FB Financial (NYSE:FBK) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
FB Financial Corporation reported a strong EPS of $1.20 and an adjusted EPS of $1.21 for Q3 2026, with net income at $60.2 million and a return on average tangible common equity of 15.2%.
The company experienced significant growth in loans and deposits, with loans increasing at an annualized rate of 9.7% and customer deposits growing at 11.2%.
Credit quality remained stable despite challenges in the mortgage banking segment due to rising interest rates, and a $1 million interest income reversal on a nonaccrual loan was noted.
FB Financial continues to focus on strategic initiatives including investment in technology and personnel, with a specific emphasis on expanding in attractive markets like North Carolina.
The company remains optimistic about future growth opportunities, expecting to maintain mid- to high-single-digit balance sheet growth while managing risk and capital effectively.
Full Transcript
OPERATOR
Good morning and welcome to the FB Financial Corporation third quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will open the call for questions. Please also note today’s event is being recorded. At this time, I’d like to turn the floor over to Rachel Duresski, Financial Management Associate for FB Financial. Please go ahead.
Rachel Duresski, Financial Management Associate
Thank you and good morning, everyone. We appreciate you joining us today for FB Financial Corporation’s third quarter 2026 earnings conference call. Joining me on the call this morning is Chris Holmes, President and Chief Executive Officer, and Michael Mettee, Chief Financial and Operating Officer. Before we begin, I’d like to remind listeners that during today’s call, management may make forward-looking statements regarding the Company’s plans, expectations, and outlook.
These statements are subject to risks and uncertainties and actual results may differ materially from those discussed. Additional information regarding these risks and uncertainties, including risk factors that could cause actual results to differ, can be found in our earnings release, our most recent annual report on Form 10-K, and our subsequent filings with the Securities and Exchange Commission. FB Financial undertakes no obligation to update any forward-looking statements except as required by law.
In addition, today’s discussion may include references to certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are available on our third quarter 2026 financial supplement posted to the Investor Relations section of our website at www.investors.firstbankonline.com and on the SEC’s website at www.sec.gov. With that, I’ll turn the call over to Mr. Chris Holmes.
Chris Holmes, President and Chief Executive Officer
All right, thank you, Rachel, and good morning. We appreciate you joining us today and your continued interest in FB Financial. We reported EPS of $1.20 and an adjusted EPS of $1.21, and growing our tangible book value per share, excluding the impact of AOCI, at a compounded annual growth rate of 11.3% since our IPO. Our net income was $60.2 million, or $60.9 million on an adjusted basis, and our returns remained healthy with return on average tangible common equity of 15.2% or 15.6% on an adjusted basis.
This quarter’s performance was highlighted by strong growth in both loans and deposits, solid profitability, and stable credit quality. We grew loans at an annualized rate of 9.7%, which is at the very high end of our forecasted range of mid- to high-single digits. Our deposit growth rate was 8.8%, which included a decline in brokered deposits; we actually grew our customer deposits at an annualized rate of 11.2%, and the brokered deposit decline brought that net growth rate down to 8.8%.
Growth in both loans and deposits was fueled by our commercial and consumer businesses, which reflects our continued success in attracting new customer relationships across business units. Given the size and scale of our balance sheet today at approximately $17 billion in total assets, growth levels are notable and represent continued meaningful expansion of our business. As I reflect on the third quarter, what stands out is the consistency of execution and the continued momentum in our business.
We see healthy activity levels across our markets, strong pipelines, and meaningful opportunities to deepen existing relationships while adding new customers. High-quality execution across the franchise remains a defining characteristic of our organization, and we continue to invest in people, process improvement, and technology that drives long-term growth. That investment includes adding great people to our organization but also involves developing talented associates already within FirstBank and creating opportunities for them to grow and lead.
What differentiates FirstBank is the combination of an award-winning client service, which, by the way, is certified by J.D. Power as the highest level of customer satisfaction in our region; engaged and talented associates, which we use a third party, Willis Towers Watson, to track for us; and a relationship-focused business model. When these execution strengths combine with attractive markets, we get strong growth and profitability, and you see that in our results.
While our core operating performance remained strong during the quarter, there were a couple of items of impact that should be noted. Specifically, our mortgage banking segment faced headwinds with the sharp rise in interest rates in the back half of the quarter, and we also recognized an interest income reversal on a loan that was moved to nonaccrual in the quarter. We’ll let Michael touch on the specifics of both mortgage and the nonaccrual loan, but I will say that the credit is being managed by our special assets team, which continues to work constructively with the borrower.
We’re working together on that to achieve the best possible outcome, and we believe the credit has relatively low, if any, loss content. Overall, credit trends across the loan portfolio remain stable. We continue to feel good about the quality of our portfolio and the underlying risk of our company. Looking ahead, we remain optimistic about the opportunities in front of us. The operating environment for banks remains favorable, customer activity remains healthy, and our markets continue to benefit from strong economic fundamentals.
While there are always factors outside of our control, including interest rate volatility and broader macroeconomic developments, the underlying drivers of economic activity throughout our footprint remain constructive. Employment trends remain healthy. Commercial activity remains solid. We believe our markets across the Southeast remain positioned to outperform many areas of the country. We see meaningful opportunities for profitable growth and remain confident in our ability to deliver mid- to high-single-digit balance sheet growth while maintaining a disciplined approach to risk and capital management.
