Yahoo Finance

Christopher Holmes

All right. Thank you, Wyatt. Good morning. Thanks for joining us this morning. We always appreciate your interest in FB Financial. For the quarter, we reported earnings of $0.22 per share and adjusted earnings of $0.86 per share.
We've grown our tangible book value per share excluding the impact of AOCI at a compound annual growth rate of 12.9% since our IPO. The past number of quarters, I've emphasized our operating foundation, our earnings momentum and the strength of our balance sheet and all of those trends continue.
We reported an adjusted return on average assets of 1.25% and adjusted earnings per share was up 2.4% from the prior quarter and up 21% year over year. While adjusted pre-tax pre-provision net revenue increased by 2.7% from the prior quarter and 20% year over year. Our adjusted efficiency ratio remained roughly flat with the prior quarter at 58.4%.
We have very strong capital ratios with tangible common equity to tangible assets of 10.4%. A CET1 ratio of 12.7% and a total risk based capital ratio of 15.1%. Following a further $120 million decline in construction loans outstanding in this quarter, our construction and development concentration ratio is now at 69% and our commercial real estate concentration ratio is 245%.
Our current focus is on deploying excess capital grow earnings per share and create long term shareholder value. Our first priority for developing capital will always be organic growth. This quarter, we saw 7.2% annualized loan growth and 5.4% annualized non-broker deposit growth.
We anticipate mid-single digit growth in the fourth quarter due to some seasonality. And we're aiming for low double digit loan and deposit growth in 2025. But the bigger challenge there being on the deposit side with custom deposit growth.
We're confident in the strength of our local economies, which continue to benefit from strong demographic trends, corporate investment and corporate relocations. And we're well positioned to capitalize on those economic trends.
This quarter, we added an additional six senior revenue producers bringing our total hires in 2024 to 20. We have also brought on 16 additional revenue producers in our wealth management and mortgage group so far this year.
As part of those hires, we expanded into Tuscaloosa, Alabama in the third quarter and we're excited at the way that new team has hit the ground running. As a conservatively run $13 billion asset bank with a younger management team, a local authority model and located in some of the south's most attractive markets. We have a compelling story to talent in both our existing and contiguous markets. And we'll continue to expand as we find the right cultural fits.
Our second priority for capital deployment is bank acquisitions. We remain interested in combination opportunities that align culturally geographically and financially. Our third priority for capital deployment is continued marginal improvement in earnings through balance sheet optimization.
Michael and his team continue to execute on additive transactions. We had a securities trade this quarter as we sold $319 million of securities at a pre-tax loss of $40 million and reinvested those proceeds at a 3% higher rate than their previous yield.
So to summarize, I'm proud of the team for delivering another strong quarter of profitability. We're well positioned to continue growing earnings per share and improving on that profitability.
Now, I'm going to let Michael go into our financial results in some more detail.

