FB Financial Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
October 14, 2025

Key Takeaways

  • Positive Sentiment: Strong Q3 operating performance with EPS of $0.43 ($1.07 adjusted), net interest margin at 3.95%, and adjusted efficiency ratio of 53.3%, driving a 1.43% return on average assets and 14.7% return on tangible common equity.
  • Positive Sentiment: Merger with Southern States Bancshares closed July 1 and fully converted by Labor Day, achieving system and cultural integration targets and unlocking early synergy realization.
  • Positive Sentiment: Q4 and 2026 outlook projects net interest margin of 3.80–3.90% (incl. accretion), banking expenses of $290–300 million for 2025 and $325–335 million for 2026, and efficiency ratio in the low 50s.
  • Positive Sentiment: Organic balance sheet growth saw $156 million in loans (5% annualized) and $320 million of new core retail deposits in Q3, with high single-digit to low double-digit loan and deposit growth forecast for 2026.
  • Neutral Sentiment: Strong capital and liquidity position maintained through $130 million in subordinated debt paydown, $24 million in share repurchases, and a 1.5% allowance for loan losses on held-for-investment loans.
AI Generated. May Contain Errors.
Earnings Conference Call
FB Financial Q3 2025
00:00 / 00:00

There are 4 speakers on the call.

Speaker 1

Good morning and welcome to FB Financial Corporation's third quarter 2025 earnings conference call. Hosting the call today from FB Financial are Chris Holmes, President and Chief Executive Officer, and Michael M. Mettee, Chief Operating Officer and Chief Financial Officer. Please note, FB Financial's earnings release, supplemental financial information, and this morning's presentation are available on the Investor Relations page of the company's website at www.firstbankonline.com and on the Securities and Exchange Commission's website at www.sec.gov. Today's call is being recorded and will be available for replay on FB Financial's website approximately an hour after the conclusion of the call. At this time, all participants have been placed in a listen-only mode. The call will be open for questions after the presentation. During the presentation, FB Financial may make comments which constitute forward-looking statements under the federal securities laws.

Speaker 1

Forward-looking statements are based on management's current expectations and assumptions and are subject to risks, uncertainties, and other factors that may cause actual results and performance or achievements of FB Financial to differ materially from any results expressed or implied by such forward-looking statements. Many of such factors are beyond FB Financial's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks that may cause actual results to materially differ from expectations is contained in FB Financial's periodic and current reports filed with the SEC, including FB Financial's most recent Form 10-K. Except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events, or otherwise.

Speaker 1

In addition, these remarks may contain non-GAAP financial measures as defined by SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in FB Financial's earnings release, supplemental financial information, and this morning's presentation, which are available on the Investor Relations page of the company's website at www.firstbankonline.com and on the SEC's website at www.sec.gov. I would now like to turn the presentation over to Mr. Chris Holmes, FB Financial's President and Chief Executive Officer.

Operator

All right, good morning.

Speaker 3

Thank you, Drew, and thanks to everybody.

Operator

for joining us this morning.

Speaker 3

Thank you for your interest in FB Financial. For the quarter we reported EPS $0.43, an adjusted EPS of $1.07. We've grown our tangible book value per.

Operator

Share, excluding the impact of AOCI.

Speaker 3

A compounded annual growth rate of 11.8% since our IPO. This quarter we completed the merger with Southern States Bancshares and as a result, you'll see that impact throughout our financial results. This is our first quarter reporting on the combined entity. We'll walk through our results, which include the full impact of the transaction, but also highlight our core operating results where we think that's helpful for you. Our pre-tax pre-provision net revenue or PPNR for the quarter was $64 million or $81 million on an adjusted basis. Earnings were led by a net interest margin of 3.95% and an efficiency ratio of 63.2% or 53.3% on an adjusted basis. Adjusted returns were improved, reporting a return on average assets of 0.58% or 1.43% on an adjusted basis and a return on tangible common equity of 5.82% or 14.7% on an adjusted basis.

Speaker 3

As noted, we did complete our merger with Southern States, officially closing the transaction on July 1 and we completed the systems conversion over Labor Day weekend. When we opened our doors for business after conversion on September 2, we were fully transitioned to operating as a single team and serving our customers under one brand. We accomplished our internal targets of closing and converting the transaction, which was announced on March 31, by Labor Day, which was a proud moment for our team members. I'm proud of our team for their execution in moving us from announcement to legal close in about 90 days and then completing the full systems conversion 60 days later. I want to recognize and congratulate this team for your commitment to the company and to each other and once again proving how truly outstanding you are at what you do.

