SmartFinancial - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered another quarter of positive operating leverage: diluted EPS $0.69 (+4% QoQ; +44% YoY) with net income $11.7M; NIM (FTE) expanded 8 bps QoQ to 3.29% and operating revenue rose to $49.2M.
• Versus Wall Street consensus (S&P Global): EPS beat ($0.69 vs $0.64), while revenue missed on SPGI’s bank “revenue” definition ($46.83M actual vs $48.48M), reflecting higher provision expense amid strong loan growth; estimates based on SPGI measures, see table below.*
• Guidance shifted higher: CFO now targets Q3 NIM in the 3.30%–3.35% range (prior Q1 guide ~3.25%), noninterest income ~$9M, and noninterest expense $33.8–$34.0M; salary and benefits $20.5–$21.0M; assumes 25 bp cuts in Sep and Dec with 1–2 bps margin lift from rate cuts.
• Catalysts: sustained loan growth (+13% annualized QoQ), margin inflection, stable credit (NPAs/Assets 0.19%), and continued TBV accretion ($24.42); dividend maintained at $0.08/share (payable Aug 25).

What Went Well and What Went Wrong

• What Went Well

  • Five consecutive quarters of positive operating leverage amid rising NIM and EPS; “we are successfully moving into the leveraging phase of growth”.
  • Strong loan growth (+$132M net organic, 13% annualized QoQ) with new originations averaging ~7.11% yields; total revenue growth to ~$49.2M (operating).
  • Asset quality stable: NPAs/Assets 0.19%; ACL/loans steady at 0.96%; net charge-offs 0.01% annualized; TBV per share rose to $24.42.

• What Went Wrong

  • SPGI “revenue” miss driven by higher provision ($2.41M vs $0.98M in Q1) despite strong NII and fee trends; consensus expected higher SPGI revenue.*
  • Deposit costs edged up (+3 bps QoQ to 2.95% interest-bearing deposits; total deposits cost 2.39%), pressuring liability side; noninterest expense increased modestly on incentives.
  • Competitive loan pricing environment acknowledged; management “sticking to structure and pricing” but notes pressure could temper yields over time.

Transcript

Operator (participant)

Hello everyone and welcome to the SmartFinancial Second Quarter 2025 earnings release and conference call. My name is Ezra, and I will be your coordinator today. If you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. We will be taking questions after the prepared remarks. I will now hand you over to the host, Nate Strall, Director of Investor Relations, to begin. Please go ahead.

Nate Strall (Director of Investor Relations)

Thanks, Ezra. Good morning everyone, and thank you for joining us for SmartFinancial Second Quarter 2025 earnings conference call. During today's call, we will reference the slides and press release that are available in the Investor Relations section on our website, smartbank.com. Billy Carroll, our President and Chief Executive Officer, will begin our call, followed by Ron Gorczynski, our Chief Financial Officer, who will provide some additional commentary. We will be available to answer your questions at the end of the call. Our comments include forward-looking statements. These statements are subject to risks and uncertainties, and the actual results could vary materially. We list these factors that might cause the results to differ materially in our press release and in our SEC filings, which are available on our website.

We do not assume any obligation to update any forward-looking statements because of new information, early developments, or otherwise, except as needed and required by law. During the call, we will reference non-GAAP financial measures related to the company's performance. You may see the reconciliation of these measures in the appendices of the earnings release and investor presentations filed on July 21, 2025, with the SEC. Now I'll turn it over to Billy Carroll to open our call.

Billy Carroll (President and CEO)

Thanks, Nate, and good morning everyone. Great to be with you and thank you for joining us today and for your interest in SMBK. I'll open our call today with some commentary and hand it over to Ron to walk through the numbers in some greater detail. After our prepared comments, we'll open it up with Ron, Nate, Rhett, Miller, and myself available for Q&A. Let's jump in. Another very nice quarter for us as we execute on what we've been messaging. You've heard us talk about execution over the last several quarters, and that's what we're doing. Our team has a keen focus on hitting the targets we've set out for our company this year in regard to revenue, returns, and freedom of expense growth. As you'll hear on this call, our company is performing very well and we're remaining bullish on where we're headed.

