SmartFinancial - Earnings Call - Q3 2025
October 22, 2025
Executive Summary
- Q3 2025 delivered strong operating performance: operating EPS of $0.86 (vs. $0.69 in Q2 and $0.54 in Q3’24) and “total operating revenue” of $50.8M; GAAP diluted EPS was $0.81. Against S&P Global consensus, SMBK posted a major EPS beat and a slight revenue miss in Q3; beats also occurred in Q1 and Q2 on EPS.*
- Net interest income rose to $42.4M (+$2.1M q/q) while the tax-equivalent NIM compressed 4 bps to 3.25% due to timing of the new sub debt and higher new deposit pricing; management guides Q4 NIM to 3.30–3.35% and expects 5–7 bps quarterly NIM expansion in 2026.
- Balance sheet growth was robust: loans +$98M (10% annualized q/q) and deposits +$179M (15% annualized q/q), with liquidity ~21% of assets and plans to retire $111M of brokered deposits in Q4 at 4.28%.
- Strategic actions: $4.0M pre-tax gain on sale of SBK Insurance offset a $3.9M pre-tax loss from an $85M securities repositioning; $100M sub debt issuance supports capital and growth while retiring $40M legacy sub debt.
- Dividend was maintained at $0.08 per share, payable December 2, 2025.
What Went Well and What Went Wrong
What Went Well
- “Sixth consecutive quarter of positive operating leverage” and “hit our $50 million quarterly revenue target in Q3” ahead of schedule, with operating EPS $0.86 and tangible book value per share rising to $26.00; management highlighted strong pipelines and deposit momentum.
- Deposits grew $179M (15% annualized q/q), enabling $104M brokered deposit paydown and supporting liquidity (~21% of assets); Q4 plan to retire another $111M of brokered deposits at 4.28%.
- Capital strengthened: total consolidated risk-based capital ratio rose to 13.3% (from 11.1%); tangible common equity/tangible assets improved to 7.78%.
What Went Wrong
- NIM compressed 4 bps q/q to 3.25% due to timing (new sub debt before retirement of old) and higher deposit production cost; cost of total deposits increased to 2.44% (+5 bps q/q).
- Noninterest income fell $261K q/q to $8.64M, as the $3.9M securities loss and reduced insurance commissions (post sale) offset the $3.96M SBKI gain.
- Credit metrics ticked modestly higher: nonperforming loans/leases rose to 0.24% (from 0.19% in Q2), and nonperforming assets/total assets to 0.22% (from 0.19%); allowance/loans eased to 0.93% (from 0.96%).
Transcript
Speaker 4
Hello everyone, and welcome to the SmartFinancial Q3 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, press star followed by two. We will be taking questions at the end of the presentation. I will now hand you over to Nathan Strall, Director of Investor Relations, to begin. Please go ahead.
Speaker 2
Thanks, Ezra. Good morning everyone, and thank you for joining us for SmartFinancial's Q3 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, SmartFinancial.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 comment and 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 the factors that might cause these 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 statement because of new information, early developments, or otherwise, except as may be 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 presentation filed on October 21, 2025, with the SEC. Now, I'll turn it over to Billy Carroll to open our call. Billy?
Speaker 3
Thanks, Nathan, and good morning everyone. Great to be with you, and thank you for joining us today and for your interest in SmartFinancial. I'll open our call today with some commentary, then 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, Nathan, Rhett, Miller, and myself available for Q&A. It's been a busy quarter for us, and we've had a number of very positive things happening with our company. The focus on execution that's going on right now is outstanding. Our team continues to have a keen focus on hitting targets we've set for this year in regard to revenue, returns, and prudent expense growth, and I remain very bullish on our outlook. Let me jump right into some of our highlights.
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 $26 per share, including the impacts of AOCI, and $26.63 excluding that impact. That's growth of over 26% annualized, quarter over quarter. For the quarter, we posted operating earnings of $14.5 million or $0.86 per diluted share. This is our sixth consecutive quarter of positive operating leverage, and we hit our $50 million quarterly revenue target in Q3, which we had set for our team this year. We actually hit it a few months early, and I look forward to seeing that number continue to grow. We had outstanding growth on both sides of the balance sheet, posting 10% annualized growth in loans and 15% annualized growth in deposits. Our history of strong credit continues with only 22 basis points in non-performing assets.
