1/22/2025

speaker
Ezra
Conference Call Coordinator

Hello everyone and welcome to the Smart Financial fourth quarter 2024 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. I will now hand you over to Nate Stroll, Director of Investor Relations to begin. Please go ahead.

speaker
Nate Stroll
Director of Investor Relations

Good morning, everyone, and thank you for joining us for Smart Financial's fourth quarter 2024 earnings conference call. During today's call, we will reference the slides and press release that are available in our investor relations section on our website, smartbank.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 additional commentary. We will be able 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 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 investors presentation filed on January 21st, 2025 with the SEC. And now, I'll turn it over to Billy Carroll to open our call.

speaker
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 some numbers in greater detail. After our prepared comments, we'll open it up with Ron, Nate, Rhett, Miller, and myself available for Q&A. So let's jump right in. A really nice quarter for us, wrapping up a really nice year as we execute on what we've been messaging. We posted net income gap and operating of $9.6 million for the quarter, or 57 cents per diluted share. I continue to be very proud of the way our team is performing, and I'm excited to watch us gain the operating leverage as we've anticipated. Jumping into the highlights, I'll be referring to the first few pages in our deck, pages three through six. 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 $22.85 per share, including the impacts of AOCI, and $24.25 excluding that impact. That's over 9% annualized quarter over quarter excluding the AOCI movement. Looking at the graph on the lower right on page six, you'll see the value increase we continue to deliver for our shares. Our balance sheet growth was outstanding in the last quarter of the year. On the loan side, we grew at a 20% annualized pace for Q4 and grew at a 13.4% year over year, as our market teams are continuing to add outstanding new relationships. On the deposit side of the balance sheet, growth was equally impressive. with quarter over quarter annualized growth at approximately 34%. That number includes some temporary short-term non-interest bearing funding that came in late in the year, but even taking that out, we were still at near 30% annualized on core deposit growth. Ron will provide more detail on that in a moment. Our history of strong credit continues with the metric dropping to just 19 basis points in NPAs. Credit is always a focus for our company, And I'm proud to see these numbers continue at exceptionally low levels. Total revenue came in at $46.8 million as net interest income continued to expand as we had anticipated. We also had another nice non-interest income quarter. Non-interest expenses were up just slightly to over, just at over $32 million. A good portion of that delta from the prior quarter relates to increased incentive compensation related to robust growth in the second half of the year. I feel we can hold our expense growth to very reasonable levels as we look into 2025. As discussed in previous quarters, we continue to focus on operating leverage expansion driven by solid revenue growth and thoughtful investment on the expense end. Looking at the charts on page five and six, you'll see our trend lines continue to move in the right direction. One I would like to highlight is the operating PPNR chart Throughout 2024, we saw continued upward momentum driven by growth and margin expansion, a trend we expect to accelerate throughout this coming year. So just a couple of additional high-level comments for me. On growth, we are extremely pleased with the results. In regard to the loan side, for the year we grew our gross loan book approximately $462 million, again, about 13.4% year-over-year. The sales momentum in our company is very good, and it's balanced across all of our regions. We've done this while increasing our loan portfolio yields throughout the year despite seeing rate cuts. Our total yield at the end of the year was 6.04%, including fees, and we continued to hold at 5.95% without fees. As I mentioned just a moment ago, the deposit growth we've shown has been very impressive. We remixed a little bit this year, trading out of some higher-rate public funds but growth in true core has been outstanding. Our loan to deposit ratio has increased a little throughout the year and now is at 83% at year end, which is a nice spot for us. This position gives us continued flexibility to leverage our strong deposit base. Our business development pipelines continue to feel solid. I'm still holding to our past guidance of mid to high single digits on loan growth as we look at over the next few quarters, even though we bettered that in 2024. I also expect that we can pace deposit growth to fund that organically. I'm going to stop there and hand it over to Ron to let him dive into some details. So, Ron, take it from here, please.

