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SmartFinancial, Inc. (NASDAQ:SMBK)
Q3 2019 Earnings Call
Oct 22, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the SmartFinancial Third Quarter 2019 Earnings Call. [Operator Instructions]

After today's presentation, there will be an opportunity to ask questions.

[Operator Instructions]

I would like to turn the conference over to Miller Welborn, Chairman. Please proceed.

Miller Welborn -- Chairman

Thank you, Francesca. Good morning, and thanks for joining us this morning. We appreciate your interest in SmartFinancial and SmartBank. Joining me this morning are Billy Carroll, our CEO and President, and Ron Gorczynski, our CFO. Before we start, I'd like to ask you to please refer to the Disclaimer page and our Non-GAAP Forward-looking Statements page. Both of these are included in our earnings release yesterday in our investor deck that was filed this morning.

A couple of highlights from our third quarter. We do feel like we had a strong very solid quarter. We've used the term internally last couple of days as a noise-free quarter and that's rare for us, as you all know. $6 million in earnings for the Q3 is very solid for us, and our ROA hit our target of 1% and continues to progress north. Our Board is very pleased with the job that Billy and our executive management team is doing. And I believe that Billy, along with his finance team, our risk team, lending team, credit team and our operations team, are all hitting on all cylinders.

We're also very excited about the economic news and the outlook. They were picking up undoubtedly in all our markets. They all look very strong and feel very strong. And we really feel we're poised to finish 2019 strong as we continue to execute our [Indecipherable].

And with that I’m going to turn it over to Billy and let him talk about a few specific comments. Billy?

Billy Carroll -- President & Chief Executive Officer

Sounds good. Thank you, Miller. And good morning, everyone on the call. I'll open up, as I typically do, with some anecdotal comments and then I'm going to turn it over to Ron Gorczynski, our CFO, and let Ron walk through the deck in some greater detail. So as Miller said, a really solid quarter for us here in Q3. Consistency is a word we've been using quite a bit, and we have had a strong focus on our team's efforts to build a consistent earnings foundation for our company.

Before I jump into performance, a couple of -- just a couple of key items that I wanted to highlight from third quarter. For the third consecutive year, our bank was recognized as one of East Tennessee's top places to work. We've spent a great deal of time on building our culture in the company, while we're building a solid financial foundation. And I think that sometimes as we focus so much on numbers that this key intangible often gets overlooked, and I truly believe we are one of the best companies in the Southeast to work for where these type of accolades continue to support that.

Another honor we received over the last quarter was being named to Fortune Magazine's list of 100 fastest growing companies for 2019, a very impressive group of companies on that list, and it was really nice to see our name among them. So just a couple of highlights there for us internally and I think is a great honor that our team should be very proud of.

I'll go ahead and jump into the deck, and I think that was posted, and everybody should have copies or access to that.

If you look at Page 6 of our deck. I think this is a slide that we added last quarter and it continues to be a really nice summary of our story. Looking at our positive net operating earnings growth trajectory, we continue to focus on growing that darker blue bar and reducing our reliance on accretion income, as we have said in past quarters. And this graph tells the story of our very successful M&A integration over the last 18 months.

The next slide in the deck is Page 7, which has some of our performance trends, a very nice operating earnings quarter, as Miller said, at $6 million. That's up 21% from a year earlier, getting some consistency in our ROA, reporting slightly north of our near-term 1% goal, along with consistency in our plus-10% ROE. I really like the efficiency ratio trends that you see on that bottom right graph. This is the number that we really focus on, this quarter coming in at 62.4% on our operating efficiency ratio. I believe we still have some room to move that number down as we look into 2020 and making some really nice trends there.

Ron will dive deeper into the NIM in a moment, but that held up really well, given the headwinds during the third quarter that really all banks experienced. Our credit remained really strong with no signs that cause us any pause. Our credit team monitors all the markets for signs of slowing. And while we continue to be cautious, we remain very bullish on the Southeastern markets in which we operate.

As we also noted in the earnings release, solid loan growth for the quarter at 6.9% annualized and 6.7% year-to-date. So really right in our target range as we have communicated.

