管理層發言
Hello everyone. Thank you for joining us, and welcome to the SmartFinancial Second Quarter 26 Earnings Release and Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. I will now hand over to Nathan Strall, Director of Investor Relations, to begin. Please go ahead.
Thanks, Erica. Morning, everyone, and thank you for joining us for SmartFinancial second quarter 26 earnings webcast and conference call. During today's call, we will reference the slides and earnings release available in the Investor Relations section of our website at smartbank.net. Billy Carroll, our President and Chief Executive Officer, will begin the call followed by Ronald Gorczynski, our Chief Financial Officer, who will provide additional commentary. We will be available after the call to answer your questions. Our comments today include forward looking statements. These statements are subject to risks and uncertainties, and actual results may differ materially. Factors that could cause these actual results to differ materially are described in our earnings release and SEC filings, which are available on our website. We undertake no obligation to update any forward looking statements as a result of new information, future developments, or otherwise, except as required by law. During today's call, we may reference non GAAP financial measures related to the company's performance. Reconciliations of these measures to the most directly comparable GAAP measures are included in the appendices to the earnings release and investor presentation filed with the SEC on 07/20/2020. And now I will turn it over to Billy Carroll.
Thanks, Nate, and good morning, everyone. Great to be with you, and thank you for joining us today and for your interest in SMBK. As usual, I will open our call with some commentary and hand it over to Ronald to walk through the numbers in greater detail. After our prepared comments, we will open it up with Ronald, Nate, Rhett Miller, and myself available for Q&A. We followed a strong first quarter with an even better second quarter as our team continued to build outstanding organic momentum. The foundation we have worked so hard to build over the past several years is clearly demonstrating its strength as we continue to grow operating leverage. Our team's focus on execution remains outstanding, and the second quarter of 26 is yet another clear example of that. So let me jump right into some of our highlights. First, and as I always say, one of the most important metrics to me, we continue to increase the tangible book value of our company, which is now at $28.22 per share, up from $26.86 at year end. For the quarter, we posted operating earnings of $16.3 million or $0.96 per diluted share with total revenue coming in at $55.9 million. We continue to execute with outstanding growth on both sides of the balance sheet, posting 15% annualized growth in loans and 6% annualized growth in core deposits. Our history of strong credit continues, with only 23 basis points in nonperforming assets, down 2 basis points from the prior quarter. I am very pleased with our credit performance and our extremely low level of NPAs. Operating noninterest expenses also came in on target at just under $34 million as we continue to exhibit our expense discipline. Looking at the first few pages in the deck, you will see our continuation of some very nice trends. We are building on our return metrics and, most importantly, growing total revenue, EPS, and TBV. All of those charts are great graphics to illustrate our execution. So a couple of additional high level comments from me. On growth, our balance sheet expansion continues. We are building a strong foundational sales culture, led by our divisional and regional presidents along with their collaborative credit leadership. The work of these teams has been outstanding. The energy and hustle they exhibit as they focus on new client acquisition is exciting to see. I continue to believe we are among a select top-of-class group of top performing banks when it comes to pure organic growth. As I stated, we grew our loan book 15% annualized quarter over quarter, as sales momentum stayed strong and balanced across all of our regions. Our average portfolio yield, including fees and accretion, held up well at 6.07%. Regarding deposits, again, core deposits were up 6% annualized. Even with some expected second quarter seasonality, we continue to drive nice core deposit growth. It is important to note how we are building this bank with core relationships as we have a keen focus on both sides of the balance sheet. A couple of other key highlights noted in the release bullets include crossing the $6 billion in asset mark, another nice milestone for our team as we grow strategically and profitably. And as I mentioned, our tangible book value per share grew at 13% annualized for the quarter. But in addition to great numbers, I am also very proud of our Great Place to Work recertification. It is great to be recognized for the outstanding culture we are building and the tireless work of our associates in these efforts. As you can see, we are gaining leverage but also gaining momentum, and we are balancing that with appropriate investment in our franchise. We will keep investing in people, technology, and strategically in facilities, but do so while maintaining positive leverage. We are seeing some nice opportunities right now with the disruption taking place in the Southeast, and we want to take advantage of that. The franchise we have built is positioned to effectively compete for business against larger regional players, but also nimble enough to flex down when we need to. It is a pretty nice position to be in. Gaining share and getting deeper in these great markets continues to be our primary focus. So all in all, a very nice way to wrap the first half of 26. I am going to stop there and hand it over to Ronald to dive into some details for us. Ronald?