For the quarter, we posted net income GAAP and operating of $11.7 million or $0.69 per diluted share. I continue to be proud of our performance, and I'm excited to watch us gain operating leverage. This is five consecutive quarters of positive leverage. Jumping into the highlights, I'll be referring to the first few pages in our deck. First, and in my opinion, one of the most important metrics, we continue to increase the tangible book value of our company, moving up to $24.42 per share, including the impacts of AOCI, and $25.43 including that impact. That's growth of over 13% annualized quarter over quarter. Our balance sheet growth was strong. On the loan side, we grew at a 13% annualized pace for Q2, a little ahead of our expectations as our market teams are continuing to add outstanding new relationships.

On the deposit side, growth was sound at 5% quarter over quarter annualized. I continue to be very pleased with the deposit side of our balance sheet as we add outstanding new relationships there as well. We also continue to hold our non-interest bearing percentage. The second quarter is usually a little softer with some seasonality, but we held up well, and Ron will provide more details on that in a moment. Our history of strong credit continues with a metric at just 19 basis points in non-performing assets. Credit is always a focus for our company, and I'm pleased to see these numbers continue at exceptionally low levels. Total revenue came in at $49.2 million as net interest income continued to expand as we had anticipated. We also had another very nice non-interest income quarter. Non-interest expenses also came in on target again at $32.6 million.

Looking at the charts on pages four and five, you'll see nice trends. We're building on our return metrics and most importantly growing total revenue, EPS, and as I mentioned earlier, tangible book value. All of those charts are great graphics to illustrate our execution, and I'm looking forward to and expecting these trends to continue. A couple of additional high-level comments from me on growth. Our growth was a direct result of the focus of our sales teams. We've hired well over the last several years, and we've also built an outstanding foundational process that includes aggressively going after new client relationships, growing existing ones, along with a diligent prospecting process. As I stated, we grew our loan book at 13% annualized for the quarter as sales momentum stayed strong and balanced across all of our regions.

Our average portfolio yield, including fees and accretion, was up to 6.07%, and our new loan production continues to come onto the books accretive to our total portfolio yield levels. In regard to deposits, I mentioned a moment ago, I'm very proud of what we've done on the deposit front. Our loan-to-deposit ratio is 85%, which is still a nice spot for us. This strong position gives us continued flexibility to leverage our strong balance sheet. Our balance sheet pipelines continue to feel good. I'll discuss this a little more in my closing comments, but all in all, a really nice way to wrap up the first half of 2025. I'm going to stop there and hand it over to Ron to let him dive into some details for us. Ron?

Ron Gorczynski (EVP and CFO)

Thanks, Billy, and good morning everyone. I'll start by highlighting some key deposit results. Our deposit growth during the quarter was affected by typical seasonal outflows, including tax payments and the utilization of public funds. As a result, net balance non-broker deposit growth was $14 million. Offsetting these outflows was $116 million of new non-broker production generated at a weighted average cost of 3.24%. Total interest bearing costs rose by 3 basis points to 2.95% and were 2.96% for the month of June. Our loan-to-deposit ratio ticked up to approximately 85%, with our deposit composition remaining stable and having non-interest bearing deposits at 19% of total deposits. Importantly, we saw very little account attrition or client loss throughout the quarter. Rather, we saw a continuation of last quarter's trend, whereby clients continue to utilize excess deposit funding for projects and working capital.

While deposit balance drawdowns are impactful, we expect to recoup balances as project investments slow and those seasonal outflows return. Our net interest margin increased to 3.29%, representing an improvement of 8 basis points over the previous quarter, as higher loan yields more than offset the 3 basis point increase in deposit costs. The average rate on new loan production was 7.11%, resulting in a quarterly portfolio yield of 6.07%. As a result, net interest income expanded by $2.1 million, totaling $40.3 million for the current quarter. Looking forward, we are maintaining our previous quarter's guidance of 2 basis points-3 basis points of margin expansion per quarter for the second half of 2025.