speaker
Ron Gorzinski
Chief Financial Officer

Thanks, Billy, and good morning, everyone. I'll start by highlighting some key deposit results. As Billy mentioned, we had a very strong long-growth quarter fully funded through our deposit production. During the quarter, we experienced non-broker deposit growth of $350 million nearly 34% on an annualized basis, resulting in a loan-to-deposit ratio of 83%. The weighted average cost of non-broker production was 3.37%. Total interest-bearing costs for the deposit portfolio decreased 18 basis points to 3.02% and were 2.97% for the month of December. The deposit portfolio composition remained relatively consistent with a slight increase in noninterest-bearing deposits, increasing at 21 percent of total deposits. With some transitory noninterest-bearing deposits in our year-end totals, we anticipate that this percentage will stabilize around 20 percent moving forward. Noninterest margin expanded quarter over quarter, increasing 13 basis points to 3.24 percent. This expansion is attributable to several factors, including our prior quarters deposit repositioning efforts, and a favorable 7.08% weighted average yield on new loan originations, resulting in a total loan portfolio yield increase of two basis points to 6.04%, which includes fees. Net interest income grew 2.8 million, or 31% annualized, supported by $150 million of growth in interest earning assets. Looking ahead. We anticipate our margin to continue expanding throughout 2025, although at a slower rate than observed in the past two quarters. The primary factors driving this margin expansion are new loan production and the amortization and maturities of lower yielding fixed and adjustable rate loans. We anticipate reduction in deposit costs to progress at a slower pace due to the decreased probability of further Federal Reserve rate cuts and the higher cost associated with new deposit production. As a result of these factors and current market conditions, we anticipate a first quarter 2025 margin in the 3.2 to 3.25% range. Our quarterly provision expense for credit losses amounted to 2.1 million, primarily from higher loan growth. Net charge-offs to average loans were two basis points on an annualized basis. Overall, the bank's asset quality remains strong, with non-performing loans at total loans at 20 basis points, and the allowance for credit losses remaining steady at 96 basis points of total loans. Operating non-interest income for the quarter totaled $9.0 million, exceeding expectations. This performance was driven by increased revenue from insurance commissions and mortgage banking, which contributed $355,000 and $131,000, respectively. However, this was partially offset by a decrease of $500,000 in investment services revenue, primarily due to decreased volume experienced during the quarter. Operating expenses were $32.3 million, slightly above our third quarter guidance, due to higher performance-based incentive accruals and commissions from strong Q4 performance. Additionally, increased other real estate and loan-related expenses increased from the writing down of some repossessed equipment and our equipment finance division to expedite the liquidation process. Looking ahead to the first quarter, we are forecasting non-interest income in the mid to high $7 million range, and non-interest expense in the range of 32 to 32.5 million, with salary and benefit expenses in the range of 19.5 to 20 million, as accruals for incentive-based compensation will fluctuate based on our performance. We continue to focus on cost management efforts centered on controlling expenses. Additionally, we previously reported the establishment of real estate investment trust subsidiary to monitor and manage the performance of certain real estate loans and to create a more taxpayerable structure. There were some final adjustments that slightly elevated our tax rate, but it is anticipated that our corporate effective tax rate to stabilize at the 20% range. I'll conclude with capital. During the fourth quarter, we allocated significant capital to higher return lending opportunities which in turn slightly leveraged our capital ratios. Coupled with a 6.3 million decrease in our accumulated other comprehensive income, the company's consolidated TC ratio decreased 50 basis points to 7.5 percent. Total risk-based capital remained well above regulatory well-capitalized standards at 11.2 percent. 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.

