SmartFinancial (SMBK) Q3 2026 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Tuesday, Oct. 20, 2026

CALL PARTICIPANTS

• Investor Relations - Nathan Strall
• President and Chief Executive Officer - Billy Carroll
• Chief Financial Officer - Ronald Gorczynski
• Chairman of the Board - Miller Welborn

TAKEAWAYS

• Operating Earnings -- $18.6 million, or $1.10 per diluted share, compared to $16.3 million in the previous quarter.
• Operating Revenue -- $57.5 million, representing a record for the company and outpacing noninterest expense growth.
• Net Organic Loan Growth -- $174 million, reflecting 15% annualized growth driven by broad-based production across all regions and commercial and industrial lending.
• Core Deposit Growth -- $163 million, representing 12% annualized growth driven by new account acquisition and relationship expansion.
• Tangible Book Value Per Share -- $28.50, an increase of 15% annualized when excluding the impact of accumulated other comprehensive income.
• Net Interest Income -- $49.4 million, an increase of $1.3 million from the prior quarter as balance sheet growth offset margin pressure.
• Net Interest Margin -- 3.45%, down from 3.52% in the prior quarter due to higher funding costs.
• Average Loan Yield -- 6.08%, including fees and accretion, representing an increase from 6.07% in the prior quarter.
• New Loan Production Yield -- 6.37% for the quarter, with September production averaging 6.78%.
• Cost of Total Deposits -- 2.26%, up 11 basis points from the prior quarter due to competitive pricing environments.
• New Deposit Production Cost -- 3.33% for the quarter, increasing to 3.36% during September.
• Non-Performing Assets -- 25 basis points of total assets, indicating sound credit quality across the portfolio.
• Net Charge-Offs -- 6 basis points annualized, remaining at manageable levels despite a slight uptick in equipment delinquencies.
• Efficiency Ratio -- 63%, elevated from 60% in the prior quarter due to onetime equipment finance losses and professional fees.
• Provision for Credit Losses -- $687,000, down from $1.5 million in the prior quarter, aided by a $1.7 million net release from a loan-specific reserve.
• Noninterest Expense -- $36.4 million, including approximately 1 million in losses and write-downs related to repossessed equipment.
• Tax Credit Benefit -- $2.6 million, resulting from the $36 million purchase of transferable energy tax credits.
• Common Equity Tier 1 Ratio -- 9.8%, reflecting a solid capital position to support organic growth.
• Tangible Common Equity Ratio -- 7.8%, down from 8% in the second quarter primarily due to changes in accumulated other comprehensive income.
• Q4 Guidance: Net Interest Margin -- 3.45% (approximately), as management expects asset yield improvements to be offset by deposit cost pressure.
• Q4 Guidance: Noninterest Expense -- $35 million to $35.5 million, with salary and benefits projected between $21 million to $21.5 million.
• Q4 Guidance: Noninterest Income -- 7.5 million (approximately), reflecting expected seasonal softness in mortgage banking.
• Effective Tax Rate -- 19.5% to 20.5%, projected for future periods following the recent tax credit transaction.
• Noninterest-Bearing Deposits -- $920 million, representing approximately 17% of total deposits.
• Loan-to-Deposit Ratio -- 87%, which management reported as a manageable level for funding growth.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Carroll noted, "We did have a slight uptick in delinquencies in our fountain equipment subsidiary, as higher diesel prices have strained some transportation business," representing a specific strain within the loan book.
• Gorczynski warned that near-term deposit cost pressure is expected to offset the benefits of improving asset yields, which may impact future margin expansion.

SUMMARY

SmartFinancial, Inc. (NYSE:SMBK) reported record operating revenue and expanded its return metrics during the third quarter. Management reported organic growth on both sides of the balance sheet, supported by broad-based loan production and core deposit expansion. The company opened its first full-service branch in Georgia and continued its focus on talent acquisition as a primary growth lever. Strategic efforts remain centered on leveraging the existing infrastructure to increase earnings per share and tangible book value.

• Management expressed confidence in achieving its "4 by 4" challenge, which targets a specific earnings per share run rate of 1.00 dollar.
• Carroll indicated that the company remains focused on organic growth, stating, "organic continues to be 1 a," regarding the company's expansion strategy.
• The company reported a cumulative deposit beta of approximately 70% since the start of the current interest rate cycle.
• Regarding potential mergers, Carroll stated that potential acquisitions must provide unique strategic value beyond simple increases in scale.
• Management projected that for every future federal funds rate hike, the company's net interest margin impact would be essentially neutral.
• Salary and benefit expenses increased to $21.6 million, reflecting higher production-related variable compensation and additional hiring of revenue producers.