Although we anticipate an increase in overall deposit portfolio costs, primarily due to higher costs of new production, our new loan originations, along with the amortization maturities of lower yielding loans, are expected to have a positive contribution in our margin expansion. Taking these into account and considering current market conditions, we are forecasting a third quarter margin in the 3.3%-3.35% range. Our quarterly provision expense from credit losses reached $2.4 million, mainly from higher loan growth. Net charge-offs to average loans stayed at 0.01% annualized. Asset quality remains solid, with non-performing assets at 0.19% of total assets, and the allowance for credit losses remains steady at 0.96% of total loans. Operating non-interest income rose by $300,000 to $8.9 million, exceeding our projections.

Consistent with the previous quarter, this positive variance was largely attributable to higher-than-expected insurance and mortgage banking revenues, as well as sustained robust performance from our capital markets group. Moving on to operating expenses, we maintained our focus on expense containment, recording operating expenses of $32.6 million, the low end of our guided range, and a modest increase from the prior quarter. The majority of this increase was attributable to the recognition of the first full quarter of merit increases and additional approval for incentive-based compensation related to strong associate performance. Overall, we are satisfied that expenses remain at the lower end of our projected guidance range. For the third quarter, non-interest income is projected to be approximately $9 million, and non-interest expense is expected to be in the range of $33.8 million and $34 million.

Salary and benefit expenses are anticipated to range from $20.5 million-$21 million, reflecting an increase from the previous quarter due to higher levels of variable compensation and anticipated costs associated with new hires. I'll conclude with capital. The company's consolidated TC ratio increased to 7.7%, and our total risk-based capital ratio remained well above regulatory well-capitalized standards at 11.1%. Overall, we believe our capital levels remain optimally balanced to continue to support growth while maximizing returns on equity. With that said, I'll turn it back over to Billy.

Billy Carroll (President and CEO)

Thanks, Ron. I want to reiterate again the value proposition with our company, drawing your attention back to page seven of our deck. We are successfully moving into the leveraging phase of growth for our company. We are seeing the inflection in the movement of our numbers, and now as we have clear vision of our return targets. We're building a great franchise. We're in arguably some of the most attractive markets in the country and have put together a team that is rapidly moving us forward. You've heard me say before, I believe we are one of the Southeast's brightest stories, outstanding markets, strong experienced bankers coupled with just as experienced and strong operational and support teams, along with some great complementary business lines.

We expect the second half of 2025 to have a similar look to the first half as we focused on continued growth and our EPS line and hitting our near-term revenue and return targets that are clearly in sight. As I mentioned, pipelines are solid, and I think we can continue growing at that mid to high single-digit space. A couple of comments on talent acquisition. One of the areas where we are focusing and one that I continue to be very excited about is our ability to recruit outstanding new team members. The majority of the expense growth looking forward should be primarily talent-related, along with some appropriate investment in our platform. We've either added or are in the process of adding 10 new revenue-producing team members during the first half of the year, primarily in commercial banking, private banking, and treasury management.

I believe we are included in a very small handful of banks that have built a culture where outstanding regional bankers want to work. We will continue to look for these organic growth opportunities and remain very focused on recruiting. On the culture front, we've been recertified as a great place to work this year, and our associates have created an outstanding positive energy around this company. To summarize, I love where we are sitting. We are executing, growing our revenue line, EPS, and book value while staying prudent on expense growth. We remain optimistic around our margin as new production stays strong and as we see the tailwind coming with rate resets in our loan portfolio over the next couple of years. Credit continues to be very sound, and we're seeing great new client acquisitions coupled with a great sales energy.

