #3: Yeah , I'll start . And then Ron , I'd love to get your some color for Katherine as well on that . We yeah , we've got several things working again .
Speaker #3: Yeah . We'll we'll kind of reset now without that insurance component line item going forward . But but yeah , we've got I think we've still got some really good plans .
Speaker #3: When you look at fees for us as a whole, we continue to think that that's going to have the ability to trend up.
Speaker #3: I know , you know , we've we've talked a little bit about payment rails and renegotiation . I think we've got some things that we're working on , on , on , on our , on our interchange income .
Speaker #3: I think there's some opportunities there . And I and I didn't in my comments , I didn't mention our mortgage unit . I'll tell you our mortgage unit is , is is having probably as good a year as we've ever had .
Speaker #3: And really excited about what that mortgage team is bringing to the company . We're seeing as we've grown our footprint , grown our platform , we've continued to add some great new sales team members on the mortgage side and our our legacy team continues to perform well .
Speaker #3: So , so that's a that's I think that'll be a plus . You know , our investments are continues to to really execute continue to grow our AUM .
Speaker #3: There . We've added a added a really nice producer on one of our Alabama markets . New far down there this year . You know , and you know Ron , I know we've talked .
Speaker #3: We always talk about team while TM is a piece of it . As we continue to grow that TM platform I know that those dollars continue to just kind of build and become a really nice annuity .
Speaker #3: So , Catherine , I think there are several pieces I don't know , Ron , if there's any others that you think of , but I do think we'll continue to get some nice growth .
Speaker #3: We'd love to see that accelerate . That's going to be a strategic focus for us next year . But I know Ron , any any comments on that from you .
Speaker #4: Other than , you know , more like more looking at the customer fees and making sure we're marketing . But no , you hit all the highlights .
Speaker #6: Yeah .
Speaker #8: Okay , great . Thank you .
Speaker #3: Thanks .
Speaker #1: Our next question comes from Steve Moss with Raymond James . Your line is now open . Please go ahead .
Speaker #6: Hey good morning guys . Maybe just starting here on on loans . Just on the pipeline here . Billy , you sound really optimistic on things .
Speaker #6: So I'm assuming it's going to be likely to be a really good fourth quarter . Just kind of curious as to , you know , is that pipeline enough to support , you know , double digit growth into 2026 here ?
Speaker #3: You know , you know , again , I keep guiding to kind of the high singles . We've been able to beat that a little bit .
Speaker #3: You know , and you know , I think we'll be right there . I think we'll be right there at that . Plus minus ten number .
Speaker #3: You know . And that's a that's a big bogey as we get we get larger . I'll tell you . You know , one of the things that we talk about a lot internally , you know , the production levels that we've had have really just been outstanding .
Speaker #3: Again , the teams are doing a nice job . You know , we're still seeing the payoffs and pay downs that that you know , that , you know , a lot of our us , we read and look at other releases and see a lot of the things on the market .
Speaker #3: You know , we're not immune to that . We're getting a lot of payoffs to pay down . It's just our production is so strong .
Speaker #3: It still allowing us to get out there and kind of hit this 10% ish number . So , you know , that's you know that's that's a lot to continue to ask our team to do .
Speaker #3: But as we look over the at least the near term , I do think we can continue at or around that pace again , pipelines are are solid .
Speaker #3: You know , when you're out in we're out in these markets and and the rents in a lot of them and Miller and I are and a lot of them I mean we're out and there's just there's a there's an energy and a really good calling effort going on throughout throughout the company .
Speaker #3: So yeah , I think we can continue that . You know , there might be a quarter that we're a little lighter , a little heavier .
Speaker #3: But I still think we can be right around that, plus or minus ten. Yeah, I like the.
Speaker #6: Markets .
Speaker #3: And they're just .
Speaker #6: All so positive . And the teams seem to be so positive . It it does get harder to feed the beast . But I think we're certainly up for it .
Speaker #6: Right . And maybe just in terms of feeding the beast I hear you guys in terms of hiring as well . Just curious .