I'm pleased to see these numbers continue at exceptionally low levels. Total operating revenue came in at $50.8 million as net interest income continued to expand, and non-interest income was siloed again. Our operating non-interest expenses also came in on target at $32.6 million. Looking at the charts on page four and five, you'll see very nice trends. We're building our return metrics and, most importantly, growing our total revenue, EPS, and, as I mentioned earlier, tangible book value. All those charts are great graphics to illustrate our execution. I'm looking forward to and expecting these trends to continue. Just a couple of additional high-level comments from me on growth. Our continued balance sheet expansion is a direct result of the focus of our sales teams. I've enjoyed watching this company transform into a very good organic grower.
As we have hired well over the last several years, we've also built an outstanding foundational process that includes aggressively going after new client relationships, growing existing ones, along with a very diligent prospecting process. As I stated, we grew our loan book at a 10% annualized rate, quarter over quarter, as sales momentum stays strong and balanced across all of our regions. Our average portfolio yield, including fees and accretion, was up to 6.14%, and our new loan production continues to come onto the books accretive to our total portfolio yield levels. Regarding deposits, again, deposits were up 15% annualized or $179 million for the quarter, inclusive of reducing some of our brokered CD positions. It's important to recognize how we're building this bank with core relationships as we have an intense focus on both sides of the balance sheet.
We've made investments in our treasury management team over the last several quarters, and it's nice to see this line of business gain outstanding momentum. Our loan-to-deposit ratio is at 84%, which is actually down quarter over quarter, even with 10% loan growth. This strong position gives us continued flexibility to leverage a great balance sheet. Our pipelines continue to look good, and I'll discuss these a little bit more in my closing comments. Also, when you look at the highlight bullets in our earnings release, we've had a lot going on this quarter, all of it tied back to building the foundation of a bank that is on track to becoming one of the Southeast's strongest regional community banks.
Everything accomplished this quarter is part of our focus on efficiency and growth: a well-executed subordinated debt issuance, a sale with a subsequent minority reinvestment on our insurance platform, a repositioning trade with our bond portfolio that did not impact our book value as we leveraged the gain off the insurance deal, and continued contract evaluations and renegotiations, including our core data processing vendor, interchange payment rails, and some new tech-focused initiatives looking into 2026. All in all, a very nice third quarter for our company, and I'm going to stop there, hand it over to Ron to let him dive into some greater detail. Ron?
Speaker 1
Thanks, Billy, and good morning everyone. I'll start by highlighting some key deposit results. For the quarter, we had strong non-brokered deposit growth of $283 million, representing more than 24% growth on an annualized basis. This increase resulted from both new deposit production and seasonal client liquidity build following the previous quarter outflows. The cost of new non-brokered production was 3.47%. This growth gave us the opportunity to pay down $104 million of brokered deposits, which had a weighted average cost of 4.27%. Our overall interest-bearing cost rose by three basis points to 2.98%, but we're down to 2.93% for the month of September. Despite funding almost $100 million of loan growth and paying down $104 million of brokered deposits, our overall liquidity position, which includes cash and securities, at quarter end was approximately 21%.
Included in our liquidity position was $98 million in net proceeds from our subordinated debt issuance, which closed in August. As we look ahead to Q4, we anticipate our liquidity position normalizing as we already retired $40 million in our existing subordinated debt on October 2nd, and we expect to pay down an additional $111 million in brokered deposits with a weighted average rate of 4.28% during the fourth quarter. As Billy had mentioned, we utilized the gain generated from the sale of our insurance operations to offset losses associated with selling $85 million of securities with a weighted average rate of 1.40%. The proceeds of the securities sale were reinvested in securities yielding 4.95%, which will generate $2.6 million of additional annual interest income and increase our overall weighted average securities portfolio yield to 3.70%.
During the quarter, our net interest margin experienced some temporary compression, declining four basis points to 3.25%, primarily as a result of timing differences between issuing new subordinated debt prior to paying off our existing subordinated debt and higher rates for new deposit production. However, the average rate of new loan production was 7.11%, which continues to push the yield and our overall portfolio higher. Furthermore, any future cuts to the federal funds rate will positively impact our deposit portfolio costs, as approximately 45% is variable cost, adjusting in lockstep with any Fed actions. We believe these factors, in conjunction with anticipated brokered deposit paydowns and enhanced yields in our overall securities portfolio, have our balance sheet well positioned heading into the fourth quarter and into 2026. Looking ahead, we're projecting our fourth quarter margin to be in the 3.3% to 3.35% range.