I appreciate the work of our SmartFinancial SmartBank team and the efforts of our 600+ associates, and I'm very proud of what we've got going on here at SMBK. I'm going to stop there, and we'll open it up for questions.

Operator (participant)

Thank you very much. If you would like to ask a question, please press star followed by one on your telephone keypad now. Please ensure your device is unmuted locally. If you change your mind or your question has already been answered, please press star followed by two. Our first question comes from Stephen Scouten with Piper Sandler. Stefan, your line is now open. Please go ahead.

Stephen Scouten (Managing Director and Senior Research Analyst)

Thanks. Good morning. Great quarter, guys. Billy, talking about the loan growth, it sounds like pipelines are still solid, kind of talking about mid-single digits. What do you think keeps you at a level like in this kind of low double-digit range we've been seemingly operating at lately? Do you think that upside potential is still there, especially if these new hires come to fruition?

Billy Carroll (President and CEO)

Hey, Steven. Yeah, I do. We have, the last few quarters we've been able to kind of bring it in at that lower double-digit level. I still think that is very feasible. I hedge a little bit just because we've seen a lot of payoffs and paydowns around our space. We've been pretty fortunate that we have not been hit with some of those unanticipated payoffs or paydowns. I hedge a little bit just in the anticipation that you get a few, if you get a little bit more of that than we anticipate, that could drop us down into the high singles. I still think we're at that high singles, possibly low doubles if we get it. You'd mentioned the new production team members we're continuing to add. I like our ability to grow.

I think we've got the ability to continue to grow both sides of this balance sheet at a nice level. I still lean a little bit more toward high singles. Yeah, we could potentially do low doubles as well.

Stephen Scouten (Managing Director and Senior Research Analyst)

Got it. With the new hires, is there any sort of geographic bench towards where those folks are coming from or any verticals that you're targeting more so than others? Just give us a feel for where those people are coming, where they're going to be producing.

Billy Carroll (President and CEO)

Spread out really throughout our whole platform. We're just seeing some great opportunities with some bankers that we've been, some that we've recruited for a while. Some opportunities have just kind of popped up. It's really not in any one specific region. We've added really throughout Tennessee, Alabama, and our Gulf Coast region over the course of the last few months. As I mentioned in my commentary, we're in the process of adding some other really nice team members as well. Things have been good, and we've been able to continue to attract the opportunity to add some great talent to the team. It's pretty well spread out throughout the whole company.

Stephen Scouten (Managing Director and Senior Research Analyst)

Got it. From a forward financial perspective, you guys have basically hit the guidance and kind of the bogey of operating revenue that you had laid out a number of quarters back, which is truly impressive. Not to say you hit it and move right past it, but in a way, what's the next bogey for you guys? What's the next target, and how do you get there? Is it more just like, hey, we're in great markets, we got really good people, let's just deepen ourselves in the markets we're in? Do you start thinking about de novo expansion through team list outs? What's kind of the path to the next leg up from here after reaching this important milestone?

Billy Carroll (President and CEO)

Yeah, great question. It has been. We've knocked on the door of the targets that we have set out to hit in 2025. As I mentioned, those targets are clearly in our sight, and we feel like we can hit and get those surpassed here in the near term. I think the next thing for us, and you said it, and I've said this on calls in the past, I think for us, when you look at the way we built this company, and we built it from Tennessee through Alabama through this Gulf Coast region, we've got a phenomenal footprint. We just need to get deeper. By design, we built the company kind of, as y'all have heard me say, kind of mile wide, inch deep because we wanted to get into these regions. We had these opportunities that we wanted to take advantage of.

Now we just need to get deeper. Not that we wouldn't look at a market expansion, but that would be secondary. If it would be, it would be something that would make some sense to us. I think we just need to double down, get deeper on what we're doing. To your point, we're already starting our 2026 planning. We're doing that now with our team and looking at where we want to position that next set of goals for us. We'll be coming out with those over the next couple of quarters as we finalize our 2026 forecast. As I said, I love where we're sitting. We can really move the revenue, the EPS, the tangible book, those pieces, that's what's driving the stock price. That's what we want our investors to understand. That's where our focus is.

