SmartFinancial reports strong Q3 2025 results with 10% loan growth, $50M revenue target reached, and bullish outlook for continued expansion.

Ezra - Moderator - (00:02:34)

Hello everyone and welcome to the Smart Financial third 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. And 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 Nate Strahl, Director of Investor Relations to begin. Please go ahead.

Nate Strahl - Director of Investor Relations - (00:03:04)

Thanks, Ezra. Good morning everyone and thank you for joining us for Smart Financial's third 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. SmartFinancial.com Billy Carroll, our President and Chief Executive Officer, will begin our call, followed by Ron Gorzinski, our Chief Financial Officer, who will provide some comments, 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 statements because of new information, early development 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. And now I'll turn it over to Billy Carroll to open our call.

Billy Carroll - President and Chief Executive Officer - (00:04:13)

Billy thanks Nate 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 prepared comments, we'll open it up with Ron, Nate, and Rhett Miller and myself available for Q and 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. So 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 Accumulated Other Comprehensive Income (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 solid again and 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. So 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, but 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 sub 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. So 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 Gorzinski - Chief Financial Officer - (00:09:22)

Ron thanks Billy and good morning everyone. I'll start by highlighting some key deposit results for the quarter. We had strong non-broker 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 costs rose by 3 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 sub 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 sub 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 utilize the gain generated from 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 security 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 4 basis points to 3.25% primarily as a result of timing differences between issuing new sub debt prior to paying off our existing sub 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 rates fund 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 broker deposit paydowns and enhanced yields on our overall securities portfolio has 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 an adjustment to our qualitative factors, specifically an improvement in our Commercial Real Estate (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 sub 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 totaled 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 of 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 expense is 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 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 2 capital ratios increased during the quarter primarily due to the sub 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 and well positioned to sustain growth while optimizing returns on equity. With that said, I'll turn it back over to Billy.

Billy Carroll - President and Chief Executive Officer - (00:14:59)

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% ROA and ROE targets this quarter and have confidence that 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. So 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 Smart Financial Smart bank team and the efforts of all of our associates. I'm very proud of what we have going on here at SmartFinancial and I'll stop there and open it up for questions.

OPERATOR - (00:17:44)

Thank you very much. If you would like to ask a question, please press star followed by one on your telephone keypad now. And 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 Rabiton with Hovde Group. Your line is now open. Please go ahead.

Brett Rabiton - (00:18:12)

Hey, good morning, guys. Thanks for the question. 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 hire were, , in the geographies? And then just thinking about Alabama, Just any update on, , the growth outlook for that franchise in particular?

Billy Carroll - President and Chief Executive Officer - (00:18:44)

Yeah, Brett, thanks. It has, , as far as just geography, it's really been fairly evenly spread. You know, I think last quarter, I think we talked about, we had, we hired several and then 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. And so 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 Birmingham, Auburn, the Dothans, the Montgomerys. Those offices really are starting to generate some great momentum. Mobile, too. I know Miller and I, we've been on the road a lot the last Several weeks. And so 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 ad in Panama City, did have a new ad in Murfreesboro as well. So it's really been, it's really been across the board, Brett. But we're continuing to focus not just on Alabama, really all of our zones, like I said, Florida as well. We're seeing some nice panhandle opportunities and. Don'T see that slowing down. Yeah, it's just really been across the board. So again, and I made the comment in here, the momentum that we've got really everywhere in the company is, is just really good right now. Our culture is good. We're, we're, we're attracting some great bankers and , and, and, and our existing legacy teams are performing extremely well. So we're kind of hitting on most all cylinders. Still got always, still got work to do and gaps to close. But, but, but it's, it's been really good.

Brett Rabiton - (00:20:47)

Okay, that's, that's helpful. And then 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, you know, how much of that drains out. You know, how should we think about maybe the average balance sheet seat sheet size in the fourth quarter, you know, and how that might impact Net Interest Income (NII)?

