Release Date: October 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SmartFinancial Inc (SMBK, Financial) reported a net income of $9.1 million for the quarter, or $0.54 per diluted share, indicating strong financial performance.
- The company achieved a 19% annualized increase in tangible book value per share, showcasing solid growth in shareholder value.
- Loan growth was robust, with a 16% annualized increase, driven by new relationships and increased funding online.
- Net interest margin expanded by 14 basis points to 3.11%, reflecting effective deposit repositioning and favorable loan yields.
- SmartFinancial Inc (SMBK) maintained strong credit quality with nonperforming loans at 0.26% of total loans, indicating sound risk management.
Negative Points
- The company faced slightly higher noninterest expenses at $30.8 million, primarily due to performance-based incentives and new hires.
- There was a slight increase in charge-offs, particularly from the Equipment Finance division, which could indicate potential credit risk.
- SmartFinancial Inc (SMBK) had to reduce exposure to a large public fund relationship, impacting deposit growth.
- The company's total risk-based capital ratio decreased slightly by 5 basis points to 11.6%, indicating a minor decline in capital adequacy.
- Future noninterest income is expected to be lower than the strong third quarter, suggesting potential volatility in revenue streams.
Q & A Highlights
Q: Can you provide insights into the loan growth expectations for the upcoming quarters, given the strong performance in the past two quarters?
A: William Carroll, President and CEO, explained that while the recent quarters have shown strong growth, the company maintains a conservative outlook, anticipating potential paydowns. Rhett Jordan, Chief Credit Officer, added that pipelines remain strong, supported by robust economic conditions in their markets, and they expect continued new opportunities.
Q: Regarding the net interest margin (NIM), is the 3.10% to 3.15% range a short-term projection, and how do you foresee deposit beta trends with potential Fed rate cuts?
A: Ronald Gorczynski, CFO, clarified that the NIM projection is for the fourth quarter, with expectations for margin expansion into 2025. They anticipate a 40% deposit beta on the way down, reflecting a strong trajectory regardless of rate cuts.
Q: Could you elaborate on the strong fee income from swaps and investment products in Q3, and whether these are sustainable?
A: William Carroll noted that the investment side has been consistently strong due to talented financial advisors and a shift to fee-based models. Ronald Gorczynski mentioned that while Q3 swaps were strong due to market conditions, they do not expect the same level in Q4.
Q: What initiatives are in place to grow core deposits and replace brokered CDs, and how are you managing deposit rates competitively?
A: William Carroll highlighted the focus on balancing deposit growth with rate environments, noting that competitive pressures are settling. Ronald Gorczynski added that recent deposit promos have been successful without significant client pushback.
Q: With the current CRE concentration, does this limit future growth in that area, and how does it affect your strategy?
A: William Carroll stated that while they have added real estate loans, they focus on full relationship CRE lending. Rhett Jordan added that they manage within Fed guidance and are selective in opportunities, ensuring strong credit standards.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