speaker
Billy Carroll
President and CEO

Thanks, Ron. And I want to reiterate again the value proposition with our company, drawing your attention back to page eight of our deck. We've been on the road a lot in 2024, reminding our investors and stakeholders of the investments we've made and what we've accomplished recently. We are seeing the profitability inflection and have clear line of sight on our return targets. We're building a great franchise in arguably some of the most attractive markets in the country, and to put together a team that is moving us in a great direction. The changes in our company over the last couple of years have been tremendous, and it's formed, in my opinion, one of the Southeast's brightest stories. We've said we needed a little time to sync up the new markets and teams we've added in recent years, but those markets are now rolling with Birmingham, Auburn, and Montgomery flagship offices open and market share growing quickly. Key themes for us in 2025 are gonna be similar to 2024. with a focus on generating operating leverage and hitting our profitability targets. The majority of expense growth in the company during this coming year should be primarily talent related and measured methodical investments in our banking platform. We will continuously look to hire sales associates who align with our company culture. In 2024, we added 17 new revenue producing team members and have several in our talent pipeline currently. We're adding some outstanding regional bankers to our team, and I believe we continue to be one of the region's Companies of choice for great bankers. From an associate standpoint, we were honored to become a certified great place to work this year. As you can see, we've noted it in our deck this quarter. This is in addition to being recognized as a regional top workplace for eight consecutive years. So to summarize, I love where we're sitting. We are executing, growing our revenue line, and gaining operating leverage. Margin is expanding, and we can see further tailwinds coming with significant rate resets set to occur in our fixed rate loan portfolio. Credit continues to be very solid and we're seeing great new client growth with a sales energy that is outstanding. All set a great quarter and a great year for our company as we continue to build a profitable and attractive franchise. I appreciate the work of our smart financial, smart bank team and the efforts of our 600 associates. I'm very proud of the work that we have going on here at SMBK. So I'm going to stop there and we'll open it up for questions.

speaker
Ezra
Conference Call Coordinator

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 Will Jones with KBW. Will, your line is now open. Please go ahead.

speaker
Will Jones
Analyst at KBW

Yeah, hey, good morning, everyone. Hey, Will. Morning. Hey, so Ron, I wanted to start on loan yields. I mean, it's a fairly impressive feat that you're able to see that loan yield, you know, hold stable quarter over quarter, just in light of some of the handful of cuts that we've recently gotten. I was just hoping maybe you could help us reconcile, you know, how you're able to kind of achieve that stability quarter over quarter. I assume, you know, growth this quarter was a fairly contributing factor, as well as maybe some of the fixed rate reparsing tailwinds you have. Just help us maybe piece together how that loan yield transpired through the quarter and maybe where we could expect to see that trend through the early half of 2025. Thanks.

speaker
Ron Gorzinski
Chief Financial Officer

Yeah, that's a great question. We, our loan yields are, you know, our production is still north of 7% for originations. During the quarter, we did see also opportunities. We have received excess loan prepayments. which kind of accounted for three basis points of the margin. Also, we've seen a lot of traction on both not only good loan lending opportunities, but still draws from our unfunded line of credits at higher rates. So at this point, you know, we've managed to block and tackle to keep these consistent, but we will see it trending down a little bit lower as we move forward into 2025, at least for the first quarter or two.

speaker
Will Jones
Analyst at KBW

Great. I know you said it, but could you just remind me of where new loan production was in the fourth quarter? 7.08%. Okay, perfect. And maybe... Billy, for you, it's great to hear that there's still, you know, optimism on maintaining, you know, a mid-to-high single-digit loan growth pace. I'm just curious if maybe you could talk about how maybe some of the competitive dynamics have changed or how you expect maybe the competitive dynamics to change in the coming year as, you know, the industry, you know, feels fairly bulled up on, you know, growth as a whole. And then, you know, maybe also touch on how you view, you know, your CRE concentrations and whether that could possibly be a limiting factor for you guys next year. Thanks.

