Operator: Good morning, and welcome to the FB Financial Corporation Q3 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 Deresky, Financial Management Associate for FB Financial. Please go ahead.
Rachel Deresky: Thank you, and good morning, everyone. We appreciate you joining us today for FB Financial Corporation's Q3 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.
Rachel Deresky: 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 Q3 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: 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 adjusted EPS of $1.21 and a growth in 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 15.7% 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 broker deposits.
Chris Holmes: We actually grew our customer deposits at an annualized rate of 11.2%, and the broker 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, the growth levels are notable and represent continued meaningful expansion of our business. As I reflect on the Q3, 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.
Chris Holmes: 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 JD 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.
Chris Holmes: 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 non-accrual in the quarter. We will let Michael touch on the specifics of both mortgage and the non-accrual 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 are 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.
Chris Holmes: 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 am going to turn the call over to our Chief Financial and Operating Officer, Michael Mettee, for some additional color on the quarter. Michael?
Michael Mettee: Thank you, Chris, and good morning, everyone. I will 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 a meaningful growth and position us to perform across a range of operating environments.
Michael Mettee: As we balance growth and profitability, contractual loan yields remain 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 strengthen 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 into the quarter at approximately 3%.
Michael Mettee: 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 positions 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 Q4 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 in 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%.
Michael Mettee: Core net interest margin compressed, consistent with our prior expectations as funding costs continued to rise. Margin reflected the reversal of approximately $1 million of accrued interest income on a credit move to non-accrual 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 Q2 to 3.83% in Q3. Two items accounted for five basis points of this decline. A two basis point reduction in purchase accounting accretion and a three basis point impact from the accrued interest reversal noted earlier. Excluding those items, core margin declined approximately seven basis points from 3.95% to 3.88%, primarily reflecting continued industry-wide deposit pricing pressure.
Michael Mettee: 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 Q4, we expect core margin to remain near Q3 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 non-interest 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.
Michael Mettee: 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 FirstBank, 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.
Michael Mettee: 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 Q4 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 sub-servicing 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 non-reoccurring expense, the segment remained profitable during the quarter.
Michael Mettee: Turning to non-interest 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's long-term growth. We did not generate positive operating leverage this quarter as mortgage revenue pressure and the non-accrual 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.
Michael Mettee: Looking ahead, we expect disciplined expense management through the 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 were 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.
Michael Mettee: Our allowance coverage ratio ended the quarter at 1.47%, reflecting strong loan growth and stable underlying credit performance. Net charge-offs and the non-performing asset ratios also remained stable, supporting our view that the broader portfolio credit trends remain sound. The increase in non-accrual loans during the quarter were 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.
Michael Mettee: 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 asset ratio declined 17 basis points during the quarter, primarily due to continued share repurchases reflecting discipline 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.
Michael Mettee: Approximately 61% of the investment portfolio is floating rate, with relatively limited embedded and 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.
Michael Mettee: With that, I'll turn the call back over to Chris.
Chris Holmes: All right. Thanks for the call, Michael. Operator, at this time, I'd like to open the line for questions.
Operator: At this time, we'll begin that 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 questions, you may press star and two. 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 Gunther from Stephens. Please go ahead with your question.
Russell Gunther: Hey, great. Good morning, guys.
Chris Holmes: Good morning, Russell.
Russell Gunther: Starting on. Morning, Chris. On the loan growth side of things, high single digits, high end of your guide, it was broad-based. It would be helpful to get some comments on how utilization rates trended in the quarter, where pipelines stand post another strong print. I think you mentioned a little bit of seasonality in Q4, 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: Yeah. We'll tag team this one. Yeah, you're right. We've been, I'd say practically double digits at least in 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 Q4, seasonally, is usually just a little behind the first couple of 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 2027. So as we're projecting through Q4, a little bit of elevated payoff activity, but that happens and we don't consider that to be really abnormal. And we see us ending the year still in the mid, I'd say high single digits is where we'll be for the year on the loan side.