Our quarterly provision expense decreased to $227,000 from $2.4 million reported in the previous quarter. The growth-related provision this quarter was offset by the adjustment to our qualitative factors, specifically an improvement in our CRE concentration ratio, which decreased to 271% from 301% in the previous quarter. This decrease was due to the downstreaming of $45 million of proceeds from our subordinated debt issuance to the bank as equity capital. Additionally, our asset quality continues to remain robust, with non-performing assets comprising 0.22% of total assets and net charge-offs to average loans of 10 basis points on an annualized basis. Our allowance for credit losses is now at 0.93% of total loans. Operating non-interest income, after adjusting for the gain and sale of our insurance operations and the loss on the securities restructuring, was $8.4 million, which is $500,000 lower than the previous quarter as a result of the sale.
All other income items remain consistent with our expectations. Operating non-interest expenses, after adjusting for previously noted items, total $32.6 million, aligning with results from the prior quarter. We made progress again in our operating efficiency ratio, which improved to 64% compared to 66% from the previous quarter. Our ongoing commitment to expense management has allowed us to maintain a level expense base over the past four quarters and continue to trend positively towards our long-term efficiency goals. For the fourth quarter, with insurance operations removed, non-interest income is projected to be approximately $7 million, and non-interest expenses expected to be in the range of $32.5 to $33 million. Salary and benefit expenses are anticipated to range from $19 to $19.5 million, comparable to the previous quarter due to higher levels of variable compensation and anticipated costs associated with the new hires.
Both our bank and consolidated tier-two capital ratios increased during the quarter, primarily due to the subordinated debt issuance. Our total consolidated risk-based capital ratio rose to 13.3%, up from the 11.1% in the previous quarter, and the company's TC ratio also improved to 7.8%. Looking ahead, we are confident that our capital ratios are appropriately balanced and well positioned to sustain growth while optimizing returns on equity. With that said, I'll turn it back over to Billy.
Speaker 3
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 executing on the leveraging phase of growth for our company. We hit our 1% and 12% ROE and ROE targets this quarter and have confidence that this will build from here as we gain even more operating leverage. 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 a great operational and support team, plus very nice complementary business lines.
We expect the remainder of 2025 to have a similar look to what we've seen in the last few quarters, and I believe this will continue into 2026. Our focus will be on doubling down on this current strategy, getting deeper into our markets and our business lines. As I mentioned, pipelines are good, and I think we can continue growing at this high single-digits plus pace. On talent acquisition, this continues to be a focus as well. Recruiting is a process. We've added a number of great bankers this year and have several more in our pipelines. We made some outstanding additions in the third quarter, and I believe we are included with 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 will remain very focused on recruiting.
One of the reasons for our successful execution on adding great people is our culture. Arguably, one of the biggest highlights for the quarter for us internally was our company being named to Fortune's list of best workplaces. This is an honor we don't take lightly, and a big shout out to our people team led by Becca Boyd as we continue with huge accomplishments with the culture of our company. To summarize, we are positioned well for our clients, our associates, and our shareholders. We are executing, growing revenue, 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 on 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 great overall energy around our company. I appreciate the work of our SmartFinancial SmartBank team and the efforts of all of our associates. I'm very proud of what we have going on here at SNBK, and I'll stop there and open it up for questions.
Speaker 4
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, press star followed by two. Our first question comes from Brett Rabbiton with Hofta Group. Your line is now open. Please go ahead.
Hey, good morning, guys. Thanks for the question. I wanted to start, maybe, Billy, you mentioned some hires, and I think in the past you've said the Alabama franchise could double in size over time, and you felt pretty optimistic about Alabama specifically. Can you talk, maybe, about where the hires were in the geographies? Just thinking about Alabama, any update on the growth outlook for that franchise in particular?