speaker
Billy Carroll
President and CEO

Yeah, well, yeah, good questions. Yeah, you know, from a growth standpoint, You know, we have, and like I said, we've guided to that mid to high single digits again, which is kind of where we've been for the last few quarters. You know, we've been able to beat that. I think some of it is, you know, we always build some pay down assumptions in their projections as well. And quite frankly, we just didn't get a lot of that in the second half of the year. So I think, you know, if you look at some normal pay down and pay off, happenings along with production. I still think we're about right. You know, the competitive side is still there. You know, it is. I think, you know, when you look at the regions where we operate, I mean, you've got really good economic climates. You've got really good economic environments. I think there is a bullish feeling, you know, in at least in the regions where we're operating, probably, you know, nationally as well. But I know where we where we're doing business. It is. While rates have stayed elevated a little bit, I think we still feel good about our ability to compete. I think it is going to be an interesting year. I know a lot of other companies like us feel like they can continue to grow their balance sheet, but we're very optimistic about that. Our sales teams, as I've mentioned, are really starting to hit on on most all cylinders and really we're very bullish on kind of the position we are as a company. You know, to your CRE question, and I may throw it over to Rhett to let him give a little bit of color on this as well. We don't think that'll be a big limiter. You know, we had some really good opportunities over the last quarter to pick up some nice, just nice core relationship opportunities that had a little bit of a CRE emphasis. But I think the majority of the growth that we're seeing is still probably fairly balanced as our production charts have shown. But, Red, I'd love to let you maybe just kind of dive into that just a little bit deeper and talk a little bit about what we're seeing on the production side, the mix, and maybe just a little bit about the CRE piece and where that's coming from.

speaker
Rhett Miller
Unknown

Absolutely, Billy. Yeah, if you look at, just start with this particular quarter, you look at this quarter in balances. I mean, about 34% of that was in a CRE call code category. 60 plus percent came in a mix of C&I, owner-occupied real estate, one to four family. Again, you look at the chart on page 10 of the loan composition mix, you can see it really did not swing to any degree of significance in any category. So, you know, we've continued to see good opportunities to Billy's Point in the CRE space, but we're seeing good opportunities across the entire spectrum of of loan types. And that production has been very consistent. It's been consistent geographically. It's been consistent with when the portfolio from a diversification standpoint. So while we are continuing to see opportunities in the CRE segment, it's just a normalized piece of our production. And we think that trend is going to continue as we look at our pipeline.

speaker
Rhett Miller
Unknown

And I'd like to really emphasize the fact how geographically spread out it was within all our markets as well. It wasn't just anything. One limited factor.

speaker
Will Jones
Analyst at KBW

That's great. That's all very helpful, guys. Well, congrats on a great quarter and great, great end to the year.

speaker
Rhett Miller
Unknown

Okay. Thank you, Will.

speaker
Ezra
Conference Call Coordinator

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

speaker
Nick Lorenzoni
Analyst at Steffens Bank

Hey, good morning, everyone. This is Nick Lorenzoni. I'm just filling in for Russell.

speaker
Nate Stroll
Director of Investor Relations

Hey, Nick.

speaker
Nick Lorenzoni
Analyst at Steffens Bank

Hey. So to start off, I want to talk about your 50 million revenue target for 3Q25. What specific factors are giving you guys the confidence in achieving that $250 million revenue target?

speaker
Billy Carroll
President and CEO

Yeah, and I'll get a little hype, maybe just kind of a macro thought on that, and then let Ron maybe talk a little bit more about kind of how we plan to get there. You know, really, when you look at the revenue growth that we've had over the last few quarters, I mean, it's really more just continuation of the trend. You know, when you look at When you do the math just on what we're looking at from a loan and deposit growth standpoint, continue to hold those expense lines, you get to that $50 million right there toward the end of Q3, right there Q4. We still feel very confident on our ability to hit these near-term return targets. If we can get that $50 million revenue line on a quarterly run rate by the second half toward the end of the year. And, you know, that should equate to that 1%, 12% ROE, ROA, ROE, respectively. And, you know, that's the near term goal. And then, you know, then we'll sit down and kind of assess what the next goal needs to be. But we've said on, you know, on these calls and when we're out at our meetings, you know, we feel very, very good about our ability to hit that. So, Ron, I don't know if you've got any additional color on, you know, how we plan to achieve this.