Michael Mettee

Thank you Chris and good morning everyone. I'll first take a minute to walk through this quarter's core earnings. We reported net interest income of $106 million reported non-interest income with a negative $16.5 million adjusting for the $40.1 million loss on our securities trade and a $289,000 loss on the sale of other real estate and other assets. Core non-interest income was $24 million of which $12.1 million came from the banking area.
We reported non-interest expense of $76.2 million, $63.3 million of which came from banking altogether adjusted pre-provision net revenue earnings were $53.8 million. Going into more detail on the margin, net interest margin was down a couple of basis points at 3.55% on a larger earning asset base which led to an increase in net interest income of $3.4 million from the prior quarter.
Yield on loans held for investment was flat at 6.7% while yield on average earning assets increased by 4 basis points from the prior quarter. Primarily as a result of our 39 basis points increase in yield on securities during the quarter.
We completed our securities trade in late August and so we had one month of impact baked into our results this quarter. On the liability side, cost of non-brokered interest bearing deposits increased by 4 basis points during the quarter from 3.49% to 3.53%. And cost of total interest bearing deposits increased from 3.52% to 3.58%.
We made some changes with our wholesale funding composition as we increased broker deposits by $369 million while paying off $179 million of borrowings including $130 million from the bank term funding program.
For the month of September, our contractual yield on loans held for investment was 6.68% versus 6.62% for the quarter and yield on new commitments in September, we're coming in around 7.8%. About half of our loan portfolio remains floating rate with $2 billion of those variable rate loans having repriced immediately with the recent move in rates and $2 billion of loans were repriced by the end of the fourth quarter.
Of our $4.8 billion in fixed rate loans, we have $150 million maturing over the remainder of 2024 with a yield of 6.69%. In 2025, we have $459 million maturing with a yield of 5.83%. For the month of September, cost of interest bearing deposits was 3.55% versus 3.58% for the quarter. And cost of non-brokered interest bearing deposits was 3.49% versus [3.53%] for the quarter.
As I've noted previously, we now have a significant amount of index deposits for reprice immediately with the change in the Fed funds target rate, those balances stood at $2.7 billion as of the end of the third quarter.
For the fourth quarter, we expect margin to be in the [3.50% to 3.60%] range following September's 50 basis points rate cut and expect to stay relatively flat around that range with future measured interest rate cuts. Moving to adjusted noninterest income at $12.1 million core banking, non-interest income was again stronger than expected driven by investment services income.
Our baseline expectation in a given quarter is moved to slightly higher now, $11 million to $12 million. Mortgage had another profitable quarter with a total pre-tax contribution of $575,000. We expect mortgage to continue to perform in this range for the balance of the year and are focused in on continuing improvement of our efficiency in this business in 2025.
We continue to focus on managing our expenses and core banking expense with $63.3 million for the quarter as compared to $61.3 million in the second quarter and $63.9 million in the third quarter of 2023. As we added relationship managers and increased our accrual for short term incentive compensation.
We expect banking expenses of $63 million to $65 million in the fourth quarter leading to total bank expenses for the year of $248 million to $250 million. For 2025, we would expect 4% to 5% expense growth for the company excluding any large team lift out opportunities.
On the allowance for credit loss and credit quality. Credit quality remains sound this quarter as we experienced 3 basis points of charge offs. Our non-performing loans to loans held for investment did tick up and is at 0.96%. The increase was driven by two commercial credits which we expect minimal if any lost content and some softness in our consumer loans, specifically mortgage and manufactured housing loans.
These consumers are generally more affected by upticks in unemployment and inflation and we've seen some impact of that in our portfolio as it appears to be returning to pre COVID levels. Speaking to the allowance, our allowance for credit loss to loans held for investment was at 1.65% at the end of the quarter as our outlook on the economy remained roughly the same as the prior period.
On capital and as Chris mentioned, we've developed very strong capital ratios with TCE to tangible assets of 10.4% and common equity Tier 1 ratio of 12.7%. We continue to focus on the best ways to deploy that capital to deliver consistent long term growth and earnings and tangible book value.
I'll now turn the call back over to Chris.

Christopher Holmes

All right. Thank you, Michael. And just a couple of things in conclusion here. First, I want to say we usually start this call at 8:00 in the morning when we release. We started at 10:00 this morning because we had two of members of our Board of Directors that were inducted into the Tennessee Health Care Hall of Fame this morning at a ceremony.
One of those, Dr. Wright Pinson, who's the Deputy CEO and the Chief Health System Officer at Vanderbilt University Medical Center. The other one of those, Milton Johnson, who is the former Chairman and CEO of HCA Healthcare.
So, congratulations to both of those guys, and that's the reason that we started a little later than normal. And I just want to say, I'm proud of our entire team including board for the results this quarter. And we look forward to building on that momentum. And we will open it up to Q&A

Question and Answer Session

Operator

(Operator Instructions)
Russell Gunther, Stephens.

Russell Gunther

Hey, good morning, guys.

Christopher Holmes

Good morning, Russell.

Michael Mettee

Good Morning, Russell.

Russell Gunther

Just a big picture question to start, just looking at the press release, you guys mentioned the optimism for '25 given the current momentum and also the expected future rate decreases. So just big picture to walk us through how lower rates are an earnings growth catalyst for FBK?