Speaker 3

Our strategic and operational execution on this merger reinforces that our team is top tier, our processes are scalable, our client-first model works and our team loves to compete and is hungry for more. Moving to the outlook for our markets, we remain bullish on our markets in Tennessee, Alabama, Georgia, Northern Kentucky and North Carolina.

Operator

We also feel very proud about our.

Speaker 3

Competitive position in those markets. We feel very good about those. Our industry is set to see additional consolidation, creating inevitable disruption in client and employee relationships. We've designed our business model and operating processes in a way that we can both grow and scale while continuing to provide a community banking style in our approach to serving our clients. We believe that our preparation and forward thinking have us prepared to take advantage of the anticipated disruption in and around our markets and will be a key accelerator for our organic growth. As I look forward into the final quarter of 2025 and further into 2026, I'd like to share a few thoughts on key areas of focus for our team. The first of those is growth. As I touched on, we're bullish on our team's opportunity and ability to win talent and business across all of our markets.

Speaker 3

On the market expansion front, we're pursuing opportunities that will add value for our company. As with Southern States, we look for contiguous geography, talented teams, compatible culture, and strong financial performance. As we've shown and proven already this quarter, strategic, financial, compelling, and well-executed transactions have a compounding effect for our shareholders. With additional size, we're able to capitalize on scale and drive higher returns. Second is our earnings profile. Our results this quarter signal we're not willing to accept a return profile that doesn't advantage our shareholders relative to other comparable investment opportunities. I'm going to let Michael expand on our earnings outlook, but all in all, I'm pleased with where we ended the quarter and how we've set ourselves up heading into 2026. Finally, the strength of our balance sheet continues to be a bright spot for our institution.

Speaker 3

We continue to be in a solid position on capital, liquidity, and credit. You know when you merge two companies with strong balance sheets and good earnings and you execute, you end up with a company with a stronger balance sheet and better earnings. This position allows us to capitalize on the opportunities that I referenced earlier around growth, market disruption, and acquisition opportunities that are likely to present themselves in coming forward. We will continue to play offense and produce capital and pursue capital deployment opportunities that make good financial sense and are good long-term opportunities for the company. With that, I'm going to turn the call over to Michael Mettee, our Chief Operating and Financial Officer, to provide a deeper look at our financial results for the quarter as well as some forward-looking commentary into 2026.

Operator

Thanks, Michael. Thank you, Chris, and good morning, everyone. As Chris mentioned, our teams have been busy blocking and tackling on things that come with a merger close and conversion cycle, while also managing our core businesses at FB Financial Corporation. As I walk through our financial results for this quarter, the figures I will reference are on a combined FB Financial Corporation and Southern States Bancshares basis unless specified otherwise. With the transaction closing on July 1, we did not have to account for any partial quarters, which made for a clean break from FB Financial Corporation only results in the second quarter to combined basis.

Speaker 3

For the full third quarter.

Operator

Net income on a reported basis for the quarter was $23.4 million or $57.6 million on an adjusted basis on net interest income and margin. We reported net interest income of $147.2 million, which represents a 32.2% increase from the prior quarter and a 38.9% increase from the same quarter last year. On a tax equivalent basis, we saw margin expansion of 27 basis points in the quarter from 3.68% to 3.95%. We benefited from the addition of Southern States portfolios, which carried an incrementally higher margin than Legacy First Bank. We also benefited from net accretion of purchase accounting marks. Net accretion on the acquired portfolio was approximately $6 million for the quarter. We also benefited from the structural balance sheet maneuvers during the quarter.

Operator

We saw the first full quarter of margin lift from the securities transaction that we executed last quarter, and we followed through on paying down $100 million in Legacy First Bank subordinated debt and called $30 million in trust preferred securities. The debt paydown gave us one month of benefit in the quarter, so we'll continue to see impact from that piece of the transaction. In the fourth quarter, non-interest income was up compared to last quarter where we had the $60 million securities loss, and on an adjusted basis non-interest income came in at $27.3 million compared to $25.8 million in the prior quarter. We saw incremental increases in First Bank Legacy First Bank businesses such as mortgage banking and investment services, while we saw benefit across other fee categories like service charges and interchange fees largely from the addition of Southern States.

Operator

Looking at expenses, we reported total non-interest expense of $109.9 million or $93.5 million on an adjusted basis. Our reported number includes $16.1 million of merger and integration costs, which peaked this quarter with transaction closing conversion. These costs are largely made up of employee-related payments and vendor payments. As you would expect, going forward we will have some additional transaction costs at the end of the year as we complete the merger process. The increase in adjusted non-interest expense is largely a product of the first full quarter of combined First Bank and Southern States operations to date. We're on pace to achieve 50% of our deal synergies in the second half of 2025, and we expect to achieve 100% in 2026.

