FB Financial Corporation

Good morning, everyone, and welcome to FB Financial Corporation's second 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 Mati, 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 are in a listen-only mode. The call will open for questions after the presentation. With that, I'd like to turn the call over to Robert Owen, Director of Corporate Finance.

Thanks, Jamie. During this presentation, FB Financial may make comments which constitute forward-looking statements under their 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 FP 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 FP Financial's periodic and current reports filed with the SEC, including FP Financial's most recent Form 10-K. Except as required by law, FP 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 SB 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 say we've heard that the presentation up in the course call app is the prior quarter's presentation. The current presentation is available on EDIR as well as our investor relations website. At that point, I would now like to turn the presentation over to Chris Holmes, SG Financial's President and CEO. Chris Holmes All right.

Thank you, Robert. Good morning, everybody. Thank you for joining us this morning. As always, we do appreciate your interest in FBA Financial. For the quarter, we reported EPS of 41 cents, an ROAA of 0.62%, and an RO return on average tangible common equity of 7.1%. Adjusted For $12.5 million of mortgage restructuring charges and $2 million of negative mark-to-market adjustment on our commercial loans self-portfolio, we delivered adjusted EPS of $0.64 a share, adjusted ROAA of 0.97%, adjusted return on average tangible common equity of 11.0%. Those returns are a little below our standard, but with some good reason. And the quarter signals some momentum that has us cautiously optimistic. We've grown our tangible book value per share, an important measure for us, excluding the impact of AOCI at a compound annual growth rate of 15.2% since our IPO in 2016. The bank had a very strong quarter of balance sheet and core profitability growth. While mortgage had a challenging quarter, they continued to adjust for expected future market conditions. A few items that I want to highlight for the quarter. At $619 million, or 31% annualized, loan growth was historically strong. With our markets and relationship managers, asset generation is not a problem. In the last 12 months, we've grown loans by $1.4 billion or 20% while not loosening our underwriting standards or expanding our credit box. In fact, in the second quarter, we became more selective in our credit process. In the second quarter alone, we estimate that we passed on well over $400 million in construction loan opportunities. and those were projects that we viewed as responsible credit opportunities that generally met our underwriting standards, but we passed as we managed our construction concentration down in the current economic environment. We also continued to see good activity in our non-interest-bearing deposits. Excluding our mortgage escrow-related deposits, we grew 16% link quarter annualized. Year over year, excluding mortgage escrow deposits, we've grown our non-interest-bearing deposits by 19%. Growing non-interest-bearing operating account relationships is a strong focus for us, and our relationship managers continue to execute well on that goal. While we saw another good quarter of non-interest-bearing growth, we saw pressure on our interest-bearing deposits, which declined by $565 million in the quarter. So that $565 million, we estimate that just over $200 million of that $200 million of that was in seasonal public funds declines that should come back into the bank as part of the annual business cycle. We had an additional $325 million in larger balances moved for higher rates that we chose not to match, and $120 million of that was also public funds relationships. We have another $400 million in high-rate public funds that we expect to exit during the second half of the year since we don't intend to renew at the current terms. We went into 2022 with a goal of growing non-interest-bearing deposits and holding our cost of deposits down, understanding this would cause our total deposit balances to move lower. We've executed on those goals. At 82% loans held for investment to deposits at the end of the second quarter, we bright-sized the balance sheet while improving the composition of our deposit portfolio. As deposit balances have moved lower in assets, particularly loans have grown faster than we expected, we will need to raise deposits in order to fund loan growth. But as we've historically done, will increase our customer relationship deposit balances and have little reliance on wholesale funding and select use of public funds relationships. Our asset quality remains strong. As our NPAs to assets and NPLs to loans, HFI remained effectively flat at 46 basis points and 51 basis points, respectively. Despite the lack of issues that we see in our portfolio, we do remain cautious in our outlook of future economic conditions. As a result, we maintained our 1.46% allowance for credit losses to loans held for investment. Paired with our loan growth, this resulted in a provision expense of $12.3 million per quarter, which compares with a release of $4.2 million in the prior quarter. That difference of $16.5 million between the two quarters accounted for a