Christopher Holmes

Yeah. So a couple of things, we are relatively well matched between the asset side of our balance sheet and liability side of our balance sheet. And we have about half of our local portfolios fixed, the remainder variable and about $2.7 billion of our deposits are indexed.
So they move immediately and frankly, we only have 17% of our deposits that are in CDs or fixed term. And so we think we have a lot of variability there and we can execute as rates move. And as long as rates move gradually, then we think we're in actually good shape to maintain margin, perhaps and look for some areas to expand margin.
And so -- and then with our economies that have frankly never totally lost momentum, they have certainly the momentum is less than it would have been two or three years ago, but they continue to be quite good. And so we think there's a demand there.
We think with other -- just other activities that create disruption in the markets. And the fact that we've got a stable team that's been together for a long time, we think that not only '25 but we look out over the next two or three year time horizon and we're very optimistic for the bank. So that's kind of a macro pick.

Russell Gunther

I appreciate that. So I was looking for -- thank you. And then just perhaps a little more specific on the margin guidance. So the [3.50% to 3.60%] in 4Q and then kind of flat from there. Can you -- and it sounds like that's what sort of a measured pace of cuts.
Can you walk us through what you guys are thinking about for deposit data on the way down? You mentioned the amount of index which is a healthy amount. But what are you guys assuming from a deposit data perspective on the way down and sort of when you get there, can you retrace the up betas or it's a win?

Christopher Holmes

Yeah. I'll start out, I'm expecting 100%. Now, Michael and Travis, what do you think? I'm just kidding, Russell.

Michael Mettee

Yeah, I'll take that, Russell. Yeah. So, first, good morning. And really, really actually proud of the team and the work that was done on the first 50 basis points rate cut. Quite frankly, I was expecting [25 basis points and that was kind of what we set the team up for and when it was 50 basis points] they responded well.
The goal would be right, if it was 60% on the way up, it'd be 60%-ish on the way down and so that's what the goal is. Positive momentum after the first rate cut, as you know and everybody on the call knows, our markets tend to behave a little bit differently because of some of the growth characteristics that Chris mentioned.
So we may see a little bit less than that. But part of the reason we did some broker deposits in the third quarter was to be prepared for optionality in the balance sheet, right? So if we see higher cost deposits that can't move lower, we can manage some of those differently. If they have to leave, that gives us opportunities.
And so really a lot of that was about kind of prefunding any higher cost deposit runoff and creating optionality for the company. So we think we can execute on betas just like we did on the way up. And so far the teams responded really well.

Russell Gunther

Great. I appreciate it. Thank you both for taking my questions.

Christopher Holmes

Thanks, Russell.

Operator

Catherine Mealor, KBW.

Catherine Mealor

Thanks. Good morning.

Christopher Holmes

Good morning, Catherine.

Catherine Mealor

One follow up just within the margin. Just to end any question. As we think about bond yields in the fourth quarter just to fully reflect the restructuring you did, where do you end the quarter for the whole portfolio?

Michael Mettee

It's a little north of [4%], Catherine. So you're going to be right in that range at the end of the fourth quarter.

Catherine Mealor

Okay, perfect. And then on loan yields, you give us with the amount of fixed versus floating versus the fixed rate repricing. There's a lot of moving parts within that too and so just kind of curious your thoughts on loan yield, maybe just over the next couple of quarters, how much of the downside you see to that? And just any commentary on what has happened so far with new loan production just given the rate cut that, we've already seen.

Michael Mettee

Yeah, and I'll start and then I'll let Travis talk about kind of market conditions. So one of the things you see in our loan yields being relatively flat, right is we had $120 million in construction balances that moved to the permanent or left the bank in the quarter.
And so those tend to be higher yielding loans and we have some of those coming off in the fourth quarter, which is why you have such a higher yield on that book that's -- it's coming down. So new originations funding up type business was around 780 in the third quarter.
And quite frankly, I know we've talked about this before. Our customer base, the market has responded very well to higher rates. We've been north of 8 for the better part of 18 months and still hover right around that number in the third quarter. So Travis anything on market?

