SmartFinancial Inc. (SMBK) is a Tennessee-based bank holding company that has demonstrated impressive growth and resilience in recent years. With a focus on commercial and retail banking services, the company has strategically expanded its footprint across the Southeast, solidifying its position as a regional leader in the industry.
History and Growth
The company's history can be traced back to 2007, when it was founded as SmartBank. Over the years, SmartFinancial has executed a disciplined growth strategy, both organically and through selective acquisitions. In 2015, the company underwent a significant transformation, rebranding as SmartFinancial Inc. and becoming a publicly traded entity. This move not only bolstered the company's financial resources but also enhanced its visibility and reputation within the banking sector.
During its early years, SmartFinancial focused on building a strong presence in its local markets, emphasizing commercial real estate, commercial and industrial, and consumer lending. The bank successfully weathered the financial crisis of 2008-2009 and continued to grow its loan portfolio and deposit base through organic expansion. In 2015, SmartFinancial made its first major acquisition, purchasing Sevier County Bancshares, Inc. and expanding its footprint into east Tennessee. This strategic move allowed the company to gain scale and diversify its geographic reach, demonstrating its ability to effectively integrate acquisitions.
SmartFinancial continued its growth trajectory through additional acquisitions, including the purchase of two community banks in Alabama in 2018 and 2020, further expanding its presence in the southeastern United States. During this period, the company also invested in its technology infrastructure, implementing a new core banking system and digital banking platform to enhance the customer experience. Despite the challenges posed by the COVID-19 pandemic in 2020, SmartFinancial maintained its focus on asset quality and profitability, navigating the economic uncertainty through disciplined lending practices and prudent risk management.
Financial Performance
SmartFinancial's financial performance has been impressive, with the company reporting solid revenue and earnings growth in recent years. In 2023, the company generated $152.41 million in total revenue, a testament to its ability to navigate challenging market conditions. The company's net income for the same year stood at $28.59 million, demonstrating its commitment to delivering value to shareholders.
Financials
SmartFinancial operates through a single reportable segment - its subsidiary SmartBank. For the most recent quarter, the company reported revenue of $63,956,000, representing a year-over-year increase of 16.33%. Net income for the quarter was $9,140,000, showing a substantial increase of 340.57% compared to the same period last year. The increase in revenue and net income was primarily due to growth in interest income from the loan portfolio as well as higher noninterest income from fee-based activities.
Operating cash flow (OCF) for the quarter stood at $12,397,000, while free cash flow (FCF) was $16,414,000. These figures demonstrate SmartFinancial's ability to generate strong cash flows from its operations.
SmartFinancial's primary sources of revenue are net interest income from its lending and investing activities, and noninterest income from its deposit services and other fee-based products and services. The company's key financial metrics include net interest income, provision for credit losses, noninterest income, noninterest expense, earnings per share, return on average assets, and return on average shareholders' equity.
Liquidity
SmartFinancial maintains a strong liquidity position, with a debt-to-equity ratio of 0.10. As of the latest reporting period, the company held $192.91 million in cash and cash equivalents. Additionally, SmartFinancial has access to a $30 million credit line, providing further financial flexibility. The company's current ratio stands at 1.14, while its quick ratio is 1.05, indicating a solid ability to meet short-term obligations.
Key Success Factors
Commercial Lending Focus
One of the key drivers of SmartFinancial's success has been its focus on commercial lending. The company's commercial real estate, construction, and industrial loan portfolios have been the primary contributors to its loan growth, which has consistently outpaced the industry average. As of the latest quarter, the company's total loan and lease portfolio stood at $3.72 billion, reflecting a 10.8% year-over-year increase.
Deposit Base
SmartFinancial's deposit base has also been a strength, with the company maintaining a healthy mix of noninterest-bearing and interest-bearing accounts. As of the end of 2023, the company's total deposits amounted to $4.27 billion, with a strong emphasis on low-cost core deposits, which accounted for 80% of the total.
Risk Management
The company's focus on risk management has also been a key factor in its success. SmartFinancial has maintained a conservative approach to credit underwriting, resulting in a low nonperforming asset ratio of 0.20% as of the end of 2023. Additionally, the company's allowance for credit losses stood at 1.02% of total loans, providing a robust cushion against potential credit risks.
Management and Leadership
SmartFinancial's management team has been instrumental in driving the company's growth and profitability. Under the leadership of President and CEO, William Y. Carroll, Jr., the company has consistently executed on its strategic initiatives, while also maintaining a strong commitment to risk management and shareholder value creation.
Future Outlook
SmartFinancial has provided an optimistic outlook for the future. The company has reiterated its expectation to reach a $50 million operating income run rate by Q3 2025, expressing confidence in achieving this goal. For Q4 2024, SmartFinancial is forecasting a net interest margin in the 3.10% to 3.15% range, noninterest income in the mid to high $7 million range, and noninterest expense in the $31 million to $31.5 million range, with salary and benefits of $19 million to $19.5 million.
Looking ahead, SmartFinancial expects to continue experiencing margin expansion into 2025, driven by new loan production, lower yielding loan amortization/maturities, and their liability-sensitive interest rate position. The company anticipates a future corporate effective tax rate of approximately 20% due to the establishment of a real estate investment trust (REIT) subsidiary.
Regarding loan growth, SmartFinancial is maintaining its previous guidance of mid to high single digit growth, despite exceeding that target over the past two quarters. The company has demonstrated its ability to outperform its own projections, posting 16% annualized loan growth in Q3 2024 and over 10% annualized year-to-date.
Despite the challenges posed by the current macroeconomic environment, SmartFinancial has demonstrated its ability to navigate turbulent waters and deliver consistent performance. The company's diversified business model, prudent risk management, and experienced leadership team have positioned it well to capitalize on future growth opportunities and enhance shareholder value over the long term.
In conclusion, SmartFinancial Inc. (SMBK) is a well-positioned regional bank that has consistently delivered solid financial results and demonstrated its ability to adapt to changing market conditions. With a strong commercial lending focus, disciplined growth strategy, and experienced management team, the company appears poised to continue its trajectory of value creation for its shareholders. SmartFinancial's primary operations in the southeastern United States, particularly in Tennessee, Alabama, and Florida, provide a solid foundation for continued growth and expansion in these key markets.