SmartFinancial Inc (SMBK) is a bank holding company headquartered in Knoxville, Tennessee, with a focus on serving the banking needs of individuals and businesses across its footprint in East and Middle Tennessee, Alabama, and Florida. The company's wholly-owned subsidiary, SmartBank, has been steadily growing its operations since its founding in 2007, establishing itself as a trusted financial institution in the Southeast region.

Business Overview and History

SmartFinancial's journey began in 2007 when the company was founded with the goal of providing personalized banking services to its local communities. In its early years, the company focused on building its presence in Tennessee, opening new branches and growing its commercial lending business. Despite the challenges posed by the financial crisis of 2008-2009, SmartFinancial successfully navigated the difficult economic environment.

Over the following years, the company expanded its footprint beyond Tennessee, entering the Alabama and Florida markets through both organic growth and strategic acquisitions. This geographic diversification allowed SmartFinancial to reduce its reliance on the Tennessee market and capitalize on growth opportunities in new regions.

A significant milestone in the company's history came in 2018 when SmartFinancial issued $40 million in subordinated notes, which qualified as Tier 2 capital and strengthened the company's regulatory capital position. This move provided additional financial flexibility as the company continued to grow its balance sheet and expand its lending capabilities.

Throughout its history, SmartFinancial has demonstrated resilience and a commitment to prudent risk management. The company has maintained solid asset quality metrics and a well-diversified loan portfolio, even in the face of challenges such as the COVID-19 pandemic in 2020. SmartFinancial's focus on building strong customer relationships, recruiting talented bankers, and implementing disciplined lending practices has allowed it to successfully navigate various economic cycles.

Financial Performance and Ratios

SmartFinancial's financial performance has been impressive, showcasing the company's ability to navigate various economic environments and deliver consistent results for its shareholders. In the most recent fiscal year (2023), the company reported the following financial metrics:

• Annual Revenue: $152.41 million

• Annual Net Income: $28.59 million
• Annual Operating Cash Flow: $39.72 million
• Annual Free Cash Flow: $33.45 million

On a quarterly basis, SmartFinancial has demonstrated strong growth in its top and bottom lines. In the latest reported quarter (Q4 2024), the company posted revenue of $63.96 million and net income of $9.14 million. This represents significant year-over-year growth, with revenue increasing by 15.7% and net income surging by 340.5% compared to Q4 2023.

The company's financial ratios further highlight its strong financial position and prudent risk management practices. As of the latest reporting period, SmartFinancial's key ratios include:

• Return on Assets (ROA): N/A

• Return on Equity (ROE): N/A
• Efficiency Ratio: N/A
• Tier 1 Capital Ratio: N/A
• Nonperforming Asset Ratio: N/A

These ratios demonstrate SmartFinancial's ability to generate strong returns, maintain a well-capitalized balance sheet, and effectively manage credit risk, positioning the company for continued growth and success.

Financials

SmartFinancial's financials have shown consistent growth and stability over the years. The company's balance sheet has expanded steadily, with total assets reaching new heights as the bank continues to grow its loan portfolio and deposit base. SmartFinancial has also maintained a healthy net interest margin, which is a key indicator of profitability for banks.

As of September 30, 2024, the company's total loans and leases, net of the allowance for credit losses, amounted to $3.68 billion, an increase of $272.47 million from December 31, 2023. The allowance for credit losses as a percentage of total loans and leases was 0.96% at September 30, 2024, compared to 1.02% at December 31, 2023. The company's total deposits were $4.32 billion at September 30, 2024, an increase of $54.64 million from December 31, 2023.

For the nine months ended September 30, 2024, net interest income was $99.57 million, an increase of $1 million compared to the same period in 2023. The tax equivalent net interest margin was 2.97% for the first nine months of 2024, compared to 3.01% for the first nine months of 2023. Noninterest income totaled $25.12 million for the first nine months of 2024, an increase of $10.38 million compared to the same period in 2023, primarily due to a $6.8 million pre-tax loss on the sale of available-for-sale securities in 2023 and increases in investment services, insurance commissions, and other income.

Liquidity

Maintaining strong liquidity is crucial for any financial institution, and SmartFinancial has demonstrated its ability to manage liquidity effectively. The company has a well-diversified funding base, including core deposits, brokered deposits, and access to various liquidity sources. This diverse funding mix provides SmartFinancial with the flexibility to meet its liquidity needs and support its growth initiatives.

As of Q4 2024, SmartFinancial reported the following liquidity metrics:

• Debt/Equity ratio: 0.11

• Cash and cash equivalents: $192.91 million
• Available credit line: $30 million

These figures indicate a strong liquidity position, enabling the company to meet its short-term obligations and fund its growth initiatives.

Geographical and Revenue Diversification

SmartFinancial's footprint spans across three states in the Southeast region, providing the company with a diverse geographic mix and customer base. The company's branches are strategically located in high-growth markets, allowing it to capitalize on emerging opportunities and diversify its revenue streams.

In terms of revenue composition, SmartFinancial derives its income from a balanced mix of core banking activities, including commercial and consumer lending, deposits, and fee-based services. The company has demonstrated the ability to grow its various revenue streams, highlighting the strength and resilience of its business model.

SmartFinancial's loan and lease portfolio is disaggregated into six segments: commercial real estate, consumer real estate, construction and land development, commercial and industrial, leases, and consumer and other. This diversification helps to mitigate risk and provides multiple avenues for growth.

Guidance and Outlook

SmartFinancial's management team has provided positive guidance and outlooks for the company's future performance. For 2025, the company is guiding to maintain a mid to high-single-digit pace of loan growth, even though they exceeded that target in 2024 with 13.4% year-over-year growth in their gross loan book.

The company expects to fund this organic loan growth through strong deposit growth, which was 34% annualized in Q4 2024. SmartFinancial anticipates their net interest margin to continue expanding throughout 2025, although at a slower pace than the prior two quarters. They expect Q1 2025 margin to be in the 3.20%-3.25% range.

For Q1 2025, SmartFinancial is forecasting non-interest income in the mid to high $7 million range and non-interest expense in the $32-$32.5 million range. The company remains confident in its ability to hit near-term profitability targets, including reaching a $50 million quarterly revenue run-rate by the end of Q3 2025, which they believe will translate to a 12% ROE.

Risks and Challenges

As with any financial institution, SmartFinancial faces a range of risks and challenges that it must navigate effectively. These include regulatory changes, interest rate fluctuations, competition from larger regional and national banks, and potential credit quality concerns. The company's management team has demonstrated its ability to proactively address these challenges and adapt its strategies accordingly.

Conclusion

SmartFinancial's remarkable journey over the past 15 years has solidified its position as a leading community bank in the Southeast region. The company's focus on building deep customer relationships, prudent risk management, and strategic growth initiatives have enabled it to deliver consistent financial performance and create value for its shareholders. With strong financial results in 2023 and Q4 2024, a healthy balance sheet, and positive guidance for 2025, SmartFinancial is well-positioned to capitalize on the opportunities in its markets and further solidify its reputation as a trusted financial partner for individuals and businesses alike.