delta of $0.26 in earnings per share this quarter. We also further reduced our commercial loans held for sale portfolio this quarter. Our exposure is down to four relationships and $37.8 million. Each of the remaining relationships are sponsor-backed healthcare companies. Three of those four relationships are performing well, while one has been written down to 10% of par and has only $1.3 million of credit exposure remaining. We had a negative mark-to-market of $2 million in the quarter with that one non-performer I just mentioned accounting for a $3.6 million loss and the remainder of the portfolio delivering a $1.6 million gain for the net of $2 million per quarter. As we're close to being completely out of this portfolio and we provided updates on it each quarter, it's important to note that since the close of the Franklin merger, we've realized gains of $12.2 million above our initial mark-to-market. Outside of the large provision expense and the mark-to-market on the commercial loans held for sale portfolio, profitability for the banking segment this quarter was exceptional. We saw our year-over-year growth in adjusted banking segment PPPP of 36.1%. That growth has been driven by strong loan growth and our margin benefiting from our asset sensitivity. We see those underlying trends largely continuing over the coming quarters, which should deliver continued strong loan growth and core profitability for our banking segment. Mortgage continues to face a difficult environment and delivered an adjusted operating loss of $2.7 million during the second quarter. We've materially completed the wind down of our direct to consumer channel and made initial structure changes to our retail channel. However, with the market conditions that we anticipate over the foreseeable future, our remaining retail channel will need to continue to make adjustments over the coming months. Lastly, we were more active in our share repurchase this quarter than we have been historically. With our stock trading at what we believe were attractive valuations, we repurchased $26 million during the quarter. We were glad to retire those shares when we did, but with loan growth that we are experiencing in the economic uncertainty of coming quarters, we're not likely to be active in our repurchase program in the near term. As we look to the second half of the year, we anticipate loan growth slowing from the extreme levels that we've seen in the first half of the year to a more reasonable high single-digit, low double-digit range over the last two quarters of the year. Our local economies continue to be very strong, and we see continued demand from our customers, but we intend to be disciplined on pricing given inflation and the general economic headwinds anticipated in the near term. We expect mortgage originations to decline from the already low current levels and we're further reducing the size of our mortgage division to reflect the new market realities. We don't expect a positive net income contribution from mortgage in the second half of the year. Strategically, we continue to focus on bringing in talent that's been disrupted by the recent consolidation across our footprint. We've been able to upgrade our risk and compliance and finance and accounting teams with numerous associates that have held leadership positions at larger public banks across the southeast that have been recently acquired or are going through the process of being acquired. Michael and I continue to be impressed with the quality of resumes coming across our desks, and we continue to put people in place that will allow us to double or even triple the size of the company. We also continue to have positive conversations with relationship managers across our footprint that are evaluating new homes. We've hired 32 revenue producers through the first two quarters of the year, and those have been in every region across our footprint. With our younger executive team, our $12 billion asset balance sheet, and strong organic growth prospects, we provide exceptional runway for relationship managers to come and spend the rest of their careers at First Bank. As an update on M&A, right now we have too many impactful internal initiatives to distract the team with broad auction processes at this point. And with the pullback in the market and bank valuations, that activity has slowed anyway. We do continue to have dialogue with high-quality banks across our geography and contiguous geographies. that have indicated they may be seeking a partner over the coming months or years. We don't control that timing, but we do have active conversations. And anything we're considering at this point would be with banks we know well and geographies that we know well. Finally, our innovations group continues to have discussions with Pintac and other technology companies As customers, we look for vendors that can provide the standard technology benefits of improved back office efficiencies while making sure we're up to date with table stakes for our customer experience. As investors, we focus on areas where we have deep niche knowledge and can provide value in a partnership above and beyond what other investors would be able to provide, such as mortgage or manufactured housing. We're also interested in the propaganda strategies that can supplement our traditional local community bank customer base. With that, I'll now turn it over to Michael to discuss our financial results in some more detail.