So to summarize those opening comments, a quarter exactly as we had anticipated and communicated, we believe and really do believe can continue to build a great foundation for SmartFinancial.

So I'm going to stop there and let Ron take you and jump into the deck with additional comments.

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Thanks, Billy, and good morning, everyone. Let's start with Slide 8, our balance sheet trends. All of our trends are showing continued stable growth. Since year-end 2018, our total assets increased $116 million, loans increased $89 million and our deposits increased $76 million. We continue to build shareholder value with our consistent increases in our tangible book value. During the quarter, we took an opportunity to use some of our balance sheet liquidity to fund loans and to pay down some broker deposits.

Moving on to the next slide, our earnings profile. Our net interest income and total revenue increased over 12% and over 13% year-over-year, respectively. Our non-interest expenses, when backing out merger-related expenses, increased at a rate of 5%, and our diluted operating EPS increased almost 10% year-over-year. To reiterate what Billy had indicated, our consistent growth have been building blocks for our increased profitability.

Going through the next few slides, we'll go into the individual components of GAAP and operating results. Keep in mind, as we move forward through the slides, we had completed both the Foothills and Tennessee Bancshares acquisitions.

Moving on to Page 10, net interest income. We have had steady increases in our average earning assets and liabilities as our company grows. Our margin for the current quarter was 3.91%, a 3 basis point decrease from the prior linked quarter, primarily due to lower loan yields as well as decreased investment yields. Loan yields, when removing accretion, have decreased 1 basis point to 5.22% in comparison with the prior linked quarter of 5.23%. During the current quarter, we experienced increased loan fees that assisted with partially offsetting the two Fed rate decreases experienced during the quarter. As we move forward, loan accretion will have less of an impact on our loan yields and margin.

During the current quarter, we recorded loan accretion of 66 -- excuse me, 26 basis points in the loan yield, an increase from our scheduled accretion due to accelerated prepayments and pay-downs. Our scheduled loan accretion going forward is still estimated at 15 to 20 basis points. Our margin, less accretion, was 3.68% for both second and third quarters of 2019.

Interest-bearing deposit costs have decreased 5 basis points to 1.37% when compared to the prior linked quarter. During the latter part of the third quarter, we substituted $45 million of broker deposits at a rate of 2% with an FHLB advance at a rate of 93 basis points. Looking forward, we see much opportunity for potential rate savings in our deposit portfolio. And our time deposit portfolio consisting of broker deposits and retail deposits, we've approximately one-third of these deposits maturing during the fourth quarter, and we'll have the ability to replace these at lower rates. We will continue to strategically fund our wholesale deposits with short maturities. Additionally, we are currently reviewing our opportunities within our exception pricing structure and are in the process of coaching our associates to deploy our strategy during Q4, which is to reduce the exception pricing rates on an ongoing basis.

On to Slide 11. Our non-interest income continues to build momentum. Operating non-interest income to average assets have increased to 37 basis points, an increase of 180,000 from the prior linked quarter. We've had consistent growth in majority of our non-interest income components. Our mortgage and wealth platform continues to build momentum. Mortgage banking has experienced higher production levels for the current quarter, as expected due to the favorable rate environment.

Moving on to Page 12, you'll find our non-interest expenses. We had a relatively quiet quarter with little merger-related restructuring expenses recorded. During the current quarter, operating expenses decreased by $378,000. This decrease was primarily a result of the FDIC assessment credit that was recorded due to the over-funding of the insurance reserve and addition of data processing credit from our core provider. Taking these into account, our operating expenses remained flat. Personnel expense increases are primarily related to increased commissions and incentive accruals as well as various talent upgrades. Our efficiency -- our operating efficiency ratio for this quarter was 62.4%. We have consistently lowered our operating efficiency ratio over the past several quarters, as we leverage our support structure for our growth.

Hey, Billy, before we move forward, do you want to touch base on our current hiring?

