FB Financial heads into its third-quarter report with a split personality. Last quarter the Nashville lender delivered its best organic loan growth since closing the Southern States deal, with annualized growth of 11.6% and a sharp improvement in operating efficiency. Yet the same report showed provisions more than tripling, a lower core margin outlook and a trimmed deposit forecast. The stock has since slipped, so the October 13 release is a test of which half of that story deserves more weight.
The Street expects adjusted earnings of $1.21 a share, up from $1.14 last quarter and about 13% above the $1.07 earned a year ago. That is solid growth for a regional bank, and it assumes the operating leverage from the second quarter carries forward. Consensus revenue of $180.1 million implies a 31.6% year-over-year decline, which looks out of step with a balance sheet that is growing. The gap most likely reflects a difference in how revenue is being counted rather than a shrinking franchise, so the earnings line and its components are the better gauge this time.
Management's framework gives a useful checklist. It reaffirmed full-year loan growth in the mid-to-high single digits, an expense budget of $325 million to $335 million and a goal of roughly 50% efficiency by year-end. Hitting $1.21 probably requires pre-provision net revenue to build on the $83.3 million posted last quarter, which was already up 8% sequentially. The banking segment ran below 50% efficiency in the second quarter, so consolidated efficiency moving closer to that level would show the year-end target is realistic. A slip back toward the 55% recorded in the first quarter would suggest the improvement was partly a one-off.
The margin is the trickier part. Core margin guidance has edged lower for several straight quarters and now sits at 3.70% to 3.80%, down from 3.80% to 3.90% late last year. Management blamed tougher competition on both sides of the balance sheet. New loans were coming on at roughly 6.35% to 6.40%, down from about 6.6%, while new deposits were costing 2.60% to 2.70%, well above the 2.26% book cost. A margin near the top of the range would show pricing discipline is holding. A print below 3.70% would suggest the loan growth is being bought. Deposit growth also matters, since management already lowered its sights to the bottom of its range. The outlook assumed one rate hike in the third quarter, a modest tailwind for a slightly asset-sensitive bank.
Credit could easily decide the quarter. Provisions jumped to $10.1 million, driven by loan growth, about $3.5 million in specific reserves on two problem credits, including one originated by a since-fired officer, and a softer economic outlook. Nonperforming loans rose across three relationships, although charge-offs were only 6 basis points. Investors need to know whether those were isolated cleanups or the start of a trend. A provision near the first-quarter level of $3 million would add meaningful upside to earnings. Another double-digit charge, or new problem loans, would revive concerns about underwriting during the growth push.
The market is skeptical. Sentiment has moved from 18.1% bullish before the last report to slightly bearish, and the shares are down 3.8% since then while the S&P 500 rose 2.5%. At $53.42, the stock sits below its 200-day average of $55.86 and in the lower part of its post-earnings range, far from the $62.66 peak it briefly reached. That lowers the bar somewhat. The question on October 13 is whether FB Financial can keep loan growth strong while showing that its margin, deposit costs and credit quality are stabilizing. If it can, the second quarter will look like a turning point rather than a high-water mark.