SmartFinancial (SMBK) Q3 2026 earnings review
SmartFinancial grows loans 15%, but profit before tax stops rising
SmartFinancial's lending keeps growing quickly, but higher costs for deposits, staff and problem loans absorbed the extra income this quarter. Loans rose 15% from a year ago, and chief executive Billy Carroll reported record revenue. Profit before tax was flat from last quarter, and the headline $1.10 per share includes a $2.6 million tax benefit from buying energy tax credits.
| Revenue (interest income after deposit costs, plus fees) | $57.5M +13% from a year ago, a record |
|---|---|
| Profit per share | $1.10 about $0.94 without the $2.6M tax benefit, by our math |
| Loans and leases | $4.86 billion +15% from a year ago |
| Fourth-quarter outlook | Not updated July plan: 3.50% margin and $1.00 per share |
⚖️ Verdict: 🔴 Bearish
The story got worse because the costs of growth caught up with the income from it. Deposit costs rose faster than the bank's own plan, operating expenses exceeded their range, and the loan-loss reserve fell below the floor management had set. The good news: core deposits almost matched loan growth, so the bank added little wholesale funding.
The question now is whether the margin returns to 3.50% in the fourth quarter, as the July plan requires. Either deposit costs level off while maturing fixed-rate loans renew at higher rates, or deposit competition keeps pushing funding costs up faster than loan yields. The fourth-quarter deposit cost will tell.
🐂 Bull Case
Loans Grow 15% and Core Deposits Follow
SmartBank, the Knoxville lender, has added more loans each quarter for a year, and the worry has been how to pay for them. Last quarter core deposits, the money customers keep at the bank, grew about $83 million against $165 million of new loans, so brokered deposits bought through outside brokers filled the gap.
This quarter the gap nearly closed. Chief executive Billy Carroll reported $174 million of new loans and $163 million of core deposit growth, and he wrote that growing deposits alongside lending "remains an important priority".
- Loans: up 3.7% from June and 15% from a year ago
- Construction and land loans: up 9.2% from June, now 11.6% of all loans
- Commercial and industrial loans: up 8.3% from June
- Core deposits: 12% annualized growth, against 15% for loans
This matters because loan growth only pays when cheap deposits fund it. Wholesale deposits still rose about $28 million by our math, a small share of the quarter's lending, and the loan-to-deposit ratio held at 87%.
What to watch: fourth-quarter core deposit growth against loan growth, in the January release. If deposits match loans again, the bank can keep growing at this pace without buying wholesale money.
Record Revenue Keeps Return on Assets Above 1%
SmartFinancial set itself a goal of a return on assets above 1%, meaning profit of more than one cent for every dollar on its balance sheet. Revenue, interest income after deposit costs plus fees, reached $57.5 million this quarter, which chief executive Billy Carroll called "another quarterly record in operating revenue".
Net interest income rose 16% from a year ago because average earning assets grew 9% while the margin on them widened from a weak quarter last year. Return on assets came in at 1.20%. Without the $2.6 million tax benefit it would be about 1.03% by our math, still above the goal.
What to watch: return on assets in the fourth quarter without any tax credit purchase. A reading above 1% would show that lending alone now earns the target.
🐻 Bear Case
Deposit Costs Rose More Than the Bank Planned
SmartFinancial's net interest margin, the gap between what it earns on loans and pays for deposits, carries the main risk in its growth story. In July the bank told investors the margin would slip to about 3.45% this quarter as deposit costs rose by up to 0.06 percentage points.
The margin landed exactly on 3.45%, but the deposit side came in worse. The cost of interest-bearing deposits rose 0.09 points to 2.71%, above the plan, and the company said higher funding costs "more than offset the improvement in earning-asset yields".
- Noninterest-bearing deposits: 16.5% of all deposits, from 18.4% a year ago
- Cost of all deposits: 2.26%, up 0.11 points from June
- Yield on loans: 6.08%, up 0.01 points
Core deposits almost matched loan growth, so the volume side of the funding worry eased. But the fourth-quarter plan calls for a 3.50% margin, which needs deposit costs to stop rising while about $90 million of fixed-rate loans mature and reprice. This quarter's cost trend argues against that, so the concern stands.
What to watch: the cost of interest-bearing deposits in the January release. A rise of 0.05 points or less would leave room for the margin to reach 3.50%.
A Tax Credit, Not Lending, Lifted Profit Per Share
Chief executive Billy Carroll wrote that SmartFinancial remains "committed to disciplined pricing, credit quality and expense management". The numbers test that claim, because in July the bank told investors to expect $34.5 to $35.0 million of operating costs this quarter.
Costs came in at $36.4 million, $1.4 million above the top of that range. Other real estate and loan-related expenses, the cost of handling problem loans and repossessed property, more than doubled to $1.8 million, and salaries also exceeded their range. Profit before tax came in at $20.5 million, slightly below the second quarter.