With that, I’m going to turn the call over to our Chief Financial and Operating Officer, Michael Mettee, for some additional color on the quarter.
Michael Mettee, COO
Thank you, Chris, and good morning, everyone. I’ll start my comments with the balance sheet. As in the prior quarter, we delivered strong loan and deposit growth, with both increasing at high single-digit annualized rates. Loan demand remained healthy across our commercial and consumer businesses. Community markets led the growth, with Auburn, Newnan and Tuscaloosa continuing to perform well. Metro markets also contributed solid production, particularly Birmingham, Chattanooga and Knoxville, as larger commercial loans with longer lead times moved through the pipeline.
Our diversified footprint allows us to generate growth from multiple sources. Community markets provide consistent relationship-driven production, while metro markets create opportunities to win larger, more complex relationships. Both strategies contributed to meaningful growth and position us to perform across a range of operating environments as we balance growth and profitability. Contractual loan yields remained stable at 6.21%, while late-quarter production came on at approximately 6.44%.
These results reflect our team’s pricing discipline and the appeal of our customer-focused approach. As discussed previously, being easy to do business with is a strategic priority, and this quarter’s growth provides further evidence that those efforts are working. On the deposit side, we strengthened our granular core deposit base through growth in active customer accounts and average balances, while adding several large commercial relationships.
Customer deposits grew approximately 11% on an annualized basis during the quarter. We remain encouraged by customer acquisition trends and believe relationship-based deposit gathering will remain a long-term competitive advantage. Deposit pricing remained competitive, with our cost of deposits increasing 6 basis points, and blended rates on new production ended the quarter at approximately 3%. We expect funding competition to remain elevated and will continue to emphasize profitable growth and disciplined pricing.
Our customer relationships, experienced teams and diversified funding base position us to grow deposits while managing funding costs effectively. With year-to-date growth tracking within our forecasted range, we expect growth to moderate into the fourth quarter due to the normal timing of paydowns, renewals and larger commercial closings. Pipelines remain healthy, and we continue to expect full-year loan and deposit growth within our mid- to high-single-digit range.
Turning to earnings, net income totaled $60.2 million, increasing from the prior quarter as higher net interest income and lower provision expense more than offset deposit pricing pressure and a challenging mortgage banking environment. Profitability remains strong, with return on average tangible common equity above 15% and return on average assets above 1.4%. Core net interest margin compressed consistent with our prior expectations as funding costs continue to rise.
Margin reflected the reversal of approximately $1 million of accrued interest income on a credit moved to nonaccrual during the quarter. As Chris noted, our teams know this credit well, it is supported by adequate collateral values, and we discussed this on last quarter’s call. Quarter over quarter, margin declined 12 basis points from 3.95% in the second quarter to 3.83% in the third quarter. Two items accounted for 5 basis points of this decline: a 2 basis point reduction in purchase accounting accretion and a 3 basis point impact from the accrued interest reversal noted earlier.
Excluding those items, core margin declined approximately 7 basis points from 3.95% to 3.88%, primarily reflecting continued industry-wide deposit pricing pressure. Looking ahead, we remain comfortable with our full-year net interest margin outlook, excluding loan accretion, of 3.7% to 3.8%. Continued deposit competition and aggressive loan pricing remain headwinds. While our asset-sensitive position should provide support if rates move higher as expected, for the fourth quarter we expect core margin to remain near third-quarter levels as deposit repricing pressure is largely offset by balance sheet growth, stable loan yields and our slightly asset-sensitive position. This outlook assumes the current rate forward curve and remains sensitive to changes in market rates. Turning to noninterest income, revenue declined $1.3 million primarily due to lower mortgage banking income. Higher swap fee and investment services income partially offset this decline, which was supported by healthy customer activity. Given the significant rise in long-term rates during the quarter, particularly the 10-year Treasury yield, I’d like to briefly discuss the mortgage segment and our outlook for the business.
Like others across the industry, we expect higher rates to weigh on near-term origination volumes and profitability. Even so, our view of the mortgage business is unchanged. Mortgage banking remains an important source of new customer relationships, provides meaningful optionality for balance sheet growth and fee income growth, and creates opportunities to deepen relationships across the broader franchise. During the quarter, we launched a program to deepen relationships with new mortgage customers through deposit investment accounts, and the early results are encouraging.
Today, 83% of participating borrowers have a checking relationship with FB Financial, with average deposit balances approximately twice our existing customer average, median FICO scores above the current portfolio average, and loan-to-value ratios below secondary market originated loan values. These are the types of relationships we want to attract and retain, reinforcing the strategic value of mortgage banking beyond its standalone earnings contribution.
Mortgage banking remains an important part of our long-term retail strategy. Although the higher-rate environment will likely reduce its earnings contribution in the fourth quarter in 2027, we will actively manage expenses while balancing profitability with our priorities of growing relationships, retaining a high-quality team and delivering strong customer service and offering competitive products. In addition to the challenging rate environment, you’ll see a one-time transition expense of $719,000 within the segment’s results due to conversion costs incurred as we transition our mortgage origination platform and subservicing arrangements.