Billy Carroll - President and Chief Executive Officer - (00:21:14)

Yeah. Ron, you want to, you want to talk a little more on the margin detail?

Ron Gorzinski - Chief Financial Officer - (00:21:19)

Yeah. You know, a lot of our cash on the balance sheet today will be, , more deployed. You know, we did 40 million for the sub debt, another 100 million for brokered, and we expect to shrink some of the cash put into loans. So I don't think our asset size of our balance sheet is going to move anything materially. We're just going to use really the cash on hand to fund most of the production for Q4.

Brett Rabiton - (00:21:43)

Okay, that's helpful. And then if I could sneak in one last one you mentioned, Billy, , tech focused initiatives and next, the next year, does that increase productivity like AI so you can have bots doing work that maybe frees up Full-Time Equivalents (FTEs) or any thoughts on how much that might add to an expense base?

Billy Carroll - President and Chief Executive Officer - (00:22:05)

You know, it really, , what we, what we've done, Brett, over the last little bit, as I said, we've, we've really worked and had some very favorable outcomes with some Some, , some new contract renegotiations on several different fronts across the company. But some of the stuff that we're doing in tech I think is allowing us to get some expense, get some expense reduction so we can reinvest. Obviously Ron will continue to quarterly kind of give our quarterly, , non interest expense guidance moving forward. I don't see it having a really meaningful impact from an increased standpoint. Even these new initiatives, I think we've got those kind of built into kind of where we think run rates are today. But 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 of, , we're leveraging Copilot a lot in our, in our company today. And, and I do think it overall I think it increases, it absolutely increases efficiency. I don't know, that necessarily, I don't think it necessarily impacts, , impact you and from a spot where we're going to look to reduce staff but I do think it continues to allow you not to add staff as you scale and 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 near company. So a lot of those technologies I think will allow us to continue at current staffing levels or maybe add just a few where instead of adding a lot over the coming years. So it's kind of a mix. It's a mixed bag. There's 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 feel really good about our ability to advance that while still staying within a very reasonable expense. It's as much a reallocation and reinvestment.

Ron Gorzinski - Chief Financial Officer - (00:24:25)

Additionally, the first sliver of this will be, you know, we want to provide our clients with better experience, easy to do business, easier to do business with. So that's really our first focus when we're going down this path.

Brett Rabiton - (00:24:40)

Okay, that's all really helpful. Thanks so much guys.

Billy Carroll - President and Chief Executive Officer - (00:24:45)

Thanks Brett.

OPERATOR - (00:24:47)

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

Russell Gunther - (00:24:56)

Hey, good morning guys. I wanted to begin with just a follow up on the expense conversation. So six Consecutive quarters of positive operating leverage. You've talked about continuing to hire bankers as the opportunity arise. We just touched on the expense initiative of the tech initiatives. So 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?

Billy Carroll - President and Chief Executive Officer - (00:25:29)

Yeah, I'll start and then Ron, maybe you can, you can add some additional color as well. Yeah, Russell, I think so. I mean, , when you look at, when you look at where the company's position 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, , 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, as we grow this revenue line,. I think it's really important for us to right now to continue hitting these operating leverage targets over the next few quarters. We really believe we can do that. We, we feel good, we're starting to run our 26 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. But we've demonstrated our ability to do that in 24 and 25. We think we can continue that in 26. So yes, I do think we can continue to, to increase this consecutive streak of gaining operating leverage. But Ron, I don't. Any additional comments that you got?

Ron Gorzinski - Chief Financial Officer - (00:26:46)

Yeah, no, exactly right, Billy. You know, we, we're probably, you know, again, we're not going in 26 guidance, but we're, we're probably, you know, keeping our band tight. We've been focused on containment for the prior four, four or five quarters and we're probably looking around the 34 if you want numbers 34 to max 35 million range for the full year next year. So yes, we will be focused on containing it with our growth.