- Salaries and benefits: $21.6 million, against a range of $21.0 to $21.5 million
- Other real estate and loan-related expenses: $1.8 million, from $0.8 million in June
- Operating efficiency ratio, costs as a share of revenue: 62.9%, from 60.4%
- Income tax: $1.9 million, after a $2.6 million benefit from buying energy tax credits
This matters because the headline $1.10 per share, above the $1 goal set for the fourth quarter, rests on the tax item. Without it profit per share would be about $0.94 by our math, a small decline from June. SmartFinancial counts the credit inside operating earnings, so its own measure does not strip it out.
What to watch: fourth-quarter profit per share with the tax rate back near the 19.5% the bank has indicated. Reaching $1.00 on that basis would mean lending income, not tax purchases, delivered the goal.
The Loan-Loss Reserve Fell While Problem Loans Rose
Every bank holds a reserve against loans that may not be repaid, and management had said it targeted 0.97% to 0.98% of loans and did not see the ratio going lower. Fast growth makes the reserve matter more, because new loans have not yet shown how they perform.
This quarter the ratio slipped to 0.94%. The bank booked $1.1 million of provision for loans, while holding the ratio steady would have taken about $2.5 million by our math. Nonperforming loans, those no longer paying interest, rose to 0.28% of loans from 0.25%, so provision is running behind both growth and problem credits.
- Nonaccrual loans: $13.6 million, up $2.1 million from June
- Construction and land loans: up 44% from a year ago, the category SmartBank reserves against most heavily
- Net charge-offs: 0.06% of loans annualized, still low
What to watch: the reserve ratio and nonaccrual loans in the January release. A reserve back at 0.97% with nonaccruals steady would mean this quarter's dip was timing rather than weaker credit.
Risks This Quarter Didn't Answer
Two standing concerns got no new reading in the release, because the figures that test them come from the earnings call and the quarterly filing, neither of which is available yet.
- Loan repricing: the bank has promised a lift in loan yields of 0.06 to 0.07 points in the fourth quarter as fixed-rate loans mature; the yield on newly made loans, which shows whether that lift continues into 2027, is not in the release.
- Acquisitions: the release says nothing about deals; any purchase announcement would move the case toward integration risk and away from the organic growth that supports it.
👓 Other Themes
SmartBank Opens Columbus Branch and Adds Bankers
SmartBank opened a full-service financial center in Columbus, Georgia, which chief executive Billy Carroll called "marking an important step in expanding our presence in the market". Chairman Miller Welborn said the bank "welcomed several new business production team members during the quarter". New offices and hires raise salary and occupancy costs before they bring deposits, and both lines rose this quarter.
💲 Other KPIs
Up 9.6% from a year ago, after rising about 15% in each of the previous three quarters. Tangible book value is shareholders' equity minus goodwill, per share. The slowdown came from the bond portfolio, where unrealized losses widened by $13.3 million this quarter; without that swing the bank reports 15% annualized growth.
Fees rose 3% from June on deposit service charges and mortgage income, slightly above the roughly $8 million the bank had indicated. Compared with a year ago they fell 3%, because the insurance agency sold last year no longer contributes; that comparison is now complete. Fees are 14% of revenue, so lending carries the business.
Up 0.5% from a year ago through stock awards; SmartFinancial bought back no shares. It raised the quarterly dividend to $0.09 in July and has paid $4.5 million in dividends over nine months, so nearly all profit stays in the bank to fund loan growth.
🔮 Guidance
Not updated. The release gives no new outlook, so the plan the bank set in July still stands: a margin back near 3.50% in the fourth quarter, from 3.45% now. That needs deposit costs to level off while about $90 million of fixed-rate loans mature and reprice. The record on margin targets is good: the bank beat its own figure twice and matched it twice.
Not updated. The goal of $1.00 per share in the fourth quarter remains the bank's latest statement. This quarter's $1.10 already passes it, but only with the tax benefit; without that item the quarter earned about $0.94 by our math. Reaching $1.00 on a clean basis needs net interest income to keep rising and costs to return inside their range.
Not updated. The July plan of 3.0% to 3.5% loan growth a quarter still stands, and this quarter delivered 3.7%. By our math that pace puts loans near $5.0 billion at year-end, about 15% above December. The bank has beaten its own loan growth framing every quarter for a year, so the plan looks conservative if the pattern holds.
❓ Key Questions
Can the margin still reach 3.50% in the fourth quarter?
The release gave no new outlook. Interest-bearing deposit costs rose 0.09 points, above the pace the bank described in July, and the 3.50% target needs that rise to stop while fixed-rate loans reprice.
What is behind the $1 million jump in loan-related expenses?
Other real estate and loan-related expenses more than doubled to $1.8 million in a quarter when nonaccrual loans rose $2.1 million. Is one problem credit behind both, and will the expense recur?
Why did the reserve ratio drop below the stated floor?
Management had said it did not see the reserve falling below about 0.97% of loans; it ended at 0.94%. Did the credit model improve, or did provision lag $174 million of new loans?
Will the bank buy more energy tax credits?
The $2.6 million benefit moved profit per share from about $0.94 to $1.10 by our math. Whether purchases continue decides whether the fourth-quarter $1.00 goal is measured on a clean or a tax-assisted basis.
How much of the loan pipeline is construction lending?
Construction and land loans grew 44% in a year to 11.6% of the book, the fastest category and the most heavily reserved. What concentration ceiling does management hold for it?