Our teams have spent considerable time and effort executing these projects, which we believe will enhance the customer experience in the future. Absent this nonrecurring expense, the segment remained profitable during the quarter. Turning to noninterest expense, total expenses were $96 million, up approximately 5% from the prior quarter, or 4% on an adjusted basis. The increase primarily reflected higher performance-based compensation accruals tied to significant balance sheet growth, attractive profitability and earnings growth, as well as the $719,000 one-time mortgage segment charge noted earlier.
On an adjusted basis, the efficiency ratio was 54.3%, and the banking segment efficiency ratio was 50.8%. Industry expense pressures remain elevated, particularly across compensation, benefits, insurance and technology. We continue to manage expenses carefully while investing in the franchise. Long-term, we did not generate positive operating leverage this quarter, as mortgage revenue pressure and the nonaccrual interest reversal offset the benefit of balance sheet growth, while incentive compensation increased with business activity.
Our objective remains to convert customer and balance sheet growth into revenue growth that outpaces expenses and produces returns above our target levels. Looking ahead, we expect disciplined expense management through year-end and are narrowing our banking segment guidance outlook to $325 million to $335 million, which is near the lower end of our prior guidance. We remain focused on balancing targeted growth investments for strong operating performance and shareholder returns.
Turning to credit, provision expense totaled $1.4 million for the quarter. Our ACL process continued to incorporate some downside economic scenarios through a weighted forecast. Although the assumptions this quarter were modestly more favorable than those used in the second quarter, the improved forecast was largely offset by reserves associated with loan growth. Reserve activity for individually evaluated credits was limited, as the elevated activity recorded in the second quarter did not reoccur.
As a result, provision expense remained modest despite another quarter of solid balance sheet growth. Our allowance coverage ratio ended the quarter at 1.47%, reflecting strong loan growth and stable underlying credit performance. Net charge-offs and the nonperforming asset ratios also remained stable, supporting our view that the broader portfolio credit trends remain sound. The increase in nonaccrual loans during the quarter was primarily attributable to the credit discussed earlier.
As noted, this loan is supported by adequate collateral values, and we continue to believe loss content is limited. We continue to monitor the potential economic effects of interest rate volatility, geopolitical developments, energy prices and fiscal policy on our business and markets. Even so, we remain encouraged by the fundamentals across our footprint, including healthy employment, solid customer activity and markets that continue to compare favorably with many regions of the country.
Looking ahead, absent a meaningful change in the economic outlook or credit performance, we expect provision expense to be driven primarily by loan growth and changes in individually evaluated credits. We also expect net charge-offs to remain within our long-term target range. Turning to capital, we issued $125 million of subordinated debt during the quarter, further strengthening our capital position. We plan to deploy the proceeds over time to support loan growth in our markets and fund strategic initiatives that advance our long-term growth.
Our tangible common equity to tangible assets ratio declined 17 basis points during the quarter, primarily due to continued share repurchases, reflecting disciplined and opportunistic capital deployment. Even after those repurchases, our capital levels provide significant flexibility to support growth, return capital to shareholders and pursue strategic opportunities. Our balance sheet is resilient across a range of interest rate environments. Approximately 61% of the investment portfolio is floating rate, with relatively limited embedded unrealized losses.
This positions us to allocate capital opportunistically while many institutions remain constrained by balance sheet considerations. That flexibility, combined with our earnings power and capital generation, remains a meaningful competitive advantage. Our capital ratios remain well above regulatory requirements, with our Common Equity Tier 1 ratio of 11%, a Tier 1 leverage ratio of 10% and a total risk-based capital ratio of 13.6% at quarter end. In closing, I want to thank our associates for their hard work, dedication and commitment to our customers.
This quarter demonstrated the strength of our franchise through strong balance sheet growth, solid profitability, stable credit trends and disciplined capital management. We remain optimistic about the opportunities ahead and confident in our ability to deliver sustainable long-term value for shareholders. With that, I’ll turn the call back over to Chris.
Chris Holmes, President and Chief Executive Officer
All right, thanks, Michael and Operator. At this time, I’d like to open the line for questions.
OPERATOR
At this time, we’ll begin the question-and-answer session. If you’d like to ask a question, please press star and then one using a touch-tone telephone. To withdraw your question, you may press star and 2. If you are using a speakerphone, we do request that you pick up the handset prior to asking your question to ensure the best sound quality. Once again, that is star and then one to join the question queue. Our first question today comes from Russell Guenther from Stephens.
Please go ahead with your question.
Russell Guenther, Analyst at Stephens
Hey, great. Good morning, guys.
Chris Holmes, President and Chief Executive Officer
Good morning, Russell.
Russell Guenther, Analyst at Stephens
Good morning, Chris. On the loan growth side of things, high single digits, high end of your guide, it was broad-based. Would be helpful to get some comments on how utilization rates trended in the quarter, where pipelines stand post another strong print. And then I think you mentioned a little bit of seasonality in the fourth quarter, but as you look ahead, would you guys expect to be able to sustain this high single digit pace or is there an absolute level of rates where we start to see some demand destruction and loan growth begin to slow?
Chris Holmes, President and Chief Executive Officer
Yeah, we’ll tag team this one. Yeah, you’re right. We’ve been, I’d say, practically double digits at least, you know, most of the year. Started out the year a little bit slower, but we’re high single digits at this point in terms of loan growth and we expect to end up the year in high single digits. So fourth quarter seasonally is usually just a little below, a little behind the first couple quarters—or, I’m sorry, the mid quarters. But we still expect to see really good activity and really strong pipelines as we head into 27.
