SMARTFINANCIAL INC. Q3 FY2024 earnings call

Billy Carroll highlighted a strong quarter with execution on messaging. Tangible book value increased significantly, with a 19% annualized quarter-over-quarter increase including AOCI movement. Loan growth was robust, with over 16% annualized, and deposit repositioning was done to lower costs. Costs ticked down to 2.54%. Credit metrics remained very low. Total revenue was $44.1 million, with net interest income expanding and noninterest income stronger than expected. Ron Gorczynski discussed deposit results, noting the bank reduced exposure to a public fund relationship and added broker deposits to offset, with deposits flat linked quarter but core growth over 5% excluding the relationship impact. Net interest margin expanded 14 basis points to 3.11%. Operating noninterest income was $9.1 million. Operating expenses were $30.8 million. The bank established a REIT subsidiary to lower effective tax rate. Billy also mentioned sales team performance, with 15 new sales team members added, and the operations group refining back-of-the-house workflows, along with the company's Great Place To Work certification.

SmartFinancial reported a net income of $9.1 million for the third quarter of 2024, which is $0.54 per diluted share. The company saw strong loan growth with an over 16% annualized increase. On the deposit side, core growth was over 5% after repositioning funding. Total revenue stood at $44.1 million, with net interest income expanding and noninterest income being stronger than expected. Noninterest expenses were $30.8 million. Credit metrics remained favorable with nonperforming assets (NPAs) at 26 basis points. Tangible book value increased to $22.67 per share including AOCI and $23.69 excluding it. Loan-to-deposit ratio was pushed up to 86%, and noninterest bearing deposits mix was around 20%.

Management expects mid to high single digits growth in the near term. For the fourth quarter, noninterest income is forecasted in the mid to high $7 million range, and noninterest expense is expected to be in the range of $31 million to $31.5 million. The company anticipates a future corporate effective tax rate of approximately 20%. Expect operating leverage to continue as revenue grows with minimal expense investments, with the goal of seeing operating leverage start to happen as revenue increases with minimal expense additions.

Risks include interest rate fluctuations that could impact net interest margin, competitive pressures that might affect deposit costs, and potential credit risks such as lingering issues in equipment finance that could impact credit metrics.

Q: Russell Gunther asked about loan growth outlook relative to strong recent results.

A: Billy Carroll and Rhett Jordan responded that they are conservative in projections, expect some paydowns, but sales teams are doing well with strong pipelines and consistent new activity in the pipeline.

Q: Brett Rabatin asked about fee income strength and future.

A: Billy Carroll and Ronald Gorczynski discussed that investment side growth is consistent with added financial advisers, while swaps were higher in Q3 due to loan originations and yield curve shape but not expected to be as strong in Q4.

Q: Steve Moss asked about loan pricing and expenses.

A: Billy Carroll and Ronald Gorczynski talked about loan pricing being affected by Fed cuts but holding reasonable levels, and expenses being managed with focus on talent and expecting operating leverage to continue.

Q: Christopher Marinac asked about net customer gains and hurricane impact.

A: Billy Carroll and Rhett Jordan discussed market share gains from sales efforts and minimal direct hurricane impact on the balance sheet.

Q: Catherine Mealor asked about deposit beta and indexing.

A: Ronald Gorczynski discussed deposit rates indexing and expectations of around 40% beta on the way down and that deposit rate reductions are in line with Fed cuts.