Speaker 3
Yeah, Rhett, thanks. It has. As far as just geography, it's really been fairly evenly spread. I think last quarter, we had talked about we had hired several of them, and we had several in the pipeline. We continue to add those. We added a couple in Alabama, added a couple in Tennessee over the last little bit. It's really been throughout all of our zones. I do think we're still extremely bullish on Alabama as we're getting started. We're bullish on all of our markets, but we're seeing a lot of this Alabama growth starting to catch stride, especially with some of these teams that we've got in the Birminghams, the Auburns, the Dothans, the Montgomerys. Those offices really are starting to generate some great momentum. Mobile too.
I know Miller and I have been on the road a lot the last several weeks, and we've been in most all of those markets over the last little bit, and it's exciting. A lot of new folks coming on. We had a new add in Panama City. Did have a new add in Murfreesboro as well. It's really been across the board, Rhett, but we're continuing to focus not just on Alabama, but really all of our zones. Like I said, Florida as well. We're seeing some nice payment opportunities.
I don't see that slowing down here.
Yeah, it's just really been across the board. Again, I made the comment in here, the momentum that we've got really everywhere in the company is just really good right now. Our culture is good. We're attracting some great bankers, and our existing legacy teams are performing extremely well. We're kind of hitting on most all cylinders. Still got, always still got work to do and gaps to close, but it's been really good.
Okay, that's helpful. On the margin guidance for the fourth quarter, obviously a lot's going into that. Wanted to make sure I understood kind of the guidance relative to the liquidity that you added in 3Q. How much of that drains out? How should we think about maybe the average balance sheet size in the fourth quarter, and how that might impact NII?
Yeah, Ron, you want to talk a little more on the margin detail?
Speaker 1
Yeah, you know, a lot of our cash on the balance sheet today will be, you know, more deployed. We did $40 million for the subordinated debt, another $100 million for brokered, and we expect to shrink some of the cash put into loans. I don't think our asset size of our balance sheet's going to move anything materially. We're just going to use really the cash on hand to fund most of the production for Q4.
Okay, that's helpful. If I could sneak in one last one, you mentioned, Billy, you know, tech-focused initiatives in the next year. Does that increase productivity like AI so you can have bots doing work that maybe frees up FTEs, or any thoughts on how much that might add to an expense base?
Speaker 3
You know, what we've done, Brett, over the last little bit, as I said, we've really worked and had some very favorable outcomes with some new contract renegotiations on several different fronts across the company. Some of the stuff that we're doing in tech, I think, is allowing us to get some expense reduction so we can reinvest. Obviously, Ron will continue to give our quarterly non-interest expense guidance moving forward. I don't see it having a really meaningful impact from an increase standpoint, even these new initiatives. I think we've got those kind of built into where we think run rates are today. We've got some great platform enhancements. We're looking at AI. We've started using bots. I think we will continue to do more of that. We're looking at some new things on the digital front as well from a consumer-facing digital piece.
We're leveraging Copilot a lot in our company today. I do think it absolutely increases efficiency. I don't think it necessarily impacts you from a spot where we're going to look to reduce staff. I do think it continues to allow you not to add staff as you scale. I think that's the biggest thing. We're seeing a lot of tools that we're starting to use. I know we've got great support stuff going on. Our risk platform tools are very helpful. We're spending a lot of time evaluating risk, evaluating fraud in our company. A lot of those technologies, I think, will allow us to continue at current staffing levels or maybe add just a few, instead of adding a lot over the coming years. It's kind of a mix, it's a mixed bag. There are a lot of different moving parts to it, but I really am excited.
I think our technology team is as good as we've ever had it in our company today, and I feel really good about our ability to advance that while still staying within a very reasonable expense profile.
It's as much a reallocation and reinvestment as it is.
Speaker 1
Additionally, the first sliver of this will be to, you know, we want to provide our clients with better experience, easier to do business, easier to do business with. That's really our first focus when we're going down this path.
Okay, that's all really helpful. Thanks so much, guys.
Speaker 3
Thanks, Brett.
Speaker 4
Our next question comes from Russell Elliott Gunther with Stephens Inc. Your line is now open. Please go ahead.
Hey, good morning, guys. I wanted to begin with just a follow-up on the expense conversation. Six consecutive quarters of positive operating leverage. You've talked about continuing to hire bankers as the opportunity arises. We just touched on the expense initiative, the tech initiatives. How are you thinking about that streak of positive operating leverage going forward? Is that something we should expect to see over the course of 2026 alongside this franchise investment?