Operator

This timing for recognizing cost saves was earlier than originally modeled due to a timely deal close and conversion, coupled with the intentional focus from our management team. All in, our adjusted core efficiency ratio improved to 53.3% from last quarter's 56.9% and the same quarter last year where we reported 58.4%. Moving on to credit, our reported provision expense of $34.4 million includes $28.4 million in day one provision expense for the acquired non-purchase credit deteriorated loan portfolio and unfunded commitments, making our provision expense excluding merger related impacts $6.1 million. We saw minimal charge-off activity this quarter with the net charge-off ratio of 5 basis points annualized, so our reserve impact in the quarter absent the acquisition was largely a product of loan growth and updated forecast assumptions. Loan growth came across our key categories that I'll touch on in a minute.

Operator

While the forecast side was particularly impacted by a decrease in the home price index forecast, which drove incremental additional reserve in loan segments that are more sensitive.

Speaker 3

To the metric.

Operator

Our non-performing assets to total assets ratio ticked down 3 basis points to 89 basis points, and we continue to hold a stable outlook on credit across the industry, slightly more positive for the markets that we serve. All in, our allowance for loan losses settled at $185 million or 1.5% of our loans held for investment compared to $149 million or 1.51% last quarter. On a dollar basis, we booked $7.5 million to establish PCD reserves through purchase accounting, and then we put another $25.1 million in non-PCD reserves in our reserve for unfunded commitments. We established a day one reserve for the acquired Southern States commitments of $3.2 million. Both the non-PCD and unfunded commitment reserve were established through Q3 provision expense, and as I noted earlier, those are excluded from our adjusted earnings figures.

Operator

Looking at the balance sheet, broadly speaking, you'll see balances up across the board with the addition of Southern States during the quarter. Parsing through the noise, we saw organic quarter-over-quarter loan growth of $156 million or about 5% annualized, which included increases of $70 million in residential real estate, both single and multifamily, $50 million in owner-occupied commercial real estate, and approximately $24 million in consumer and other. Those were offset by declines in construction loans. On the liability side of the balance sheet, the story is mixed but for good reason. We executed on several strategic deposit priorities, which included: one, reducing our exposure to high-cost non-relationship deposits; and two, a targeted deposit campaign across our footprint to attract new relationships to the bank.

Operator

Exclusive of the acquired Southern States deposits, deposit balances were down approximately $59 million on a period-end basis as we executed on this remixing strategy. Priority one resulted in deposit outflows of approximately $132 million as we rolled off brokered balances, lowered pricing of non-relationship deposits, and reduced exposure to a large public funds deposit. On priority two, we executed our deposit gathering strategy across our retail network through promotional offers and internal incentives to attract new customers and forge new relationships. These efforts resulted in approximately $320 million in net new deposit balances, and we'll expect to see more growth here throughout the year. As I noted previously, we also took the opportunity to pay down our subordinated debt and trust preferreds. We also repurchased approximately $24 million of FBK shares during the quarter.

Operator

We'll continue to keep our team busy on balance sheet and capital management strategy to ensure we're fully optimizing our balance sheet structure. I'll now take a minute with thoughts on where we expect to end 2025 and into 2026. On net interest margin, we expect to see the continued impact from accretion on acquired loans and also the compounding effects of the balance sheet restructuring we've executed over the past few quarters, including the securities trade and the sub debt pay down. Last quarter, we guided to 3.7% to 3.8% without accretion, and for the back half of the year, we now expect to land between 3.80% to 3.90%, and we expect to continue that into 2026, which includes two assumed rate cuts before year end.

Operator

On expenses, we will continue to think that full year banking expenses will land around $290 million to $300 million, which is in line with our previously guided range. Looking into next year, with earlier than originally modeled cost saves realized from the Southern States deal, coupled with marginal expense increases to support growth, we're expecting full year 2026 banking expenses to land between $325 million and $335 million, which puts our efficiency ratio in the low 50s for the full year and at about 50% by year end 2026. Our banking expense guide is run rate and is not inclusive of any large investments made in revenue producers or market expansion, and we are likely to get these opportunities in 2026.

Operator

From a balance sheet perspective, in Q4 2025, we're guiding the mid to high single digits on both loans and deposits, and for 2026, we would expect to return to our normal organic growth rate, which is the high single digit to low double digit range. In summary, our team is proud of our work over the past quarter and pleased with this quarter's results. We will continue to be strategic in our growth planning and execution and look forward to continuing to share updates on our progress with you. With that, I will pass the call back to Chris.