Speaker #6: You know , as you think about I know you guys are always opportunistic , but , you know , you obviously have merger disruption in your markets .
Speaker #6: You know , kind of do you think there's a possibility of a step up in hiring over the next 12 months ? Just kind of curious .
Speaker #6: I know you guys are talking about positive operating leverage , but just curious on on that that aspect of things .
Speaker #3: I'll tell you , see , we we're we're very selective as we go through this hiring process . You know , I , I don't necessarily think it's going to pick up dramatically .
Speaker #3: And I think a couple of reasons , I think , that , you know , the disruption that we see in the market , I mean , these are these are good banks and they're going to be they're going to be fighting to hold on to good talent .
Speaker #3: And , you know , and I just and I think over the over a period of time , you may see some , you know , dislocation and some different bankers and some of those different markets throughout the southeast .
Speaker #3: But I don't think there's a lot. I think we're just going to continue to be diligent in trying to find just incrementally good bankers that fit our culture, that fit our teams.
Speaker #3: And I think we're probably going to be , I would imagine , looking into 26 kind of keeping the same type pace that we saw in 25 , which will just be just , you know , add great talent .
Speaker #3: We can find it. Like I said, I think we probably are in the process. I think we've added, I think we've talked about, we're probably maybe 12 to 15.
Speaker #3: Net for , you know , kind of what we've done in the pipeline or that we've added this year . I think we'll continue to do that .
Speaker #3: And I think , Steve , for us , it's just going to be just continuing to be diligent again , find the right types of bankers that fit the types of of deals that we want to look at .
Speaker #9: Yeah , Billy talks often about ABR always be recruiting , always be recruiting . That's talent and clients . And I . But I think it's it takes a special .
Speaker #9: We're recruiting for quality, not quantity, and I think that's important for us. The culture and who they are matter.
Speaker #6: Yeah great . Appreciate appreciate that color . There . Maybe just one more for me here on the loan loss reserve release . Did I understand that correctly that because you did I hear that correctly that you downstream some capital and therefore a lower reserve ratio lower CRE concentration ratio , that was kind of one of the qualitative factors that drove the reserve lower .
Speaker #4: Yeah . Our our concentration ratio , one of our qualitative factors was there was our because we're over two 300 now that we downstream 45 million from from you know the parent to the bank .
Speaker #4: It lowered it to 271 . That was a that was one of the main factors .
Speaker #6: Okay . Okay . So going forward , you know , relatively stable to maybe a modest build on the reserve ratio as , as you continue to grow here .
Speaker #4: Yes , sir . Correct .
Speaker #6: Okay . Awesome . Well I'll step back in the queue . I really appreciate all the color here . And nice quarter guys .
Speaker #6: Thanks , Steve .
Speaker #4: Thanks .
Speaker #6: Steve .
Speaker #1: Thank you very much . Just as a reminder , if you would like to ask a question , please press star followed by one on your telephone keypad .
Speaker #1: Now . Our next question comes from Stephen Scouten with Piper Sandler . Your line is now open . Please go ahead .
Speaker #6: Hey , good morning guys . Just wanted to clarify a couple things real quick . Ron , did you say that 45% of your deposits are .
Speaker #6: variable costs ? And is that to say . If I heard that right , that those are directly indexed ?
Speaker #4: We have the ability to move 45% . We have about 32% that are directly indexed . And we have the remainder that's that's tied to a internal index that will move with with the rate moves .
Speaker #4: So yeah , 45% all in though . .
Speaker #6: Okay , great . Perfect . And then on the on the Nim trajectory , I think you said 5 to 7 basis points a quarter in 26 .
Speaker #6: Is that your expectation each quarter in 2026? I just want to make sure I'm hearing that right.
Speaker #4: Yes, each quarter in 2026.
Speaker #6: Great . Fantastic . Okay . And then last thing I think I know Catherine maybe had asked this on the on the fee revenues and insurance .