So as we were projecting through Q4, a little bit of elevated payoff activity. But, you know, that’s normal. I mean, that happens and we don’t consider that to be really abnormal. And we see us ending the year still in the mid—I say high single digits is where we’ll be for the year on the loan side—and growth on the deposit side, I’d say high single digits as well. There’s a chance that we might be double digits on deposit growth. And frankly, when I’m thinking deposit growth, Russell, I’m thinking customer deposit growth.
We did mention in the comments that we were over 11% customer deposit growth quarter, and that continues to be strong as well. Michael.
Michael Mettee, COO
Yeah, good morning, Russell. So actually I would say activity in the quarter was—if you look at extended credit versus utilization, back to your utilization credit—it’s actually even better than probably obviously funded. So our utilization rates were down 2 to 3% on construction and commercial and industrial loans. So opportunity for growth there. If you just kind of work back into our normal C&I range of 46% utilization, we were a couple percent below that.
It’s just, you know, our clients just didn’t tap into their newly new lines yet. So some upside there. The pipeline actually quite robust. You know, we felt good about it all year and that momentum continues. Chris touched on the deposit piece as well. I mean, the deposit pipeline is actually quite robust as well. So that’s encouraging to be able to fund loan growth organically. You know, we’re a customer-driven balance sheet, which I think is pretty unique relative to a lot of the rest of the industry, especially with rising costs and brokered and wholesale.
So we’re excited about that and the loan opportunities in front of us. As Chris mentioned, fourth quarter can get a little bit heavy on payoffs and normal year-end activity.
Russell Guenther, Analyst at Stephens
But we feel pretty well positioned. I appreciate both your thoughts there, guys. Thank you very much. And then just last one for me would be on the margin. You gave us some color in terms of how you expect to end the year. But, Michael, would be helpful to get a sense for how the margin trended throughout the quarter. Perhaps touch upon where deposit costs ended—ended through Q.
Michael Mettee, COO
Yeah, so the rate increase, right, was I think 13 days before quarter end. So your deposits reprice kind of immediately is what I’d say, Russell. On our index deposits, loan growth resets over 90 days. You know, 50% of our portfolio is floating, 61% of the investment portfolio. That generally happens kind of the first day of the quarter. So you haven’t seen some of the asset sensitivity help margin. So that’s why we’re a little bit kind of bullish on being able to maintain our margin guide.
Deposit cost: new deposits on a blended basis came in around 3% for the quarter. So if you think about our total portfolio in that kind of 2.40 range, you know, obviously it’s coming in higher and I think that continues given where brokered is. Brokered is in that 4.5 plus percent range. So new deposits are pretty, pretty competitive.
Russell Guenther, Analyst at Stephens
Understood. Okay, great. Thank you guys for taking my question.
Chris Holmes, President and Chief Executive Officer
All right, thanks, Russell.
OPERATOR
Our next question comes from Steven Skelton from Piper Sandler. Please go ahead with your question.
Steven Skelton, Analyst at Piper Sandler
Yeah, thanks. Good morning, everyone. Maybe continuing on that new deposit blended rate. I think you said it was around 3% this quarter. I think if memory serves me, around 2.7% last quarter. And then with the rate hike towards the end of the quarter, would we expect that to continue to trend appreciably higher from here, or what are you seeing kind of, you know, just in the last couple of weeks maybe to give some color into where deposit costs could continue to trend.
Michael Mettee, COO
Yeah, and I think I probably didn’t answer that part of Russell’s question, actually. Yeah, deposit costs in September were higher than July and August. But I do think that’s reflective of the rate increase. If you’ve got kind of a 50% beta in there, 40, 50% is where you see that. We did have some large deposits come in that are indexed, which drove our deposit costs higher—kind of north of that 3%, Stephen, in September. But, you know, based on what we can tell, it probably sticks in this range unless there’s another rate increase in October.
Currently, we think there’s probably going to be a Fed hike in December. So that’d be late quarter, but if you saw one in October, I think you’d see deposit costs move higher.
Steven Skelton, Analyst at Piper Sandler
Makes sense. And are you guys thinking about the deposit and loan betas any differently kind of in this potential, hopefully small, up-rate cycle that we’re seeing?
Michael Mettee, COO
Yeah, I mean it’s roughly the same. I’d say, you know, the pressure on loan yields that we’ve seen throughout the summer does not follow the yield curve. Right, the yield curve has been steepening, so you’d expect to see kind of the 3–5 portion of term loans move higher. We did see that at the end of the quarter. You know, I mentioned we were at around 6.44 on new production. I think if you look back last quarter, 6.30-ish. So you saw that same kind of what I’ll call 45–50% beta.
But I would expect, you know, we would want to expect to see that move higher as rates move higher.
Steven Skelton, Analyst at Piper Sandler
Okay. And then just in terms of composition and loan growth, it looked like maybe there was a little bit more weighted towards the one-to-four family this quarter. Anything of note there, or just kind of attractive yields that was worth holding on balance sheet this time around, or kind of how can we think about what the composition of new loan growth might continue to look like from here?