Speaker 3

All right. Thanks for the color, Michael.

Operator

As you heard, the quarter had.

Speaker 3

A lot of moving pieces, but those pieces come together to make a nice picture of a valuable enterprise for our customers, associates, and shareholders. Thank you again to our team. Thank you to all listening to our update this quarter and for your interest in FB Financial. Operator, at this time we'd like to turn it back over to you to open the line for questions.

Speaker 1

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Kathryn Mehler with Keefe, Bruyette & Woods. Please go ahead. Thanks.

Speaker 2

Good morning, everyone.

Speaker 3

Good morning, Katherine.

Speaker 2

The higher margin this quarter and the higher guide was really great to see. My question is just as we think about the margin moving forward with one rate cut and we presume we'll get another one or two in the back half of this year. Any updated thoughts on what the impact of SSBK has been on your margin and just where the balance is between your floating rate book and what you think you can do on the deposit piece? Within that question, maybe I'm curious what the average rate was on that $320 million of new deposit balances that came on from your retail campaign. Thanks so much.

Operator

Hey Kathryn, good morning. This is Michael. Margin is, as you would expect, a little bit of a convoluted bag as we look in the combined balance sheet, the runoff of some of the public funds and pricing down some of the higher cost deposits, paying off brokered and then adding back new deposits. A lot going on there. We're a little bit, you know, we were 3.95% this quarter. That included the purchase accounting accretion. Southern States balance sheet certainly added to margin on a core basis. I'd say it's probably worth, you know, 6 to 8 basis points on core, which puts us in that kind of mid, you know, 3.80% range as we look going forward. You mentioned the rate cuts. We're thinking that we're going to get rate, you know, rate cut sooner, maybe October-ish, November, and then one late in the quarter.

Operator

That will have minimal impact on margin. We continue to have, you know, kind of a mixed 55%, 45% fixed or floating balance sheet, and you obviously feel that in the loan portfolio. Where deposits came on, we had a kind of a mixed, it's a special promo deposit campaign that included core deposits, operating accounts with money market accounts which are tied to Fed funds. We would see those reprice kind of January, and they were in the low fours. A lot of moving pieces on where margin is and where we expect it to go. Loan yields continue to come in, in the sevens, low sevens, so that's a positive. As we expect deposit growth, we do understand that it's really competitive in our markets, and seeing how competitors and our own teams are able to react to Fed rate cuts will be key in maintaining that margin.

Operator

We think we can stay in that range, the guided range.

Speaker 1

Great.

Speaker 2

My follow-up is on growth. I was glad to hear that you still think you can get back to that high single digit, low double digit range for next year. Can you just talk about pipelines and kind of what you're seeing to give yourself confidence for that into next year?

Operator

Yeah, our loan pipeline is actually as good as it has been probably in.

Speaker 3

Two years or so.

Operator

Very confident, team's very confident on that. Obviously, with the conversion in the third quarter, we kind of stunted some of the legacy Southern States loan growth as everybody's working through systems conversion, training, and everything like that. We're back on track from that regard, which gives us confidence. Customers seem to have kind of turned the page from all the tariff stuff. Although there was some noise this week, obviously, that seems to move on from our client perspective. The real governor on loan growth is deposit growth, really core deposit growth. We'll continue to work on core deposit growth, operating accounts, and acquiring new relationships. Pipeline specifically on the credit side is pretty full and as full as we've seen it in a while.

Speaker 2

Great, thank you.

Speaker 1

The next question comes from Brett D. Rabatin with Hovde Group, Inc. Please go ahead.

Operator

Hey, good morning guys. Hey Brett. Chris, wanted to start on, you know, you mentioned in the press release the.

Speaker 3

Aggressive goals of profitability and growth.

Operator

It sounds like you're talking more mid to high single-digit range for growth.

Speaker 3

From here versus that kind of double-digit growth that you've been talking about.

Operator

Anything that's changed relative to.

Speaker 3

You wanting to get back to double digit growth, you know, economy, competition demands, you know. Any thoughts on double digit versus single digit?

Operator

Yeah, I'd say high single, the difference.

Speaker 3

Between high single digit and low double digit can be 1%. That's that we.

Operator

You know.

Speaker 3

As we're presenting, we're trying to present a reasonable range. You know, we always strive internally to be on the higher side of ranges, but sometimes we don't hit that. As we went into this year, we said mid to high, we've been more mid. That's been a little bit disappointing to us. We've been consistently evaluating that and tweaking to try to make sure that we are on the higher end of our expectations. Right now we're running more mid part of our mid range of our expectations, and that's how we're thinking of that. We also, as we heat up into 2026 and I made reference to disruption, we're really thinking about what we'll get with our RMs out driving business. Michael made the point that deposit growth can be the governor. As you know, we try to strike a really nice balance between growth and profitability.