I think everything you'll see us do is going to be focused around those metrics moving forward.

Miller Welborn (Executive Chairman)

Yeah, I think we're a branch-like model, and I would say these single office locations that we have, in most of our markets, we have made a lot of progress, but we've got the opportunity to double or triple the size of most all of those markets in the coming near future.

Stephen Scouten (Managing Director and Senior Research Analyst)

Got it. That's a good reminder. Great. Congrats on all the success. Keep up the good work. Appreciate it.

Miller Welborn (Executive Chairman)

Thanks, Steven.

Billy Carroll (President and CEO)

Thank you.

Operator (participant)

Our next question comes from Catherine Mealor with KBW. Catherine, your line is now open. Please go ahead.

Catherine Mealor (Managing Director)

Thanks. Good morning, everyone.

Billy Carroll (President and CEO)

Morning, Catherine.

Catherine Mealor (Managing Director)

I wanted to just dig into the margin a little bit, and I know you mentioned that deposit costs will probably come up a little bit moving forward just as growth picks up. Can you talk a little bit about where new deposit costs are coming on an average, and then on the other side, where new loan yields are coming, and just kind of where that incremental margin is coming on right now?

Billy Carroll (President and CEO)

Ron, you want to jump in and dive into those details?

Ron Gorczynski (EVP and CFO)

For the second quarter, our total deposits cost came in at $239. Excuse me, that includes non-interest bearing. Overall, our new production for June was a little escalated. It came in at $362, but we did have a larger relationship that we paid a little bit higher interest rates to. I think new production overall should be in that $350, $360 range. As far as the loans for the quarter, we're at 7.11% and for June, just slightly north of 7%, 7.02%. We're still maintaining the higher level above 7% for our loan side.

Catherine Mealor (Managing Director)

Okay. That's great. In your guidance, where you still think we'll have 2 basis points-3 basis points of NIM expansion every quarter, what are you assuming for rate cuts within that? I assume if we get rate cuts, that's going to make that number better.

Ron Gorczynski (EVP and CFO)

Yes, correct. At this point, we're assuming a 25 basis point in September and then one in December, which really doesn't affect the guidance. It's so late in the year. Yes, being liability sensitive, we do expect to get probably around this point, 1 basis points-2 basis points of additional lift from the rate cut. We're in a really good spot with our margin at this point going forward. We're going to, our margin will expand naturally with or without the rate cuts.

Catherine Mealor (Managing Director)

Great. Okay. Very helpful. Thank you. You may have mentioned it earlier, but I might have missed it. Can you remind us your expectations for expense growth in the back half of the year?

Ron Gorczynski (EVP and CFO)

Yes. We're increasing it to about $33.8 million-$34 million band. That's for Q3 and pretty much the same guidance for Q4. Again, the heavier lift was in the salary range going forward, but still keeping it tight for Q3 and Q4.

Catherine Mealor (Managing Director)

Okay. Great. Maybe one more just on that is, you talked, Billy, about how you had five quarters of positive operating leverage. Is that still a focus as we go into 2026? As we look at 2026, is it fair to continue to look at revenue growth being faster than your expense growth?

Billy Carroll (President and CEO)

Yes. Yeah, absolutely. As we said a little bit in the call, when you look at the way this balance sheet's positioned, our ability, our continued ability to grow organically in these markets, Miller alluded to just getting deeper. We're in so many just great markets where we've got relatively small share. We've got some really nice share in several markets. We've got some expansion markets where we've got phenomenal share growth opportunities. Our whole focus is going to be getting deeper. I think that in itself is going to generate, I think, outsized growth. Layer in on top of that, Catherine, what Ron has alluded to with kind of the repricing of the loan book. For us, we think we can hold these expense levels very reasonable.

