FB Financial Corporation Q2 FY2026 earnings call

- Overall Financial & Balance Sheet Performance - Reported EPS of $1.13 and adjusted EPS of $1.14; tangible book value per share (excluding AOCI impact) has grown at an 11.3% CAGR since the 2016 IPO - Annualized loan growth reached 11.6% and annualized deposit growth hit 7.7%, with broad-based growth across both metro and community markets throughout the Southeast footprint - The firm achieved positive operating leverage in the quarter as revenue expanded and expenses declined, highlighting the franchise's underlying earnings power - Capital and liquidity positions remain very strong: common equity tier 1 ratio is 11%, tier 1 leverage ratio is 10.1%, and total risk-based capital is 12.9%, all well above regulatory requirements

- Capital Deployment & Share Repurchase - FB Financial repurchased approximately 3% of outstanding common shares during the quarter; roughly two-thirds of the repurchase volume was completed via a single bulk transaction with a charity administering the estate of former owner Jim Ayers - The firm maintains a disciplined capital allocation strategy focused on supporting organic growth, with flexibility to pursue additional shareholder return opportunities such as open market or bulk repurchases when economically attractive

- Operational Strategy - The firm's competitive advantage is built on a combination of strong customer service, attractive growing Southeast markets, disciplined execution, talented personnel, and a conservative risk profile - Mortgage banking strategy shifted slightly in the quarter: a higher share of new mortgage originations were retained in the loan portfolio rather than sold in the secondary market. This reduces near-term gain-on-sale revenue but drives balance sheet growth, improves loan yields, and deepens customer relationships to support additional deposit and cross-sell opportunities - The deposit funding strategy continues to prioritize organic core deposit growth over more expensive brokered deposits, with brokered deposits only used opportunistically when they are cost-effective

FB Financial operates a single core banking segment (First Bank). For Q2 2026: Net income totaled $58.6 million ($58.9 million adjusted), pre-tax pre-provision net revenue (PPNR) was $83.3 million, an 8% increase quarter-over-quarter. Net interest margin was 3.95%, with an all-in loan yield of 6.48% and average deposit cost of 2.26%. Non-interest income was $25.8 million ($26.2 million adjusted), down modestly from the prior quarter. Non-interest expense totaled $91.5 million, a 4% decrease from Q1 2026 (2% decrease adjusted). The consolidated efficiency ratio improved to 52.3%, and the banking segment posted a 49.5% sub-50 efficiency ratio. Return on average adjusted tangible common equity was 15%, and PPNR return on average assets exceeded 2%, hitting the firm's benchmark return target. Provision expense for credit losses was $10.1 million, an increase of approximately $7 million from Q1, and the allowance coverage ratio ended the quarter at 1.51%. Net charge-offs were 6 basis points annualized, consistent with long-term performance.

- Full-year 2026 loan growth is expected to land in the mid to high single-digit range, with management maintaining this prior outlook and noting healthy pipeline momentum that could lead to upside to the forecast - Full-year 2026 deposit growth is expected to hit the mid to high single-digit range, but management now expects results to trend toward the lower end of this range due to intensifying competition for core deposits - Full-year net interest margin (excluding loan accretion) is forecast to come in between 3.70% and 3.80%, with management expecting modest basis point compression per quarter through year-end due to competitive pricing pressures - Banking segment non-interest expense is guided to a range of $325 million to $335 million, with full-year consolidated efficiency ratio expected to finish at or around 50% as revenue growth is projected to outpace expense growth, delivering ongoing positive operating leverage - The effective tax rate for the full year is projected to be in the low 20% range, around 20% - Management's baseline interest rate outlook assumes one Federal Reserve rate hike in Q3 2026 - The firm maintains internal capital targets of ~9% for tangible common equity (TCE) and 10%+ for common equity tier 1 (CET1), and remains comfortably above both targets after Q2 2026 repurchases

- Intensifying industry competition for loans, deposits, and talent across the Southeast is putting upward pressure on customer acquisition costs, and could compress net interest margins over time - Macroeconomic risks outside of the firm's control include geopolitical developments, monetary policy changes, and housing market volatility, which can impact customer financial health and borrowing/deposit behavior - Non-performing loans and non-performing assets increased modestly in Q2 2026, driven by three isolated borrower-specific credit relationships, two of which required specific reserve additions. Management emphasizes these are idiosyncratic cases and do not reflect broad-based weakness in the overall loan portfolio - High single-digit inflation for front-line employee compensation creates upward pressure on operating expenses, requiring ongoing expense discipline to maintain operating leverage - Structural changes in how consumers and businesses hold and move money creates long-term headwinds for deposit growth and retention

Q: What is the trajectory of deposit costs for the remainder of 2026, and how competitive is the current lending environment, with enough back-book repricing to offset higher deposit costs? A: Deposit costs are expected to continue a modest upward trend, as new deposits are acquired at higher rates than existing book costs. The firm offsets this pressure by prioritizing deep customer relationships with operating accounts to grow core low-cost deposits organically. Lending is just as competitive as deposits, with around $1 billion of 2021-vintage back-book loans left to reprice higher in H2 2026. While 52% of the loan book is floating rate, new loan yields are tighter than previously expected, leading to projected modest quarterly margin compression through year-end.

Q: Is retaining more residential mortgage originations a permanent strategy shift, and why is full-year deposit growth expected to hit the lower end of the guided range? A: Retaining more mortgage loans is a tactical, not permanent, shift: the core strategy remains originate-to-sell, but retaining select loans creates opportunities to convert mortgage customers into full relationship banking clients, which drives core deposit growth. The lower end of the guidance range applies to deposit growth, not loan growth, driven by intensifying competition for core deposits. The firm retains balance sheet optionality from low current brokered deposit share to fund loan growth while building core relationships. Loan growth is still on track to hit the higher end of the mid to high single-digit guided range.

Q: What is the firm's outlook for acquisition opportunities, and how has pricing changed for external deals? A: There is no shortage of smaller acquisition opportunities (most under $2 billion in assets) currently available, but seller pricing expectations remain too high to justify the strategic and operational disruption of a deal for FB Financial. The firm will only pursue acquisitions that deliver clear strategic and long-term financial value, given its strong existing organic growth momentum. No deals have been completed recently because most opportunities do not meet this strict valuation and strategic threshold.

Q: Could the firm outline details on the two specific loans that required additional reserves in Q2 2026? A: The two reserved credits are both completed real estate projects, unrelated to one another, from different geographies. One came to FB Financial via an earlier acquisition, and the other originated from a former employee that has since been terminated. Total specific reserves for the two credits totaled $3.5 million. One has strong guarantors despite near-term performance weakness, management remains confident in full collection, and neither reflects broader systemic credit weakness in the portfolio.