FB Financial Corporation (FBK) 2026 Q3 法說會逐字稿

Good morning, and welcome to the FB Financial Corporation third-quarter 2026 earnings conference call. (Operator Instructions) 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.

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.

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 grown 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 remain 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 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 Consumer & Commercial 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, which stands out -- 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 First Bank and creating opportunities for them to grow and lead. What differentiates First Bank from its -- what differentiates First Bank 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. 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.

I'm going to 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?

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 a 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 we'll 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 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 remained 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 pressures 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 First Bank 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 stand-alone 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 and 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 onetime 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 onetime 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 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 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 with 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.

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 asset 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 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.

With that, I'll turn the call back over to Chris.

All right. Thanks for the color, Michael. And operator, at this time, I'd like to open the line for questions.

(Operator Instructions) Russell Gunther, Stephens.

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. 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?

Yes. We'll tag team this one. Yes, you're right. We've been, I'd say, practically double digits at least in most of the year, start 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 of quarters -- 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're projecting through Q4, a little bit of elevated payoff activity, but 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'd 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 in the quarter, and that continues to be strong as well.

Michael?

Yes. 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 question, 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. It just -- our clients just didn't tap into their new lines yet. So some upside there. The pipeline is actually quite robust. 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. 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 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, but we feel pretty well positioned.

I appreciate both your thoughts there, guys. 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, it would be helpful to get a sense for kind of how the margin trended throughout the quarter, perhaps touch upon where deposit costs ended 3Q.

Yes. 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, 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, 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 competitive.

Stephen Scouten, Piper Sandler.

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's 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, just in the last couple of weeks, maybe to give some color into where deposit costs could continue to trend?

Yes. And I think I probably didn't answer that part of Russell's question actually. Yes, deposit costs in September were higher than July and August. But I do think that's reflective of the rate increase. And 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 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 would be late quarter. But if you saw one in October, I think you'd see deposit costs move higher.

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, 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 up cycle here?

Yes. I mean 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 three, five portion of term loans move higher. We did see that at the end of the quarter. 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 -- we want to expect to see that move higher as rates move higher.

Okay. And then just in terms of composition of loan growth, it looked like maybe there's 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 you -- how can we think about what the composition of new loan growth might continue to look like from here?

Yes. I think we try to maintain a balanced approach, Stephen. So one quarter, it may be one to four family, one quarter maybe C&I, 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 is 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, 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 if we're thinking about where rates are and what -- it's nice to have that optionality that we could keep some of that on the balance sheet if we opted to do that.

Yes. Rates do go down (technical difficulty)

And then if rates do go down, that generally leads to a later gain on sale.

Will Jones, KBW.

Good morning and welcome. Nice to have you as the primary.

Yes, absolutely. Great to be here. I wanted to circle back on the discussion on asset sensitivity. Michael, it 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 then kind of offset some of the funding pressure that is ongoing. 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 a 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 might may start overcoming some of that general asset sensitivity?

Yes. 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 3 basis point increase in our margin. I think the reason we kind of stuck with our guide in that range is the behavior you mentioned on competition. 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 even at Fed funds target rate or slightly above, kind of, 4%, just a better funding mechanism than wholesaler 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.

Yes. I would also say when we're thinking of our margin, we think of it net of accretion. And we also -- and so when you look at -- we've said 3.70% to 3.80% range net of accretion. And if you -- we did have an unusual item where we had the nonaccrual interest reversal this time -- this quarter, which cost us at 3 basis points in the quarter.

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 things, those two net of accretion and the one unusual item this quarter, we're really right at that sort of 3.75% range.

Yes. 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, 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 a couple of 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.

Exactly. I know nothing in the world will take --

Yes. 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 kind of what client reaction, client behavior was to the September hike.

Yes. I think there's general excitement, right, from anybody when the Fed increases rates. I think they initially say, 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 generally are very -- not generally, we are very fair to our clients when it comes to deposit pricing.

We're not interested in trying to get everybody to 0 deposit cost so that when the Fed hikes rates, they get to call and say, hey, man, why Fed funds at 380 and you've been paying me 2 basis points. So 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 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 is 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? And so those calls do happen with people with a lot of money, which makes sense.