As we said, a lot of it's just going to be talent-related from a hiring standpoint, and then just continue to see that operating leverage continue over the next few quarters.

Catherine Mealor (Managing Director)

Great. Okay. Awesome. Thank you so much. Great quarter.

Billy Carroll (President and CEO)

Thank you, Catherine.

Operator (participant)

Our next question comes from Russell Gunther with Stephens Inc. Russell, your line is now open. Please go ahead.

Russell Gunther (Managing Director and Equity Research Analyst)

Hey, good morning, guys. Just to quickly circle back to the loan growth discussion, you really do have to go back to the first quarter of 2024 to see a mid-single-digit result out of you guys. I hear you loud and clear on that kind of high single digit, maybe low double. To that end, could you just give us a sense for where commercial pipelines stand today versus the last quarter and what, if any, sentiment shift you're getting from your commercial borrowers?

Billy Carroll (President and CEO)

Yeah. I'll make a couple of comments and I'll ask Rhett to jump in and talk a little bit about kind of what he's seen coming through the pipeline. You know, pipelines continue to be pretty solid. I would say they are probably at or as good as the levels that we've seen over the last couple of quarters. You know, it goes back, I alluded to it in my comments. The focus that we have on the sales side of the house is, I think, as good as it's ever been in our company. Team members get it. Our division present leadership structure that we moved to this year has really worked well. There's just a, number one, we've got great team members, but there's also just a real intensive focus on bringing in new clients. That said, our pipelines are as good.

Rhett, maybe if you'd have some color in kind of what you're seeing, what those pipelines are looking like a little bit, maybe any other color that you've got on that side.

Rhett Jordan (Chief Credit Officer)

Yeah, I mean, to Billy's point, our pipeline today really is positioned as strong as it has been pretty much throughout the course of a year. Here at the middle part of a year, we've still got basically a similar amount and opportunity sitting in our pipeline than we started the year off with. You've seen the result in the growth we've seen thus far. As far as the format of that pipeline, the best way I know to put it is, we look at the mix of what's in the pipeline, both geographically with product type, et cetera, and it is tracking extremely near the way our portfolio mix sets today. The type of deals in the pipeline, the location of the deals in the pipeline, there's nothing in there that would give any indication that it would change any degree of concentration within our portfolio at all.

We are continuing to see a very broad mix across every market and every product type we generate business in.

Russell Gunther (Managing Director and Equity Research Analyst)

Great. Thank you, guys. You spoke about continuing to leverage the current platform organically, as well as continuing to recruit top talent. Could we get a sense for sort of where the recruitment pipeline stands today? As you work to get deeper, versus that mile wide inch deep, are there any particular markets where you're more focused than others?

Billy Carroll (President and CEO)

Yeah. Yeah. Yeah. I think, you know, we're focused everywhere. Obviously, you know, and we said it a second ago, you know, when you look at our company, we've got a number of markets where we've either grown from a legacy standpoint or where we've acquired really good banks with larger legacy footprints, then we've had a lot of these expansion markets that we've seen. The expansion markets are where our market share numbers have really tremendous upside. We're going to probably focus a little more of the recruitment in those markets. You take a look at whether it's Nashville MSA, Birmingham MSA, for example, you look down in our coastal region, with markets like a Mobile, Alabama, great growth opportunities that we see. There are others as well, but just those in itself, I mean, those markets, we've just got tremendous opportunity to bring in.

We've already added some great bankers to look to bring in some additional bankers to our team in those markets. When you look at just markets like those that I mentioned, my gosh, the market share upside and just those by themselves could fuel a lot of growth for us. Yeah, I think that's probably where our focus is going to be, but we'll look to figure out where we'll add talent wherever it fits.

Miller Welborn (Executive Chairman)

Yeah, this is Miller, and I would add that we are, I mean, ABR, always be recruiting, and we are consistently on it. The executive team spends a ton of time in the markets recruiting bankers. Our Division Presidents are all over it recruiting. That's as big a focus as, you know, new clients and new relationships. It's great bankers we want on our team.