speaker
Ron Gorzinski
Chief Financial Officer

Yeah, you handled most of the high points. You know, really, it's loan growth funded by organic deposit growth. You know, we will have a larger balance sheet, and, you know, we do expect, you know, not as fast, but margin expansion throughout 2025. You know, those are really together in our Our loan repricings, as I'm mentioning in my opening prepared remarks, our repricing is pretty powerful through this period of time.

speaker
Nick Lorenzoni
Analyst at Steffens Bank

Okay, that's great. Thank you. And then one more question. Could you discuss your office exposure in general and specifically in Nashville, including how it's holding up and expectations going into 2025? And maybe, just maybe, any color on that recent sale of Phillips Plaza and the 85% discount and the $16 million loan you guys provided?

speaker
Billy Carroll
President and CEO

Yeah, pretty good deal, to be honest. But I'll give some high-class, and I'll let Rhett maybe go into the details a little bit. You know, we don't do, we really don't do a lot of office. We haven't traditionally, you know, obviously we had a, opportunity with a nice core client in that Nashville zone that we took obviously public information from the deed filings, took the opportunity to do that, which we feel very, very good about and really excited to grow that relationship with that client there. But yeah, we feel really good about our office exposure. And really, when you look at Nashville, I don't think I personally don't think that that's an indication that Nashville's got issues. I think when you look at those types of transactions, obviously, some of those deals were done with a different type of term and structure and borrowers back pre-COVID. There's been a little bit of a reset on some buildings like that, but I don't view that as a real concern. may reset some comps a little bit lower on light buildings. But you might see a few more of those one-offs, but I still think you're going to see much of it. Andrew Sorensen- kind of in in our peer space, personally, but Red, you want to give you know, maybe maybe dive in a little bit deeper just kind of some of our office detail?

speaker
Rhett Miller
Unknown

Yeah, I mean you know from a from a perspective of the office exposure as a whole, I mean it actually has been fairly steady, I think declined a little bit as the year has gone just in amortizations of what was in the portfolio. The The transaction in, and it is very granular. I think our average loan size in that office segment is just south of about a million two, if I remember correctly. I don't have that statistic right in front of me, but I'm going off memory. I believe that's correct. You know, the transaction in Nashville to Billy's point, I mean, for lack of a better word, I would sort of define that certainly for us as a little bit of a unicorn. There were some extremely unique components associated with that deal. I mean, you mentioned the fact that the, The purchase price, the discount, the purchase price for this buyer compared to the previous valuation, you saw it in the finding. I mean, it was extremely low. I mean, obviously, there was a reason that the seller needed to liquidate that asset when they did, and our borrower picked up an extremely attractive purchase price, and we financed a smaller portion of that. um so and then the dollar amount you mentioned uh um you know that filing keep in mind there is some uh some some withdrawal component to that for additional tenants so that is not the dollar amount that we funded at closing um so our our exposure position in that property is extremely good and we have for a recourse with local borrowers it's a big piece got it got it that's great detail that's all i have thanks for taking my questions guys thank you

speaker
Ezra
Conference Call Coordinator

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

speaker
Steve Moss
Analyst at Raymond James

Good morning, guys. Hey, Steve. Nice quarter here. And maybe just start with expenses. Morning, guys. You know, Billy, you kind of mentioned, you know, a pace, a reasonable expense growth pace for 2025. Just kind of thinking, are you thinking like mid-single digits? maybe mid to upper, just given, you know, some of the trends you guys are having?

speaker
Billy Carroll
President and CEO

Yeah. Yeah. And I'll just, I'll go high level that Ron, let Ron maybe give you, give you some expense or percentage guidance. You know, for the most part, you know, we have, you know, when you look at our, we've really done a nice job. You've seen some expense growth quarter over quarter as, as 24 happened, but, you know, keep in mind the end that we, we had, You're kind of bringing on three new flagship offices in these markets with team members that we needed, even though we had temporary offices. By the time you do that, there's a little bit of growth there. So when you look at kind of our Q4 run rate, we feel that's a pretty good proxy going forward. Now, Ron can dive in. I mean, there's some particulars a little heavier with incentive compensation based on second half productions. But really, on the whole, we think we can continue to hold that relatively stable moving into 2025. But Ron, I want you, if you would, maybe just give some thoughts on percentage growth guidelines.