Speaker 3

We try to hit both, we try to be the best at both. We do try to get both and we don't sacrifice one for the other. When we balance all that, that's how it comes out. As you know, we're in good markets. If the economy is good, I would say we'll grow as well or better than others that do what we do.

Operator

Okay, that's helpful, Chris. The other question I wanted.

Speaker 3

To ask, was that on slide 16, the EPS accretion for 2026 better than expected related to Southern States.

Operator

Is that a function just of the cost savings being accomplished earlier than expected?

Speaker 3

Is there also better organic growth or synergies that are coming from that transaction with revenue?

Operator

Yeah, Brett, good morning, it's Michael. Yes, it's earlier than expected cost savings, but also as I was noting on margin, we've had better than expected margin from the combination, and we've had margin expansion, so that's added to that as well. Okay, great. Thanks for all the color, guys. Thanks, Brett.

Speaker 1

The next question comes from Russell Elliott Teasdale Gunther, Stephens Inc., please go ahead.

Operator

Hey, good morning guys. I wanted to get a sense for how you would frame up the organic versus the acquisitive growth opportunity set in front of you. Would you expect to lean into one more than the other over the next 12 months?

Speaker 3

Good morning, Russell. We just hung up with Brett, so good morning, Russell. We are, I don't know if we lean in to one more than the other. As I think about moving forward, let me back up and say we're normally wired to lean into organic growth more than inorganic growth. We think we should grow organically every day in all of our markets, and some of our markets are slower growth. We will accept a lower growth rate than our higher growth, higher GDP growth markets, but we expect them all to grow. That's really the foundation of the company. I'd say we naturally are always going to lean in higher on organic growth.

Speaker 3

That being said, we also think we're in a period from an industry standpoint, an industry where the industry is in terms of maybe some pent up demand, it's a more favorable regulatory environment that does favor expansion and acquisition activity, especially in an industry that needs some consolidation. We don't want to ignore that. We are leaning into that heavier than we ordinarily would as we think about how we move forward because we think it's a time of opportunity. We are, I think, recognized and proven as a skilled and good acquirer and there are good opportunities. We're going to try to execute on both. I think we've shown we can do that.

Speaker 3

I would say that one place that maybe has changed our outlook some or our positioning going forward some is that we used to look heavily at how we could get more market share in our markets through acquisition. We probably look more heavily today at how we expand our footprint via acquisition versus more in-market consolidation. We do think, going back to your question, the organic opportunity is going to be really good in footprint. When you do acquisitions that are in footprint, it does create a little more disruption on the teams. We think part of what has us excited about both sides, both organic and inorganic, is that we can grow organically within the geography that exists, but also expand the geography without too much disruption within the geography where we're expecting big organic opportunities.

Operator

I appreciate it, Chris. Thank you. Switching gears a little bit, you had a pretty notable higher intra-quarter to kind of run Nashville for you guys. You talked about in your expense commentary the potential to kind of punch outside of that should the hiring opportunity be more robust than you think it might. Maybe could you share with us sort of what the total revenue producer hires were in 3Q and sort of what your expectations are going forward?

Speaker 3

Yeah, so Michael and I both comment on that. I'm glad you actually picked up on that comment that Michael made when he was talking about where our expectations were and he said, you know, our banking expense guide is run rates not inclusive of large investments on revenue producers or market expansion. You know, we don't know what those opportunities exactly are going to look like. When you have market disruption, it disrupts everything. We anticipate there has been some of that already. Look, we've created some of that down in markets in Alabama and Georgia and we anticipate there's going to be more and we're trying to make sure that we play our hand well there as we do that. You're exactly right, it doesn't include investments in those that could be substantial. We could have markets across our geography where those could be substantial investments.

Speaker 3

We're going to be willing to make those because we think they would be, if we make them, they're going to be long term well placed investments. I just want to make sure we're clear on that. That run rate doesn't include those. If we get the opportunity, we will be looking to do those just as everybody else will. I don't want you to think we're the exclusive beneficiary of that, but it's a dog eat dog world out there and we're going to try to be the big dog.

Operator

Russell, good morning. At third quarter we added about five revenue producers, and not a huge number. These things take time. It's equate everything to college football. You got to recruit, takes years to recruit. You got to set the foundation, that's both clients and relationship managers. You got to earn their business. You got to earn the right for people to come work at your company. We've been doing that for a long time and we'll continue to do it. We expect, as Chris mentioned, some opportunity to arise as the industry undergoes kind of a transformation here. Excellent guys.