INDUSTRY GLOSSARY

• ACL: Allowance for Credit Losses; a reserve established by a bank to cover estimated losses on loans and leases in its portfolio.
• AOCI: Accumulated Other Comprehensive Income; a component of shareholders' equity that includes unrealized gains and losses on certain investments.
• C&I Lending: Commercial and Industrial lending; loans made to businesses for working capital, equipment purchases, or other corporate purposes.
• CET1 Ratio: Common Equity Tier 1 Ratio; a measure of a bank's capital strength comparing its core equity capital to its total risk-weighted assets.
• Fountain Equipment: A subsidiary of SmartFinancial that specializes in equipment financing and leasing.
• NIM: Net Interest Margin; the difference between interest income generated and the amount of interest paid out, relative to interest-earning assets.
• NPAs: Non-performing assets; the sum of loans that are 90 days or more past due and other repossessed assets.
• TCE Ratio: Tangible Common Equity Ratio; a measure of a bank's capital adequacy evaluating core equity capital against tangible assets.
• 4 by 4 Challenge: A strategic performance goal mentioned by management linked to achieving a $1.00 earnings per share run rate.

Full Conference Call Transcript

Operator: 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 Nate Strall, of investor relations to begin. Please go ahead.

Nathan Strall: Thanks, Erica. Good morning, everyone, and thank you for joining us for SmartFinancial's third quarter 2026 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.com. 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 to answer your questions at the conclusion of our call. 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 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 of the 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. Reconciliation 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 10/19/2026. And now, I will turn the call over to Billy Carroll.

William Young Carroll Jr.: 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 then I will 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. The third quarter was another outstanding 1 for our company. We continue to build strong organic momentum generate a-- generated record operating revenue, and expanded our return metrics.

The foundation we have built over the past several years is producing the results we expected, and our team remains highly focused on disciplined growth and long term shareholder value. So let me jump right into some of the highlights. First, and as I always say, 1 of the most important metrics to me, we continue to increase the tangible book value of our company. Tangible book value per share was up ending the quarter at $28.50. Tangible book value excluding AOCI increased to $30.03. That represents 15% annualized quarter over quarter growth excluding AOCI. For the quarter, we posted operating earnings of $18.6 million or $1.10 per diluted share and record operating revenue of $57.5 million.

We did have a few moving parts that netted out positive to operating earnings this quarter, including a nice tax credit transaction. that Ronald will discuss in a moment. We again delivered excellent growth on both sides of the balance sheet, with 15% annualized organic loan growth and 12% annualized core deposit growth. Our return metrics, though slightly aided quarter, continue to strengthen. Operating return on average assets increased to 1.20% and operating return on average tangible common equity increased to 15.1%. Credit quality remains very sound. Non performing assets were only 25 basis points of total assets, and annualized net charge offs were 6 basis points.

We did have a slight uptick in delinquencies in our fountain equipment subsidiary, as higher diesel prices have strained some transportation business but overall, very manageable as that continues to be a relatively small piece of our overall loan book. And we were thrilled to open our full service Columbus, Georgia financial Center during the quarter. This is our first branch in this great state, and an important step in building density in that market and supporting the strong start our Columbus team has made. Looking at the first few pages in our deck, you can see the continued progress in revenue, EPS, return metrics, and tangible book value.

The consistency of those trends demonstrates the strength of our organic strategy and the operating leverage we are building. A couple of additional high level comments from me on growth, we added $174 million in loans this quarter, representing 15% annualized. The growth remains broad based, with strong production across all regions and continued momentum in C and I lending. Our average loan portfolio yield, including fees and accretion, ticked up to 6.08%. Regarding deposits, core deposits increased $163 million or 12% annualized during the quarter. Our focus on both sides of the balance sheet continues to pay off, and loan to deposit ratios maintain very manageable at 87%.

Deposit pricing remains competitive and higher funding costs pressured the margin modestly. But net interest income still increased nicely, to $49.4 million as balance sheet growth more than offset that pressure. On expenses, operating noninterest expense was $36.4 million. The quarter included some slightly higher onetime items. Along with continued investment in our people and franchise. Even with that increase, year over year operating revenue growth outpaced operating expense growth. We will maintain discipline around expenses, but we will also continue making investments that support growth including revenue producing talent, technology, and strategic facilities. So all in all, another excellent quarter of continued execution.

I am going to stop there and hand it over to Ronald to dive into the details. Ronald?