speaker
Ron Gorzinski
Chief Financial Officer

Yes, Steve. You know, taking fourth quarter 2024 and annualizing it, we're looking at a 2.5% to 3% growth rate in expenses. As Billy had indicated, it's not a year-over-year growth because our franchise has grown considerably. Most of the increases, or majority of it, will be in the salary and benefits category, and to a lesser extent, data processing and IT-related upgrades. So pretty stable. I think it's a good measuring stick to go by as you go forward in 2025's forecast.

speaker
Steve Moss
Analyst at Raymond James

Okay, great. Appreciate all that color. And then just in terms of You know, going back to loan growth here, I'm just curious, you know, obviously a really good quarter. And I hear you guys, some of it was on the drawdowns from unfunded commitments. But, you know, curious, was there any pull forward maybe of production? And, you know, could we see a little bit of tempering just given kind of a pull forward and maybe a seasonally softer first quarter?

speaker
Billy Carroll
President and CEO

Yeah, our pipelines, as we're starting the year here, our pipelines feel pretty good. So we're still bullish on our ability to kind of hit that guidance, plus or minus. Yeah, to your point, we did have some deals that we had anticipated. Red, I believe we had a couple of deals that we had anticipated would be Q125 deals that got accelerated to close at the end of the year. So we got a little bit of a tailwind on that growth there right in the second half of December. So that was a piece of it. So, yeah, I don't project us doing 20% annualized again this quarter. I think we'll have a more reasonable number, but down a little bit from there.

speaker
Steve Moss
Analyst at Raymond James

Okay. Yeah, yeah. Well, those are the questions that I have to answer. Really appreciate all the call here today. Thanks, guys.

speaker
Rhett Miller
Unknown

Thank you, Dave.

speaker
Ezra
Conference Call Coordinator

Our next question comes from Stefan Skouten with Piper Sandler. Stefan, your line is now open. Please go ahead.

speaker
Stefan Skouten
Analyst at Piper Sandler

Great. Good morning, guys. Thanks. Maybe following up on maybe your last comment there of just, you know, 20% not necessarily being sustainable, but 13.4% was tremendous for the year and a year when a lot of people were struggling to deliver any growth. So I guess what I'm wondering is what would lead you to be able to put up a similar number there, like a 13 or 14% versus maybe the high single that you spoke to earlier and any color on current pipelines or trends, even if it's anecdotal would be helpful.

speaker
Billy Carroll
President and CEO

Yeah, you know, the pipeline's good, and I'll ask you to chime in, too. You know, as we look at pipelines and, you know, kind of take a look at what our credit teams got and their underwriting, you know, cues right now, it's really pretty solid. I think a lot of it is, you know, a lot of it's really good C&I business. You know, I've alluded over the last several quarters to the robustness of our sales process. Uh, you know, and, and I, I really do like, and I do think that's had a big impact on the growth that you've seen. I mean, we've really spent some time with, with just good, solid foundational, um, uh, prospecting and calling efforts and, you know, accountability in our markets, our, our sales leadership, our, our division, regional president groups, or just are doing such a great job, um, uh, really. guiding the growth on both the loan and deposit side of our balance sheet now. I do feel, I think we can continue that. I mean, obviously, if we have opportunities to make some additional hires that could be needle movers, that could boost, you know, that guidance up a little bit. But, you know, right now, you know, we need to continue, we're going to continue to focus on making sure we're getting the right return targets on the deals that we're looking at, you know, and so not just growth for the sake of growth, but but strong profitable growth that's coming with good relationships. And so, you know, we're going to spend some time on that. And, you know, and again, feel pretty bullish about it. But, Red, I don't know if you've got any other anecdotal pipeline commentary that you want to add.