Operator

Just a quick point of clarification on the margin guide, Michael, the 3.80% to 3.90% for Q4 2026, to confirm that that would include your expectations for purchase accounting accretion and then what you guys are contemplating for through the cycle deposit beta, just given some of the comments around deposit pricing competition. Yeah, Russell, that's excellent point. It does include accretion and we do think right in our markets, continuous margin expansion with rate cuts is going to be challenging to continue to grow deposits and organic deposits. That's why it's a slightly lower number. We'd always aimed to outperform, but as Chris mentioned, you got to balance profitability and growth, and that's why you get to that 3.80% to 3.90% numbers. We expect deposit pressure in our markets.

Speaker 3

Thank you, guys.

Operator

I appreciate all the help this morning. Thanks, Russell.

Speaker 3

Thanks, Russell.

Speaker 1

The next question comes from Dave Rochester with Cantor Fitzgerald. Please go ahead.

Operator

Hey, good morning, guys. Nice quarter.

Speaker 3

Morning. Welcome.

Operator

Dave, I wanted to circle back just on your comments on the growth. Not to beat a dead horse, but with all the deal disruption in your markets right now, especially from one very large MOE that could be a gift that keeps on giving to you guys for the next several years, it just seems like a really big opportunity for you guys to pull in talent and business customers. I just wanted to get your take on that the single digit one more time. It seems like that could add a few hundred basis points at least to growth even on the deposit side.

Speaker 3

Just wanted to revisit that a little bit. Yeah, Dave, we don't disagree. We don't disagree. We do have some upside opportunity there from disruption. You made reference to large transaction in our market. I do want to say this. Nobody is asleep in our market, including the folks that are ongoing large disruptions. Okay? Nobody's sleeping through it. Also, by the way, including those in and around our market that are entering our market as a result. There's a lot going on there. You're right. It's an opportunity for all of us, including those being disrupted, to execute. Again, we're optimistic on our ability to execute. We have shown that over time and we continue to think that we're in a position to perform well. Your observations are accurate. The opportunities are going to be plentiful. When we think about disruption.

Operator

I.

Speaker 3

think important from our perspective is that it's not only today. We think disruption is going to be around for the next couple of years. We don't think that's the last transaction that has of consequence in our markets that you're going to hear about over the next, you know, maybe even between now and the end of the year. We think you're going to continue to hear about disruption, see disruption. We think that we're trying to position to be a stable, long term place for customers and for associates to land. That's again, I think the point, I think your point's well made.

Operator

Appreciate that. Maybe just one last one. Are there any areas, products, services, whatever that you don't have right now that you think you could potentially pick up in terms of pulling in?

Speaker 3

A larger team or a group.

Operator

Teams, as a part of some of that disruption that you're looking at potentially.

Speaker 3

Thanks.

Operator

I don't want to. I don't.

Speaker 3

I don't want to disclose anything there that would be strategic for us. I will say this, and we've said this before, wealth management's a part of our business. We have placed more emphasis on it and we intend to make some headway and improvements there. That's something that's on our radar screen to just make sure really that our customer experience and our offering there in terms of everything that we have to offer competes with anybody and everybody. That would be the one area I would comment on that we have some focus. By the way, that did not result from any specific transaction. That was already an initiative for us before, even before the year started. Great.

Operator

Thanks guys.

Speaker 1

The next question comes from Stephen Kendall Scouten with Piper Sandler. Please go ahead.

Operator

Hey, good morning guys. Wanted to follow back around real quickly on the NIM and just make sure. I know Michael, you said that the NIM was better.

Speaker 3

The deal was a little bit.

Operator

Better on the combined NIM with SSBK. How much of that was from more elevated accretion, or maybe said differently, like relative to the $6.2 million.

Speaker 3

What have you.

Operator

What would you expect for kind of straight line run rate accretion to be X, any sort of accelerated accretion.

Speaker 1

Yeah.

Operator

Good morning, Stephen. Yeah, run rates a little north of, kind of call it $4 million, $4 to $4.5 million. Accelerated accretion for the quarter is about $1.5 million. It's a couple large payoffs there early on in the quarter, which led to that accelerated number. You're looking at kind of that $4 to $4.5 million number. Obviously, it comes down a little bit over time, but so does CDI.

Speaker 3

Yep, perfect.

Operator

Okay, very helpful.

Speaker 1

Great.