Chris Holmes: 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. 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: Yeah. Good morning, Russell. So actually, I would say activity in the quarter was actually, if you look at extended credit versus utilization, back to your utilization credits, 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 of percent below that. Our clients just didn't tap into their new lines yet. So some upside there. The pipeline, actually quite robust. We felt good about it all year, and that momentum continues. Chris touched on the deposit piece as well. The deposit pipeline is actually quite robust as well, so that's encouraging to be able to fund loan growth organically.
Michael Mettee: 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 in broker and wholesale. So we're excited about that and the loan opportunities in front of us. As Chris mentioned, Q4 can get a little bit heavy on payoffs and normal year-end activity, but we feel pretty well-positioned.
Russell Gunther: I appreciate both your thoughts there, guys. Thank you very much. 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, it'd be helpful to get a sense for kind of how the margin trended throughout the quarter, perhaps touch upon where deposit costs ended Q3.
Michael Mettee: Yeah. The rate increase, right, was I think 13 days before quarter end. Your deposits reprice kind of immediately, is what I would say, Russell, on our index deposits. Loan growth resets over 90 days. 50% of our portfolio is floating, 61% of the investment portfolio. That generally happens kind of the first day of the quarter. You have not seen some of the asset sensitivity help margin. That is why we are a little bit kind of bullish on being able to maintain our margin guide. Deposit costs, new deposits on a blended basis came in around 3% for the quarter. If you think about our total portfolio in that kind of 240 range, obviously it is coming in higher, and I think that continues given where brokered is. Brokered is in that 4.5% plus range. New deposits are pretty competitive.
Russell Gunther: Understood. Okay, great. Thank you guys for taking my question.
Michael Mettee: All right. Thanks, Russell.
Operator: Our next question comes from Stephen Scouten from Piper Sandler. Please go ahead with your question.
Stephen Scouten: 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, it was around 2.7% last quarter. 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 just in the last couple of weeks maybe to give some color into where deposit costs could continue to trend?
Michael Mettee: Yeah, 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 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 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.
Stephen Scouten: Makes sense. Are you guys thinking about the deposit and loan betas any differently in this potential, hopefully small uprate cycle that we're seeing, I guess, if we see, like you said, we've seen the one, maybe we see one in December. Who the heck knows what happens after that? But you just mentioned 40% to 50% deposit beta. How do you think about loan betas in this kind of minimal upcycle here?
Michael Mettee: Yeah, it's roughly the same. I'd say 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. I've mentioned we were at around 644 on new production. I think if you look back last quarter, it was 630-ish. So you saw that same kind of what I'll call 45%, 50% beta. But I would expect, we'd want to expect to see that move higher as rates move higher.
Stephen Scouten: Okay. 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 attractive yields that was worth holding on balance sheet this time around? How can we think about what the composition of new loan growth might continue to look like from here?
Michael Mettee: Yeah, I think we try to maintain a balanced approach, Stephen. So one quarter may be one to four family, one quarter may be C&I, one may be owner-occupied. The composition, 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. A portion of that is also branch originated, more community-based lending type of activity. So I think higher mortgage rates would kind of dictate that would slow down. I think that is expected. But what I really like about our mortgage division is that optionality, as you mentioned.
Michael Mettee: It is 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 five to seven years if you think rates are going down. It is a pretty good lever to have.
Chris Holmes: That is an originate to sell channel for us. But it is nice that if we are thinking about where rates are and what it is nice to have that optionality that we could keep some of that on the balance sheet if we opted to do that, so.
Michael Mettee: Yeah.
Chris Holmes: If rates go down.
Michael Mettee: That makes sense.
Chris Holmes: If rates do go down, that generally leads to a later gain on sale.
Stephen Scouten: Yeah, absolutely. Great. Thanks for all the color. I will go ahead and step back. Appreciate it.
Michael Mettee: All right. Appreciate it, Stephen.
Operator: Our next question comes from Will Jones from KBW. Please go ahead with your question.