Ronald J. Gorczynski: Thanks, Billy, and good morning, everyone. I will start with deposits. During the quarter, our non broker deposits grew 163 million driven by continued new account growth and strong relationship expansion. The weighted average cost of new deposit production increased 43 basis points to 3.33% for the quarter and was 3.36% for September. Noninterest bearing deposits were essentially unchanged at 920 million representing approximately 17% of total deposits. Interest bearing deposit costs increased 9 basis points to 2.71% while total deposit costs increased 11 basis points to 2.26%. Loan balances increased 174 million with growth diversified across all loan categories and geographies. New loan production carried a weighted average yield of 6.37% for the quarter and was 6.78% for September.

Our growth on both sides of the balance sheet reflects the consistent execution of our relationship-based strategy. Our bankers remain focused on pairing quality loan growth with broader client relationships operating accounts, and core deposits. Turning to margin. Net interest income increased $1.3 million to 49.4 million and net interest margin was 3.45%, in line with our stated guidance. Looking ahead, we expect continued improvement in asset yields to support modest margin expansion over time. However, near term deposit cost pressure is expected to continue to offset some of that benefit. As such, for the fourth quarter, we currently expect net interest margin to remain around current levels in the 3.45% range.

Our provision for credit losses declined to 687 thousand from $1.5 million in the prior quarter. This included approximately $1.1 million of provision partially offset by a $371 thousand release from our unfunded commitments liability. The provision also benefited from a $1.7 million net release of a loan specific reserve driven by a loan payoff. Overall, the allowance for credit losses increased slightly to 45.6 million and our allowance to loans ratio declined to 94 basis points. We believe the allowance is appropriate for the portfolio and current environment. Operating noninterest income was 8.1 million up $245 thousand from the prior quarter, led by service charges and mortgage banking income.

Together with higher net interest income, this drove operating revenue to $57.5 million reflecting continued momentum across the company. Operating noninterest expense totaled 36.4 million up $2.4 million from the prior quarter. Approximately $1 million of this increase was attributable to sale losses and valuation write downs on repossessed equipment and our equipment finance subsidiary. Salary and benefit expenses also increased primarily due to higher production related variable compensation. Professional service expense included approximately $300 thousand of consulting and placement costs associated with our tax credit purchase. Adjusting for the equipment finance and tax credit expenses, our noninterest expenses were in line with our stated guidance. Our operating efficiency ratio increased to approximately 63% from 60% in the prior quarter.

Although the ratio was elevated this quarter due to the aforementioned items, we expect to generate positive operating leverage over time as our recent investments contribute more meaningfully to revenue. We will continue making targeted investments in our expanding markets, while maintaining discipline across the broader expense base. For the fourth quarter, we expect operating non interest income of approximately $7.5 million and operating non interest expense of $35 million to $35.5 million Salary and benefit expenses are expected to range from $21 million to $21.5 million reflecting production related incentive compensation and additional hiring. Incentive compensation accruals will vary, with performance. Turning to taxes. Income tax expense was $1.9 million compared with $4.2 million in the prior quarter.

During the quarter, we purchased $36 million of transferable energy tax credits at a discount to face, resulting in a $2.6 million income tax benefit Looking ahead, we may consider similar transactions from time to time as part of our tax planning. Our effective tax rate going forward will be in the range of 19.5% to 20.5%. I will wrap up with capital. Our tangible common equity ratio was 7.8% compared with 8% in the second quarter. The decline in the tangible common equity ratio was primarily attributable to changes in AOCI, as rising interest rates reduced the fair value of our bond portfolio during the quarter.

In contrast, our estimated common equity Tier 1 ratio increased to 9.8% and our estimated total risk based capital ratio was 12.6% at quarter end. Our capital position remains solid and provides flexibility to support organic growth maintain balance sheet strength and continue building long term shareholder value. With that said, I will turn it back over to Billy.

William Young Carroll Jr.: Thanks, Ronald. As you can tell from Ronald's comments, we continue to successfully in a leveraging phase of our company's growth. Our outlook remains centered on the strategy that has brought us here. Getting deeper in our markets, growing share, expanding high value relationships, recruiting great bankers, and leveraging the infrastructure and capabilities we have built. Our pipelines remain solid. And we continue to see opportunities across our footprint. The higher rate forecast does present, some added challenges as we look ahead, but I am going to continue to stick to our high single digits plus growth guidance even though we bettered that in recent quarters. Talent acquisition remains a high priority.

Market disruption across the Southeast continues to create opportunities for us to add experienced revenue producers. who fit our culture. We have added some strong bankers in several markets this year. And our ability to recruit remains 1 of our company's key competitive advantages. We had several very nice recruiting wins this quarter, and have several other great talent members in the pipeline currently. Again, Columbus, Georgia is a good example of our strategy in action. As we opened our full service financial center during the quarter. Right in the heart of Columbus' main business district. We are very bullish about the opportunity to build meaningful relationships and market share there. To summarize, we are positioned very well.