Yes. 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 -- and you asked 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 relationship, 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 taken more -- we've 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 don't -- and they know that it's going to be adjusted whenever rates adjust and that creates a better client experience.

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. And just as Michael put it earlier, hey, we'll give up 2 basis points of margin if we can get double-digit growth, and that's we think we're using our capital really effectively in that.

Yes, I appreciate that. We're trying to just be thoughtful around that debate there and what the -- kind of how the right way to view that dynamic is going forward. So I appreciate that. 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?

Yes. Up on the -- 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 and at price levels that we think are appropriate.

Brett Rabatin, StoneX Group.

I 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 eye in possibly for M&A, but possibly for organic opportunities as well.

Yes. 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've 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 of Tennessee 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 out our presence, build out our brand.

Okay. And 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're seeing or hearing from possible partners?

Sure. 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 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 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. And we love banks that look like us. We love community banks. We love deposit -- strong deposit size 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 really get excited if we get opportunities that are like that. And, I would say, we stand.

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.

And 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 everyone is worried about AI changing the dynamic around deposit rates.

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 -- how efficient are we carrying out our business every day. And so we do think that -- I think most of -- 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 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. The average -- but you're better than an average -- more knowledgeable than your average consumer. So I don't -- 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 will continue to get more and more efficient. I think as technology continues to become 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 what -- of every expense dollar we spend.

So I think those are -- we think of those, kind of, actually 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 by 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.

David Bishop, Hovde Group.

A 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'd expect those to be coming in on?

Well, in a perfect world, it'd be 7-plus percent. I guess if you think about the spread over the five-year, I think we see a wide range of competition. I mean there's some people here locally that are doing owner-occupied CRE in the 5s, which is not something that that we're willing to do. And so that keeps pressure on loan yield. I think they should be those upper 6s, low 7s as you see kind of the belly of the curve steepen. But a little bit of that's a function on competition, right?

Absolutely. 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.

Yes. 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 mean, I got to 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 question, 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.

Steve Moss, Raymond James.

Maybe just following up on loan growth and rates here. Just kind of curious, given a little bit of moderation in fourth-quarter, wondering as you expect if rates -- or new origination rates go higher here. Do you expect maybe loan growth could slow into 2027?

Yes. 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.

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. Just kind of curious with the nonperforming, how large is it? And just kind of what type and maybe how long until it works out of the system, if you guys have any color?

Yes. That the one loan we referenced is about $13 million 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 where we are working with the borrower and the borrowers 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.

Christopher Marinac, Brean Capital.

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?

Chris. This is Michael. The rate 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 deposits, excess deposits, then yes, 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.

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 for anything that happens, including additional loan growth. And so that's strategically how we think about that.

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.

Yes, absolutely. We've got a lot of optionality in our balance sheet portfolio. So that's absolutely correct.

Yes, 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, then you'll see that's actually very low relative to a typical bank our size, very low.

(Operator Instructions) David Rochester, Cantor.

I 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. I was just hoping maybe you could talk about that as well.

Yes. David, it's Michael. We had around 10 or so this quarter. That's 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 this, we are 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 it was 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? And so it's kind of like dating, you just have conversations and it's ongoing. If they want to marry you on the first day, it's probably not the right person. And so the stuff can take years. And we're actively cultivating relationships and that will 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.

Yes. 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 folks make a -- 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 talked -- 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 our -- 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 they started or five years or less, and they came in very young and have really matured and actually been going to -- been making contacts around town, and they 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. And so I think banks have generally gotten away from that. And I know 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're really developing our development, if you will, to be able to bring people along.

And the good news is we can do both. I mean it's not one or the other. And so you can do both.

Yes. We can. 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. I was just curious what you're seeing or what you would expect in higher rates for paydown activity. You think you get a little bit of a breather there, but that's something that could help support you. Just what's your line of sight into that kind of activity next year?

Yes. And David, just one thing that we may not have been totally clear on. We -- in response to a question about could it slow in higher rates, we said, well, yes, it could. That's not actually what we're thinking. That's not actually what we're forecasting. We are -- we continue to see activity to be quite robust in '27. Michael?

Yes. 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 got to take it from other people. And we've got to 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 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 to increase market share across our footprints and expand in some new ones, and that's what we expect in '27.

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.

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.

And with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.