Michael Mettee, COO
Yeah, I think we try to maintain a balanced approach, Steven. So one quarter, it may be one-to-four family, one quarter maybe C&I, one over maybe owner-occupied. The composition—I mean, part of that was the mortgage platform, mortgage segment platform that I talked about, which was a deposit generation portfolio kind of campaign—was actually really successful. Weighed on some of the gain on sale results. But then a portion of that’s also branch originated, more community-based lending type of activity.
So I think higher mortgage rates would kind of dictate that that would slow down. I think that that’s expected. But what I really like about our mortgage division is that optionality—as you mentioned, you know, it’s probably not the end of the world to have 7.5, 7.75 mortgage originated paper on your balance sheet right now that sticks around for kind of five to seven years. If you think rates are going down, pretty good lever to have. And we always—that’s an originate-to-sell channel for us.
But it’s nice that, you know, if we’re thinking about where rates are, it’s nice to have the optionality that we could keep some of that on the balance sheet if we opted to do that. So. Yeah. And if rates do go down, that generally leads to, you know, a later gain on sale. So.
Steven Skelton, Analyst at Piper Sandler
Yeah, absolutely. Great. Thanks for all the color. I’ll go ahead and step back.
Chris Holmes, President and Chief Executive Officer
Appreciate it. All right, appreciate, Steve.
OPERATOR
Our next question comes from Will Jones from KBW. Please go with your question.
Will Jones, Analyst at KBW
Hey, great, thanks. Good morning, guys.
Chris Holmes, President and Chief Executive Officer
Morning, Will, and welcome. Nice to have you as the primary.
Will Jones, Analyst at KBW
Yeah, absolutely. Great to be here. I wanted to circle back on the discussion on asset sensitivity. Michael, sounds like this next quarter as we start to see some of the rate lift on the asset side, you’ll be able to see more of a stabilized margin and kind of offset some of the funding pressure that is oncoming. You know, to the extent, you know, as we look out at the forward curve, we do see additional hikes into the future. Do you feel like that same dynamic will be at play where your general asset sensitivity can offset incremental funding pressure?
Or will there be a point where deposit competition just becomes too fierce and it may start overcoming some of that general asset sensitivity?
Michael Mettee, COO
Will, welcome. Glad to have you. So, I mean, roughly, for every 25 basis point increase in Fed funds, you should see, I’m going to say, around a three basis point increase in our margin. I think the reason we’ve kind of stuck with our guide and that range is the behavior you mentioned on competition. You know, I think some market sanity probably comes in at some point, but a lot of it depends on where people can fund in that broker and wholesale market.
And right now getting customer deposits at—even at Fed funds target rate or slightly above, kind of 4%—just a better funding mechanism than wholesale or brokered. And so as long as that is the case and kind of the back end of the curve is steeper, I think you see what you said, fierce deposit competition. So we’ve kind of muted our margin asset sensitivity based off expected competition. And I’d like to think there’s some upside there, but time will tell.
Chris Holmes, President and Chief Executive Officer
I would also say when we’re thinking of our margin, we think of it net of accretion. And so when you look at—we’ve said 3.70% to 3.80% range net accretion—and we did have an unusual item where we had the nonaccrual interest reversal this quarter, which cost us three basis points in the quarter. And so if you look at our core margin, we’re really right in the middle of the range that we have projected. If you take those two—net of accretion and the one unusual item this quarter—we’re really right at that sort of 3.75% range.
Michael Mettee, COO
Yeah. I think one other thing I’d add was it’s really important to us that we’re growing customer relationships and so balance sheet growth, you know, a nominal decrease in margin, but you have to grow net interest income. Right. You have to grow earnings and you have to grow relationships. And so that’s where we have our team focused. We want to be disciplined in pricing. But, you know, a couple basis points of margin compression with double-digit growth is not the end of the world for us.
In fact, we’re quite happy about it.
Will Jones, Analyst at KBW
Exactly. Yeah, no, that’s totally fair. Hitting right on the NIM versus NII debate that I feel like we’re all trying to figure out nowadays. Maybe just, I guess, a little backward looking. When you saw what happened with the September hike — I know you’ve got about 40% of your deposits that are indexed — but for the remainder where there may be more exception or negotiated prices, did you find yourself having to play more fence on those depositors, or just give us a flavor of what client reaction, client behavior was to the September hike?
Michael Mettee, COO
Yeah, I think there’s general excitement from anybody when the Fed increases rates. I think that initially it’s a, hey, you need to raise your deposit costs but don’t raise the loan rates, I think is in general how the world thinks about it, but it was actually quite muted. You know, we generally are very — not generally — we are very fair to our clients when it comes to deposit price. We’re not interested in trying to get everybody to zero deposit cost so that when the Fed hikes rates they get a call and say, hey man, why is fed funds at 380 and you’ve been paying me two basis points?
We don’t think that’s a good customer value proposition. So it does limit some of the client reaction. And then you mentioned the index deposits. Right. We did that in ’22, I believe, for this very thing so that we could just be fair to our clients in all rate cycles. No matter if rates go up or down, they’re treated fairly and the company’s treated fairly and the shareholders are treated fairly. So that mutes that a little bit. Now, you know, when two-year Treasuries at 480 or whatever, you start to get some people call and say, hey, what are we thinking here?
And so those calls do happen, you know, with people with a lot of money. Which makes sense.
