FB Financial Corporation

Good morning and welcome to the FB Financial Corporation's first quarter 2022 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, Wade Peary, Chief Administrative Officer, and Webb Evans, President of FB Ventures. We'll 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 FB Financial's website approximately two hours 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 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 such factors are beyond FB Financial's ability to control or predict, and listeners are cautioned not to put under your lines on such forward-looking statements. A more detailed description of these and other risks is contained in FB Financial's periodic and current reports, followed 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 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 AFI 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 Holmes, President and CEO.

Thank you, Robert. Good morning, everyone, and thanks for joining us this morning. We appreciate, as always, your interest in F&B Financial. For the quarter, we delivered EPS of 74 cents, return on average assets of 1.13%, and a return on tangible common equity of 12.4%. We've grown our tangible book value per share, excluding the impact of AOCI. at a compound annual growth rate of 15.8% since our IPO. It was a good quarter with some qualifications as the bank delivered strong fundamental balance sheet growth and profitability growth, while mortgage had a challenging quarter as they repositioned to manage through a cycle of lower volumes and margins. There are a few key items I want to highlight for the quarter. At 21.3% annualized, loan growth was very strong. Excluding PPP, we had linked quarter annualized growth over 14% in three of the past four quarters, and our year-over-year loan growth is 16%. This growth is a result of strong teammates positioned in economically vibrant markets. We continue to see good activity in our non-interest bearing deposits, excluding our mortgage escrow related deposits. We grew 6.8% linked quarter annualized. And in three of the past five quarters, we've had annualized growth over 15%. Year over year, excluding mortgage escrow deposits, we've grown our non-interest bearing deposits by 17.5%. So that's year-over-year core loan growth of 16% and non-interest bearing deposit growth of 17.5%. Asset quality continues to be very strong for us. We experienced net recoveries of three basis points this quarter. We also reduced our NPAs to assets to 44 basis points. a six basis points decline from the fourth quarter and our NPL saloons held for investment declined by 11 basis points to 0.51%. We view our banking segment pre-tax, pre-provision run rate profitability as being $44.2 million compared to $43.4 million in the fourth quarter of 2021 and $39.3 million in the first quarter of 2021. which would be year-over-year growth of 12.3%. There are a number of moving parts to that $44.2 million. And we don't give ourselves full credit for that performance in our adjusted EPS, but we feel that's around the level that our banking segment is currently producing. And we constantly look for ways to move that higher. Michael will walk you through some of the moving parts on that $44.2 million in his comments. I'd also like to discuss one piece that impacted our PTPP run rate this quarter. Our net interest income was impacted by $2.2 million in accelerated purchase accounting premium due to two purchase credit deteriorated loans paying off early. The $2.2 million had a seven basis point impact on our net interest margin, also impacting our margin. Well, the balance sheet mix shift is our average mortgage loans held for sale were $230 million lower in the first quarter than in the fourth quarter. We calculate that that had roughly six basis point impact on our net interest margin. Those two pieces combined to account for nearly the entire drop in our net interest margin from 3.19% in the prior quarter to 3.04% in the current quarter. The remaining couple of basis points mainly being a result of excess liquidity. Based on loans with the largest remaining purchase accounting premiums in our portfolio, a significant hit to our net interest income due to accelerated amortization is unlikely to repeat itself. We do forecast that the average balance of our mortgage loans held for sale will remain lower in the near term. At a $281,000 loss, mortgage was disappointing this quarter. We view losses from that segment in any order as unacceptable. A confluence of events has created a challenging operating environment in the mortgage industry, and our online direct-to-consumer channel is primarily refinance-driven and has been particularly impacted. Our common equity to tangible book value per share and tangible book value per share were impacted by $100 million unrealized loss in our securities portfolio, which is entirely interest rate related. The unrealized loss is reflected on the balance sheet as a $71.5 million accumulated other loss in the equity account this quarter, or $1.50 of tangible book value per share. We feel we maintained an appropriately sized portfolio for our balance sheet, and we didn't add longer duration securities over the past two years to juice the net interest income in the short term. While we haven't moved