Speaker 3
Yeah, I'll start, and then Ron, maybe you can add some additional color as well. Yeah, Russell, I think so. I mean, you know, when you look at where the company's positioned today, we're really bullish on our ability to continue to grow that revenue line. Again, the production that we're seeing happen throughout all of our markets, the repricing that we've got going on, we're going to get, we're going to continue to get that revenue lift. You know, and it's definitely going to outweigh our expense run rates. Now, we're going to want to continue to invest and add people, but we're going to do that balanced as we grow this revenue line. I think it's really important for us right now to continue hitting these operating leverage targets over the next few quarters. We really believe we can do that. We feel good.
We're starting to run our 2026 models and feel very good about where our company can be. Again, we've got to execute. We've got to do the right things to do that. We've demonstrated our ability to do that in 2024 and 2025. We think we can continue that in 2026. Yes, I do think we can continue to increase this consecutive streak of gaining operating leverage. Ron, I don't know any additional comments that you've got.
Speaker 1
Yeah, exactly right, Billy. We're probably not going into 2026 guidance, but we're probably keeping our band tight. We've been focused on containment for the prior four or five quarters, and we're probably looking around the $34 million, if you want numbers, $34 million to max $35 million range for the full year next year. Yes, we will be focused on containing it with our growth.
That's a good color, guys. I appreciate it. Just switching gears to the margin, appreciate the sort of level set for Q4 2025, given the moving pieces in Q3. You give great detail in the deck around the average earning asset repricing schedule, and in the past, you've talked about how that would translate to about two to three basis points of margin expansion quarterly. Is that still sort of the range you're thinking about as we move beyond Q4, or have some of the actions taken this quarter changed that in any way?
No, actually, the prior quarters was two to three basis points. We're pretty bullish in our margin expansion going into 2026. Overall, I think we're probably looking at five to seven basis points expansion, quarter over quarter for 2026.
That's very helpful. Thanks, Ron. Thank you, guys. Okay, thanks for taking my question.
Thanks, Russell.
Speaker 4
Our next question comes from Catherine Mealor with Keefe, Bruyette & Woods. Your line is now open. Please go ahead.
Thanks. Good morning.
Morning.
Maybe just one follow-up on the margin on the deposit side. With growth improving as much as it has into next year, how do you think the deposit beta could be on the next 100 basis points of cuts versus what we've seen on the past 100 basis points of cuts, just given I think we'll see better growth rates coming in the next over the next course of the year?
Speaker 1
I think for the variable, we intend to, as best we can, really follow a dollar or a basis point per basis point. We're still targeting 45%. I know we're probably in the 30s right now, but we want to target that 40% range beta.
Okay. From the past 25 bps of cut, I know it's early, but have you already seen the ability to do that?
Yes, we have.
Speaker 3
Yeah, we've been trying to step down, Catherine, a little bit as we work. We've got some of the deposits are tied directly to the rates or market rates, and those come down as rates come down. Some are more correlated, and that gives us the ability to move a little bit faster in some others too. We've been able to move those down and still pick up the growth that we've needed. Teams have done a nice job to be able to do that. I think we're still staying right there in market and staying on top of what's going on in all of our different zones, and each of our different zones have different competitive pressures and different competitors, but we've done a nice job being able to pull that down.
Okay, great. It's just one question on fees. Any outlook for fees as we go into next year or just things to be aware of that could drive better fee growth? I know we've got the insurance piece that'll be a little bit of a moving piece, but just kind of curious on how we're seeing that fee growth into 2026.
Yeah, I'll start, and then Ron, I'd love to get your, you know, some color for Catherine as well on that. We've got several things working. Again, we'll kind of reset now without that insurance component line item going forward. We've got, I think we've still got some really good plans. When you look at fees for us on the whole, we continue to think that that's going to have the ability to trend up. I know, you know, we've talked a little bit about payment rails and renegotiation. I think we've got some things that we're working on on our interchange income. I think there's some opportunities there. I didn't, in my comments, I didn't mention our mortgage unit. I'll tell you, our mortgage unit is having probably as good a year as we've ever had and really excited about what that mortgage team is bringing to the company.