Chris Holmes, President and Chief Executive Officer
Yeah. I would add one point. The historical inefficiency in deposit pricing is being sucked out of the industry, I think primarily, and I think it’s going to just be more that way with technology. And so then you ask a good question. But with our clients, they’ve come to know that we’re going to move them, and so we go ahead and move our good client relationships. We go ahead and move them and they don’t have to ask for them to be moved. And so we’ve actually added efficiency to the process with our clients, but we think, one, that’s helping us defend, helping us retain them because it creates a really good client experience, and we think it’s helping us get more. And so we’ve seen some of our biggest deposit clients become bigger deposit clients because they know that, hey, they don’t have to call and they know that it’s going to be adjusted whenever rates adjust, and that creates a better client experience. Hey, and the other thing, shout out back to you guys. Good research piece from your group, Will, on the NIM versus NII — I think a lot of good stuff in there — and just as Michael put it earlier, hey, we’ll give up two basis points of margin if we can get double-digit growth, and we think we’re using our capital really effectively in that.
Will Jones, Analyst at KBW
So yeah, I appreciate that. We’re trying to just be thoughtful around that debate there and, you know, kind of how the right way to view that dynamic is going forward. So I appreciate that.
Shout out, last one for me, guys. I’ll just throw in — we’re kind of hovering around that 9% TCE range that we talked about being a target last quarter. Just any thoughts on the buyback and what you guys might think about strategically there going forward?
Chris Holmes, President and Chief Executive Officer
Yeah, you saw our repurchase activity this quarter, and we do think at certain price levels it’s a good use of capital. At other price levels maybe it’s too dilutive to capital. And so we will continue to be thoughtful and active around that at price levels that we think are appropriate. Yeah.
Will Jones, Analyst at KBW
Okay. All right, that’s fair. Well, thanks, guys, and I’m glad to join you.
Chris Holmes, President and Chief Executive Officer
Great. Thanks, Will.
Will Jones, Analyst at KBW
Thank you.
OPERATOR
Our next question comes from Brett Rabitan from StoneX Group. Please go ahead with your question.
Brett Rabitan, Analyst at StoneX Group
Hey guys, good morning. Wanted to start on just the organic expansion plans here and talk about maybe the Asheville new facilities and you’re trying to grow in North Carolina. Just wanted to hear your plans for that market and just what you guys see — the opportunities to expand into some of those markets you’ve been eyeing possibly for M&A but possibly for organic opportunities as well.
Chris Holmes, President and Chief Executive Officer
Yeah, thanks, Brett. And you’re right, we didn’t actually mention that in our comments, but we’ve been in Asheville with a loan production office and we converted that to a full-service location. So it’s now — we’re in North Carolina. We have said that that’s a target market, target expansion for us. We think it’s a fantastic place to live, work and play, a lot like where we are in our headquarters market, Tennessee, and in the markets we’re in in Georgia and Alabama, and Bowling Green, Kentucky.
So we think western North Carolina particularly is a great spot for us to start there, and we have a beachhead location and I would assume that others would follow over time. So that’s going to be a place where we continue to grow and build our presence, build out our brand.
Brett Rabitan, Analyst at StoneX Group
Okay. And Chris, any updated thoughts on M&A and just if you see that as more or less likely than you have in the past and what you’re seeing or hearing from possible partners?
Chris Holmes, President and Chief Executive Officer
You’ve heard me say often banks are sold, they’re not bought. And so we are a willing and thoughtful participant, and so we stand at the ready, and if the right thing comes along, then we would act upon that. And, you know, we’ve described our geography as running from central and western Virginia all the way through the Carolinas, Alabama, Georgia and Tennessee, and maybe a few spots in Kentucky, and then even into the northern part of Florida. That’s really our geography.
And so we try to keep a close watch on that. We like things that are closer to our existing geography — rather, even within that geography I just described, we like things that are closer to our existing geography rather than further away. And we love banks that look like us. We love community banks. We love strong deposit sides of the balance sheet, and we love cultures that are, I’d say, straightforward — what you see is what you get. And that’s really what we get excited about if we get opportunities that are like that, and we stand ready.
Brett Rabitan, Analyst at StoneX Group
Okay. And then if I could ask one last one just around — you’ve talked some about your value proposition and how the inefficient market for deposits is going to change with technology. The M&T CEO at our conference recently basically said AI could be scary, but what it’s going to do is make banks more efficient. So if you wake up and banks are 20% more efficient, that probably goes to the customer. So you have to find ways to stay at the higher end of margins for the industry.
What are you guys’ thoughts on that? And just, you know, everyone’s worried about AI changing the dynamic around deposit rates.
Chris Holmes, President and Chief Executive Officer
I think that, with regards to AI and technology, I do think the efficiency in terms of how we think of the efficiency ratio — and we think of the efficiency ratio not just as an expense measure, we think of it as how efficient are we transacting, how efficient are we carrying out our business every day — and so we do think that a lot of your primary applications of AI are going to be in that area for banks. But I also believe that for many folks, deposit — in terms of rates — has already become quite efficient.
If you look at what is available to you, Brett — look, you’re an educated consumer when it comes to financials, and think about how you get rates and you’re able to get very competitive — I’m sure, I don’t know your whole financial picture, but I know you, and I’m sure you’re able to get very good deposit rates very efficiently. So you can already do that. But you’re more knowledgeable than your average consumer. So I think that that continues to grow over time, but I don’t think it is like a light switch.