Billy Carroll -- President & Chief Executive Officer

Yeah, and I can and I'll allude to this or maybe even a little bit more in my closing comments. But hiring continues to be a big focus for us as we continue to build out our organic strategy. And as you can see in the deck and in Ron's comments, we continue to really focus on adding some stuff there. That's the reason you're seeing a little bit of an increase in our compensation line. But for example, really when you look at third quarter, we ended up with adding net six new revenue producers and at the same time only adding net one non-revenue producer. I think that's the type of -- what, the type of hiring that you -- we anticipate going forward. We believe we will see more and more of that. Our team is continuing to work hard on recruiting and growing that revenue producer line. So that is what is driving some of the increased compensation expense.

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Thanks, Billy. Page 13, we give details on our deposits. On the bar chart to the right, you will see that our composition has changed slightly when compared to the prior quarters, with an internal emphasis of increasing non-interest-bearing demand accounts, which experienced an 8.7% annualized growth during the current quarter. Our cost of interest-bearing deposits for the current quarter decreased by 5 basis points when compared to the prior quarter, and our total cost of deposits decreased 7 basis points during the same period. As previously mentioned, we are -- we replaced $25 million of broker deposits with alternative FHLB funding to take advantage of reduced costs.

Page 14. Our loan portfolio experienced a $31.8 million increase for the current quarter or 6.9% annualized. Our loan production continues to be ahead of internal projections. We experienced late quarter growth, and we will benefit from this during the fourth quarter. We anticipate having a mid single-digit growth for the remainder of the fourth quarter, and our loan-to-deposit ratio was at 93%. Our CRE ratios, as seen in the lower left side, have been consistent over the past five quarters. We continue to benefit from the superior credit quality our team is booking.

That brings us to Slide 15, asset quality. As Billy had mentioned, we have continued to benefit from our strong asset quality. We are still performing better than our peers. Our nonperforming assets to total assets was at 20 basis points, a much lower level than the 65 basis points that our peers are -- that are being presented by our peers. At quarter end, our non-performing assets totaled $4.7 million. Our allowance for loan losses to loans had increased slightly to 53 basis points, largely from our acquired portfolio decreasing over time and being replaced by organic loan subject to a reserve. Our remaining fair value discounts totaled $16.8 million at quarter end. For the current quarter, we had minimal charge-offs, again, our credit quality has been steady, consistent, no signs of deterioration.

And with all that, I'll hand this back over to Billy.

Billy Carroll -- President & Chief Executive Officer

Thanks, Ron. I think you see from the deck and in Ron's comments, the work that our team is doing is really starting to pay off. Consistency, as I said earlier, is a key focus. We feel we can continue to drive solid organic growth, particularly with several great hires on the sales side, as I've alluded to just a second ago, during the last couple of quarters. With those new team members, it takes a quarter or two to build a pipeline. And as I sit down and look with our team and really anticipate our pipeline moving forward, I feel very optimistic. There is no doubt we're seeing some headwinds out there and competition is extremely tough as I know most banks we're seeing today. We're seeing some credit stretch in some of the areas and pricing is a struggle, no doubt. But that said, I feel we are in a position to hold our own with any competitor in any of our markets. It comes down to people, and again, we're building a great team of folks to run this company.

To close my comments, I'd like to refer to Slide 16 of our deck. It's a nice summary slide of our initiatives for the year. We continue to check those boxes. Now having completed our operational restructuring that happened over the last couple of quarters. Retooling of our finance group, now led by Ron, this is making, this is helping us make some great strides in those internal efficiencies that we've been talking about. Kind of a bank wide org chart scrub to make all of the departments more effective, and then a core data processing decision that was finalized during Q3, that will allow us to believe what we believe to yield some really nice upside as we look into 2020 and forward with our data processing arrangement. The two ongoing areas that we will -- I think will probably always be ongoing for us, but we leave them on this chart to keep us focused on those two key areas of growth, organic and M&A. On the organic side, Greg Davis -- and Greg is our Chief Lending Officer and his regional presidents, continue to do a really nice job in identifying and recruiting candidates to our team. And on the M&A front, Miller and I continue to evaluate opportunities that fit our company. We remain very confident so that we can continue to execute on both of those strategic objectives moving forward.