Will Jones: Hey, great. Thanks. Good morning, guys.
Michael Mettee: Morning, Will, and welcome. Nice to have you as the primary.
Will Jones: 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 will be able to see more of a stabilized margin, and then kind of offset some of the funding pressure that is oncoming. To the extent, 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: Yeah. Will, welcome. I am glad to have you. So roughly for every 25 basis point increase in Fed funds, you should see, I am going to say, around a 3 basis point increase in our margin. I think the reason we have stuck with our guide and that range is the behavior you mentioned on competition. I think some market sanity probably comes in at some point. A lot of it depends on where people can fund in that broker and wholesale market. Right now, getting customer deposits at even at Fed funds target rate or slightly above 4% is just a better funding mechanism than wholesale or brokered. As long as that is the case and the back end of the curve is steeper, I think you see what you said, fierce deposit competition.
Will Jones: Yeah.
Michael Mettee: We have kind of muted our margin asset sensitivity based off expected competition, and I would like to think there is some upside there, but time will tell.
Chris Holmes: Yeah. I would also say when we are thinking of our margin, we think of it net of accretion. When you look at, we have said 370 to 380 range net of accretion. We did have an unusual item where we had the non-accrual interest reversal this quarter, which cost us 3 basis points in the quarter. If you look at our core margin, we are 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 are really right at that sort of 375 range.
Michael Mettee: Yeah. I think one other thing I'd add, Will, it's really important to us that we're growing customer relationships. Balance sheet growth, 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. That's where we have our team focused. We want to be disciplined in pricing. But 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: Exactly. As long as it's not the end of the world, we'll take it. 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 defense on those depositors? Or just give us a flavor of what client reaction, client behavior was to the September hike.
Michael Mettee: Yeah, I think there's general excitement, right? 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. We are very fair to our clients when it comes to deposit pricing. We're not interested in trying to get everybody to zero deposit cost so that when the Fed hikes rates, I got to call us 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. Then you mentioned index deposits, right?
Michael Mettee: We did that in 2022, I believe it was, 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, Will. Now, when two-year Treasury is at 480 or whatever, you start to get some people call and say, “Hey, what are we thinking here?” So those calls do happen with people with a lot of money, which makes sense.
Chris Holmes: Yeah. I would add one point. The historical inefficiency in deposit pricing is being sucked out of the industry, I think. I think it's going to just be more that way with technology. Then you ask a good question. But with our clients, they've come to know that we're going to move them. We go ahead and move our relationship, good client relationships, we go ahead and move them, and they don't have to ask for them to be moved. We've added efficiency to the process with our clients. But we think, one, that's helping us retain them because it creates a really good client experience, and we think it's helping us get more.
Chris Holmes: 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. That creates a better client experience. Hey, and the other thing, shout out back to you guys. Good piece, good research piece from your group, Will, on the NIM versus NII. I think a lot of good stuff in there. Just as Michael put it earlier, hey, we'll give up 2 basis points of margin if we can get double-digit growth. We think we're using our capital really effectively in that, so.
Will Jones: Yeah, I appreciate that. We're trying to just be thoughtful around that debate there and kind of how the right way to view that dynamic is going forward. So I appreciate that shout-out. Last one from me, guys.
Will Jones: 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: Yeah. You saw our repurchase activity this quarter, and we do think at certain price levels, it's good use of capital. At other price levels, maybe it's too dilutive to capital. We will continue to be thoughtful and active around that, and at price levels that we think are appropriate.
Will Jones: Yeah. Okay. All right, that's fair. Well, thanks guys, and I'm glad to join you.
Chris Holmes: Great. Thanks, Will.
Michael Mettee: Great.
Operator: Our next question comes from Brett Rabatin from StoneX Group. Please go ahead with your question.
Brett Rabatin: Hey, guys. Good morning.
Chris Holmes: Good morning.
Brett Rabatin: Wanted to start on just the organic expansion plans here and talk about maybe the Asheville new facilities. You are 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 have been eyeing, possibly for M&A, but possibly for organic opportunities as well.