I don’t think it just flips on one day. So I think it’ll continue to get more and more efficient. I think as technology continues to become more adapted and easier to use and more prevalent, it just becomes a very efficient deposit market along with more efficiency on the expense side — getting more out of every expense dollar we spend. So we think of those as almost separate and we work both sides. But going back to what we discussed earlier, we’re making it pretty efficient for our customers today.
Part of our value proposition is you don’t have to watch your bank every day to make sure they’re giving you a good, strong customer value proposition. We’re going to make sure we’re presenting that to you whether you’re calling us when rates change or not.
Brett Rabitan, Analyst at StoneX Group
Okay, that’s helpful. Thanks so much for the color.
Chris Holmes, President and Chief Executive Officer
All right, thanks, Brett.
OPERATOR
Our next question comes from David Bishop from Hovde Group. Please go ahead with your question.
David Bishop, Analyst at Hovde Group
Yeah, good morning, gentlemen. Hey, quick question, Mike. You noted the stress on both the deposit and the loan yield side here. In a perfect world, where should we see that new origination yield be running at? I think you mentioned 640 or so at the end of the quarter. Just curious, you know, on a normalized basis, where you’d expect those to be coming in on? And then I noticed the increase in the metro versus community deposit growth this quarter. Just curious if you see much of a pricing differential between those two channels. Thanks.
Michael Mettee, COO
Well, in a perfect world it’d be 7-plus percent. I guess if you think about just spread over the five-year, I think yeah, we see a wide range of competition. I mean there’s some people here locally that are doing owner-occupied CRE in the fives, which is not something that we’re willing to do. And so that keeps pressure on loan yields. I think they should be those upper sixes, low sevens, as you see the belly of the curve steepen. But that’s a little bit of that function on competition, right?
Yeah, metro — I mean the Nashville market had a really, really strong deposit quarter and that’s kind of the driver there. And there’s more in the pipeline as well. I gotta say, all of our markets are competitive and so there’s no free lunches anywhere. But I think the way that Chris just touched on the prior questions, look, we’re not treating people in a metro market versus community market any differently. We’re trying to be fair to everyone and create value for our customers, which creates a customer-driven balance sheet.
So not a whole lot of pricing difference. We give the same amount of authority and discretion to the smallest market we’re in to the largest market we’re in. And we expect them to go get relationships and grow them in the same way.
David Bishop, Analyst at Hovde Group
Got it, thank you.
OPERATOR
Our next question comes from Steve Moss, from Raymond James. Please go ahead with your question.
Steve Moss, Analyst at Raymond James
Good morning. Maybe just following up on loan growth and rates here. Just kind of curious, given a little bit of moderation fourth quarter, wondering as you expect, if new origination rates go higher here, do you expect maybe loan growth could slow into 2027?
Michael Mettee, COO
Morning. Yeah, fair question. We haven’t seen that indication yet, but yes, we do think it could, but we haven’t seen it yet. At some point, deals begin to fall out — they don’t pencil out anymore on the loan side. And so again, we haven’t seen it yet, but we do think it’s certainly a possibility that that could happen if rates continue to increase.
Steve Moss, Analyst at Raymond James
Okay, appreciate that. And then just on the credit here, I know you guys highlighted two criticized classified assets last quarter, if I recall correctly. Kind of curious with the nonperforming there, how large is it and just what type and maybe how long till it works out of the system, if you guys have any color.
Michael Mettee, COO
Yeah, the one loan we referenced is about $13 million in size. Again, adequately collateralized — liquid collateral for the most part. There’s some other collateral also, but for the most part it’s liquid collateral that we could liquidate. But we are working with the borrower and the borrower’s working with us for a good outcome for everybody. It’s not obviously unplanned for the borrower, obviously also unplanned for us, but it’s a strong collateralized situation.
Steve Moss, Analyst at Raymond James
Okay, well appreciate that. Color and all the color on this call here. I’ll step back. Thank you very much, guys.
Chris Holmes, President and Chief Executive Officer
All right, thanks, Steve.
OPERATOR
Our next question comes from Christopher Marinak from Breen Capital. Please go ahead with your question.
Christopher Marinak, Analyst
Hey, good morning, Chris and Mike, would you consider growing the securities portfolio more if the competitive pricing were to either get worse or just not be adequate as we roll through these next few quarters?
Michael Mettee, COO
Morning, Chris. It’s Michael. The [securities portfolio] runs about 9% of total assets. I mean, I think we’ve been in a range of up to probably that kind of 14, 15% range. So if we had a large deposit growth, we’d certainly deploy into kind of some of the floating-rate securities we’ve been in so that, when loan growth does come at the right kind of return there, you would deploy it into that. We are focused on growing our relationships. And I’ve said that like three times.
And so our goal is to continue to deepen and grow that part of the balance sheet. If there’s irrational pricing and it’s better to get into some floating-rate securities to deploy excess deposits, then yeah, we would do that for short term, but in the long term we’re trying to grow the company and that generally happens through relationship-driven activity.
Chris Holmes, President and Chief Executive Officer
Hey, Christopher. I would also just say for our securities portfolio today, it’s about 61% floating. And so even when we’re deploying it into the investment portfolio, we think of that as make sure we’ve got plenty of liquidity — liquidity for anything that happens, including additional loan growth. And so that’s strategically how we think about that.