So I'll stop there, and we'll open it up for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question is from Stuart Lotz with KBW. Please go ahead.

Stuart Lotz -- KBW -- Analyst

Hey guys, good morning.

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Good morning, Stuart.

Stuart Lotz -- KBW -- Analyst

Congrats on a nice quarter. And I guess my first question, just digging into the margin. Ron, you mentioned that there were some higher loan fees this quarter that helped to kind of offset the core loan yield compression. Can you quantify that for us just in terms of how much that added to total loan yields?

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Yeah, the fees we had, let's say on average, probably about $150,000 increased loan fees primarily due to some prepayments and pay-downs. So that -- so it was $150,000. Our run rate has been very consistent and this anomaly again was $150,000 how's that.

Stuart Lotz -- KBW -- Analyst

Okay.

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Now the accretion was down $128,000. So net-net, they kind of offset each other also, when you look at that.

Stuart Lotz -- KBW -- Analyst

Okay. So that 150k in terms of basis points, could you -- do you have that in front of you or is that -- I mean, I can run that math, but...

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Yeah, I don't. It's probably going to be about 3 basis points.

Stuart Lotz -- KBW -- Analyst

Okay.

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

I'm sorry, it's going to be -- yeah, it's going to be about 3 or 4 basis points on the loan.

Stuart Lotz -- KBW -- Analyst

Okay, got it. Then really good job on the deposit side this quarter. It looked like money markets were down about 20 basis points. Just curious what you're seeing in terms of moving forward with your CDs repricing in fourth quarter, how much slower can -- could we see deposit cost trend in the coming quarters?

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

We are -- I kind of did the 'back of the envelope' math and with this -- I think with the CD repricing, we're probably looking at 3 to 4 basis points of -- around that area. Again, the guidance is tough to -- the market competition we are seeing is starting to get some relief because everyone's starting to lower rates now. Third quarter was, everyone kind of ignored really all the rate decreases fourth quarter. I think we're in better position to lower our rates. So I think 3 to 4-basis-point range should be attainable.

Billy Carroll -- President & Chief Executive Officer

Yes. And I'll add Stewart. It's really -- the deposit -- core deposit downside guidance is so tough, because it's so market-specific. And you're still getting a lot of competition out there. We're -- internally, we're doing a really nice job of pushing this down, getting some of our exception pricing down, but a lot of that is more negotiations versus just kind of what we look at from a rates...

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

And really market-driven.

Billy Carroll -- President & Chief Executive Officer

And so as Ron said, it's really kind of tough, but we do think there is some room in our core funding base to push us down, especially with some of the CDs that are rolling off this coming quarter.

Stuart Lotz -- KBW -- Analyst

Some of your peers have disclosed just like monthly deposit pricing. Could you just give us some color on where deposit rates stood at the end of September, and how that differs from say July and August?

Billy Carroll -- President & Chief Executive Officer

July and August, we really are -- we make most of our movements in the wholesale arena. We had, as we indicated last quarter, we had a brokered money market fund that had a higher rate than normal. And so I think the rates that we're looking at for average probably aren't all that different from where we wound up at during September. So going forward, again, we will be starting at that base because I think our interest-bearing demand, our savings are pretty much -- we didn't differ from that, from September to be most -- for the most part. Again, our biggest opportunity will be for the time deposits and taking these money market savings accounts that are in our exception pricing bucket and working those down over the next several months.

Stuart Lotz -- KBW -- Analyst

Got it. I appreciate the color. And sorry, just one follow-up. Ron, I know it's everyone's favorite question, but CECL. I think you guys file as a small reporting company, and last week we got the FASB delayed, and that way that was finalized. CECL, in terms of when you plan to implement, are you kind of planning on the delay at this point? And when could you expect to receive more color there?

Miller Welborn -- Chairman

Yeah, we were -- as everyone else. We were on track of having it implemented. We did take a pause. We -- even though our guidance -- we're allowed to do to 2023, I do believe we will implement earlier. We're going to sit back this year to see how everyone else digest this and take advantage of everyone else's woes and reporting. Yeah, I'll listen to all the reports on this. So I don't know the exact date, but it won't be next year. How is that?

