SmartFinancial's Net Interest Margin Reverses After Two Expansions

The Tip Desk · October 22, 2026 · 3 min read

Tax-equivalent NIM fell 7 bps to 3.45% as funding costs rose, even as net interest income reached $49.4 million and organic loan growth held at 15% annualized.

SmartFinancial, Inc. (SMBK), the Knoxville-based holding company for SmartBank, reversed two quarters of net interest margin expansion in the third quarter of 2026 as higher funding costs more than offset a modest rise in loan yields.

The tax-equivalent net interest margin was 3.45%, down from 3.52% in the second quarter, when the margin had expanded 4 bps on asset yields outpacing liability costs. The company said the latest compression was primarily attributable to higher funding costs. The yield on loans and leases, excluding loan fees, fully taxable equivalent, was 5.99%, up 4 bps from 5.95%.

Cost of average interest-bearing deposits rose 9 bps to 2.71%. Cost of total deposits rose 11 bps to 2.26%. Cost of interest-bearing liabilities was 2.81%.

Net interest income still rose $1.3 million to $49.4 million, after a $2.2 million increase to $48.1 million in the second quarter. Average earning assets were $5.71 billion, up $193.1 million from the prior quarter, led by a $165.5 million increase in average loans and leases. Average interest-bearing deposits rose $258.9 million, partly offset by a $41.0 million decline in average borrowings.

Organic balance-sheet growth continued. Net organic loan and lease growth was $174 million, a 15% annualized quarter-over-quarter increase, matching the second quarter’s 15% annualized pace on $165 million of growth. Core deposit growth accelerated to $163 million, or 12% annualized, from $83 million, or 6% annualized, in the second quarter. The company opened a full-service financial center in Columbus, Georgia.

Operating revenue reached a quarterly record of $57.5 million. Noninterest income increased $245 thousand to $8.1 million, led by service charges on deposit accounts, up $120 thousand to $2.0 million, and mortgage banking income, up $109 thousand to $1.0 million. Interchange and debit card transaction fees were $1.7 million.

Noninterest expense increased $2.4 million to $36.4 million. The company said the rise was driven primarily by a $1.0 million increase in other real estate and loan related expenses, to $1.8 million, and a $601 thousand increase in salaries and employee benefits, to $21.6 million.

Credit costs eased. The provision for credit losses was $687 thousand, compared with $1.5 million in the prior quarter. The allowance for credit losses was $45.6 million, or 0.94% of loans and leases, down from 0.97% at June 30. Net charge-offs were $661 thousand.

Nonperforming loans and leases rose to $13.6 million, or 0.28% of loans, from $11.5 million, or 0.25%, at June 30. Total nonperforming assets were $15.7 million, or 0.25% of total assets.

Net income was $18.6 million, or $1.10 a share, compared with $13.7 million, or $0.81 a share, a year earlier. Operating earnings were $18.6 million, or $1.10 a share. Income tax expense was $1.9 million, down from $4.2 million in the prior quarter, primarily because of a $2.6 million tax benefit from the purchase of transferable energy tax credits.

Tangible book value per common share was $28.50 at September 30, up 15% annualized excluding accumulated other comprehensive income, after 13% annualized growth in the second quarter. Including AOCI, tangible book value grew 4% annualized. Tangible common equity to tangible assets was 7.83%. Total assets were $6.32 billion. Loans and leases were $4.86 billion. Deposits were $5.58 billion.

President and Chief Executive Officer Billy Carroll said the quarter was highlighted by continued organic growth and that growing the deposit franchise alongside lending remains a priority as the company executes a relationship-focused strategy.