We're seeing, as we've grown our footprint and grown our platform, we've continued to add some great new sales team members on the mortgage side, and our legacy team continues to perform well. I think that'll be a plus. Our investments arm continues to really execute, continue to grow our AU in there. We've added a really nice producer in one of our Alabama markets, new FA down there this year. Ron, I know we always talk about treasury management. Treasury management's a piece of it as we continue to grow that treasury management platform. I know that those dollars continue to just kind of build and become a really nice annuity. Catherine, I think there's several pieces. I don't know, Ron, if there's any others that you think of, but I do think we'll continue to get some nice growth. We'd love to see that accelerate.
That's going to be a strategic focus for us next year. Ron, any comments on that from you?
Speaker 1
Other than, you know, more like more looking at the customer fees and making sure we're market, but no, you hit all the highlights, Billy.
Speaker 3
Yeah.
Okay, great. Thank you.
Thanks.
Speaker 4
Our next question comes from Steve Moss with Raymond James & Associates. Your line is now open. Please go ahead.
Good morning, guys. Maybe just starting here on loans, just on the pipeline here, Billy, you sound really optimistic on things. I'm assuming it's going to be likely to be a really good fourth quarter. Just kind of curious as to, you know, is that pipeline enough to support, you know, double-digit growth into 2026 here?
Speaker 3
I keep guiding to kind of the high singles. We've been able to beat that a little bit, and I think we'll be right there. I think we'll be right there at that plus minus 10 number. That's a big bogey as we get larger. I'll tell you, one of the things that we talk about a lot internally, the production levels that we've had have really just been outstanding. The teams are doing a nice job. We're still seeing the payoffs and paydowns that, as we read and look at other releases and see a lot of other things going on in the market, we're not immune to that. We're getting a lot of payoffs and paydowns. It's just our production is so strong, it's still allowing us to get up there and kind of hit this 10%-ish number.
That's a lot to continue to ask our team to do. As we look over at least the near term, I do think we can continue at or around that pace. Pipelines are solid. When we're out in these markets and with Rhett in a lot of them, Miller and I are in a lot of them. I mean, we're out and there's just, there's an energy and a really good calling effort going on throughout the company. I think we can continue that. There might be a quarter that we're a little lighter, a little heavier, but I still think we'd be right around that plus minus 10.
Yeah, I like the markets here, and they're just all so positive, and the teams seem to be so positive. It does get harder to feed the beast, but I think we're certainly up for it.
Right, and maybe just in terms of feeding the beast, I hear you guys in terms of hiring as well. Just curious, as you think about, I know you guys are always opportunistic, but you obviously have merger disruption in your markets. Do you think there's a possibility of a step up in hiring over the next 12 months? Just curious. I know you guys are talking about positive operating leverage, just curious on that aspect, thanks.
Yeah, I'll tell you, we're very selective as we go through this hiring process. I don't necessarily think it's going to pick up dramatically, and I think a couple of reasons. The disruption that we see in the market, I mean, these are good banks, and they're going to be fighting to hold on to good talent. Over a period of time, you may see some dislocation in some different bankers and some of those different markets throughout the Southeast. I don't think there's a lot. We're just going to continue to be diligent in trying to find just incrementally good bankers that fit our culture, that fit our teams. I think we're probably going to be, I would imagine, looking into 2026, kind of keeping the same type pace that we saw in 2025, which will just be just add great talent when we can find it.
Like I said, I think we've probably, in the process, I think we've added, Nate, I think we've stopped about, we're probably maybe 12 to 15 net for what we've done in the pipeline or that we've added this year. I think we'll continue to do that. Steve, for us, it's just going to be just continuing to be diligent and, again, find the right types of bankers that fit the types of deals that we want to look at.
Yeah, Billy talks often about AVR. Always be recruiting. Always be recruiting. That's talent and clients. I think it takes a special, we're recruiting the quality, not the quantity. I think that's important for us, the culture fit and who they are.
Great. Appreciate that color there. Maybe just one more for me here on the loan loss reserve release. Did I understand that correctly that because you, did I hear that correctly that you downstreamed some capital and therefore with a lower reserve ratio, lower CRE concentration ratio? That was kind of one of the qualitative factors that drove the reserve lower?
Speaker 1
Yeah, our CRE concentration ratio, one of our qualitative factors was our, because we're over 300. Now that we downstreamed $45 million from the parent to the bank, it lowered it to 271. Yeah, that was one of the main factors.