Thanks, Billy, and good morning, everyone. I will start by highlighting some key deposit results. During the quarter, we continued our momentum in client relationship expansion and new account growth. Nonbroker deposits grew $83 million while new deposit costs increased 8 basis points to 2.90%. While our deposit growth was strong, loan growth of $165 million exceeded deposit production, resulting in the use of $106 million of short-term brokered deposits. Seasonal activity reduced noninterest bearing deposits to 17% of total deposits, reflecting normal second quarter activity including cash use for tax payments. We also experienced some portfolio mix shift as clients continue to optimize balances between interest bearing and noninterest bearing accounts. Even with these dynamics, interest bearing deposit costs rose just 2 basis points to 2.62%. Liquidity remained strong with a loan to deposit ratio of 87%. Looking ahead, we expect competition for deposits to remain elevated which may continue to pressure funding costs in the near term. Turning to our margin, net interest income was $48.1 million, up $2.2 million from the first quarter, and our net interest margin expanded to 3.52% compared with 3.48% last quarter. The margin improvement was driven by asset yields outpacing the modest increase in funding costs. Loan yields increased 5 basis points assisted by new production coming on above the portfolio yield, continued loan portfolio repricing activity, and higher loan fees from certain loan prepayments. Excluding loan prepayment fees, our normalized net interest margin was 3.48% for the quarter, in line with our expectations. New loan production remained steady with a weighted average yield of 6.40% for the quarter. Overall, our margin story continues to be about disciplined pricing, good balance sheet management, and the benefit of loan pricing in this rate environment. Looking ahead, we expect continued improvement in asset yields to support modest margin expansion over time. However, near-term deposit cost pressure may reduce third quarter margin by a few basis points, which would result in a forecasted margin in the 3.45% range. Turning to credit, our provision for credit losses was $1.9 million down from $3.2 million last quarter. After a $392 thousand reduction in the liability for unfunded commitments, total provision expense was $1.5 million, primarily from loan growth. As a reminder, the higher provision last quarter was driven by CECL modeling changes that we discussed on our prior earnings call. Our allowance to loans ratio remained stable at 97 basis points, which we believe is appropriate for the portfolio and current environment. As Billy had mentioned, our asset quality metrics remain strong, with nonperforming assets of just 0.23% of total assets while net charge-offs were limited to 5 basis points. We remain confident in the quality of our loan portfolio and in the discipline our bankers and credit team continue to demonstrate as we grow. Operating noninterest income was stable at $7.9 million for the quarter. Higher mortgage banking income and stronger interchange and debit card fees helped offset lower capital markets revenue. On expenses, operating noninterest expenses increased slightly to $34 million, the low end of our guidance. This increase was primarily driven by salary and benefit expenses reflecting stronger production-related variable compensation and a full quarter's expense from our annual merit increases. FDIC insurance expense also returned to its normalized run rate. Our operating efficiency ratio remained in the low 60% range. We do expect some expense growth as we invest in our expanding markets including some branch facility expansion, but we will continue to manage the broader expense base carefully and remain focused on improving efficiency over time. For the third quarter, we expect noninterest income to be approximately $8 million and noninterest expense is expected to be in the range of $34.5 to $35 million. Salary and benefit expenses are expected to range from $21 to $21.5 million reflecting both stronger production levels and related incentive compensation and additional new hires. As always, incentive based compensation accruals will move with performance and may vary throughout the year. I will wrap up with capital. Our capital position remains strong, with a consolidated TCE ratio of 8% and total risk-based capital ratio of 12.7%, well above well-capitalized standards. This position provides flexibility to support growth, maintain balance sheet strength, and continue building long-term shareholder value. With that said, I will turn it back over to Billy.
