SmartFinancial, Inc. (SMBK) Earnings

Management highlights

- Overall Financial & Balance Sheet Performance * The firm delivered a stronger Q2 26 following a strong Q1, with sustained organic growth momentum and expanding operating leverage * Credit quality remains very strong: nonperforming assets equal 23 bps of total assets, down 2 bps from the prior quarter, with net charge-offs limited to 5 bps * The allowance for credit losses to loans ratio held stable at 97 bps, which management views as appropriate for the current portfolio and market environment * Capital levels are strong: the consolidated tangible common equity (TCE) ratio is 8% and total risk-based capital ratio is 12.7%, both well above "well capitalized" regulatory standards - Strategic & Operational Progress * Primary strategic focus is gaining market share and deepening penetration in high-growth Southeast US markets, leveraging a position that competes effectively against larger regionals while remaining operationally nimble * The firm continues to invest in people, technology, and facility expansion while maintaining positive operating leverage, with an operating efficiency ratio holding in the low 60% range * Talent acquisition is a top priority: the firm has recently added experienced banking talent in new and existing markets including Nashville (TN), Huntsville (AL), Tallahassee (FL), and Columbus (GA), and is bullish on growth prospects for the new Columbus market * Sales momentum is balanced across all regions, with high client retention during back-book loan repricing, and credit teams collaborate effectively with sales teams to move deals through the pipeline * The firm recently earned recertification as a great place to work, recognizing the positive organizational culture the team has built

Guidance

- Net interest margin: A near-term 3-5 basis point pullback to ~3.45% is expected in Q3 26 due to elevated deposit cost pressure, with expected continued modest margin expansion over the longer term as asset yield increases outpace funding cost growth - Loan yields: New loan production is expected to remain steady at ~6.40%, with overall portfolio yields projected to increase 3-4 bps per quarter for the next several quarters, with 6-7 bps of uplift expected in Q4 26 from back-book repricing - Q3 26 operating expectations: Noninterest income is projected to be ~$8 million; noninterest expenses are expected to range from $34.5 million to $35 million; salary and benefit expenses are projected between $21 million and $21.5 million, driven by higher production-related incentive compensation and new hires - Long-term profitability targets: Management remains on track to hit the internal 4x4 goal of a $4 EPS full-year run rate by Q4 26 ($1 per share EPS for Q4), and expects to continue expanding ROA and EPS through 2027 - Balance sheet growth: Management expects sustained balance sheet growth in the high-single-digit to ~10% annual range, with 3-3.5% quarter-over-quarter loan growth considered sustainable for the second half of 26, and stable balanced product mix matching the firm's current portfolio composition - Normalized operating expectations: Noninterest expenses are expected to stay in the ~$35 million range over the next two quarters, with the effective tax rate projected to hold at 19.5% going forward - Securities portfolio: The investment securities book has stabilized, and is expected to remain in the 10-12% range of total balance sheet assets

Segment performance

This transcript does not break out performance by distinct product segments. Overall consolidated Q2 26 results: total revenue of $55.9 million, operating earnings of $16.3 million ($0.96 diluted EPS). Net interest income was $48.1 million, up $2.2 million from Q1 26, with a net interest margin (NIM) of 3.52% (3.48% excluding one-time loan prepayment fees). Operating noninterest income was stable at $7.9 million, while operating noninterest expenses came in at $34 million at the low end of prior guidance. The loan portfolio grew 15% annualized quarter-over-quarter to contribute 15% annualized balance sheet growth, while core deposits grew 6% annualized. Total assets crossed the $6 billion milestone. Tangible book value per share reached $28.22, up from $26.86 at year-end, growing 13% annualized in Q2.

Risks & headwinds

- Elevated competition for core deposits continues to pressure funding costs, which could result in higher-than-expected funding expenses and flatter margins if interest rates remain elevated for longer - Unexpected macroeconomic events could disrupt the firm's current growth and profitability trajectory, though management does not see internal capacity constraints impeding momentum - Increased competitive activity for talent and market share in high-growth Southeast markets could pressure hiring and market share gains, though management is confident in its ability to compete effectively

Analyst Q&A

• Q: Q2 new deposit cost was reported as 2.90% — how will ongoing deposit cost pressure affect growth, and what is management's outlook for funding? /

  A: Management models a 1-2 basis point monthly increase in deposit costs for Q3. Temporary higher-cost brokered deposits were used to cover the gap between strong loan growth and seasonal Q2 core deposit shortfalls, which management views as a temporary disciplined funding tool. Management expects to make up the seasonal deposit gap in the second half of the year, increase core deposit production, and reduce reliance on brokered funding. While margins may be flatter near term, the firm can manage pressure and continue expanding margins over time.

• Q: Recent loan growth has been stronger than the stated high-single-digit target — is sustained double-digit growth possible, or is the conservative guidance intentional? /

  A: Management intentionally builds payoff and paydown assumptions into guidance, and has recently seen higher client retention during back-book repricing than initially modeled. Current pipelines remain strong, growth is balanced evenly across all regions and markets, and management expects results can land around 10% growth depending on payoff activity, maintaining the intentional conservative guidance approach.

• Q: After hitting near-term profitability targets, will profitability stabilize or continue improving, and what is the long-term outlook? /

  A: Management expects to continue expanding ROA and EPS through 2027. As long as expenses are held within a reasonable range and the firm continues to deliver loan growth and back-book repricing, there is still room to move return metrics higher over the next four quarters, even after hitting the current 1% ROA and 13%+ ROE targets.

• Q: Is M&A back on the table after the firm's strong stock performance, or will organic growth remain the priority? /

  A: Organic growth remains the firm's top priority (1A) for the near term. While the higher valuation gives management more optionality to consider M&A as they look ahead to 2027 planning, and the firm will continue monitoring the market for attractive opportunities, the current focus remains singularly on executing the organic growth strategy.