Operator

Thinking about mortgage just for a second, I know it's been a few years since we really talked much about mortgage now. I'm just wondering, if we get more rate cuts and if we see a real pickup in mortgage, what's the kind of potential of that unit today? Obviously, there's a lot of verticals that you have wound down through the year. I'm just wondering what's the upside potential of that mortgage division today in the way that it's scaled now. Yeah, you know, Stephen, as you mentioned, we're in the retail business and mortgage now versus—we won't relive too much of the history—it is a little bit muted, but there's opportunity there. We will originate $1 billion, $2 billion, $3 billion this year and that's in a rate environment around high sixes. If you saw meaningful decrease, you could see some refinance activity.

Operator

We're still running 90% purchase in that retail space. Even back in pre, call it 2016 to 2019, we were running 85%, 90% in our retail business and purchase. They've always been new relationship focused, realtor, builder type business. We actually thrive in that space. There will be refinance opportunities. There's probably pent up demand in the industry because people haven't been able to move. There's opportunity there. You should see some pickup in volume. There is opportunity. I think margins will continue to be in and around the range they are, around 270 to 300. I don't see a whole lot of opportunity in kind of gain on.

Speaker 3

Sale margins at this point.

Operator

You could see some pickup.

Speaker 3

Yeah.

Operator

Okay, if I can just make a couple quick comments.

Speaker 3

One of our goals, if you remember with mortgage, is when we're not in good times for the mortgage business, we don't want to lose money and we've been able to achieve that. We're not losing any money, frankly. We're not making a lot of money, especially if you take servicing out of the equation because we do get some servicing income in that line. We think there is some upside and there's limited downside, which is the way that we've positioned the business. If we could ever get mortgage loans that started with a five, even if it was 5.99, we think that helps in terms of origination activity. I don't know that we're going to see that anytime soon. That's how we view it.

Speaker 3

There is some upside to it if you get help in mortgage rates and we've tried to really limit the downside, so that's where we are right now.

Operator

Okay, great. Maybe just last thing for me, I think, you know, used to be across $10 billion, you think if you got to like $13 billion in assets that might be enough to get the right scale. I think we've talked in the past, maybe you felt like you had to get to $17 to $20 billion more recently. We're kind of there now. Do you think you have the right size to be as profitable as you want to be, have the right scale today if, you know, if these opportunities don't happen to materialize in the near term or do you really feel like you need more deals to get more scale and be as profitable as you'd like to be?

Speaker 3

Yeah, we think when you look at our adjusted profitability ratios today, you know we're getting, you know our ROA is going to be between 1.40% and 1.50%. You know, our ROTCE is going to be north of 15% and that's with a 10% plus TCE ratio. Those numbers start to get to where we think numbers need to be to, again, as I said, give your shareholders an advantage for the types of investment that a bank is. We think that's good and sustainable where we are. We've said, you know, roughly $16 billion, $17 billion, $18 billion in assets is where we thought we achieved that. That doesn't mean that it won't get incrementally better. As a matter of fact, we think it would get incrementally better with size.

Speaker 3

We think those returns are actually pretty good for mid-sized bank investments and we hope to scale it and improve it from there. I hope that answers your question. I mean, we do think that in my comments I made that, hey, it's getting now to where it's an acceptable return and as we scale in size, anything we look at is just going to move it positive from there, more positive.

Operator

Yeah, for sure. That hits the nail on the head with my question. I appreciate it, Chris.

Speaker 1

Thanks for the time.

Operator

You guys have a great day.

Speaker 3

Thanks David.

Speaker 1

The next question comes from Stephen M. Moss with Raymond James. Please go ahead.

Speaker 3

Good morning.

Operator

Morning Chris. Mike, just kind of curious here in terms of your thoughts on capital targets here. You know, you bought back some stock this quarter and even with the deal here, you're still in a very strong capital position. I know you redeemed some sub debt. Just kind of curious, are you thinking of running capital down a bit with organic growth continuing with repurchases? Just thought process over the next 12 months in a more favorable regulatory environment. Yeah, Steve, good morning, it's Michael. We've been running, as you mentioned, kind of higher capital levels and Chris mentioned it in his comments about credit, capital, and liquidity is always a focus. We obviously take it very seriously, our commitment to the markets we're in and our customers.

Operator

I think organic opportunities, we'd love to see organic growth in a situation where that capital level would come down and in some instances even have to grow through it and get additional sources of capital. We'd love for that organic opportunity to happen. We do think about, Chris talked about organic, inorganic. We're thinking about all those things. It's important for us to maintain kind of elevated capital levels at this time or really strong capital levels so that we can take advantage of any opportunities that come our way. Shorter to midterm, I think you see these same levels, we would obviously deploy it as opportunities arise and then we've been adding capital back to the bucket pretty quickly and we would do that and get ready for the next opportunity.

