Third Quarter 2026 Earnings Call - FB FINANCIAL CORP

Financial Performance:

• Reported Q3 2026 net income of $60.2 million ($1.20 EPS; adjusted EPS $1.21) with Return on Average Tangible Common Equity (ROTCE) of 15.2% (15.7% adjusted).
• Loans grew at an annualized rate of 9.7% (high end of guidance range); deposits grew 8.8% overall, with customer deposits up 11.2% annualized.
• Net Interest Margin (NIM) compressed 12 bps sequentially to 3.83% from 3.95%, driven by funding costs and a $1M interest income reversal on a non-accrual loan.
• Core NIM (excluding accretion and reversals) declined 7 bps to 3.88%; contractual loan yields held stable at 6.21% with new production at ~6.44%.
• Total non-interest expense rose 5% to $96M due to performance-based compensation and a $719,000 one-time mortgage platform transition cost.
• Provision expense was modest at $1.4 million; Allowance for Credit Losses (ACL) coverage ratio remained healthy at 1.47%.
• Issued $125 million in subordinated debt; Tangible Common Equity to Assets ratio declined 17 bps due to opportunistic share repurchases.
• CET1 ratio stands at 11%, Tier 1 leverage at 10%, and Total Risk-Based Capital at 13.6%.

Guidance and Future Outlook:

• Full-year loan and deposit growth expected to remain in the mid-to-high single-digit range.
• Adjusted banking segment expense guidance narrowed to $325M–$335M.
• Full-year NIM outlook excluding loan accretion remains 3.7%–3.8%; Q4 core margin expected to remain near Q3 levels.
• Management anticipates continued asset sensitivity benefits (approx. 3 bps margin increase per 25 bps Fed hike) if funding costs stabilize.
• Loan growth in 2027 remains robust despite potential rate hikes; mortgage banking revenue expected to be lower in Q4 2026 and 2027.
• Asset sensitivity positions the bank to benefit from a steeper yield curve, though deposit competition remains a headwind.

Business Segments and Product Lines:

• Commercial & Consumer: Strong growth fueled by relationships in community markets (Auburn, Noonan, Tuscaloosa) and metro markets (Birmingham, Chattanooga, Knoxville).
• Mortgage Banking: Impacted by rising rates; launched a program to cross-sell deposit/investment accounts to borrowers (83% conversion rate, 2x average balances).
• Technology: $719,000 one-time charge incurred for mortgage origination platform and subservicing system conversion.
• Expansion: Converted Asheville, NC loan production office to a full-service branch to target Western North Carolina growth.
• M&A Strategy: Positioning as a "willing participant" in M&A within a footprint from Virginia to Florida; prefers community banks with strong deposit bases and compatible cultures.

Market and Competitive Landscape:

• Operating environment characterized by healthy employment, strong commercial activity, and favorable economic fundamentals across the Southeast footprint.
• Deposit competition remains elevated, particularly in wholesale/brokered markets (costs >4.5%), but customer deposits remain a competitive advantage.
• Loan demand remains healthy; utilization rates for commercial/industrial lines were 2-3% below normal, indicating upside potential.
• Mortgage origination volumes expected to weigh near-term, but the segment is viewed as a strategic relationship generator rather than just a profit center.
• Industry-wide deposit pricing efficiency is increasing due to technology, necessitating proactive client management.

Risks and Challenges:

• Interest Rate Risk: Rising rates negatively impacted mortgage banking income and increased funding costs, compressing NIM.
• Credit Quality: A single $13 million non-accrual loan resulted in a $1M interest reversal; however, the loan is adequately collateralized with limited expected loss.
• Funding Costs: Brokered deposit costs are significantly higher (4.5%+) than customer deposits (blended 3%); competition for core deposits is intense.
• Expense Management: One-time transition costs and rising compensation/tech expenses pressure the efficiency ratio (54.3% adjusted; 50.8% banking segment).
• Demand Destruction: Potential for loan growth to slow in 2027 if rates rise significantly and deals no longer pencil out.

Management Commentary and Tone:

• Tone was confident and optimistic, emphasizing consistency of execution, strong balance sheet growth, and disciplined capital management.
• Management highlighted the strategic value of the mortgage platform for relationship depth despite near-term earnings headwinds.
• Confident in the ability to deliver mid-to-high single-digit growth while maintaining risk discipline.
• Emphasized a "customer-driven" model where deposit pricing is adjusted proactively with the Fed to maintain client trust.
• Highlighted a dual talent strategy of recruiting experienced bankers and developing internal early-career associates.

Analyst Questions and Answers:

• Growth & Pipelines: Utilization rates were below normal, offering growth upside; pipelines remain robust for both loans and deposits despite Q4 seasonality.
• Margin Sensitivity: 61% of investment portfolio is floating rate; NIM is expected to support stability despite deposit repricing, with ~3 bps gain per 25 bps Fed hike.
• Deposit Pricing: September deposit costs rose due to large indexed deposits and Fed hikes; 40-50% beta expected on loan yields in a modest hiking cycle.
• Mortgage Strategy: Mortgage rates (7.5%+) may result in originate-to-hold strategy for 5-7 years if rates drop later, providing optionality.
• Geographic Expansion: Asheville, NC conversion signals further growth in Western NC; M&A remains "ready" but strictly within geographic footprint and cultural fit.
• Capital Deployment: Share repurchases continue at appropriate price levels; excess deposits may be deployed to floating-rate securities short-term if loan growth slows.

Other Key Points:

• First Bank is certified by J.D. Power for highest customer satisfaction in the region.
• 61% of the investment portfolio is floating rate with limited unrealized losses, providing balance sheet resilience.
• Management is actively developing internal talent pipelines, citing success with associates hired 5 years ago now managing key relationships.
• Efficiency gains are expected from technology integration, though the deposit market is already highly efficient.
• The $1M interest reversal on the non-accrual loan was a specific, isolated credit event, not indicative of broader portfolio deterioration.