Stuart Lotz -- KBW -- Analyst

Okay. So we should take it out of 2020?

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Oh, yes. Oh, yes, definitely 2020. We're not implementing it during 2020.

Stuart Lotz -- KBW -- Analyst

Okay, got it.

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Unless Billy and Miller tell me otherwise, but I don't think I think we're going to [Speech Overlap]

Billy Carroll -- President & Chief Executive Officer

Take advantage of a little bit of good fortune, Stuart, of coming in under the revenue guidance.

Stuart Lotz -- KBW -- Analyst

Yeah, awesome. Well, thanks for the color, guys. And congrats on a nice quarter.

Miller Welborn -- Chairman

Thanks, Stuart.

Operator

The next question is from Peter Ruiz with Sandler O'Neill. Please go ahead.

Peter Ruiz -- Sandler O'Neill -- Analyst

Hey, good morning, guys.

Miller Welborn -- Chairman

Good morning, Peter.

Peter Ruiz -- Sandler O'Neill -- Analyst

Just maybe on loan growth, guys. It sounds like you’re kind of reiterating that mid-single-digit kind of outlook here. It sounded like you were a little bit optimistic on the economic backdrop there. When we think about the hiring activity that you guys have had in 2019, if the economy remains favorable, do you think that we could see kind of an uptick here in loan growth getting maybe to a high single-digit pace in 2020? Or what are the puts and takes there?

Billy Carroll -- President & Chief Executive Officer

Yeah, I think we could. I think our guidance is still, as Ron said, kind of the mid to high numbers. I do think there is still some -- you still got this -- you got again a geopolitical backdrop and there is some uncertainty out there in the markets. But we're really kind of -- we're supplementing that with a lot of new team members, and those folks have been able to move some portfolios over. So for us, I think net-net, we still feel very good about our ability to grow. If you get a little bit of economic tailwind, and yeah, I think we could hit the higher end of the range. But for us, just trying to stay a little bit conservative on our forecasting, we're probably thinking more in that 6% give-or-take line.

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

So macro-driven and Washington-driven, markets are strong.

Peter Ruiz -- Sandler O'Neill -- Analyst

Great. And just maybe on expenses, the FDIC credit this quarter and also the data processing credit that you mentioned. So it sounds like kind of taking those out, you probably had kind of flattish expenses this quarter, obviously continue to hire. So maybe just thinking stable to slightly higher from here. I know the first half of the year was a ton of investment. So just wanted to get your thoughts there?

Billy Carroll -- President & Chief Executive Officer

Yeah, I think so. And Ron can chime in. I think stable to slightly higher is really kind of where we're looking at kind of that non-interest expense line. I think we're in a spot where we -- and I've said this before, I don't think we have to make a lot of investments outside sales team additions that we want to have. I think our overall expense run rate should be fairly stable moving forward. Ron, any color?

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Yeah, I don't see anything that's going to -- again, the expense line will creep up. Everything else should be should be well maintained. So yeah, slightly great, but nothing significant.

Peter Ruiz -- Sandler O'Neill -- Analyst

Great, thanks so much.

Billy Carroll -- President & Chief Executive Officer

Thanks, Peter.

Operator

The next question is from Kevin Fitzsimmons with D. A. Davidson. Please go ahead.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Hey, guys, thanks...

Billy Carroll -- President & Chief Executive Officer

Good morning, Kevin.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

I was just -- there is a lot of different variables and you've talked about on the yield side and the funding cost side. If we -- if you just kind of look out the next quarter or two and however you want to do it, from reported margin or core margin, and then we have a rate cut -- we have a few rate cuts now and possibly more. Can you just kind of give us some guide posts on sensitivity for that margin? I know there's still headwind, so the bias is downwards, but just wondering what kind of range of impact to bake in here?

Miller Welborn -- Chairman

You're looking at kind of what I would call core NIM, Kevin, just kind of – ex-accretion core NIM. Ron, I think you said we came in at...