Russell Gunther (Managing Director and Equity Research Analyst)

Excellent. All right. Thank you both. The last one for me would just be, back to the revenue target. I appreciate kind of waiting a quarter or two to get the 2026 outlook, but you did get where you needed to go, perhaps a quarter earlier than you otherwise might have. We're still shy of the 1% ROA target, so it would be helpful to get your sense as to whether that's something you still think you will be able to achieve in the back half of this year.

Billy Carroll (President and CEO)

Yeah, I think we'll be close, Russell. I think we'll be real close on the one. I think, you know, when you take a look at the numbers again, a little more of the expense side. If you take a look at the PP&R numbers, a little more in reserve that we put in just because of growth this year. I think as you normalize the growth a little bit, you should see that number kind of just move up into the mid-90s pretty easily over the next quarter or so. Then we'll be knocking on the door of that one. We've kind of targeted, as you've heard us talk about, kind of the one and 12 on the ROA and the ROE. We're pretty much there on the ROE. The ROA is maybe a couple of basis points behind that.

As we continue to execute, I think that one, the one, we'll move through that pretty quickly over the next several quarters.

Russell Gunther (Managing Director and Equity Research Analyst)

All right. Very good, guys. I appreciate you taking my questions. Thank you.

Billy Carroll (President and CEO)

Thanks, Russell.

Operator (participant)

Our next question comes from Steve Moss with Raymond James. Steve, your line is open. Please go ahead.

Hey, good morning, guys. This is Thomas on for Steve. Thanks for taking my call. Most of my questions have been asked and answered at this point, but maybe just on credit, credit metrics remain really strong here. Are you seeing any signs of weakness whatsoever? It looks like you have maybe some lower yielding fixed-rate loans maturing in the fourth quarter of this year at, it looks like, $440 million based on the slide deck. Have you stress-tested those for the rate shock? Broadly speaking, credit front, what are you thinking?

Billy Carroll (President and CEO)

Yeah. Rhett's like the Maytag repairman over here. I will give him an opportunity to talk a little bit. Credit's good, but I'll let him talk a little bit about what he's seeing on that side and any potential weakness. I don't think we're seeing much there. Maybe also just talk about, I know our team has done a lot of stress testing on the loans as these renewals are coming up with different rates. Comment on that, Rhett.

Rhett Jordan (Chief Credit Officer)

Sure. Yeah, Thomas, we have first question as far as the book itself. We really have not seen any signs of weakness in any particular sectors, as we're getting information in from our clients, both prior to year-end and year-to-date. Still seeing consistent performance throughout our existing book, in pretty much every area. We are not forecasting or looking at anything specific right now that we have identified as a primary area of concern. As it relates to those lower yielding assets that are going to be maturing, we started a project to do some forward-looking stress testing, performance stress testing on that book, really about 18 months, almost two years ago. We have consistently done that, sort of looking out in the six to 12-month window of those maturities.

Thus far, with what we're looking at, obviously, in a few cases, you may have a few that will show some tighter coverage numbers than they were at a regional information, but nothing that is any indication of inability to service a modified transaction. We are very optimistic about that, and still feel like the book is positioned well to absorb any of those rate increases for the borrower, which also benefits the bank.

Okay. Great. That's great to hear. That's all from me. Congrats on another great quarter knocking the cover off the ball again, guys. Appreciate it.

Billy Carroll (President and CEO)

Thanks, Thomas.

Operator (participant)

Just as a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad now. Our next question comes from Christopher Marinac with Janney Montgomery Scott. Your line is now open. Please go ahead.

Christopher Marinac (Director of Research)

Hey, thanks. Good morning. I wanted to ask about recruiting across state lines and pushing the geography, whether it's in the Carolinas or other states. I know you've got a lot to do in your existing footprint, as you've talked about a few times today. Just curious on recruiting people or dislocations you see in other markets that could be an opportunity as time passes.