Russell Gunther - (00:27:13)

That's great color guys. I appreciate it. And then just switching gears to the margin, appreciate the sort of level set for 4Q25. Given the moving pieces in 3Q. 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 2 to 3 basis points points of margin expansion quarterly Is that still sort of the range you're thinking about as we move beyond 4Q or have some of the actions taken this quarter changed that in any way?

Ron Gorzinski - Chief Financial Officer - (00:27:50)

No, actually, you know, the prior quarters was 2 to 3 basis points. We're pretty bullish in our margin expansion going into 2026. We're overall, I think we're probably looking at 5 to 7 of basis points expansion quarter over quarter for 26.

Russell Gunther - (00:28:09)

That's very helpful. Thank you, guys. Okay, thanks for taking my question.

Billy Carroll - President and Chief Executive Officer - (00:28:14)

Thanks, Russell.

OPERATOR - (00:28:16)

Our next question comes from Katherine Miller with kbw. Your line is now open. Please go ahead.

Katherine Miller - (00:28:25)

Thanks. Good morning. 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 point cuts versus what we've seen on the past hundred basis points of cuts just given? I think we'll see better growth rates come in over the next course of the year.

Ron Gorzinski - Chief Financial Officer - (00:28:56)

Yeah, I think, I think for the variable we intend to as best we can is to really follow dollar or basis point for basis point. So we're still targeting 45%. I know we're probably in the 30s right now, but we want to target that 40% range beta.

Katherine Miller - (00:29:19)

Okay. And from the past 25 bibs cut. I know it's early, but have you already seen the ability to do that?

Ron Gorzinski - Chief Financial Officer - (00:29:27)

Yes, yes, we have. Yeah.

Billy Carroll - President and Chief Executive Officer - (00:29:29)

We've been trying to step down, Catherine, a little bit as we, as we work. You know, we've got, we have, we have some of the deposits are tied directly to the rates or market rates. And so those come down as rates come down. Some are more correlated, some, and that gives us the ability to move a little bit faster and some others too. So yeah, we've been able to, been able to reduce those and still pick up the growth that we've needed. So teams have done a nice job to be able to do that. And then 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.

Katherine Miller - (00:30:12)

Okay, great. And I missed just one question on fees. Any outlook for fees as we go into next year of 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 26.

Billy Carroll - President and Chief Executive Officer - (00:30:29)

Yeah, I'll start. And Ron, I'd love to get your 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. But yet we've got, I think we've still got some really good plans. When you look at these for us, on the whole, we continue to think that that's going to have the ability to trend up. I know we talked a little bit about payment rails and renegotiation. I think we've got some things that we're working on, our interchange income. I think there's some opportunities there and 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, 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. So, so that's a, that's, I think that'll be a plus. You know, our invesTreasury Management (TM)ents arm continues to, to really execute, , continue to grow our AU in there. We've added a, added really nice producer in one of our Alabama markets, new FA down there this year, . And , Ron, I know we talk, we always talk about Treasury Management (TM). While TM is a piece of it, as we continue to grow that TM platform, I know that those dollars continue to just kind of build and become a really nice annuity. So Katherine, 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. But I don't know Ron, any, any comments on that from you?

Ron Gorzinski - Chief Financial Officer - (00:32:25)

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.

Katherine Miller - (00:32:31)

Yeah. Okay, great. Thank you.

Billy Carroll - President and Chief Executive Officer - (00:32:37)

Thanks.

OPERATOR - (00:32:39)

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

Steve Moss - (00:32:48)

