Third Quarter 2026 Earnings Call - FB FINANCIAL CORP

Explicit Guidance:

• Full-Year 2026 Loan & Deposit Growth: Expected to remain within the mid-to-high single-digit annualized range; Q4 expected to moderate slightly due to seasonality but still conclude the year in the high single digits.
• Full-Year 2026 Net Interest Margin (NIM): Excluding loan accretion, expected to close in the 3.7% to 3.8% range.
• Q4 2026 Core NIM: Expected to remain near third-quarter levels (approx. 3.83%) as deposit repricing pressures are offset by balance sheet growth and stable loan yields.
• Q4 2026 Non-Interest Expense: Guidance narrowed to $325 million–$335 million, near the lower end of prior ranges, reflecting disciplined cost management despite performance-based compensation increases.
• 2027 Outlook: Management expects to sustain mid-to-high single-digit balance sheet growth; loan growth pace may slow if interest rates rise further or deals "fall out" at higher levels, though current pipeline activity for 2027 remains robust.

Business-Segment Outlook:

• Mortgage Banking: Anticipates near-term headwinds in origination volumes and profitability due to higher rates; earnings contribution expected to reduce in Q4 2026 and throughout 2027.
• Mortgage Platform Transition: A one-time expense of $719,000 recorded in Q3 2026 due to platform conversion; future operating model expected to enhance customer experience and deposit generation.
• Deposit Strategy: New customer deposits are expected to continue growing at high single-digit to potentially double-digit annualized rates; focus remains on "customer-driven" deposits (approx. 3% blended cost on new production) rather than brokered funds (4.5%+).
• Credit Quality: Net charge-offs expected to remain within long-term target ranges; provision expense driven primarily by loan growth and individually evaluated credits, absent major economic shifts.

Market and Competitive Outlook:

• Loan Demand: Healthy pipeline across commercial and consumer sectors; utilization rates on C&I and construction loans slightly below historical averages (approx. 46%), indicating room for upside as clients tap new lines.
• Pricing Environment: Loan yields on new production rising (approx. 6.44% end of quarter) with an expected 40–50% beta to rate curves; deposit competition remains elevated with aggressive pricing in the brokered market.
• Geographic Expansion: Asheville, North Carolina converted from a loan production office to a full-service branch, serving as a "beachhead" for further organic expansion in Western North Carolina.
• Competitive Strategy: Willing to accept margin compression (e.g., 2 bps) to achieve double-digit deposit and loan growth; prioritizing relationship acquisition over immediate margin optimization in certain scenarios.

Macro / Industry Outlook:

• Interest Rate Cycle: Management anticipates at least one Fed rate hike in December 2026; expects deposit costs to rise with any additional hikes but believes "market sanity" or competition limits will emerge.
• Economic Fundamentals: Optimistic regarding underlying drivers in the Southeast footprint (employment, commercial activity), expecting these markets to outperform broader national trends.
• AI & Technology: Belief that AI and technology will continue to increase efficiency in deposit pricing and operational costs, moving the market toward a more "efficient" state rather than a sudden disruption.
• Capital Market Dynamics: Asset-sensitive balance sheet (61% of investment portfolio floating rate) expected to support NIM if rates rise; funding competition may force a pause on loan yield expansion if brokered/deposit competition becomes too fierce.

Strategic Initiatives:

• M&A Stance: Adopting a "willing but thoughtful" participant stance; targets are community banks with strong deposit bases and similar cultures within the existing geography (VA to FL) or closer to current footprint.
• Talent Acquisition: Active hiring pipeline (approx. 10 new hires per quarter); dual focus on recruiting experienced talent and developing early-career associates internally to build long-term relationship management depth.
• Capital Deployment: $125 million in subordinated debt issued; plans to deploy proceeds over time for loan growth and strategic initiatives; share repurchases continue at opportune price levels to manage TCE ratio.
• Digital Transformation: Transition of mortgage origination and subservicing platform to improve customer experience and retention (currently 83% of new mortgage borrowers hold checking accounts).

Risks and Headwinds to Outlook:

• Interest Rate Volatility: Sharp rises could reduce mortgage origination volumes, increase funding costs (deposit beta), and potentially cause loan demand destruction if rates reach levels where deals "do not pencil out."
• Credit Risk: Specific non-accrual loan ($13 million) with potential for loss if collateral values decline; broader provision expense sensitivity to economic scenarios.
• Regulatory/Competition: Elevated industry-wide expense pressures (compensation, benefits, technology) and fierce deposit competition could limit margin stability.
• One-Time Items: Non-recurring transition expenses in the mortgage segment.

Management Tone on the Future:

• Confidence Level: Highly optimistic regarding the Southeast markets and the franchise's ability to execute; confident in delivering sustainable long-term value and mid-to-high single-digit growth despite macro headwinds.
• Hedging: Explicitly notes that future guidance assumes the current rate forward curve and is sensitive to changes in market rates; acknowledges that "time will tell" regarding the impact of deposit competition on asset sensitivity.
• Shift vs. Prior: Narrowed expense guidance to the lower end of prior ranges; adjusted Q4 margin outlook to account for September rate hikes and specific one-time reversals, yet maintains full-year NIM target.

Miscellaneous:

• Capital Ratios: Common Equity Tier 1 at 11%, Tier 1 leverage at 10%, Total Risk-Based Capital at 13.6%; TCE ratio declined 17 bps due to buybacks but remains above target range with significant flexibility.
• Portfolio Mix: 61% of investment portfolio is floating rate; loan yields stable at 6.21% (contractual) with 6.44% on new production.
• Client Behavior: Muted reaction to September rate hike due to pre-negotiated indexed deposits (approx. 40%) and proactive client communication regarding fair pricing adjustments.