We are executed. Posting record operating revenue this quarter. We are producing, posting double digit organic growth on both sides of the balance sheet. We are managing risk as credit remains very sound and we are winning on talent. As we continue to add outstanding new team members. I also wanna close with a huge shout out to our associates as our company was recently named to Great Place to Work's list of top 50 midsized companies in the country. And we also ranked No. 11 nationally in the financial institutions category. This is another great statement on the culture that this team is creating.

Our future is bright, and I appreciate the work of our Smart Financial and SmartBank team and the efforts of all of our associates. I am extremely proud of what we are building here at SMBK. I will stop there, and we will open it up for questions.

Operator: We will now begin the question and answer session. If you would like to ask a question, To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the queue. Your first question comes from the line of Will Jones with KBW. Your line is open. Please go ahead.

Will Jones: Yeah. Hey. Brett. Good morning, guys.

William Young Carroll Jr.: Hey, Will.

Will Jones: Hey. Another really strong quarter of growth on both sides of the balance sheet, loans and deposits. I know last quarter, we spoke about some deposit seasonality that we would see on the back half of the quarter that may be supporting some of the growth we saw. Could you speak to maybe any seasonality in this quarter's results and what you would expect to maybe flow through into the balance of this year?

William Young Carroll Jr.: Ronald, you wanna jump in on that 1?

Ronald J. Gorczynski: Yeah. We did get a pickup really for Q3 as throughout the board, not only new relationships, but building of the existing client base. So I think we are I think we are we are still looking for a good growth quarter for the fourth, and we are out of our seasonality trend. Our historical trending for that.

Will Jones: Yeah. Got it. Okay. And then I think, Ronald, I heard you say the new deposits in the quarter were $3.30. Is that did I hear that right?

Ronald J. Gorczynski: Correct. 3.33 for the quarter. Yes.

Will Jones: Okay. And as we just kinda model out and think about deposit betas moving forward, could you just maybe walk us through where you would level-set expectations there. And hear you that margin may be more stable over the near term as some of your repricing on the asset side is offset by deposit costs. Is that how we should think about additional incremental hikes from here? I know the forward curve, you know, would imply maybe a few more hikes coming into 2027. You know, is a stable margin where you would, could kind of peg margin performance as we think about additional hikes. In the future?

Ronald J. Gorczynski: Yeah. First, we are about since the new rate. Since the rates hiked again, we are probably running around 70% beta at this point in time. You know, we are really so neutral. We are really not gonna be affected by rate hikes or rate decreases at this point. A lot of our expansion that is, you know, our modest expansion throughout 2027 is really due to our repricing book. We will see a per. Incremental lift going through 2027 So as far as rate hikes, we should be fairly neutral throughout each rate hike. Which, by the way, are our guidance does include a rate hike in December.

Will Jones: Yeah. Okay. And then just fair to say, I know we are about a $1 EPS target by the end of this year. Feels like things are still kind of turning in that direction if we normalize, some of the expenses from this quarter. Is that a fair comment? Is that is that the way that you guys are kind of viewing the business?

William Young Carroll Jr.: Yeah. Well, I think you are spot on. Yeah. You shake out kind of the ebbs and flows this quarter. it is really a solid quarter. and we still feel very good about our ability to kinda hit that 4 by 4 challenge that we. We have stated publicly hitting that dollar run rate. We are still on that trajectory. And feel really good about our ability not just to hit that, but our ability to continue to move EPS higher. As we look into next year. Again, kind of, you know, we talked about it a lot.

I mean, they are focused on just continuing to grow EPS and revenue and book value. that is kind of where we are sitting. And team's doing a great job on that. So, yeah, I think we are we are moving in that direction, and feel pretty good about the chances of getting there here pretty soon. Yeah. Certainly, the momentum is certainly still very much evident. So, that is there, guys. And then thanks for the questions.

Ronald J. Gorczynski: Thanks, Will. Thanks, Will.

Operator: Next question comes from the line of Russell Gunther with Stephens. Your line is open. Please go ahead.

Russell Gunther: Hey. Good morning, guys. I wanted to start on the loan growth side of things. Good morning, Billy. Another enviable organic growth quarter and guide. Maybe a more intermediate question on my end. As you guys think about, potential Fed rate hikes, and the absolute level of interest rates, is there a threshold where you would expect to see some pipeline fallout that would put that kind of high single, low double digit growth profile at risk?

