FB Financial Corporation

Good morning and welcome to the FB Financial Corporation's third quarter 2021 earnings conference call. Hosting the call today from FB Financial is Chris Holmes, President and Chief Executive Officer. He is joined by Michael Mattei, Chief Financial Officer. Greg Bowers, Chief Credit Officer, and Wib Evans, President of FB Ventures, will also be available during the question and answer session. 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 the SB Financials 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. With that, I would like to turn the call over to Robert Hohen, Director of Corporate Finance. Please go ahead.

Thank you. During this presentation, FB Financial may make comments which constitute forward-looking statements under the federal securities laws. All forward-looking statements are subject to risks and uncertainties and other facts 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 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. In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation B. 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 S&P Financial's earnings release supplemental financial information in 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 Chris Holm, S&P Financial's President and CEO.

Thank you, Robert. Good morning, and thank you for joining us this morning. We appreciate your interest in FB Financial. We had a solid quarter as we delivered annualized loan growth of 8% when you exclude PPP loans, adjusted EPS of 89 cents, adjusted return on average assets of 1.42%, adjusted return on tangible common equity of 15%, and we grew our non-interest-bearing deposits by 20% annualized. Growth continues to be evident across our markets. We received news this quarter that Ford is investing $5.6 billion in an electric vehicle manufacturing hub at a site midway between Memphis and Jackson, Tennessee, in West Tennessee. This investment will create 6,000 direct jobs in West Tennessee, and the state estimates that in total 27,000 jobs will be created to support the site. First Bank's well-positioned to capitalize on the increased economic activity that will come to West Tennessee. As by our estimation, we're number one market share in that part of the state, including third market share in Jackson. And we've got a very strong commercial team in Memphis that continues to deliver good results. In Nashville, the economic activity continues to roll. and is becoming a technology hub in addition to our traditional strengths of health care, entertainment, and hospitality. And our area just recognized its second unicorn. Tennessee benefits from decades of strong business-friendly leadership from our elected officials, and it's exciting to be at the center of what's become a magnet for economic development. We believe we have the relationship managers and the infrastructure in place to capitalize on that economic environment. 8% loan growth this quarter is in line with our guidance. We continue to believe that high single-digit growth is a good target for us for the year. But our regional presidents are telling me that they expect strong activity for the fourth quarter, so a double-digit annual number is not out of the question for 2021. If trends continue as they have, we would expect to return to our typical 10% to 12% annual loan growth for 2022. On the liability side of the balance sheet, we're pleased with our 20% non-interest-bearing deposit growth during the quarter. Even when the world's awash with liquidity, we place a high value on bringing in strong operating account relationships. As a result of that shift in the composition of our deposits, as well as our continued focus on bringing down our cost of interest-bearing deposits, our total cost of deposits decreased by an additional five basis points this quarter. Moving to mortgage, the team delivered a very strong quarter with $8.9 million of pre-tax contribution. That was an outperformance compared to our guidance for the third quarter as refinance volumes and margins performed better in August and September than we anticipated during last quarter's call. Early results in October have been fairly volatile, so our guidance range will be a bit wider this quarter. Our best guess at the moment is anywhere from 1 million to 4 million contribution in the fourth quarter. Asset quality continues to improve with our non-performing and non-cruel statistics materially declining this quarter. with nonperforming loans to loans down by 24 basis points, nonperforming assets to assets down by 16 basis points. The improvement in our metrics was driven by a $14 million nonperformer leaving the bank this quarter, which resulted in a slightly higher net charge-offs at 13 basis points, as well as a $1.5 million reversal in non-interest income as a swap on the credit was unleaded. The overall credit environment is favorable right now, and our markets are effectively operating normally despite the COVID activity that our footprint experienced during the summer. We saw slight ACL release this quarter as a result of the improving economic conditions and forecast, but we've cautiously and intentionally held back what reserve we could support ahead of the winter months just in case we run across any speed bumps as folks move back indoors. Assuming that forecasts continue to improve and that we survive the changing of the seasons without material shutdowns or changes, of behavior in our markets, then we'd expect more sizable releases to follow in the next few quarters. On a related note, we saw positive momentum with the disposition of our non-core institutional portfolio. We've just over $100 million of exposure remaining in there and would expect that to continue to decline as credits mature and refinance out of the bank. We're still marking portfolio and would accept the right bid Well, we're down to nine relationships, and the quality of the remaining loans is strong, and the yield is favorable, so it would take a strong bid at this point. Speaking to our capital management plan, our tangible common equity to tangible assets is moving a bit outside of our target at 8.5% to 9.5% range. We prefer to deploy that capital organically, but with the excess liquidity that remains on our balance sheet, we still have some time left before organic growth would materially impact our capital ratios on its own. We dipped our toe in the water on a buyback this quarter, but with the bank valuations rebounding shortly after our trading window reopened, we ultimately retired less than $1 million worth of shares. Our second priority for the capital deployment behind organic growth is accretive merger and acquisition activity, and it's now been just over a year since we closed and converted the Franklin Financial Network merger. We remain pleased with how the combinations performed as talent and customer retention has gone well. As we look towards future mergers, we're targeting similar characteristics to our Clayton, Atlantic Capital, and Franklin synergy combinations. We look for partners that will provide additional density across our footprint, as well as fill in open markets within Tennessee and transactions that provide financial returns that support the risk of undertaking a conversion process. We're focused primarily on banks around our footprint that provide a strong cultural fit and ultimately provide operating leverage for us. There's nothing imminent, but we believe that the current dynamic support further consolidation is possible that we could have M&A activity in 2022. So to summarize, we had a good quarter of loan growth as our strong team of relationship managers continues to capitalize on the economic activity of our footprint. We expect that growth to continue over the remainder of 2021 and into 2022. Mortgage did very well and outperformed our previous expectations, but we expect them to come back down to earth in the fourth quarter due to the seasonal behavior of the mortgage. We're building capital quickly, but M&A activity is possible. And with rebounding bank valuations, we're likely to use as much capital on our – we're not likely to use much capital on our buyback in the near term. I'll now turn the call over to Michael, our CFO, to discuss our financial results in support of town.