Thanks, Ronald. As you can tell from Ronald's comments, our trends continue to have a nice trajectory. We are successfully executing on the leveraging phase of growth for our company. On return metrics, we have moved through the 1% ROA target and feel good about seeing that 13% plus number on ROE. You have heard me discuss on our last couple of calls our internal 4x4 challenge: hitting a $4 EPS run rate by the fourth quarter of 26, basically hitting $1 per share EPS by Q4 of this year. This quarter has been an excellent step toward reaching this target. We still have a little bit of work to do as higher funding might pressure margin a bit more than expected, but I really like our chances of accomplishing this goal. The second half of 26 will probably look a lot like the first half, with focus on organic growth and increasing share in our markets. Pipelines are very solid, and I think we can continue growing at a high single digit plus pace or possibly a little better. Talent acquisition continues to be a high priority for our company. The current market disruption is opening the door, and over the last few months, we have added some great bank talent in Nashville, Tennessee; Huntsville, Alabama; Tallahassee, Florida; and Columbus, Georgia. We are seeing this opportunity throughout our footprint. Speaking specifically on Columbus, we are thrilled with what that team is doing right out of the gate, and we are not even in our permanent facility yet. We are very bullish on this new market. So we will continue to look for these organic growth opportunities and remain very focused on recruiting. I believe we have a lot to offer talented bankers. We continue to be one of the brightest banking stories in the Southeast: outstanding markets that grow paired with strong, experienced bankers and a very focused team. To summarize, we have had a very solid first half of 26, and we are very well positioned. We are executing, growing revenue, EPS and book value while staying prudent on expense growth. We remain optimistic about our ability to add balance sheet growth and still have a nice tailwind coming from rate resets in our loan portfolio over the coming quarters. Credit continues to be very sound, and on goal setting, we are executing on this year's 4x4 initiative as we have clear line of sight to a $4-plus earnings per share target. Our future is bright, and I appreciate the work of our SmartFinancial SmartBank team and all the efforts of our associates. I am very proud of what we have going on here at SMBK. We will stop there and open it up for questions.
分析師問答
We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brett Rabatin from Stonex Group. Your line is open. Please go ahead.
Hey, good morning. Wanted to start on just obviously really strong balance sheet growth this quarter. Wanted to start on the deposit side and just confirm, Ronald, I think you said 2.9% cost of new deposits. Was that the right number? And then just wanted to get a little more color around the narrative that everyone's talking about with deposit costs possibly increasing from here. Just how you guys see that affecting possibly your growth and what you are seeing in terms of new funding?
Yeah. Ronald, do you want to start with the spot yield question?
Yeah, Brett, our production for Q2 was 2.90% on new deposits. Less brokered, we were modeling about a 1 to 2 basis point increase in our cost going forward. In the quarter, we did lay in some brokered funding for our strong loan growth. While brokered funding does carry a higher cost, we view it as a disciplined and temporary tool for our funding. For the most part, going forward we are looking at about 1.5 to 2 basis points per month, at least for Q3. Then we expect to back that down as we can increase our deposit production and wean off the brokerage side of it.
I will also add, Brett, our pure deposit production has been pretty solid. We did see a little seasonality in Q2. Historically, we make up a lot of that gap in the second half of the year. So we are optimistic we can come in at a pretty good clip as balance growth picks back up. Deposit growth pressure has been a bit more prevalent with rates staying higher than we originally thought, but it is not anything we do not feel we can manage. Margin, as Ronald said, might be a little flatter next quarter, but we still feel good about our ability to expand it going forward.
Okay, that is helpful. And then, Billy, you have talked about feeling pretty comfortable being a high-single-digit grower and possibly better. But the last two quarters in particular have been a lot stronger. Does the pipeline suggest you could continue that, and maybe you are being cautious with payoffs or lending competition on rate being a factor? Any thoughts on double- versus high-single-digit growth?
I do sandbag a little bit, but we try to build in some payoffs and paydowns into our modeling assumptions. One of the things we've been really good at is capturing back book repricing. We built in a lower percentage of retention for repricing than we are actually getting. We are getting a lot of retention on the back book reprice. Teams are doing a nice job elevating yields at renewal, and we are keeping most of that business. Rate competition is still tough, but when we looked at pipelines before the call to refresh our numbers, we feel good about them. The credit and sales teams are doing a great job getting deals through the pipeline. I still think we could be at that plus/minus 10% number, depending on payoffs and paydowns. It's pretty equally balanced across our zones; all of our markets and teams are executing well right now.