Speaker #6: Did you give a guidance for expected fourth quarter overall fee revenues ?
Speaker #4: Yeah , 7 million .
Speaker #6: 7 million . Great . Okay . Perfect . And then on the broker deposit front , you obviously had some nice reductions here this quarter .
Speaker #6: Sounds like I think you said maybe another $111 million next quarter if I'm doing math remotely correct. Looks like maybe $120 million or so left in that ballpark.
Speaker #6: What is the plan for the remaining broker deposits? Is the objective still to get those down from here, or is that kind of an acceptable level moving forward?
Speaker #4: Yeah , we were at 268 in June , September at 164 minus the 111 . Yeah , we tend to as soon as they are due we're going to pay those down .
Speaker #4: So yes , we're , we're , we're looking not to have broker deposits at some day . That's our goal . Objective is to is to not have those .
Speaker #6: Okay . Great . And then I guess last thing for me , you know , the stock's been trading fantastically . The results have been great .
Speaker #6: Kind of ahead of schedule . Now operating revenue line . Sounds like hiring is continued . Well do you think about M&A as as a piece of that puzzle at all ?
Speaker #6: I think there was some a note maybe in the in the slide deck that said , you know , maybe more trying to find the verbiage , maybe more strategic than it was previously .
Speaker #6: M&A focus shifted to strategics and/or needle-moving opportunities. I guess maybe if you could kind of speak to that comment and what that might look like.
Speaker #3: Yeah , yeah . Steven for us , it really and I'm in my comments , I said we've really our strategy really hasn't changed a ton .
Speaker #3: A lot of it . Just again doubling down on this organic strategy , getting deeper into the markets . That's that is that's that's that's strategy one a , you know , yeah , I think , you know , we're really not shifting that to really look at M&A .
Speaker #3: But we've we've said and continue to say , you know , we will evaluate , you know you know needle moving opportunities that that make sense .
Speaker #3: I've said before we don't necessarily you know , we don't want to do M&A just to be bigger . You know we we want if we did it we'd want it to make us better .
Speaker #3: And sometimes that's just tough to find. You know, if we find that unicorn, we find the right piece that fits us.
Speaker #3: And yeah , we would evaluate . But but really , I mean , it's it's I say that because you never know what could come down the road .
Speaker #3: But man , our strategy is really focused on continuing just to lever , you know , this balance sheet and grow as we've done the last couple of years , the way we've done it , that's , that's that's the primary focus .
Speaker #9: Yeah . You can't ever say you're not going to look , I think we are open to look . But Billy talks often about now , you know , organic is one a .
Speaker #9: And M&A would be one. B M&A might be one. C, but we're continuing to look.
Speaker #6: Yeah, that makes a lot of sense. Well, the strategy's working, so I guess if it ain't broke, don't fix it, right?
Speaker #6: So great job guys .
Speaker #3: Well you know it is . But but I , I do think you know and and as we've talked to you and a lot of your colleagues I mean it's just , you know , it's really important for us to , to message what we've messaged .
Speaker #3: It's , you know , we've we've built this company by design . We were again , a little bit kind of mile wide , inch deep by design for a reason .
Speaker #3: And we it's been very important for us to gain this operating leverage and do that . And that's we've done that . We've executed well .
Speaker #3: We're executing well . We've still got room to grow and we've got we want to continue to see this move forward . So not really changing anything on our outlook moving forward .
Speaker #3: It's just we're going to just keep doubling down on what we're doing .
Speaker #6: Perfect . Thanks a lot .
Speaker #1: Thank you very much . We currently have no further questions so I will hand back over to Miller for any closing remarks .
Speaker #9: Thanks , Ezra , and thanks , everybody for being part of the call today . We are very excited about where we are and where we're going .
Speaker #9: Thank you for being part of the SmartFinancial family, and have a great day.
Speaker #1: Thank you very much . And thank you to all the speakers for joining today's line . That concludes today's conference call . Thank you , everyone for joining .