SMARTFINANCIAL THIRD QUARTER 2026 EARNINGS RELEASE AND CONFERENCE CALL - SMARTFINANCIAL INC

Financial Performance:

• Reported record operating revenue of $57.5 million and operating earnings of $18.6 million ($1.10 diluted EPS) for Q3 2026.
• Tangible book value per share increased to $28.50, excluding AOCI to $30.03 (15% annualized QoQ growth).
• Net interest income rose to $49.4 million (+$1.3M QoQ); Net Interest Margin (NIM) held at 3.45%.
• Operating non-interest expense reached $36.4 million (+$2.4M QoQ), driven by one-time sale losses, valuation write-downs on repossessed equipment, and tax credit transaction consulting fees.
• Efficiency ratio elevated to ~63% due to temporary non-recurring costs but expected to improve with operating leverage.
• Provision for credit losses declined to $687,000 from $1.5 million; Allowance for loan losses stands at $45.6 million (94 bps of loans).
• Capital ratios remain solid: CET1 at 9.8% and Total Risk-Based Capital at 12.6%; Tangible Common Equity ratio dipped to 7.8% due to AOCI bond valuation impacts.

Guidance and Future Outlook:

• Projected Q4 NIM to remain stable around 3.25%, balancing asset yield improvements against deposit cost pressures.
• Q4 Non-interest income guidance set at ~$7.5 million; Non-interest expense guidance $35.0–$35.5 million.
• Maintained full-year EPS guidance trajectory toward a $1.00 run rate by year-end, with confidence in continuing growth into 2027.
• Long-term expense growth expected in the 5–6% range, balancing franchise investment with operating leverage.
• Effective tax rate expected to remain in the 19.5%–20.5% range, with potential for future tax credit transactions.
• Loan yield guidance suggests continued improvement, though margin expansion may be offset by deposit cost repricing in the near term.

Business Segments and Product Lines:

• Loans grew $174 million (15% annualized); average loan yield increased to 6.08%, with new production yielding 6.37% (quarter) and 6.78% (September).
• Core deposits grew $163 million (12% annualized); cost of new deposits at 3.33% (weighted average); non-interest-bearing deposits stable at ~$920M (70% of total).
• Equipment finance portfolio (~$145M) showed manageable stress in the transportation/fleet sector due to higher diesel prices, resulting in a slight delinquency uptick but remaining a small portion of the total book.
• Opened a new full-service branch in Columbus, Georgia, to increase market density.
• Mortgage banking segment reported strong Q3 performance, driven by new producer hiring and operational efficiency, though seasonality is expected to dampen Q4 volume.
• Loan-to-deposit ratio maintained at a manageable 87%.

Market and Competitive Landscape:

• Operating in the Southeast with continued momentum in C&I lending; pipeline remains solid despite higher rate environment.
• Management notes "hustle factor" remains high; recruitment of experienced revenue producers is a key competitive advantage.
• Competition in deposit pricing is intensifying ("real" market competition), with the bank targeting 95% of Fed Funds rates for new money markets and CDs.
• Company ranked #11 nationally for financial institutions on Great Place to Work's top 50 mid-sized list.
• No M&A activity prioritized; organic growth and organic expansion remain "1A" strategy.

Risks and Challenges:

• Potential pipeline slowdown in 2027 if Fed rates increase by 2–3 additional hikes, though current impact on demand is not yet visible.
• Ongoing pressure on deposit costs (70% beta assumption) may limit margin expansion despite asset yield repricing.
• Equipment finance exposure to the transportation sector faces strain from high diesel prices, potentially increasing delinquencies.
• One-time expenses related to tax credit transactions and equipment repossession temporarily elevated the efficiency ratio.
• Securities portfolio valuation losses due to rising interest rates reduced Tangible Common Equity ratio.

Management Commentary and Tone:

• Tone is highly confident and optimistic, describing the quarter as "outstanding" with strong organic momentum.
• Management emphasizes disciplined growth, culture, and talent acquisition as core drivers.
• Leadership affirmed commitment to the "high single digits plus" growth guidance despite external headwinds.
• Strong emphasis on recruiting excellence as a strategic differentiator against larger regional banks.

Analyst Questions and Answers:

• Seasonality & Margins: Confirmed Q3 growth was broad-based across new and existing clients; deposit beta currently ~70%; NIM expected to hold steady near 3.25% in Q4.
• Rate Sensitivity: Acknowledged potential pipeline softness in 2027 if rates rise further, but current pipeline remains robust due to aggressive prospecting.
• Fee Income: Q4 guidance reflects mortgage seasonality; Q3 strength attributed to new mortgage banker hiring and efficiency.
• Loan Repricing: Renewal loans repricing at +100–110 bps over original rates; retention rate on renewals is 80–85%.
• Credit Quality: Loss rates expected to remain stable; equipment finance losses considered manageable and typical for the sector.
• Liquidity: Company has ~$80M of excess liquidity remaining before hitting a "floor," sufficient to support loan growth.

Other Key Points:

• The company recently completed a $36 million purchase of transferable energy tax credits at a discount, generating a $2.6 million tax benefit.
• New loan production in September achieved a yield of 6.78%, indicating successful asset yield capture.
• Management explicitly stated they are not planning M&A unless a "unique" opportunity arises that adds distinct value beyond scale.
• NII growth for Q4 is projected at approximately 3% year-over-year.