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Yeah, we came -- I think, to finish off the year, our NIM should be around 3.85%, 3.90%. Without accretion, 3.60%, 3.65% range, somewhere in there.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Okay. And the accretion, you would assume that to slowly diminish, right, the pace of that quarterly going forward?

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Yeah, we probably -- the 15, 20 basis points, looking at our scheduled accretion, we probably got a good, strong 18 months left of that, still left, and then it really drops down that point forward. So the next year, we'll still have -- we'll still maintain that flow, unless prepayments and annual paydowns occur, then we start losing that -- the bucket. But that's where we're at.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Got it. Okay, just one follow-up about M&A. Now, I know you guys have been very active in the past and there is obviously less discussion about it going forward, but you're looking at opportunities. What -- is it a combination of, maybe the pricing multiple is lower today, you're focused on organic growth. Maybe the right targets aren't out there. Can you just give us a little sense on, is it more deliberate or is it a byproduct of environmental issues that you're not as active in M&A recently?

Miller Welborn -- Chairman

I think it's more of a deliberate approach. Now we've said for several quarters now, we had to build a certain kind of platform or certain size platform, and M&A was really first on the growth side and organic was second. We really flip that to be organic first and M&A second. We've always been very disciplined. I think we'll continue to be even more disciplined going forward. We look golly bum. We are building more calls than we ever have. So it's busy looking, but it's -- we can be very picky now, and it's a couple of criteria. It’s got to have strong deposit franchise, a short-earned back minimal dilution, end-market or improved market density. So we are -- yeah, we're looking, but just hadn't found the right one yet.

Billy Carroll -- President & Chief Executive Officer

Yeah. And I'll add on, Kevin. I think Miller is right. I think it's -- yeah, and I've said this before. I think, over the last couple of years, it's probably been a little more of an acquisition 1A organic 1B focus. I do think that is shifted this year to a probably an organic 1A acquisition 1B. Still like the opportunities to grow the company via acquisitions. And Miller and I feel very strongly that we'll have some opportunities on that front, but we just got to make sure it aligns with everything we need.

Miller Welborn -- Chairman

Yeah, we've got a team that is very good at integration, and I think that's a key that -- a lot of banks do M&A, few of them do it what I would call really well and have really strong integration teams, and we've got one that loves doing them. So it's -- hopefully we'll continue that pace.

Billy Carroll -- President & Chief Executive Officer

Optimistic, we’ll find some.

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Okay. Great, guys. Thank you.

Miller Welborn -- Chairman

Thank you.

Operator

The next question is from Tyler Stafford with Stephens. Please go ahead.

Tyler Stafford -- Stephens Inc. -- Analyst

Hey, good morning, guys.

Billy Carroll -- President & Chief Executive Officer

Good morning, Tyler.

Tyler Stafford -- Stephens Inc. -- Analyst

Hey, nice quarter. I wanted to start on some of the funding dynamics. You mentioned the money markets being exception-priced. How much total money markets are exception-priced? And what is that kind of average cost right now?

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

I would say we're probably in the $275 million and $300 million range, and we're probably looking around plus or minus 2%.

Tyler Stafford -- Stephens Inc. -- Analyst

Okay. And then your -- I guess your kind of new on-boarded money market rate right now. Did you talk about where new funding is coming on the books today?

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

I'm sorry, for the broker deposits or for just regular money markets?

Tyler Stafford -- Stephens Inc. -- Analyst

Just regular money markets

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

1.70.

Tyler Stafford -- Stephens Inc. -- Analyst

Okay.

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Plus or minus, probably 1.70 is good average.

Tyler Stafford -- Stephens Inc. -- Analyst

Got it. And then can you just speak to some of the, I guess, geographical growth where the loan growth, you're -- or pockets of strength you're seeing? And then just in terms of new loan pricing what you're seeing from a spread perspective as well?