William Young Carroll Jr.: Yes. that is a really good question, Russell. Yeah. Obviously, if rates hedge up. And we are frankly, we are talking about that a lot with our division and regional leadership. We are talking about, you know, pipelines and thinking about 2027 and starting to lay out our forecast and, you know, right now, even with kind of the current rate environment, we have not. Pipeline still feels pretty good. Now I do agree. I think if you are gonna see another 2 to 3 hikes, could that have some impact as we look into 2027? Absolutely. I think the macro is the macro.

And so we, you know, we have got to, you know, we have got to deal with that just like everybody else. What I will say is that, you know, the. I call it the hustle factor that our guys and gals have across our footprint of just getting out, bringing in new relationships. I do not think that will slow down. So it might slow a little bit of just what I call just maybe some of the new projects that are going on that we see. But, I still think we have got a great shot at continuing to bring in new relationships, new deposit accounts, and new funded debt. As we hopefully move things from other entities.

Russell Gunther: Got it. that is very helpful. Thank you, Billy. And then, you know, I always have that great slide in the deck that flushes out your back book repricing opportunity. That Ron, you mentioned the reinvestment rates on the on the loan side. Could you just share where your reinvesting on the investment securities front And then on the other side, would be helpful to get a sense for just kind of where spot end of period deposit rates ended the quarter.

Ronald J. Gorczynski: Yeah. At this point, our we are buying bonds. SOFR plus 85. So in the 5-plus range. Again, a lot of our. We are just kind of just keeping our balance of our investments pretty stable over time. And the spot deposit pricing, our CDs were today around $4.10. For 7 month CDs. Our 13 month CDs are $4.15. And our money markets are in the $3.60 to $3.70 range at this point. We are trying to target, got it, 90 95 percent of Fed funds.

Russell Gunther: Okay. Fantastic. Thank you. And then just last 1 for me, if you do not mind. You know, I appreciate the near term expense. Outlook. But how are you guys thinking about a core expense growth rate on a more intermediate term basis? As you guys balance, you know, franchise investment and talent and tech with the goal of delivering positive operating leverage.

William Young Carroll Jr.: Yeah. Great question. Yeah. We and, again, we are we are having these exact same conversations, Russell, we are kinda going through our 2027 forecasting. You know, again, you used the word. it is. It is balanced. You know, we are continuing to grow, continuing to add team members. You know, when we look at. We kinda look at it almost in a little bit of I call it, same store sales, you know, when you kinda factor out some of the new adds. I think if you factor out kind of, some of that and you just look at where we are moving forward, I think we can stay pretty reasonable on the expense growth.

Now, Ronald, I know we. We are talking about it. Do not know if you got. We are probably not prepared to really lay out. I know we are working through forecast right now. Probably not ready to give 2027 guidance. But, I mean, percentage wise, you got a range that you could maybe share You know, I.

Ronald J. Gorczynski: You know, both of these, I think we are gonna be in a 5% to 6% growth range going off of a fourth quarter's run rate. But, again, we. You know, we will be providing continuous leverage and sustainability in our in our in our workforce and our franchise. You know, we benefited from keeping our expenses to a tight band, our franchise is growing. So we will have incremental growth in our noninterest expenses.

Russell Gunther: Yep. Nope. Understood. I appreciate your thoughts, guys. Thanks for taking my question.

William Young Carroll Jr.: Thank you, Russell.

Operator: The next question comes from the line of Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.

Stephen Scouten: Hey. Good morning, everyone. Ronald, I appreciate the information you gave there on CD and money market costs there. Can you talk a little bit about maybe what you are seeing all-in kind of blended rates come in at on the deposit side and kind of how you are seeing spreads overall and any sort of directional trends there, whether you are seeing spreads compress given competition or what have you?

Ronald J. Gorczynski: Yeah. We have always. You know, over the last couple of quarters, we were probably on our side of the house kind of quiet getting the phone calls of price together. Pricing competition is real. You know, we are coming in at the $3.35 range. All in. that is kind of what we expect. I do not I do not know how much incrementally higher we are gonna go at this point, but you know, that is to be determined. The market is real, and we are we are getting more calls every day for exception pricing. So that is about as best I could tell you at this point.

William Young Carroll Jr.: But I will add too, Steve. You know, I think team's also doing a really nice job on the asset side. You know, we are, you know, we are sitting down and really looking at, you know, watching that and kind of fight for every basis point on the asset side. You know, loan growth is competitive too, but, you know, we have been able to continue to eke out, pretty nice incremental rates on our loan growth as well. So while we are. While yeah. You are a little more deposit funding than we would like to see. We are doing a nice job balancing it. With the growth that we are getting.