Travis Edmondson

No, I don't think the market has moved drastically on fixed rate pricing. I think that 7.5% to 8% depending on the credit quality is still much in line in the market.

Catherine Mealor

Okay, great. And then a follow up on credit, we saw one of your peers sold their manufactured housing book. Just any commentary from you on how your book looks, any kind of credit concerns you're seeing in manufactured housing?

Michael Mettee

Yeah, I'll start, it's Michael. So we did that, we knew that book well, the team well. We're -- so I guess we've been in the business since 2005 and the highest charge-offs we've ever seen in that business is about 91 basis points.
On the retail piece, the channel piece we're reserved at about 5%. And that's for kind of some of these unknown reasons coming out of COVID government stimulus inflation. And so pretty thoughtful in how we're approaching that.
And any concerns with that being said, we've seen an uptick in past dues, but we haven't seen a whole lot of losses materialize. It's probably running 30 basis points or so in charge-off. So pretty, pretty normalized to pre COVID for us. And we still like the business like a lot actually. And think we can do really good things there. So --

Christopher Holmes

Yeah, I would just add this, Catherine. Like Mike said, we're familiar with that team and that book and that's the old reliant team. And so if you look at our charge-off history, since 2019, we had one year where we had 53 basis points of charge-offs.
The rest of those would have been, but somewhere between 16 basis points and about 33 basis points. And so that's a five year history. And I think that's kind of different than what they had experienced. So there's some differences, I think in the methodology in the book there.
I would say this, we're watching past dues in that portfolio carefully. Because we expected if you go back to '20, '21, '22 you had so much stimulus money that it is the past dues were really abnormally low and the charge-off were abnormally low if you compare it to our previous history.
And so we've seen the past dues return to the level that we saw in 2018, 2019. And so, we -- I would say this thing that we watch going forward is that it should level off here if it continued to go up from here, then we may readjust but it should level off here. But at this point, it's just returned to what we consider to be normal.

Catherine Mealor

Okay, great. Very helpful. Thank you

Operator

(Operator Instructions)
Steve Moss, Raymond James.

Steve Moss

Hi, good morning.

Christopher Holmes

Morning, Steve.

Steve Moss

Maybe just starting off on the -- Morning, Chris. Maybe just starting off on the loan growth here. Just a little more color on what were the drivers of C&I loan growth this quarter. And maybe take that a step further just how as you think about definitely more constructive on the low growth outlook going forward. Where do you see those drivers in the upcoming year?

Christopher Holmes

Yeah. Travis, I'll let you comment, but I will make this kind of riding comment is the good news from my perspective is we don't see single drivers that are major. We see it broad based as opposed to being, a single or double large credits.
We did have a couple of nice ones in there. One of which, we won from, I'll call it a very, very large, regional. Actually both of them, the ones that I'm thinking of, that were -- the two that were actually noteworthy, but still again, not oversized would have been a business that moved over from two different large regionals. And then the rest of it, I'd say is very much, I'll call it community bank type C&I and Travis, would you add anything to that?

Travis Edmondson

Yeah, I would agree. I mean, I think some of the new revenue producers we hired in late '23 and early '24 starting to hit the ground and bringing over some of their more established clients. And there's not one particular industry or area, it's really broad based both geographically and industry. And we're seeing a lot to Chris' point, we're seeing a lot of just core smaller top C&I growth that brings over the full relationship.

Steve Moss

Okay, great. And just in terms of your commercial estate and construction concentrations are way down from where they were 12 or 18 months ago. Curious here, kind of is this, do you think this is the bottom for the decline in those ratios? And just how do we think about those portfolios?