Billy Carroll -- President & Chief Executive Officer

Yeah, I'll touch on that. From a growth standpoint, it's really -- all of our markets have really shown really solid growth. As we break it down, we kind of break our markets into Upper East Tennessee, Southern Tennessee, which is the Chattanooga region, kind of North East Tennessee is our Knoxville MSA and around, and then jump into our Alabama presence and then our coastal presence. And so really when you look at all of those, all the markets have had really solid production and really nice growth added to the franchise this year. So it really -- it's not just coming out of one region, it's very balanced and nicely diversified. From a new production standpoint, I alluded to this in the comments. I mean, the loan pricing. It's -- I mean it's a challenge. I think I'm kind of the -- when you're looking at five-year fixed top rates, if you just look at a five-year fixed rate, I think we're looking at those for solid credits. I feel like we're kind of getting up into those kind of mid to high 4s on a lot of them. We are working thinner than that on some deals, especially relationship deals where you're getting some core funding along with that. So really kind of in a -- in the kind of the mid 4s is where we're putting in mid to high 4s, new production. And then from a spread standpoint, if you look at that on a float, you're probably somewhere in the 2.75-ish on a margin.

Tyler Stafford -- Stephens Inc. -- Analyst

Got it. Okay, thanks for that, Billy. I hopped on a bit late, so I apologize if you addressed this in your prepared comments. But did you quantify how much savings you'd expect to realize from the core data processing decision in the contract that's up next year?

Billy Carroll -- President & Chief Executive Officer

Yeah, we didn't quantify it. Yes, there's -- obviously there is a variable component to that and the contract really is -- the contract probably is as much as kind of near-term gain on savings, It really allows us to scale with a better cost as well. But what Ron and I've kind of looked at, we kind of measured in anticipation of your question on it today. We're saying from our core data processing piece, that's probably somewhere around a 15% give or take savings to our core data processing run rate, but really we think the key benefit is going to be scalability at a better price as we look to grow and acquire moving forward.

Tyler Stafford -- Stephens Inc. -- Analyst

-- questions. The loan fees of $150,000, was that the anomaly increase quarter-over-quarter or is that what the total loan fees were this quarter?

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

No, it was the increase. It was 4 basis points, $153,000 extra. Our run rate is probably around the $700,000, $750,000 a quarter. We got up into the $900,000 for the quarter.

Tyler Stafford -- Stephens Inc. -- Analyst

Okay.

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

So that's just the differential that we're not expecting to get next quarter.

Tyler Stafford -- Stephens Inc. -- Analyst

Understood. Okay. Thanks, Ron. I appreciate all the details. Nice quarter.

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Thank you.

Operator

The next question is from Daniel Cardenas with Raymond James. Please go ahead.

Daniel Cardenas -- Raymond James -- Analyst

Good morning, guys.

Billy Carroll -- President & Chief Executive Officer

Good morning.

Daniel Cardenas -- Raymond James -- Analyst

Maybe if you could give us a little bit of color in terms of the new hires, which markets are there going to be serving? And are these hires from larger financial institutions or similar-sized institutions to yourself?

Billy Carroll -- President & Chief Executive Officer

That's a good question. It's -- our focus -- in the last quarter we've really put more emphasis in our markets that were brought to us out of the -- one of the acquisitions, the Southern Acquisition from last year. So the majority of what we've added over the last quarter has been in Murfreesboro in Tennessee and Huntsville, Alabama, two really, really just outstanding markets that can yield some nice upside, we believe. So we've put focus on there. We've also added a couple of folks in East Tennessee, one in -- in -- in Northeast and then one in Southeast -- or actually the Southeast hopefully this quarter. But really, really nice production hires. The ones that we’ve hired in Huntsville and in Murfreesboro have come out of a mix. They've come out of several -- that half and half, half out of what I would say a larger regional type banks, and then the other half out of mid-sized to larger community banks. So it's been a nice mix. We still are able to look to recruit folks -- really no real specialist area, good generalist,but for the majority of it, they've had a little bit stronger C&I focus.

Daniel Cardenas -- Raymond James -- Analyst

And are they working through a non-compete right now or can you kind of hit the ground running?