Stephen Scouten: Yeah. I mean, the growth is a huge tailwind there. And I think that the average yield is, what, 6 0 8 currently, and I am not sure if you have noted this or it is in the slide deck. Apologies if I missed it. But new loan yields are coming on around where, all in?

Ronald J. Gorczynski: Yeah. September was 6.78. So for the quarter, it was 37. So, we are getting some nice lift from the from the rate increase.

Stephen Scouten: Yeah. that is fantastic. Okay. Great. Appreciate that. And I think, you know, Billy, you mentioned the $1 run rate in your-- there. Do you guys have, or do you think you will maybe be putting out some longer term profitability targets from here? You guys have made just obviously tremendous strides over the last couple of years. Just kinda curious where you think you can continue to head from here. what is possible for the franchise?

William Young Carroll Jr.: Yeah. Yeah. Steve, we will. I think, you know, we are we are spending a lot of time. We. We have worked through our kind of our executive teams planning, meetings over the last few weeks. And got board strategy coming up, here in a couple of weeks. And so we are we are laying out the forecast. You know, we as you all know, we. We are pretty transparent. We have demonstrated our ability to kinda challenge ourselves internally and execute on that. that is that is worked pretty well. So we are we are kinda working through what that next challenge is going to be for our group. But we will. We are.

We will be we will be sharing that, at the appropriate time. But again, I remain so excited about what we are seeing in this company. The energy, the. Again, I mentioned recruitment. I mean, we are adding some great bankers this platform just strategically just strategically and in some key markets. So I love our ability to continue executing. And so, yeah, we will be we will be laying out. We have got Nate's kind of our marketing guy when it comes to comes to kinda crafting these, the mantras for the challenges. So we are we are trying to figure out exactly what we wanna lay out. For 2027, but, but stay tuned.

Nathan Strall: And I do think the whole team's up for the challenge. I mean, they push us. Absolutely. Push them. it is kind of a Yeah. it is a good mix of driving for hire.

Stephen Scouten: Yeah. Seems like you have a group that likes a challenge, so that is fantastic. I guess last thing for me, I think I asked you this last quarter as well. But M&A possibilities, I mean, does any of this change? You continue to have a strength from a pricing power perspective You are now in Columbus. I mean, do you think about, you know, maybe changing direction at all or putting that back on the table in any way, shape, or form given maybe a desire to get more scale and density in newer markets?

William Young Carroll Jr.: So I think, you know, our focus continues to be 1A on what we have done. You know, this organic strategy and just adding great regional bankers is really where we wanna focus. We are we are watching what is going on, in the world. I mean, it is a-- you know, we are-- you know, there are there are opportunities out there. Again, I have said it before, and I will reiterate it. I. You know, I think it would have to be something that was really unique that made us better and not just bigger, if we were ever to look at something.

Because, again, we have kind of got this thing built to where we can punch up. And, you know, we have got. When you look at our products and our services and our ability to compete, against the larger regional banks. We can do that now, even at 6 bill. And so I think for us, it would have to be really unique for us to consider it. But we are always keeping our eye open on what is happening, but organic continues to be 1 a.

Nathan Strall: Yeah. I think it is intriguing to look at. Obviously, always, fun to run the numbers. But, man, we are pretty darn focused on what we are doing now, and I echo what Billy said. It would have to be super, super attractive for us to deviate from the current strategy.

Stephen Scouten: Yep. Makes sense. Continues to be a great answer there. Keep it up, guys. Appreciate the time.

William Young Carroll Jr.: Thank you. Thanks, Stephen.

Operator: The next question comes from the line of Brett Rabatin with Stonex Group. Your line is open. Please go ahead.

Brett Rabatin: Hey, guys. Good morning. If I heard the guides correct, the guidance for 4 q fee income was $7.5 million. 1, is that the right number? And then 2, it is a little softer than 3q. If so, any thoughts on the fourth quarter level of fee income?

Ronald J. Gorczynski: Yeah, Brett. Yeah. Fourth quarter we are projecting $7.5 million and it is softer. it is really the mortgage our mortgage unit, the seasonality of it. You know, could we do better? Maybe. From what is in the pipeline, but right now, we are. You know, usually, we do start slowing down, and that is that is been a pretty decent lift for us quarter over quarter. So that is really the only item that is really causing that.

Brett Rabatin: Okay. And any thoughts on the third quarter strength versus what I have seen from some other banks? You know, when mortgage has been tough given rates.

William Young Carroll Jr.: Was that. I am sorry, Brett. Was that mortgage? Is that what you were mortgage specific? Yeah.

