New Flagship Offices In Birmingham, Auburn, And Montgomery Will Expand Regional Presence

Key Takeaways

• Strong loan and deposit growth, along with new flagship offices, signals expanding revenue and sustained profitability through strategic regional presence.
  
• Focus on operating leverage, credit quality, and strategic hires enhances net margins, minimizes credit risk, and supports consistent earnings and shareholder value growth.
  
• Aggressive growth in loans and deposits, combined with competitive challenges and potential credit risks, may pressure profitability and net interest margins.

Catalysts

Operates as the bank holding company for SmartBank that provides various financial services to individuals and corporate customers in Tennessee, Alabama, and Florida.

• SmartFinancial's strong loan and deposit growth, with loan growth at a 20% annualized pace for Q4 and deposit growth nearing 30% annualized, indicates expanding revenue opportunities as the company leverages its growing balance sheet.
  
• The company's focus on improving operating leverage and margins, demonstrated by expanding net interest margins and control of noninterest expenses, suggests potential increases in net margins and earnings.
  
• The establishment of new flagship offices in Birmingham, Auburn, and Montgomery, along with increased market share, could drive sustained revenue growth and profitability through expanded client relationships and regional presence.
  
• Strategic hires of revenue-producing team members and a strong talent pipeline offer potential for enhanced sales energy and revenue growth, positively impacting both top-line growth and shareholder value.
  
• Continued credit quality with low nonperforming assets and strong asset quality metrics minimizes credit risk, providing stability to net margins and supporting consistent earnings growth.

SmartFinancial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SmartFinancial's revenue will grow by 13.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.7% today to 23.8% in 3 years time.
• Analysts expect earnings to reach $57.3 million (and earnings per share of $3.34) by about March 2028, up from $36.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.8x on those 2028 earnings, down from 14.7x today. This future PE is greater than the current PE for the US Banks industry at 11.2x.
• Analysts expect the number of shares outstanding to decline by 0.26% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

SmartFinancial Future Earnings Per Share Growth

Risks

• The expectation of reduced Federal Reserve rate cuts could result in higher costs associated with new deposit production, potentially affecting net interest margins and profitability.
  
• Competitive dynamics in the regions where the company operates, such as increased loan originations yielding lower returns, could challenge the ability to maintain high revenue growth and stable loan yields.
  
• The company's office exposure, particularly in Nashville, remains a risk, as demonstrated by recent discounted property sales, which could impact asset quality and revenue from commercial real estate loans.
  
• The focus on growth and expansion, particularly with new hires and talent acquisition, while beneficial, may also lead to increased expenses that could outpace revenue growth and pressure net margins.
  
• The bank's aggressive growth strategy in loans and deposits comes with inherent credit risks, and any potential deterioration in credit quality could lead to increased provisions for credit losses, affecting net income and earnings.

Valuation

• The analysts have a consensus price target of $38.375 for SmartFinancial based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $240.5 million, earnings will come to $57.3 million, and it would be trading on a PE ratio of 12.8x, assuming you use a discount rate of 6.2%.
• Given the current share price of $31.31, the analyst price target of $38.38 is 18.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.