Good morning, guys. Maybe just starting here on, on loans, just on the pipeline here. Bill, you sound really optimistic on things, so I'm assuming it's gonna 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 20, 26 here, you know, you know, again, I, I keep guiding to kind of the high singles. We've been able to beat that a little bit, you know, and you know, I think we'll be right there, I think we'll be right there at that plus minus 10 number. You know, that's, and that's a, that's a big bogey. As we get, we get larger, I'll tell you. You know, one of the things that we talk about a lot internally, you know, the, the production levels that we've had have really just been outstanding. Again, the teams are doing a nice job. You know, we're still seeing the payoffs and pay downs that, you know, that, you know, a lot of our, as we read and look at other releases and see a lot of other things go on the market, you know, we're not immune to that. We're getting a lot of payoffs and pay downs. It's just our production is so strong, it's still allowing us to get out there and kind of hit this 10% ish number. So, you know, that's, you know, that's, that's a lot to continue to ask our team to do. But as we look over the, at least the near term, I do think we can continue at or around that pace. Again, pipelines are solid. You know, when you're out, we're out in these markets and with Rhett's in a lot of them, Miller and I and a lot of them, I mean, we're out and there's just, there's a, there's an energy and a really good calling effort going on throughout, throughout the company. So yeah, I think we can continue that. You know, 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.

Billy Carroll - President and Chief Executive Officer - (00:34:35)

Okay. And they're just all so positive and the teams seem to be so positive. It, it does get harder to feed the beast, but I think we're certainly up for it.

Steve Moss - (00:34:45)

Right. And maybe just in terms of feeding the beast, I hear you guys in terms of hiring as well. Just curious, you know, as you think about, I know you guys are always opportunistic, but you know, you obviously have merger disruption in your markets. You know, kind of.

Billy Carroll - President and Chief Executive Officer - (00:35:02)

Do you think there's a possibility of a step up in hiring over the next 12 months? Just kind of curious. I know you guys are talking about positive operating leverage, but just curious on, on that, that aspect of Things. Yeah, I'll tell you, see, we, we, we're all, we're very selective as we go through this hiring process. I, you know, I, I don't necessarily think it's going to pick up dramatically and I think couple of reasons. I think that, you know, the disruption that you. We see in the market. I mean these are, these are good banks and they're going to be, they're going to be fighting, holding on to good talent. And you know, and I just, I think over the, over a period of time you may see some, you know, dislocation in some different bankers and some of those different markets throughout the Southeast. But I don't think there's a lot. I think 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. And I think we're probably going to be, I would imagine looking into 26, kind of keeping the same type pace that we saw in 25, which will just be just, you know, add great talent, we can find it. Like I said, I think we probably in the process, I think we've added Nate. I think we stuck that we're probably maybe 12 to 15 net for you know, kind of what we've done, you know, in the pipeline or on that we've added this year. I think we'll continue to do that and I think Steve, for us it's just going to be, just continuing to be diligent again, find the right types of bankers that fit the types of, of deals that we want to look at.

Rhett Miller - (00:36:39)

Billy talks often about adr. Always be recruiting. Always be recruiting. That's talent and clients and I, But. I think it's, it takes a special. We're recruiting the quality, not the quantity and I think that's important for us. The culture fit who they are. Yeah.

Steve Moss - (00:36:58)

Right. Appreciate, 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 it 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.

Ron Gorzinski - Chief Financial Officer - (00:37:24)

Yeah, our, our CRA concentration ratio. One of our qualitative factors was there was our. Because we're over to 300 now that we downstream 45 million from, from you know, the parent to the bank, it lowered it to 271. Yeah, that was a, that was one of the main factors.

Steve Moss - (00:37:44)

Okay. Okay. So going forward, you know Relatively stable to maybe a modest build on the. Reserve ratio as, as you continue to grow here.

Ron Gorzinski - Chief Financial Officer - (00:37:52)

Yes, sir. Correct.

Steve Moss - (00:37:55)

Okay, awesome. Well, I'll step back in the queue. I really appreciate all the color here and nice quarter, guys. Thanks Steve. Thanks, Steve.

OPERATOR - (00:38:04)

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 Steven Scouten with Piper Sandler. Your line is now open. Please go ahead.

Steven Scouten - (00:38:25)

Yeah, good morning guys. Just wanted to clarify a couple things real quick, Ron. Did you say that 45% of your deposits have variable rates? And is that to say, if I heard that right, that those are directly indexed?