Speaker 3

Yeah, Steve, I would also just add a couple things. We are now going to be building capital quickly, so we'll see the numbers continue to move up. You know, our tangible number at 10.1, 10.1% is, you know, probably it's still a little high, but we're not concerned with that. You know, if it were anywhere even, you know, 9 to 10%, we wouldn't be concerned with that and we'd be willing to run there. Although we've come to take the position over the last two or three years that we think higher is better. We want to earn a good, we own it. We want to earn a good return on higher capital. When I was talking about our return on capital, I made reference to the TTE being 10 plus %. We're comfortable running at that level. Our CET1, you know, we're at 11.7.

Speaker 3

If you do get ready to do a transaction, then that's going to get looked at pretty heavily and you're going to want to have north of 10. We want to make sure we're staying comfortably above that so that we could act quickly. We're not crazy about the idea of having to raise capital on a transaction. The one area that would, that I'd love to have to raise capital is for our organic growth to be so high over the next couple of years that we had to raise capital. That would be good for all of us. Don't know if we would actually make that happen, but that's my dream, is for us to have to raise capital because our organic growth is so high.

Operator

Right. I definitely appreciate all that color there. In terms of following up on interest rates and positioning here, Michael, from your comments, it sounds like you're a little more asset sensitive than neutral. Just curious, where are variable rate securities and variable rate loans as a percentage of those respective buckets? Yeah, we are a little asset sensitive. I missed the back half of your question on variable rates and securities. Variable rate, what percentage of your loans are variable and what percentage of your securities are variable these days?

Speaker 3

Got it. Yeah.

Operator

Variable rate loans are still in that roughly 45% range, and variable rate securities are in that 30% to 35% range. Our cash numbers come down a little bit on a percentage basis, so that takes out a little bit of the asset sensitivity. It will be important for us, as rates do go down, that we reprice our deposits lower. We do have a large amount indexed to the Fed funds effective rate, and as we combine balance sheets, there is more fixed money market rates on the acquired deposits. I think you have to be very diligent in having a value proposition for your customers and a fair price. The securities piece being 30% to 35% has actually worked out really well.

Speaker 3

Over the last couple years as we've

Operator

Kind of transitioned with a focus on liquidity, so you can kind of move in and out of that portfolio as needed. It's actually provided a higher margin than going into fixed rate securities over the last couple years. We still see that, but obviously it increases your asset sensitivity on the way down. All right, those are all my questions. Really appreciate the color and nice quarter, guys. Thanks, Steve.

Speaker 3

Thanks, Steve.

Speaker 1

Again, if you have a question, please press star then 1. The next question comes from Christopher William Marinac with Janney Montgomery Scott LLC. Please go ahead.

Operator

Hey, thanks. Good morning, Chris and Michael. Just wanted to drill back on kind.

Speaker 3

Of the core loan yield.

Operator

It looks like it's a little bit north of $650 million. I'm just curious, kind of on the organic basis, how much pressure you have from that, from pricing, or do you think you can manage through that as you've given us the margin guide here in the near term?

Speaker 1

Yeah.

Operator

Good morning, Chris. Yeah, the 650 north, obviously, if you looked at the combined, it's the SSPK was running like 677 on their portfolio prior to the combination. That certainly benefited the overall yield. New production still coming on high sixes, low sevens. That's been steady. Obviously, the rate cut was late in the quarter, but even the last couple of weeks we've seen rates still in that range. We still have some repricing to go, although it's tailing down all the loans made in 2020 and 2021. We typically stay three to five years on a bunch of our commercial paper, and you'll still see a little bit of repricing tailwinds, but it's getting smaller and smaller. We're pretty confident that we can maintain this loan yield. Great, thanks for that.

Operator

I guess just from a general standpoint, as you think about external market expansion, is there kind of a size limit that you want to stick within or maybe a dilution kind of boundary on the upper side of how much you'll accept? There's.

Speaker 3

Our target size would really be, let's say in total, I think if it's a bank, it'd be $3 billion in assets to about, say, $5 billion, $6 billion, $7 billion in assets would be meaningful. That'd be a target range. Frankly, there's not a lot of those in existence. We're more likely to get opportunities that are a little smaller than that is kind of how we think about it. Great.

Operator

Thank you all for taking our questions this morning.

Speaker 3

Thank you, Chris.

Speaker 1

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

Speaker 3

All right, thank you all. Thanks everybody for being with us. Always appreciate your interest, and don't hesitate to reach out to us directly if we can answer any questions.

Speaker 1

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

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