speaker
Rhett Miller
Unknown

No, Billy, I think you touched on the key part of it. I mean, to me, as you look at the production we've had for the year, It has been, as we talked about, very diversified across the portfolio and geographically. A lot of that's just basic walking and tackling and banking 101 of pursuing new prospects, opportunities with existing clients. But I also would say, you know, Billy pointed out in his commentary, you know, we have brought in over the course of the year, several new hires and very strong producers in their respective footprints. And we did see some really good new relationship production from those hires. So that has been a little bit of a value add as well in our ability to produce what we did this year over the original gap.

speaker
Rhett Miller
Unknown

And I think it speaks to the culture of the entire bank, not just the production side, but the entire bank. I think our whole team of associates will outwork out hustle and outclose, and I'll put them up against any bank anywhere in our market.

speaker
Stefan Skouten
Analyst at Piper Sandler

I love it. Great color there. And I guess it leads to a follow-up question around kind of the push pull around letting the investments you've made. continue to run their course. I know, Billy, you said kind of let 25 look a bit like 24, where you continue to move that profitability up. But hired 17 producers, I think you said this year, a few more in the pipeline. How do you think about that opportunism there, if there's good talent out there to be hired versus wanting to let the profitability kind of pull through? How do you balance that dynamic?

speaker
Billy Carroll
President and CEO

That's a great question. And it's something we talk about a lot internally. And you said the word, it's balance. I think we're really focused. We want to hit and we will hit these near-term profitability targets. We're going to do that. We said we're going to do it. So we're not going to let anything stand in the way of us doing that. And so I think that's 1A. But at the same time, we want to make sure that we're investing in the platform appropriately, that we're adding the right sales talent when they get here. So it truly is a balance, Stephen, and it's something that we work with. But I think we're trying to do it under the umbrella of making sure we hit these profitability metrics that we said we're going to after getting all these offices up online. So I think we can do both. We'll be selective and You know, obviously, if something comes down the road that's unique, we'll evaluate it. But from our standpoint, I think it's just going to be continued, you know, growth the way that we did it this year, hiring a few new key folks when we can find them and keeping that balance to make sure we hit the metrics.

speaker
Rhett Miller
Unknown

You know, Steve and I'll add, too, we get asked a lot about, oh, gosh, y'all are an acquisitive bank. Y'all have grown through acquisitions through the years. What's next? What's next? We talk a lot about just continuing to perform this year and executing on where we are. And I'm not so sure our best M&A strategy might not be just to sit back and wait and watch for some of these other deals that come to fruition and take advantage of some market disruption.

speaker
Stefan Skouten
Analyst at Piper Sandler

Yeah, yeah, for sure. Delivery on execution covers a lot of issues and gives you opportunities for sure. Good point. And then maybe just the last thing for me, I'm curious on the NIM expectations. I know, I think, Ron, you said kind of spending higher throughout the year. Just wondering about the expectations behind that from a rate perspective, if that changes at all, if we get no cuts versus, you know, I don't know, two or three cuts or kind of how you think about that trend line based on potential rate environments.

speaker
Ron Gorzinski
Chief Financial Officer

Yeah, a lot of pieces. A good question. A lot of pieces to that. You know, a large driver, as we've been mentioning on previous calls, is our amortizations and repricing of, you know, for our loans, our loan portfolio, as well as reinvestment of principal cash flows from our investment portfolio. You know, you refer back to page 15 of the deck. You know, our positive side, our new loan production yields are exceeding our existing portfolio yields. you know, keeping our production and deposits at a 300, 350 basis point spread. And we're still, you know, we still have some backside benefit from our deposit repositioning. We did a lot of approach on brokered. They're starting to run off. We're going to see some benefit there. And again, for Q1, cost savings realized for the, you know, this is a full quarter of the rate cuts. Additionally, I think, you know, moving to a neutral position i think we will benefit of that going forward on on a what could be a flat rate scenario this year again a lot of pieces to this puzzle here yeah for sure that's helpful color on thank you and congrats guys on a great uh great quarter and a great 2024. appreciate the time thank you

speaker
Ezra
Conference Call Coordinator

Thank you, 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 Jenny Montgomery Scott. Christopher your line is now open, please go ahead.

