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

Explicit Guidance:

• Q4 2026 Financials: Operating non-interest income expected at ~$7.5 million; operating non-interest expense projected at $35.0–$35.5 million; salary and benefit expenses forecasted to range from $21.0–$21.5 million.
• Net Interest Margin (NIM): Expected to remain flat in Q4 2026 within the 3.25% range; management anticipates modest margin expansion over time supported by improving asset yields, though offset by near-term deposit cost pressure.
• Effective Tax Rate: Forward-looking effective tax rate guidance set at 19.5%–20.5%; potential for occasional tax credit transactions to be utilized for tax planning.
• EPS Trajectory: Management reaffirms confidence in achieving the "$1 run rate" EPS target by year-end 2026 and maintaining an upward trajectory into 2027.
• Cost Growth Outlook: Core non-interest expense growth forecasted for 2027 to remain in a 5–6% range, driven by strategic franchise and talent investments while targeting positive operating leverage.

Business-Segment Outlook:

• Loan Growth: Continuation of "high single-digit plus" organic loan growth guidance; production remains broad-based with strength in C&I lending and new relationship acquisition despite a potential pipeline slowdown risk in 2027 if 2–3 additional Fed rate hikes occur.
• Deposit Growth: Expectations for continued organic deposit growth; new deposit production weighted average cost at 3.33% for Q3, with spot rates (7-month CDs ~4.10%, 13-month CDs ~4.15%, Money Markets ~3.60–3.70%) indicating pricing pressures that will keep overall blended costs in the 3.35% range.
• Mortgage Banking: Q4 fee income expected to dip due to seasonal slowdown in closings; however, the pipeline remains solid with momentum from new banker hires, and volume is expected to outperform peers in a challenging rate environment.
• Equipment Finance: Portfolio size ~$145 million; managing slight delinquency uptick in transportation sub-segment driven by diesel prices, but viewed as manageable and unlikely to impact overall allowance levels significantly.
• Branch Expansion: Columbus, Georgia full-service center opened; strategy focuses on building density and market share in the region, with further expansion expected as part of the "leverage phase" of growth.

Market and Competitive Outlook:

• Pricing Power: Competitive deposit pricing environment persists ("calls for exception pricing" increasing); company maintains discipline while earning incremental lift on asset yields (new loan yields ~6.78% in September) to offset funding costs.
• Share Shifts & Pipeline: Strong "hustle factor" in prospecting expected to sustain share gains; retention rate for renewals/repricings at 80–85% of loans at 100–110 bps over original rates.
• Demand Trends: Loan demand remains resilient despite 7%+ origination rates; potential for slowdown in 2027 contingent on cumulative rate hikes, though current pipeline activity is steady.

Macro / Industry Outlook:

• Interest Rates: Management expects a Fed rate hike in December 2026; assumes a neutral impact on growth from further hikes in 2027 provided the pipeline holds, but acknowledges risk of pipeline softness with 2–3 additional hikes.
• Economic Impact: Rising rates present challenges but are factored into guidance; management views the current rate forecast as a hurdle to be managed rather than a blocker to the 5–7% growth strategy.
• Inflation/Costs: Deposit cost pressure (beta ~70%) is expected to continue offsetting asset yield improvements in the near term.

Strategic Initiatives:

• Organic Growth Priority: "Number 1A" strategy remains organic growth; M&A is deprioritized and would only be considered for "unique" transactions that offer distinct value beyond scale.
• Talent Acquisition: High priority on recruiting experienced revenue producers; recent wins cited as a key competitive advantage to drive future density and share.
• Infrastructure Investment: Continuing investments in technology, revenue-producing talent, and strategic facilities to support long-term operating leverage.
• Capital Allocation: Capital position remains solid (TCE ratio 7.8%, CET1 9.8%); flexibility maintained for organic growth and balance sheet strength; no specific buyback or dividend increase guidance provided beyond maintaining current trajectory.

Risks and Headwinds to Outlook:

• Interest Rate Sensitivity: Risk of loan pipeline slowdown in 2027 if the Fed executes 2–3 additional rate hikes; deposit cost stickiness could compress net interest margin expansion.
• Credit Quality: Potential for continued minor upticks in delinquencies within the equipment finance (transportation) segment due to elevated diesel prices.
• Expense Management: Near-term expense ratio elevated (63%) due to one-time costs (sale losses, tax credit consulting) and incentive comp; full realization of operating leverage from recent investments may take time.
• Seasonality: Q4 fee income expected to be lower due to mortgage banking seasonality.

Management Tone on the Future:

• Confidence: High confidence ("very bullish," "future is bright") in the ability to sustain double-digit organic growth on both balance sheet sides and hit the $1 EPS run rate.
• Strategic Focus: Repeated emphasis on "disciplined growth," "execution," and "organic momentum" as the primary drivers of value; dismissive of M&A as a near-term focus.
• Resilience: Management expresses strong belief in the franchise's ability to compete against larger regional banks and navigate rate volatility through active prospecting and relationship expansion.

Miscellaneous:

• AOCI Volatility: Tangible book value growth is currently being impacted by AOCI fluctuations (bond portfolio fair value decline due to rising rates), though TCE ratio increased to 9.8%.
• Regulatory/Compliance: No specific new regulatory headwinds mentioned beyond standard industry conditions; CRA (Community Reinvestment Act) loss rate remains stable.