Okay, so going forward, you know, relatively stable to maybe a modest build on the reserve ratio as you continue to grow here?
Yes, sir. Correct.
Okay. Awesome. I’ll step back in the queue. I really appreciate all the color here and a nice quarter, guys.
Speaker 3
Thanks, Steve.
Speaker 1
Thanks, Steve.
Speaker 4
Thank you very much. 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 Stephen Scouten with Piper Sandler & Co. Your line is now open. Please go ahead.
Yeah, good morning, guys. I just wanted to clarify a couple of things real quick. Ron, did you say that 45% of your deposits are variable costs? Is that to say, if I heard that right, that those are directly indexed?
Speaker 1
We have the ability to move 45%. We have about 32% that are directly indexed, and we have the remainder that's tied to an internal index that will move with the rate moves. Yes, 45% all in, though.
Okay, great. Perfect. On the NIM trajectory, I think you said five to seven basis points a quarter in 2026. Is that your expectation each quarter in 2026, or just want to make sure I'm hearing that right?
Yes, each quarter in 2026.
Great. Fantastic. Okay. I think I know Catherine maybe had asked this on the fee revenues and insurance. Did you give a guidance for expected fourth quarter overall fee revenues?
Yeah, $7 million.
$7 million. Great. Okay. Perfect. On the brokered deposit front, you obviously had some nice reductions here this quarter. It sounds like, I think you said maybe another $111 million next quarter. If I'm doing math remotely correct, it looks like maybe $120 million or so left in that ballpark. What's the plan for the remaining brokered deposits? Would the objective still be to get those down from here, or is that kind of an acceptable level moving forward?
Yeah, we were at $268 million in June, September at $164 million, minus the $111 million. We intend to, as soon as they are due, we're going to pay those down. Yes, we're looking not to have brokered deposits at some day. That's our goal objective is to not have those.
Okay, great. I guess last thing for me, you know, the stock's been trading fantastically. The results have been great, kind of ahead of schedule on that operating revenue line. Sounds like hiring has continued well. Do you think about M&A as a piece of that puzzle at all? I think there was some note maybe in the slide deck that said, you know, maybe more, trying to find the verbiage, maybe more strategic than it was previously. M&A focus shifted to strategics and/or needle moving opportunities. I guess maybe if you could kind of speak to that comment and what that might look like.
Speaker 3
Yeah. Steven, for us, it really, and in my comments, I said we've really, our strategy really hasn't changed a ton. A lot of it's just, again, doubling down on this organic strategy, getting deeper into the markets. That's strategy 1A. I think we're really not shifting that to really look at M&A, but we've said and continue to say we will evaluate needle moving opportunities that make sense. I've said before, we don't necessarily, we don't want to do M&A just to be bigger. We want, if we did it, we'd want it to make us better. Sometimes that's just tough to find. If we find that unicorn, we find the right piece that fits us, we would evaluate. I say that because you never know what could come down the road.
Our strategy is really focused on continuing just to lever this balance sheet and grow as we've done the last couple of years the way we've done it. That's the primary focus.
Yeah, you can't ever say you're not going to look. I think we are open to look. Billy talks often about now, you know, organic is 1A and M&A would be 1B. M&A might be 1C, but we're continuing to look.
That makes a lot of sense. The strategy's working, so I guess if it ain't broke, don't fix it, right? Great job, guys.
I do think, as we've talked to you and a lot of your colleagues, it's really important for us to message what we've messaged. We built this company by design. We were, again, a little bit kind of mile wide, inch deep by design for a reason. It's been very important for us to gain this operating leverage and do that. We've done that. We've executed well. We're executing well. We still got room to grow, and we want to continue to see this move forward. Not really changing anything on our outlook moving forward. We're going to just keep doubling down on what we're doing.
Perfect. Thanks a lot.
Speaker 4
Thank you very much.
Thanks.
We currently have no further questions, so I will hand back over to Miller Welborn for any closing remarks.
Thanks, Ezra. Thanks, everybody, for being part of the call today. We are very excited about where we are and where we're going. Thank you for being part of the SmartFinancial family, and have a great day.
Thank you very much, Miller, and thank you to all the speakers for joining today's line. That concludes today's conference call. Thank you, everyone, for joining. You may now disconnect your lines.