Third Quarter 2026 Earnings Call - FB FINANCIAL CORP

Financial Performance:

• Reported Q3 2026 Net Income of $60.2 million (Adjusted: $60.9 million) and EPS of $1.20 (Adjusted: $1.21).
• Returned on Average Tangible Common Equity (ROTCE) of 15.2% (Adjusted: 15.7%); Return on Average Assets (ROAA) exceeded 1.4%.
• Loan portfolio grew at an annualized rate of 9.7% (high end of mid-to-high single-digit forecast).
• Total deposits grew 8.8% annually; Customer deposits grew 11.2% annually while brokered deposits declined.
• Core Net Interest Margin (NIM) compressed to 3.83% (Q2: 3.95%); full-year guidance (net of accretion) remains 3.7%–3.8%.
• Contractual loan yields stable at 6.21%, with new production yields at 6.44%; deposit pricing costs increased 6 bps with new blended rates at ~3%.
• Non-interest income declined $1.3 million, primarily due to lower mortgage banking revenue, partially offset by higher swap and investment fees.
• Non-interest expense rose 5% to $96 million, driven by 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 held at 1.47%.
• Capital ratios remain robust: CET1 at 11%, Tier 1 Leverage at 10%, and Total Risk-Based Capital at 13.6%.
• Issued $125 million in subordinated debt to strengthen capital; tangible book value grew 11.3% CAGR since IPO.

Guidance and Future Outlook:

• Expect full-year loan and deposit growth to remain within the mid-to-high single-digit range.
• Forecast Q4 loan growth to moderate slightly due to seasonality (paydowns/renewals), though pipelines remain robust.
• Anticipate deposit growth to be in the high single digits, potentially double digits for customer deposits; expects full-year deposit growth in the same range.
• Project core margin to remain near Q3 levels in Q4, supported by balance sheet growth and asset sensitivity offsetting funding cost pressures.
• Management expects the mortgage banking segment to remain strategically vital despite reduced earnings contribution in Q4 2026 and 2027 due to higher rates.
• Outlook for 2027 assumes continued robust activity and market share gains, though acknowledges potential loan demand destruction if rates rise significantly.
• Expense guidance narrowed to $325 million–$335 million for the quarter, leaning toward the lower end of prior expectations.

Business Segments and Product Lines:

• Commercial/Consumer: Growth driven by both community markets (Auburn, Anniston, Tuscaloosa) and metro markets (Birmingham, Chattanooga, Knoxville, Nashville).
• Mortgage Banking: Launched a program to cross-sell deposit/investment accounts to new mortgage borrowers (83% conversion rate; deposits avg. 2x customer average).
• Mortgage Platform: Executed a $719,000 one-time transition expense to upgrade origination and subservicing systems.
• Expansion: Converted Asheville, NC Loan Production Office to a full-service branch, establishing a beachhead for further North Carolina expansion.
• Geographic Footprint: Maintains presence from Central/Western Virginia to Florida, Tennessee, Georgia, Alabama, and Kentucky; prioritizes organic growth and potential M&A near existing footprint.

Market and Competitive Landscape:

• Markets in the Southeast (TN, AL, GA, KY, NC, FL) are viewed as having strong economic fundamentals, healthy employment, and outperforming other US regions.
• Competition for deposits remains elevated, particularly in the brokered market (4.5%+ rates) vs. customer deposits (~3%); competitive loan pricing is pressuring yields in the mid-6% range.
• Bankers' efficiency ratio improved to 50.8% (Banking Segment) despite industry-wide expense pressures in compensation, benefits, and technology.
• Asset sensitivity position (61% of investment portfolio floating rate) provides a buffer against future rate hikes, estimated to add ~3 bps margin per 25 bps Fed hike.

Risks and Challenges:

• Interest Rate Risk: Rising rates negatively impacted mortgage origination volumes and increased funding costs, compressing margins.
• Credit Quality: One specific loan ($13 million) moved to non-accrual, causing a $1 million interest income reversal; management asserts it is adequately collateralized with low loss content.
• Deposit Competition: Potential for sustained funding cost inflation if brokered/wholesale rates remain high.
• Macro Factors: Exposure to geopolitical developments, energy prices, and fiscal policy, though current credit trends remain stable.
• Execution Risk: Managing the balance between aggressive balance sheet growth and maintaining profitability targets in a rate-sensitive environment.

Management Commentary and Tone:

• Tone is confident and optimistic, emphasizing "consistent execution," "solid profitability," and "stable credit quality."
• Management framed margin compression as acceptable to secure double-digit relationship growth, prioritizing Net Interest Income (NII) and customer acquisition over pure margin percentage.
• Emphasized a "customer-driven balance sheet" strategy, avoiding reliance on expensive brokered deposits.
• Highlighted investment in human capital, noting organic talent development is a key differentiator for long-term growth.
• Expressed willingness to participate in M&A ("banks are sold, not bought") but remain disciplined, seeking culturally aligned, relationship-focused community banks.

Analyst Questions and Answers:

• Loan Growth & Utilization: Utilization rates dipped 2-3% below normal, indicating significant upside for unfunded lines; pipelines remain robust through 2027.
• Margin Outlook: Management expects margin stabilization in Q4 as asset sensitivity (loan repricing) offsets deposit cost increases; new loan yields at 6.44% reflect a ~50% beta to rate hikes.
• Deposit Costs: September deposit costs rose to >3% due to indexed deposits; management expects costs to stick in the 3% range barring further Fed hikes (next expected in December).
• Mortgage Segment: Despite lower volumes due to rates, the segment is viewed as a strategic relationship builder rather than a standalone profit center; conversion of borrowers to deposit clients is a key success metric.
• Capital Deployment: Share repurchases continue opportunistically; subordinated debt proceeds will support loan growth and strategic initiatives; securities portfolio may expand temporarily if loan demand softens.
• Hiring & Talent: Recruiting pace remains steady (~10 hires/quarter); focus on long-term cultural fit and internal development of early-career associates.
• M&A Strategy: Reiterated interest in organic expansion (e.g., NC) and M&A of "banks that look like us" within the existing geographic footprint.

Other Key Points:

• Non-performing assets (NPA) and net charge-offs remained stable despite the one non-accrual loan.
• The efficiency ratio for the quarter was 54.3% (adjusted 50.8%); management noted a lack of positive operating leverage this quarter due to mortgage headwinds and the one-time charge.
• 61% of the securities portfolio is floating rate, limiting unrealized losses and providing liquidity flexibility.
• Management clarified that the one non-accrual loan is liquid-collateralized and is being worked constructively with the borrower.
• J.D. Power certification for highest customer satisfaction in the region and third-party Willis Towers Watson tracking of employee engagement are cited as key franchise differentiators.