Brett Rabatin: Just the mortgage banking line item was stronger and you know, 3Q than 2Q and 1Q. And, you know, it just seems like Yeah. Others have had some pretty tough pretty tough comps in 3 q just given rates. So I was just curious what the strength was related to 3 q.

William Young Carroll Jr.: Yeah. I will do that, and then Ronald or Rhett, y'all. I mean, any chime in. But, yeah, overall, I think a lot of it has just been, you know, our mortgage group has really had just an overall really good year. We have continued to add some, some really good mortgage bankers over the course, especially early in the year. Those folks have kinda ramped up and have kind of gained momentum even in an environment we are actually talking with 1 of our mortgage team members yesterday about kind of prospects and, you know, Ronald said, you do get a little bit of seasonality. You do not have as many closings. Usually in Q4.

But, you know, our pipeline's still pretty good. You know, we are, you know, we are still getting yeah. While some 1- to 4-family pockets may be a little bit softer in some different spots, We have been able to continue to eke out really good growth and been real pleased with what we have been able to accomplish this year on mortgage. So I think a lot of it is just number 1, team's very focused, and, sales side's doing a great job there. And then probably number 2 is just we have been able to do it with some with some really good new mortgage banker additions this year.

I do not know, Brett, Ronald, any additional color on that from you guys.

Ronald J. Gorczynski: No. You are spot on. I mean, our volume, you know, we have been putting more originators out on out on the field. So our volume has increased, so we just it is been working for us. Great team. Great hustle.

Rhett D. Jordan: Yeah. Just the production side has. To your point, Billy, the new hires has been the key driver. And then I think that team's ability to just continue to process activity very efficiently. Is also. It helps with the new producer. We are able to get deals turned around quickly, get slots back, the end of this.

Brett Rabatin: Okay. that is that is super helpful. And then the other question I had was just around slide 14. And if you could just refresh my memory on you have got nearly half a billion of fixed rate loans yielding slightly under 5% that mature by the end of next year. A little over $100 million of adjustable rate loans at a similar rate. Do those loans. I mean, I assume those are all kind of work. You know, fixed rate commercial real estate. Type properties. Do those loans, do you think reprice to a higher level, or do you think that those loans end up repricing someplace else with another institution?

Or just any thoughts on that slide 14, those loans are. That are repricing, you know, over the next year?

Rhett D. Jordan: Yeah. Brett, jump in.

Ronald J. Gorczynski: Yeah. I will start. You know, what we have. We have seen, for our repricing, we are getting, you know, 1, we are getting about a 100, 110 basis points over the original rate. 2, the renewal side, we are keeping around 80, 85% of those in house So we are very successful in keeping those nice retention and lot better rates than what we have had. So, you know, it is been something we have been working at for a while and quarter over quarter. So, we do not see why that would defer or change going forward either.

Brett Rabatin: So Okay. If I could ask 1 last quick 1 just around demand. You know, and I have had I have had folks asking about maybe demand being qualified higher rates, and you guys obviously have an origination rate. September close to 7%. Have you guys seen any of that where higher rates might be starting to slow demand a little bit, or is it just not a factor at this point?

William Young Carroll Jr.: You know, we are watching it. We are watching it, Brett. I know, Brett, I know we talk about pipelines a lot, you know, just trying to, you know, trying to project you know, growth over the near term as good as you can project off the pipelines. But we. We have usually been pretty accurate around that. We are not seeing it slowed yet. You know, I think, you know, if you do get a couple of more rate increases in there, could you see some slowdown as we look into 2027? You know, absolutely. Again, I will kinda go back to my comment that I made earlier You know, it. it is.

It is not slowing our team's calling efforts down and our prospecting efforts. And so even though you know, even though you might get a little bit of softness maybe in some new projects, I think our ability to move clients over and to move deals over remains pretty good. I do not-- Rhett, anything that you would add to that?

Rhett D. Jordan: No. I think that is spot on, Billy. I would say our, what we are seeing in opportunities, I do not think, is really slowing when you combine our calling efforts and our new, our new team members and the new additions we have had across the footprint. We are we are still seeing a very steady pipeline.

Brett Rabatin: Okay. Great. Appreciate the color, guys.

William Young Carroll Jr.: Thanks, Brett.

Operator: The next question comes from the line of Steve Moss with Raymond James. Your line is open. Please go ahead.

Steve Moss: Good morning, guys. Maybe just start on the equipment finance ability. On equipment finance, just with Fountain, I think I heard you, Billy, talk about, just some challenges within that portfolio regarding higher diesel. Just kind of curious how large is that portfolio? And any color you can give there.