Your next question comes from the line of Russell Gunther with Stephens. Your line is open. Please go ahead.
Hey, good morning, gentlemen. Wanted to follow up on the margin discussion. Maybe the flip side to Brett's question, can you help with where directionally you would expect loan yields to head from here? Level set us in terms of where new production came on in 2Q and where that pipeline yield sits today would be helpful.
Yeah. Ronald, do you want to take that?
Good question. New production has been coming on at about a 6.40% weighted average yield for the quarter. Due to portfolio churn, we believe we should be able to increase our portfolio yields probably 3 to 4 basis points quarterly from here on for the next few quarters. Even though Q3 may be flat, we see further expansion as we look into the future, so we are in a good spot with our loan book.
That is helpful, Ronald. Thank you. And then for my follow-up, perhaps more intermediate term as you think about balancing franchise investment and talent—sounds like you have made some great strides as well as potentially in tech—how should we think about a normalized core expense growth rate for SmartBank with the goal of delivering positive operating leverage?
For Q3, we did see an uptick in variable compensation due to stronger production. We have layered in some new hires to support growth and we see that incrementally in Q3. We also have seasonality in our expenses, primarily occupancy running through the hot summer months in our footprint. Normal forecasting ebbs and flows due to franchise growth. We are looking to keep our expenses within a $35 million plus or minus range over the next quarter or two. That is, of course, subject to production-related compensation, but we watch expenses tightly here.
Russell, Ronald and I spend a lot of time on this. The key now is to keep a fairly tight band on expenses while continuing to make appropriate investments. We can do that over the next several quarters as we add a new branch or two and some revenue-producing hires in our zones. We also have a nice tailwind from repricing, especially as you look into Q4 with rate resets on the back book and into early 2027. We think the revenue side will continue to keep pace and allow us to maintain positive operating leverage.
That is great, guys. Appreciate all the help. Thanks for taking my question.
Your next question comes from the line of Catherine Miller with KBW. Your line is open. Please go ahead.
Thanks. Good morning. Wanted to ask about the loan fees that were in loan yields this quarter. Can you repeat what that impact was?
We had a specific relationship that was an acquired loan where we had a credit mark embedded. When it paid off, we accreted that through income. Isolated, it equated to about $400 to $500 thousand, which was about 4 basis points to loan yield.
Okay, perfect. And that is 4 basis points to the loan yield, not NIM?
Correct. It was to loan yield.
Perfect. So if you strip that out, then you have core expansion and next quarter you are kind of stable at this level. Is that a fair way to think about it?
Yes, Catherine.
Perfect. And this is a bigger picture question. You are well on your way to your $1 EPS target in the fourth quarter. You have hit a 1% ROA and you are at this 13% ROE. You have been such a great story of profitability improvement over the past 1.5 years. Is the path from here that we are just kind of stable at these profitability levels but with really strong 10% balance sheet growth, or do you see other ways to improve profitability levels over the course of the year?
I think we can continue to improve, especially as you look into 2027. It is tougher to forecast without knowing exactly what rates will do, but over the next four quarters we think we can continue to expand ROA and pick up EPS growth. As long as the team keeps expenses within a reasonable range and we get repricing plus new growth, we can expand return targets a bit in the near term.
Okay, thanks. Appreciate it.
The next question comes from the line of Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.
Yes, good morning, everyone. I'm following up on Catherine's question. The positive momentum over the last couple of years has been tremendous. Bill, you said you feel like you are even gaining momentum today. Is there anything out there that would give you pause about something that would maybe derail that momentum? Are you getting to a point where capacity becomes strained at any point, or what would stop this positive momentum, if anything?
Stephen, that's a good question. Obviously something outside our control, like a major macro event, could derail momentum. But let's keep it positive—barring a major external shock, we feel good about our trajectory.
From my standpoint, the biggest potential headwind would be if rates stay up and funding becomes more challenging. That could create a heavier fight on NIM even though we are positioned well from an AL standpoint. So sustained higher rates and funding cost pressure could nip at our margin, but outside of that, we feel in a good position.
I feel good about the team's ability to keep growing. The disruption in the market has given us opportunities and the team is starting to hit on most cylinders. We still have some gaps to close, such as certain technology initiatives, but I do not think those will impede us from hitting growth targets.