speaker
Christopher Marinac
Analyst at Jenny Montgomery Scott

Hey, thanks. Good morning. Wanted to circle back on loan to deposits as well as sort of liquidity. We've been seven quarters removed from the scare. Just kind of curious how you think about that as this year shapes up. Is that another opportunity to continue the earnings progress that we've seen?

speaker
Billy Carroll
President and CEO

Yeah, Chris, I'll start and then let Ron chime in. Yeah, I mean, I think we're, you know, Yeah, I think we're, yeah, 83% loan-to-deposit ratio is where we're sitting today, which has been nice. I mean, it's, you know, we've still got some nice room to move. You know, when you look at our metrics, you know, our liquidity position has been able to stay relatively strong, you know, and still, you know, and we still kind of look at that overall coverage ratio and our ability to pay out if we need to. And so, you know, You know, the deposit side, the core deposit side of our balance sheet is something that is, you know, that's probably one of the, it's the key focus, I know, in a lot of our areas. Growing those DDAs is something that we talk about every day. And so, you know, I like where we're positioned there. I think we can continue to grow organically, but to fund the growth. But, Ron, I mean, anything else you want to add on kind of liquidity position and kind of where you see that going?

speaker
Ron Gorzinski
Chief Financial Officer

Yeah, we've, you know, we've managed, you know, last quarter we really utilized our cash. We got down to, you know, full liquidity position around 16, 17% for cash and securities. We're up now approaching 19%. So I think we're very comfortable where we're at. We do have cash, you know, we could lever 100 million plus of cash. But I think as far as liquidity goes and our access to liquidity is very strong. We have the ability to grow both sides of our balance sheet with our access to funding and cash.

speaker
Christopher Marinac
Analyst at Jenny Montgomery Scott

Great. Thank you for that. And then just a follow-up question related to credit quality. You know, we've had many, many quarters now. I think it's been five years we've had these, you know, below five basis points charge-offs. I'm just curious if there's sort of a tolerance for slightly more losses just to get more revenue and or return through, I know that's a delicate balance, so just kind of curious how you think through that.

speaker
Billy Carroll
President and CEO

You know, we've had such a focus on credit. The short answer is probably not. You know, I think for us, you know, when you look at our banks, Chris, as you know, I think we've kind of got our fountain equipment finance piece. That's a nice component. We really, really like that line of business. It's executed really well since we bought it a couple of years ago. I think when you look at our book, that's probably where we take a little bit more risk, get a little bit more return. We like it in that sector. I've got a really good team there and And we continue to feel comfortable with their ability to grow that book of business looking into 25. But it's kind of the overall general loan book. We're able to really continue to grow at the level that we want to with really, really solid credit. So probably just not in our risk tolerance to take on too much risk in the bank portfolio. If it ain't broke, don't fix it.

speaker
Christopher Marinac
Analyst at Jenny Montgomery Scott

No, I follow. I appreciate the time. Thanks for all the disclosure this morning.

speaker
Rhett Miller
Unknown

Yeah, good talking to you, Chris. Thank you.

speaker
Ezra
Conference Call Coordinator

Thank you very much. There are no more questions. I will hand now back over to Miller for any closing remarks.

speaker
Rhett Miller
Unknown

Thank you very much. Appreciate all y'all joining us today. Thanks for your support of SmartBank, and we look forward to an exciting 2025. Have a good day.

speaker
Ezra
Conference Call Coordinator

Thank you very much, Miller. And thank you to all the speakers today that have joined us. We appreciate everyone who has joined the conference call. You may now disconnect your lines.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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