Christopher Holmes

Yeah, we're, I don't characterize it as comfortable. It's very comfortable where they are. And when we evaluate our entire risk profile, and I'm going back up from a macro standpoint for a minute and say when we just evaluate the risk profile of the company and look at the risk that we take on in our balance sheet, we're actually feel pretty good with if you look at capital level, if you look at overall all credit and then you look at various concentrations, not just those two, we publicize those two, but we have others.
We actually are very confident in our risk profile at the current time, add liquidity to that. And so we think we got room to within our policy, we have room to even grow those a little bit, not a lot from there, but we would have room to even grow those a little bit. That's not saying that's really in the cards for us. We like them frankly about where they are.
Again, we run close to 250 on CRE and we're in really good geographies. And so that's a factor and once we're under 70% on a construction concentration, given our geography and our credit history, we feel pretty good about those. And so I'd say you'll see them keeping that same relative range. I wouldn't exactly call it a bottom, but you'll see it in that relative range. See both of those,

Steve Moss

Okay. Appreciate that. And then just in terms of capital deployment, obviously, organic growth is first. I hear you on M&A being second, just kind of curious, Chris discussions have picked up here in the last couple of months or has there been any change in your opinion with activity there?

Christopher Holmes

Well, I never know Steve exactly how to answer this question because those conversations are just kind of a part of what you do in when you're in a consolidating industry, we're in a consolidating industry. And so I guess I would say maybe the intensity of some of those conversations or the direct sort of nature of some of those conversations maybe has picked up a little bit, that would indicate that there are entities out there that probably have a little more intent than they had a year or two ago.
And so I would say that but in terms of the volume or the ones that we speak with, maybe a little bit of increase there. And part of that's on our part because our geography continues to grow. We mentioned one of the Tuscaloosa sits our geography continues to grow. And so we perhaps are a little more intentional in reaching out further geographically than we have been previously.

Michael Mettee

Awesome. I appreciate all the color there. Thank you.

Christopher Holmes

Sure.

Operator

Russell Gunther, Stephens.

Russell Gunther

Hey, thanks for the follow up guys. On the asset quality commentary. Appreciate the color that you guys gave. Last quarter you mentioned you were seeing more inflows than outflows into the adversely classified loan buckets. So one, wondering if that was still the case again in 3Q and 2, as you guys contemplate further rate cuts, how do you anticipate the inflow outflow of puts int take?

Travis Edmondson

Yeah. Hey, this is Travis. We still see a constant flow both in and out. It's still business as usual, it takes time to work these things through the process of getting them either upgraded or back on track or even out of the bank, but we're still seeing a lot of activities on the outflows, just it was not as robust in the third quarter.
We still have several that we're working through and they were really close of getting them either upgraded or out of the bank. We obviously Michael referenced two big inflows on the commercial side, we did have two loans, they total combined, they total around [$10 million] that was a big influx.
We feel good about them, even though they're adversely classified and we have to keep a close eye on them, but from a collateral standpoint and the guarantor support standpoint, we feel pretty confident that we'll have very little if any losses on those so.

Christopher Holmes

Yeah, and I would add one thing from really reviewing those -- this a lot over the last month. And that is -- it seems to be something that's a little different unfortunately I'm still scarred from 2008, 2009. And I remember some of that but and maybe this is a change in the underwriting.
Of course, I was at a different institution at that time but the -- you do encounter some issues and you have to work through those issues, but it just doesn't seem like the losses are there. And so it takes a little bit of time to work through some of these. But the lost content doesn't seem to be even when there is lost content, it doesn't seem to be the same magnitude. So it's just one bit of commentary.

Travis Edmondson

Yeah. And then I guess your second question on the rate change impact. I don't think it's going to have a material impact but the issues we're seeing are the one off issues that have nothing to do with the elevated rates.
Just it's a partner dispute or something like that is what we're experiencing. So within our portfolio, I guess it's going to ultimately help our borrowers, but I don't think it's a meaningful either way on our asset quality.

Russell Gunther

I appreciate all the color, guys. Really helpful. Thanks for the follow up.

Christopher Holmes

Sure. Thanks, Russell.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Chris Holmes for any closing remarks.

Christopher Holmes

Okay. Well, thank you all very much for joining. We always appreciate your support, and we look forward to moving into the final quarter of the year and making that a good one. All right, everybody have a great day. Thank you.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.