We operate in the Southeast, and every one of those markets is doing well. The economy is in good shape, and our folks are out working everyone else. Barring a crazy macro event, we expect to continue making progress and are excited about it.
That's a good answer. I appreciate it. One more question: with the stock performing so well given your trends, does M&A start to come back on the table at any point in time, given the relative strength of your currency, to accelerate trajectory? Could that add cylinders to the engine?
Right now we remain singularly focused on organic strategy. With the valuation lift, M&A is something we could start to think about more as we look into future quarters. But for now, organic growth is our primary strategy, and any M&A would be considered secondary or opportunistic as we plan for 2027 and beyond.
Makes sense. Appreciate it, and congrats again on a great quarter and couple of years.
Your next question comes from the line of Steve Moss with Raymond James. Your line is open. Please go ahead.
Hey, good morning guys. Maybe starting on the margin dynamics: with the securities book, is this kind of as low as you think it will go, or could we see a little more runoff in the book given deposit competition?
I think our securities book is stabilized. It could drift slightly lower, but we are in a good spot. Our investments as a percent of total balance sheet assets will stay within a 10% to 12% range, and we will continue to use the portfolio for pledging. We still have on-balance-sheet cash and currently are probably $75 to $100 million heavier with the late quarter brokered entrance, so we may use some balance sheet cash going forward.
Okay. And then Ronald, did I hear you correctly that loan yields are flattish for 3Q and then, given back book repricing, probably 6 or 7 basis points in the fourth quarter?
Yes. Q3 may be relatively flat, and we do expect further expansion later in the year, including in Q4.
So then kind of a close to mid-3.5% margin in the fourth quarter?
Our base NII was about $48 million this quarter. We are probably targeting margin closer to the mid-3.50% range, around 3.53% give or take.
Got you. And in terms of the loan pipeline, the good growth geographically across the board—going forward, is the pipeline mix more tilted towards commercial and industrial, or is it still balanced?
Rhett, do you want to give some color on composition and pipeline mix?
Sure, Steve. If you noticed on the chart in the package, our portfolio mix continues to be stable with regard to product mix and geographies. The pipeline is a good representation of that same trend. We have a good mix of geographies across our footprint as well as product types, so we expect throughput from the pipeline to keep that same trend in forward-looking quarters.
Appreciate that. So thinking about loan growth, this mid-3.5% quarter-over-quarter growth looks sustainable for the second half?
Yes, we believe we can stay in that 3% plus range, perhaps around 3.5% quarter over quarter, acknowledging some variability for payoffs and paydowns but generally sustainable based on current pipelines.
Last one for me: what effective tax rate are you expecting going forward?
Going forward, about 19.5%. In second quarter we had to do some catch up from the first quarter, so going forward plan on roughly 19.5%.
You guys made too much money, so nice problem to have. We'll keep working on it.
Your next question comes from the line of Christopher Marinac with Janney Montgomery. Your line is open. Please go ahead.
Hey, good morning. I wanted to ask about reserve level and whether there is flexibility given the low charge-offs within your CECL modeling and framework over many years for the reserve to incrementally fall in the future, or would you prefer to keep it where it is?
That CECL model question is a good one. Ronald, I'll let you take it.
We probably do not see it going lower. We have been targeting around 98 basis points including our qualitative factors, and we are comfortable where it sits. I do not envision it going lower in the near future.
That is great. Thank you. And, Billy, as you have had success in markets like Columbus, are you seeing other new entrants in that same market, or are you pretty much alone in your entry there?
We have not seen new entrants so much as other firms flexing into the zone a bit more. Columbus is a really good zone, and as we've gotten to know the market over the last year, we are excited about the team and opportunities there. Some competitors are trying to recruit and add bankers, but I like our chances and the path ahead in Columbus and across our zones.
We are really excited about what we have going on in Columbus. The team model fits our culture and mimics a lot of our other markets. It has been a good fit.
Thank you both. I appreciate you taking our questions this morning.
There are no further questions at this time. I will now turn the call back to Miller Welborn, Chairman of the Board, for closing remarks.
Thanks so much. I appreciate everybody joining us today. Thanks for listening in and for caring about the franchise we are building, and we hope you have a great day.
This concludes today's call. Thank you for attending. You may now disconnect.