Ron Gorzinski - Chief Financial Officer - (00:38:40)

We have the ability to move 45%. We have about 32% that are directly indexed and we have the remainder. That'S. Tied to a internal index that will move with the rate moves. So yeah, 45% all in though.

Steven Scouten - (00:38:59)

Okay, great, perfect. And then on the, on the NIM trajectory, I think you said 5 to 7 basis points a quarter in 26. Is that your expectation, each quarter in 2026 or. Just want to make sure I'm hearing, hearing that right.

Ron Gorzinski - Chief Financial Officer - (00:39:14)

Yes, each quarter in 2026.

Steven Scouten - (00:39:19)

Great, fantastic. Okay, and then last thing I think I know Catherine maybe had asked this on the, on the fee revenues and insurance, did you give a guidance for expected fourth quarter overall fee revenues?

Ron Gorzinski - Chief Financial Officer - (00:39:34)

Yes, seven million.

Steven Scouten - (00:39:37)

Seven million, Great. Okay, perfect. And then on the broker deposit front, you obviously had some nice reductions here this quarter. Sounds like, I think you said maybe another 111 next quarter. So I'm doing math remotely correct. Looks like maybe 120 million or so left in that ballpark. What's the plan for the remaining broker deposits? Would the objective still to get those down from here or is that kind of an acceptable level moving forward?

Ron Gorzinski - Chief Financial Officer - (00:40:02)

Yeah, we were at 268 in June, September at 164, minus the 1 11. We intend to, as soon as they are due, we're going to pay those down. So yes, we're looking not to have brokerage deposits at some day. That's our goal objective is to not have those.

Steven Scouten - (00:40:27)

Okay, great. And then I guess last thing for me, you know, the stock's been, 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, a note maybe in the, 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 if you could kind of speak to that comment and what that might look like.

Billy Carroll - President and Chief Executive Officer - (00:41:06)

Yeah, you know, Stephen, for us it really, and I'm in my comments, I said we've really, our strategy really hadn't changed a ton. A lot of it's just again doubling down on this organic strategy, getting deeper into the markets. That's, that is, that's, that's, that's strategy 1A, you know. Yeah, I think, you know, we're really not shifting that to really look at M and A. But we've, we've said and continue to say, you know, we will evaluate, you know, you know, needle moving opportunities. That, that make sense. I've said, you know, before, we don't necessarily, you know, we don't want to do M and A just to be bigger. You know, we, we want, if we did it, we'd want it to make us better. And sometimes that's just tough to find. You know, if we find that unicorn, we find the right piece that fits us. And yeah, we would evaluate. But really, I mean it's, it's. I say that because you never know what could come down the road. But man, our strategy is really focused on continuing just to lever, you know, 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.

Ron Gorzinski - Chief Financial Officer - (00:42:12)

I think we are open to look. But Billy talks often about Now Organic is 1A and M and A would be 1B, M and A might be 1C but we're continuing to look.

Steven Scouten - (00:42:25)

Yeah, that makes a lot of sense. Well, the strategy is working. So I guess if it ain't broke, don't fix it.

Billy Carroll - President and Chief Executive Officer - (00:42:29)

Right. So great job, guys. Well, it is, you know, it is. But I do think, you know, and as we've talked to you and a lot of your colleagues, I mean, it's just, you know, it's really important for us to message what we've messaged. It's, you know, we, we built this company by design. We were again, a little bit kind of mile wide, inch deep by design for a reason. And we, it's been very important for us to gain this operating leverage and do that. And that's, we've done that. We've executed well, we're executing well. We still got room to grow and we've got, we want to continue to see this move forward. So not really changing anything on our outlook moving forward. It's just we're going to just keep doubling down on what we're doing. Perfect. Thanks a lot.

OPERATOR - (00:43:17)

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

Miller - (00:43:28)

Thanks, Ezra. And 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 Smart bank family and have a great day.

OPERATOR - (00:43:42)

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.