Billy Carroll -- President & Chief Executive Officer

They can hit the ground running. Everybody that we’ve added can hit the ground running. As I said, it takes -- what we see, it typically takes about two quarters, takes about six months to get that pipeline go into where we start seeing production hit the balance sheet. But everybody is off and running pretty quickly. So been excited to -- to see what we've been able to add just here in the near term with those new hires.

Daniel Cardenas -- Raymond James -- Analyst

Great. And then just one quick admin question. How should we be thinking about the tax rate here in Q4?

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

I would say 24.5%, 25%, probably somewhere in between.

Daniel Cardenas -- Raymond James -- Analyst

Same thing for 2020 then?

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Our expectation, yeah, I think so. I don't think we're going to have -- we're not having too many drastic changes in that area, so yes. Probably 25% is fair, that will cover it.

Daniel Cardenas -- Raymond James -- Analyst

Great. All right, thanks, guys. Good quarter.

Billy Carroll -- President & Chief Executive Officer

Thanks, Dan.

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Thanks.

Operator

The next question is from Feddie Strickland with Janney Montgomery Scott. Please go ahead.

Feddie Strickland -- Janney Montgomery Scott -- Analyst

Hey, guys. Just a quick clarification question. You gave some margin guidance on Q4 in response to Kevin's question, then I think 3.85%, 3.90%. How many rate cuts are you guys modeling into that?

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Probably I would say -- well, I'm anticipating one. But we really didn't -- this past quarter, we were able to accommodate the two rate cuts. And I would say, even though it's one solid, I think the low end would probably accommodate the two. Does that make sense?

Feddie Strickland -- Janney Montgomery Scott -- Analyst

No, absolutely.

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Yeah, if it's is a 50 basis point, we'll say to the lower range. If it's just one, we will definitely be at the higher range.

Feddie Strickland -- Janney Montgomery Scott -- Analyst

Got it. And then one other quick follow-up. Just what are you guys hearing overall from your borrowers in your markets, any change in sentiment from the prior quarter, any areas that you're worried about just I guess general customer sentiment?

Billy Carroll -- President & Chief Executive Officer

Yeah, really, really, Feddie, not a -- not a lot of change. I think I alluded to it, I think just kind of the political environment and 2020 election, you start to have a little bit of conversation around that. But overall, most of the -- most of the clients that we talk to continue to be very bullish. I mean, gosh, I mean when you're going to hand your you talked to our industries in Chattanooga or Tuscaloosa and…

Miller Welborn -- Chairman

Panhandle

Billy Carroll -- President & Chief Executive Officer

Panhandle, very bullish. You look at tourism. Tourism up in Upper East Tennessee and down in the coastal region has been absolutely off the charts for this year. Business has really been good there. You've got, we've got. You've talked to some folks and you've got some kind of Mobile area folks that you've talked about, maybe a little bit of some tariff impact that. But none of it is really, I would say, the negative kind of component of that is really very, very small. The majority of our clients feel very good about where they're going to finish up 2019 probably -- cautiously optimistic for 2020.

Feddie Strickland -- Janney Montgomery Scott -- Analyst

Perfect. That's it from me. Thanks, guys, for taking my question. And congrats on a great quarter.

Billy Carroll -- President & Chief Executive Officer

Thanks, Fred.

Miller Welborn -- Chairman

Thank you. We appreciate.

Operator

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Miller Welborn for any closing remarks.

Miller Welborn -- Chairman

Thanks, Francesca, and thank you all for joining us today. We appreciate your interest in us, your time invested in us today and also your investment in SmartFinancial. Have a great day. Thanks.

Operator

[Operator Closing Remarks]

Duration: 40 minutes

Call participants:

Miller Welborn -- Chairman

Billy Carroll -- President & Chief Executive Officer

Ron Gorczynski -- Executive Vice President, Chief Financial Officer

Stuart Lotz -- KBW -- Analyst

Peter Ruiz -- Sandler O'Neill -- Analyst

Kevin Fitzsimmons -- D.A. Davidson -- Analyst

Tyler Stafford -- Stephens Inc. -- Analyst

Daniel Cardenas -- Raymond James -- Analyst

Feddie Strickland -- Janney Montgomery Scott -- Analyst

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