Christopher Marinak, Analyst
No, that’s helpful. And Chris, your point on liquidity? I mean, there’s been just small drops in liquidity the last quarter or two, and those are not meaningful. But just curious if you have flexibility to push those a little lower again just to kind of try to manage income and outcomes.
Michael Mettee, COO
Yeah, absolutely. We’ve got a lot of optionality in our balance sheet portfolio. So I’d say absolutely, Chris.
Chris Holmes, President and Chief Executive Officer
Yeah, absolutely. And we did add a slide on capital flexibility in our deck, which, when you look at our AOCI plus our HTM securities marks, you’ll see that’s actually very low relative to a typical bank our size. Very low.
Christopher Marinak, Analyst
Nope.
And thanks for adding that this quarter.
Okay, great.
OPERATOR
Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Our next question comes from David Rochester from Cantor. Please go ahead with your question.
David Rochester, Analyst at Cantor
Hey, good morning, guys. Wanted to ask about your recent banker hiring and the talent pipeline, how that looks today, how that opportunity set looks coming into next year. You have at least one big integration coming up in-market, which seems like that could be a good opportunity for you guys. Just hoping maybe you could talk about that as well.
Michael Mettee, COO
Yeah, Dave, it’s Michael. Good morning. We had around 10 or so this quarter — generally the pace we’ve been going at. It’s been across the footprint, so both in our community and our metro markets, including Nashville. I’d say the pipeline is just as full as it’s ever been. I know I say this a lot and you’ve heard me say it: we’re more focused on hiring the right people than hiring people, and so that makes a big difference for us. And so I don’t give our groups targets to go out and hire, but we’re definitely focused on getting the right people culturally that are focused on relationships and deposit generation, full banking activity.
And so that’s really good. In fact, we were working on one this morning that’s pretty early, and we have one that’s about to come across the finish line. Super excited about that. And we continue to recruit. You mentioned the conversion. I think we keep doing what we’re doing, right? Kind of like dating — you just have conversations and it’s ongoing. If they want to marry you on the first date, it’s probably not the right person. And so this stuff can take years.
And we’re actively cultivating relationships and it’ll play out over time. And at the same time, we’re hiring young people and we need to develop them too to create our own organic pipeline of talent. And so we’re trying to hit it from both ends.
Chris Holmes, President and Chief Executive Officer
And David, I’d just add to that last piece, reiterating one of the things Michael said. It is a long-term — we view that as a long-term proposition for us in two ways. One is, just like Michael said, generally when the folks that we’re interested in make a move, it’s going to be somebody that we’ve known for a long time. We’ve had conversations and they’ve watched our company, and then they just decide to make a move is generally how that goes. And then the other thing I think that Michael squeezed in there that’s really important is — and I think this has been a change for us over the last three or four years — and that’s developing folks. A lot of the folks that we’re the most excited about are folks that have been with our company now for maybe five years or less, and they started right out of college or very young and have really matured and actually been making contacts around town.
They’ve blossomed into really important folks to manage relationships for us, and they’re doing a fantastic job. And so that’s an important part of our plan as well. And so we’re actually leaning into that with more development and training for early career stages. I think banks have generally gotten away from that, and I know of another bank or two around the country from talking to peers that are doing the same thing because they think that’s going to be the best route going forward.
And so we’re really focusing on two different angles. One is we continue to recruit, but two is we are really developing our development, if you will, to be able to bring people along.
Michael Mettee, COO
And the good news is we can do both. I mean it’s not one or the other. You can do both.
Chris Holmes, President and Chief Executive Officer
Yeah, yeah, we can.
David Rochester, Analyst at Cantor
Yeah. Sounds like a good strategy. Maybe just one last one. You talked about loan growth next year potentially slowing a little bit with higher rates. Was just curious what you’re seeing or what you would expect in higher rates for paydown activity. You’d think you get a little bit of a breather there, but that’s something that could help support you. Just, you know, what’s your line of sight into that kind of activity next year?
Chris Holmes, President and Chief Executive Officer
Yeah. And David, just one thing that we may not have been totally clear on: in response to a question about could it slow in higher rates, we said, well, yeah, it could. That’s not actually what we’re thinking. That’s not actually what we’re forecasting. We continue to see activity to be quite robust in ’27. Michael?
Michael Mettee, COO
Yeah, I think it’s important that our people have to go — we have to go grow the company. And if loan growth slows for the industry, that means we gotta take it from other people and we gotta build market share, whether that’s loan or deposits, and continue to expand our presence in any rate environment. I think there’s been some really fair questions on, you know, at what point from a margin perspective do you kind of pull back. And I think we can have a nice balance in growth and profitability, but the goal is increase market share across our footprints and expand in some new ones.
And that’s what we expect in ’27.
David Rochester, Analyst at Cantor
Sounds good. Thanks, guys.
Chris Holmes, President and Chief Executive Officer
Thank you.
OPERATOR
And with that, we’ll be ending today’s question and answer session. I’d like to turn the floor back over to Chris Holmes for closing comments.
Chris Holmes, President and Chief Executive Officer
All right. Thank you very much, everybody, for joining us.
We always appreciate your interest in FB Financial and hope everybody has a great day and great rest of the earnings season.
OPERATOR
And with that, we’ll conclude today’s conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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