our portfolio to health and maturity, we don't intend to turn over the securities portfolio and lock in that loss. We view most likely resolution of the unrealized loss to be the majority of the securities in a loss position. material par over time with no long-term impact equity. In the immediate term, our stated tangible book value for share and our tangible common equity to tangible assets look a little lower, but we don't view it as permanent dilution to our tangible book, and we should experience no growth constraints as a result. So as we look to the second quarter and the remainder of the year, a few points, we expect continued loan growth in 2022. We have a very strong existing loan pipeline. Our markets continue to have a strong and ever-expanding queue of corporate expansions and relocations that are driving strong fundamental growth. I will temper that optimism a little by saying we have some known larger payoffs coming in the second and third quarters. We also continue to keep a close eye on the broader economy. However, we're bullish and very comfortable about exceeding our 10% to 12% annual loan growth guidance. We do expect continued tough sledding for mortgage. We're reducing our mortgage origination capacity and the corresponding size of our operational functions to operate through the current forecasted down environment for the mortgage industry. We're exploring technology that would create material efficiencies in mortgage production and delivery, and that excites us and keeps us bullish on the long-term value of our mortgage division. But we're not ready to put timelines or dollar impacts on that right now. Between our large cash balances and loan portfolio mix, we remain highly asset sensitive and expect the bank's profitability to benefit from the rate hikes that are expected over the remainder of the year. Our latest 100 basis point rate shock analysis shows an 11% increase in net interest income or $39 million pre-tax. Our latest 200 basis point rate shock analysis shows a 21% increase or $76 million. Hopefully, you can tell by the update that we expect mostly good things for the remainder of 2022. We're excited about the organic growth that our teammates continue to deliver, restating 16% loan growth and 17.5 non-interest bearing deposit growth year over year. In addition to our current team and successful organic growth, there's also an ever-growing opportunity to hire additional talent and attract new customers from the recent disruptions in our markets. With a banking model built on local authority, a balance sheet larger than most of our community banking competitors, and a strong corporate culture, we're perfectly positioned as a destination for those that would like a change in their current circumstances. We also have a real desire to become the community bank of choice in every market in which we compete, to give back to our local communities in a meaningful way while fostering economic development across our footprint. And we think we have the business model and the runway to do so. We believe that message resonates well with experienced banking talent and customers that are impacted by the disruption. We also continue to evaluate traditional bank M&A. There are a few strong community banks and attractive markets in our footprint. These banks have good management teams and strong core deposit bases and would be great fits with First Bank. While we're focused on our organic growth opportunities and nothing is imminent, it's possible that a transaction could come to us. As you know, we pay close attention to tangible book value dilution in addition to the EPS accretion, and our message has been consistent that while we haven't historically taken tangible book value dilution, we would take limited dilution and earn back for the right form. Past traditional banking, our technology efforts continue to advance us as we build and formalize our direction for our innovations unit. Our goals as we invest more seriously in the fintech and blockchain space are to improve the customer experience for our traditional banking customers, to remove cost through tech-enabled process improvement, and to explore how emerging technologies can help us turn our areas of expertise into profitable national brands. Our process to achieve those goals is to develop a broad network of technologists in leveraging new and existing relationships like Jack Henry and Figure Technologies. to perform, I'm sorry, to partner with quality founders and development teams within that network to bring business cases and expertise to those partnerships in order to help those developers create profitable business ventures that we can benefit from as customers, minority investors, or both. We've made ourselves an asset to the USDF Consortium by being flexible and responsive to new ideas. Our initial blockchain undertakings focus on payments as groundwork as that groundwork needs to be laid to be able to move on to everything else. We'll continue to provide updates on our efforts and progress as we have more specifics. For now, we're excited about the opportunities that we're being invited to participate in and we look forward to seeing how these things evolve. I'm now going to turn it over to Michael to discuss the financial results in a little more detail. Michael.