Chris Holmes: Yeah. Thanks, Brett. You are right, we did not actually mention that in our comments. But we have been in Asheville with a loan production office, and we converted that to a full-service location, so we are in North Carolina. We have said that that is a target market, target expansion for us. We think it is a fantastic place to live, work, and play, a lot like where we are in our headquarters market at Tennessee and the markets we are 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. We have a beachhead location, and I would assume that others would follow over time. So that is going to be a place where we continue to grow and build out our presence, build out our brand.
Brett Rabatin: Okay. Chris, any updated thoughts on M&A and just if you see that as more or less likely than maybe you have in the past and just what you are seeing or hearing from possible partners.
Chris Holmes: Sure. You have heard me say often, banks are sold, they are not bought. We are a willing and thoughtful participant. We stand at the ready, and if the right thing comes along, then we would act upon that. We have 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 is really our geography, and so we keep a close, we try to anyway, 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. We love banks that look like us.
Chris Holmes: We love community banks, we love strong deposit size of the balance sheet, and we love cultures that are, I would say straightforward, what you see is what you get. That is really what we really get excited if we get opportunities that are like that. Like I said,
Brett Rabatin: Okay
Chris Holmes: We stand.
Brett Rabatin: Okay. If I could ask one last one just around, you have 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 is 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 your guys' thoughts on that? Everyone is worried about AI changing the dynamic around deposit rates.
Chris Holmes: Well, I think that in 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 carrying out our business every day. We do think that I think a lot of your primary applications of AI are going to be in that area for banks. 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, Brad. 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 rates, I'm sure.
Chris Holmes: I don't know all your 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. You're better than an average, more knowledgeable than your average consumer. 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. I think it'll continue to get more and more efficient. I think as the technology in that space continues to become more adapted and easier to use and more prevalent, I think that it just becomes a very efficient deposit market, along with more efficient on the expense side of getting more out of every expense dollar we spend. We think of those kind of actually as almost separate. We work both sides.
Chris Holmes: 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 Rabatin: Okay. That's helpful. Thanks so much for the color.
Chris Holmes: All right. Thanks, Brad.
Operator: Our next question comes from David Bishop from Hovde Group. Please go ahead with your question.
David Bishop: 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, on a normalized basis, where you would expect those to be coming in on.
Michael Mettee: Well, in a perfect world, it would be 7%+ percent. I guess if you think about the spread over the 5-year, I think, yeah, we see a wide range of competition. There are some people here locally that are doing owner-occupied CRE in the fives.
Michael Mettee: Yeah.
Michael Mettee: Which is not something that we are willing to do. 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 a little bit of that is function on competition, right?
David Bishop: Absolutely. 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: Yeah. Metro, the Nashville market had a really strong deposit quarter, and that is kind of the driver there. There is more in the pipeline as well. I got to say, all of our markets are competitive. There is no free lunches anywhere, but I think the way that Chris just touched on the prior questions, look, we are not treating people in a metro market versus community market any differently. We are 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 are in to the largest market we are in, and we expect them to go get relationships, and grow them in the same way.
David Bishop: Got it. Thank you.
Operator: Our next question comes from Steve Moss from Raymond James. Please go ahead with your question.
Steve Moss: Good morning. Maybe just following up on loan growth and rates here. Just curious, given a little of moderation in Q4, wondering as you expect if rates or new origination rates go higher here, do you expect maybe loan growth could slow into 2027?
Chris Holmes: Yeah. Fair question. We haven't seen that indication yet. Yes, we do think it could. We haven't seen it yet. At some point, deals begin to fall out. They don't pencil out anymore on the loan side. 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: Okay. Appreciate that. Then just on the credit here, I know you guys highlighted two criticized classified assets last quarter, if I recall correctly. Curious with the non-performing here, how large is it? Just what type and maybe how long till it works out of the system, if you guys have any color.