Billy Carroll (President and CEO)

Yeah. Obviously, as you see, see a little bit of change going on. Obviously, M&A comes into play in some of that. I think we've demonstrated our ability to really execute on some nice lift-outs when we've seen a little bit of market disruption. Chris, I think for us, a lot of it is just kind of waiting and watching. I think we're all, and Miller alluded to this, the thing is we've really shifted to a stronger organic model over the last few years. Recruiting has really ramped up as far as importance in our company. Miller said he and myself, our Division Presidents, we're all out just continuing to drip on talent that we think would be good culture fits for our company. I think that is first and foremost in the markets where we are.

I really don't see us looking to do any what I would call major market moves from that standpoint like we did several years back when we had the opportunity with all those Alabama MSAs. That was such a unique opportunity that gave us the chance to really just fill in the density piece that was missing in our footprint. That was a big lift for us, as we've talked about. It was a huge lift for us to all those de novo markets in a real, real short period of time. For us, I think a lot of it, and again, I said it earlier, is just getting deeper. I think we need to be focused on getting deeper in these great zones where we are. We're always going to take a look at opportunities, but we've got plenty on our plate in front of us now.

The recruiting, I think you will see us probably just stay really close to the zones where we are today.

Miller Welborn (Executive Chairman)

Yeah, if you think about it, Chris, the markets we're in, these college towns, schools fixing to start back third quarter. There's the football season starting back. The businesses in these zones we're in are all very optimistic about the third and fourth quarters that they have ahead. You know, just people are excited about being in business. I just think it's, they want to be in our markets. If we can get some bankers that want to move here, we're glad to have them. We love where we are, and we love doubling and tripling down on where we are.

Christopher Marinac (Director of Research)

Sounds good. Thank you both for that. Just one curiosity, do you see the average loan size in the portfolio kind of pushing higher as the next, you know, several quarters develop? It's not just a, you know, near-term question. I'm kind of curious where that's going to go over time.

Billy Carroll (President and CEO)

Yeah. I'll ask Rhett. I don't have the stat in front of me on loan size. I think just as we've gotten bigger, our loan size has moved up some, but I don't think it's really moved up materially. Rhett, just anecdotally, would you comment on that?

Rhett Jordan (Chief Credit Officer)

I would say not from an average perspective. We certainly do, as we've continued to get larger, it has provided us the opportunity to look at and be engaged in some larger transactions. I would say from an average perspective, I don't really see that number moving considerably.

Billy Carroll (President and CEO)

Yeah. We still focus, Chris, as you know, I think we still do a lot of really nice work focusing on singles and doubles. I think when you look at a lot of these really nice, solid Tier 2 MSAs that we're in, we're growing a lot in some of our larger ones. We're in a lot of these great tertiary MSAs where we're just hitting singles and doubles. It's nice, and I like building the company that way. I think it's more sustainable. It's less impact to swings and whipsaw effects. To Rhett's point, yeah, we're doing some larger credits, so it might move up a little bit, but I don't think the average is moving up a ton.

Rhett Jordan (Chief Credit Officer)

Payoffs and paydowns don't sting as much either.

Billy Carroll (President and CEO)

That's true. That's true.

Christopher Marinac (Director of Research)

Good stuff. Thanks, everybody. I appreciate you taking us this morning.

Billy Carroll (President and CEO)

Yeah, thank you, Chris.

Rhett Jordan (Chief Credit Officer)

Thanks, Chris.

Operator (participant)

Thank you very much. We currently have no further questions, so I'll hand back over to Miller for any closing remarks.

Miller Welborn (Executive Chairman)

Thank you, Ezra. Thank you all for being on the call today and for supporting SmartBank as we work hard every day to grow this bank for our shareholders. Have a great day.

Operator (participant)

Thank you very much, Miller, and thank you to all our speakers on today's call. We appreciate everyone for joining. That concludes our call. You may now disconnect your lines.