William Young Carroll Jr.: Yeah. I will I will give it up just a little high level with Rhett. Maybe you could walk through specifics on portfolio balances. Yeah. Overall, my comments were you know, we saw a little bit of delinquency creep in that book. A lot of that is just some of these smaller mom and pop transports, you know, just a little bit of strain there. You know, we have been able to kinda navigate that pretty well internally. So yeah, with diesel prices up, you know, you might say we might have a little bit more delinquency. But overall, we think it continues to be very manageable as it is a small piece of the book? Rhett, any portfolio specifics?

Yeah.

Rhett D. Jordan: I am just saying it is it is about a 145 million or so. Yeah, is the entire real estate.

Steve Moss: Okay. Great. Appreciate that color there. And then just on you know, thinking about NII growth here going forward, given the 70% deposit beta, sounds like you will have another good quarter of loan growth. So obviously, like a mid teens type year for you guys. You know, for NII in the upcoming quarter, the margin's only 3.45, is that like a 2% type NII number for you guys here? Well, NII growth.

William Young Carroll Jr.: And we probably had we were probably a little better than that this quarter. I am thinking I think we were probably. I had not looked at it from a percentage standpoint. I. We probably calculated pretty quick, but I think it is probably. I think we are a little better than that. This last quarter, but that is probably right in the right range, Ronald. You gotta quick math on that?

Ronald J. Gorczynski: We are probably looking at the annualized change about pretty closer to 3%. Growth. For Q4.

Steve Moss: Okay. So maybe a little bit, so maybe loan growth similar to the current quarter for the fourth quarter here?

William Young Carroll Jr.: Yeah. Yeah. Yeah. Probably a little-- maybe a touch higher, but. Yes. Yes, sir.

Steve Moss: Awesome. Thanks, Ronald. Okay. And just in terms of your you guys have, you know, managed down your securities and liquidity a bit. It kind of seems like we are hitting the floor here. Just curious. Are you guys willing to run it a bit lower to fund loan growth? Or have we hit the floor, actually? that is what I am trying to say. Ask.

Ronald J. Gorczynski: Yeah. We. I still think we have a little bit. Probably we could probably go $80 million less, but, we are getting near the floor at this point. So we got a little bit more ammo, but, we just keep reinvesting in the portfolio. Okay.

Steve Moss: Great. Well, nice quarter, and all my questions. Appreciate all the call here, guys. Thank you very much.

William Young Carroll Jr.: Thanks, Steve. Thanks, Steve.

Operator: The next question comes from the line of Christopher Marinac with KBW Capital. Your line is open. Please go ahead.

Chris Adamo: Hey, guys. This is Christopher Marinac on for Christopher Marinac. I got a quick 1 for you on the credit front. So I guess what would you guys could you provide any color, I guess, into the CRE loss rate for the quarter? And also, I guess, how do you kind of see that going forward and impacting provision and overall reserve levels going forward as well? Thanks.

William Young Carroll Jr.: I guess just to make sure I have to clarify the question. Christopher, was. It was. You are saying loss levels? Is that what, I guess, just had to. How do we how do we view loss levels going forward Is that correct?

Chris Adamo: Yeah. Yeah. Yep. that is correct.

William Young Carroll Jr.: Yeah. Yeah. I will just. Yeah. And I will I will make a high-level comment, then I will let Rhett jump in. Yeah. Overall, you know, we still feel really good about, you know, about the credit book. Again, when you look at, you know, what little we had in the way of loss so far this year, most of that has been our equipment. Finance sub related. Which, you know, is usually typical. We will have a little bit more just because we get the yield for it. But, you know, do not anticipate anything unusual going forward. Rhett,.

You know, anything on your side as far as just kind of expected thoughts around credit in the next couple of quarters?

Rhett D. Jordan: Billy, I would say, absolutely for purposes of the outlook. I mean, I think it is, clearly, to your point, I mean, our strain is in that equipment portfolio. And would not anticipate to see any, you know, significant changes there as far as appeal. Larger additional losses. I mean, it is to work through that, that book as, as we go through this cycle in that transportation space. But do not anticipate it having any significant impact. I mean, we feel like our allowance is positioned very well with where we are today. So I do not see it being a Yeah.

William Young Carroll Jr.: Yeah, I think, Christopher, loss rate's stable. Moving forward.

Chris Adamo: Perfect. that is all I have for you guys. I appreciate the time.

William Young Carroll Jr.: Appreciate it. Thank you.

Operator: 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.

Miller Welborn: We really appreciate y'all joining us today. Thank you for your interest in what we are building here at the bank and for our team and I hope you all each have a great day. Talk to you soon. Thanks.

Operator: This concludes today's call. Thank you for attending. You may now

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.