Chris Holmes: Yeah. The one loan we referenced is about $13 million size. Again, adequately collateralized, liquid collateral for the most part. There is some other collateral also, but for the most part, it is liquid collateral that we could liquidate. But we are working with the borrower, and the borrower is working with us for a good outcome for everybody. It is obviously unplanned for the borrower, obviously also unplanned for us. But it is a strong collateralized situation.
Steve Moss: Well, appreciate that color and all the color on this call here. I will step back. Thank you very much, guys.
Chris Holmes: All right. Thanks, Steve.
Operator: Our next question comes from Christopher Marinac from Brean Capital. Please go ahead with your question.
Christopher Marinac: 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: Yeah. Good morning, Chris. It's Michael. It runs about 9% of total assets. I think we've been in a range of up to probably that 14%, 15% range. If we had a large deposit growth, we'd certainly deploy into 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 three times. 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: Hey, Christopher. I would also just say for our securities portfolio today, it's about 61% floating. Even when we're deploying it into the investment portfolio, we think of that as make sure we've got plenty of liquidity for anything that happens, including additional loan growth. That's strategically how we think about that.
Christopher Marinac: No, that's helpful. Chris, your point on liquidity, there's been just small drops in liquidity the last quarter or two, and those are not meaningful. 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: Yeah, absolutely. We have got a lot of optionality in our balance sheet portfolio. I would say absolutely, Chris.
Chris Holmes: Yeah, absolutely. We did add a slide on capital flexibility in our deck, which when you look at our AOCI plus our HTM securities marks, then you will see that is actually very low relative to a typical bank our size. Very low.
Christopher Marinac: Nope, absolutely. Thanks for adding that this quarter.
Chris Holmes: 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: Hey, good morning, guys.
Michael Mettee: Good morning, David.
David Rochester: 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. Was just hoping maybe you could talk about that as well.
Michael Mettee: Yeah. David, it's Michael. Good morning. We had around 10 or so this quarter. That's generally the pace we've been going at. It's been across the footprint, 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, is we're more focused on hiring the right people than hiring people. That makes a big difference for us. 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. That's really good. In fact, we were working on one this morning that it was pretty early, and we have one that's about to come across the finish line.
Michael Mettee: Super excited about that. We continue to recruit. You mentioned the conversion. I think we keep doing what we're doing, right? It's 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. This stuff can take years. We're actively cultivating relationships, and it'll play out over time. At the same time, we're hiring young people, and we need to develop them, too, to create our own organic pipeline of talent. We're trying to hit it from both ends.
Chris Holmes: Yeah.
Michael Mettee: Yeah.
Chris Holmes: David, I'd just add 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. 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.
Chris Holmes: The folks that we're the most excited about are folks that have been with our company now for maybe five years, and they started right out of college, or five years or less. They came in 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. That's an important part of our plan as well. 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. We're really focusing on two different angles.
Chris Holmes: 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: The good news is we can do both. It is not one or the other. You can do both.
Chris Holmes: Yeah.
Michael Mettee: We can.
David Rochester: 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 are seeing or what you would expect in higher rates for pay down activity. You would think you would get a little bit of a breather there, but that is something that could help support you. Just what is your line of sight into that kind of activity next year?
Chris Holmes: Yeah. 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 is not actually what we are thinking. That is not actually what we are forecasting.
David Rochester: Yeah.
Chris Holmes: We continue to see activity to be quite robust in 2027. Michael?
Michael Mettee: Yeah, I think it is important that our people have to go. We have to go grow the company. If loan growth slows for the industry, that means we got to take it from other people. We got to build market share, whether that is loan or deposits, and continue to expand our presence in any rate environment. I think there has been some really fair questions on 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 into some new ones, and that is what we expect in 2027.
David Rochester: Sounds good. Thanks, guys.
Michael Mettee: Thank you.
Chris Holmes: Thanks, David.
Operator: 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: All right. Thank you very much, everybody, for joining us. We always appreciate your interest in FBK, and hope everybody has a great day and great rest of the earnings season.
Operator: With that, we will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
