FB Financial Corporation

Good morning and welcome to the FB Financial Corporation's Third Quarter 2024 Earnings Conference Call. Hosting the call today from FB Financial are Chris Holmes, President and Chief Executive Officer, and Michael Mati, Chief Financial Officer. Also joining the call for the question and answer session is Travis Edmondson, Chief Banking 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 this 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 this presentation, Epi Financial may make comments which constitute forward-looking statements under the Federal Securities Laws. 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 Epi 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, Epi 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 FB 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, FB Financial's President and CEO.

All right. Thank you, Wyatt. Good morning. Thanks for joining us this morning. We always appreciate your interest in FB Financial. For the quarter, we reported earnings of 22 cents per share and adjusted earnings of 86 cents per share. We've grown our tangible book value per share, excluding the impact of AOCI, at a compound annual growth rate of 12.9% since our IPO. The past number of quarters, I've emphasized our operating foundation, our earnings momentum, and the strength of our balance sheet, and all of those trends continue. We reported an adjusted return on average asset of 1.25%. An adjusted earnings per share was up 2.4% from the prior quarter and up 21% year over year. While adjusted, pre-tax, pre-provision net revenue increased by 2.7% from the prior quarter, and 20% year-over-year. Our adjusted efficiency ratio remained roughly flat with the prior quarter at 58.4%. We have very strong capital ratios with tangible common equity to tangible assets at 10.4%, a CET1 ratio of 12.7%, and a total risk-based capital ratio of 15.1%. Following a further $120 million decline in construction loans outstanding this quarter, our construction and development concentration ratio is now at 69%, and our commercial real estate concentration ratio is 245%. Our current focus is on deploying excess capital to grow earnings per share and create long-term shareholder value. Our first priority for developing capital will always be organic growth. This quarter, we saw 7.2% annualized loan growth and 5.4% annualized non-brokered deposit growth. We anticipate mid-single-digit growth in the fourth quarter due to some seasonality, and we're aiming for low double-digit loan and deposit growth in 2025, with a bigger challenge there being on the deposit side with custom deposit growth. We're confident in the strength of our local economies, which continue to benefit from strong demographic trends, corporate investment, and corporate relocations, and we're well positioned to capitalize on those economic trends. This quarter, we added an additional six senior revenue producers, bringing our total hires in 2024 to 20. We have also brought on 16 additional revenue producers in our wealth management and mortgage groups so far this year. As part of those hires, we expanded into Tuscaloosa, Alabama in the third quarter, and we're excited at the way that new team has hit the ground running. As a conservatively run $13 billion asset bank with a younger management team, a local authority model, and located in some of the South's most attractive markets, we have a compelling story to talent in both our existing and contiguous markets. And we'll continue to expand as we find the right cultural fits. Our second priority for capital deployment is bank acquisitions. We remain interested in combination opportunities that align culturally, geographically, and financially. Our third priority for capital deployment is continued marginal improvement in earnings through balance sheet optimization. Michael and his team continue to execute on additive transactions. We had a securities trade this quarter as we sold $319 million of securities at a pre-tax loss of $40 million and reinvested those proceeds at a 3% higher rate than their previous yield. So to summarize, I'm proud of the team for delivering another strong quarter of profitability. We're well positioned to continue growing earnings per share and improving on that profitability. Now I'm going to let Michael go into our financial results in some more detail.

Thank you, Chris, and good morning, everyone. I'll first take a minute to walk through this quarter's core earnings. We reported net interest income of $106 million, reported non-interest income with a negative $16.5 million, adjusting for the $40.1 million loss on our securities trade and the $289,000 loss on the sale of other real estate and other assets. Core non-interest income was $24 million, of which $12.1 million came from the banking area. We reported non-interest expense of $76.2 million, $63.3 million of which came from banking. Altogether, adjusted pre-provision net revenue earnings were $53.8 million. Going into more detail on the margin, net interest margin was down a couple of basis points at 3.55% on a larger earning asset base, which led to an increase in net interest income of $3.4 million from the prior quarter. Yield on loans held for investment was flat at 6.7%, while yield on average earning assets increased by four basis points from the prior quarter, primarily as a result of our 39 basis point increase in yield on securities during the quarter. We completed our securities trade in late August, and so we had one month of impact baked into our results this quarter. On the liability side, cost of non-brokered interest-bearing deposits increased by four basis points during the quarter, from 3.49% to 3.53%, and costs of total interest-bearing deposits increased from 3.52% to 3.58%. We made some changes with our wholesale funding composition as we increased broker deposits by $369 million, while paying off $179 million of borrowings, including $130 million from the bank term funding program. For the month of September, our contractual yield on loans held for investment with 6.68% versus 6.62% for the quarter, and yield on new commitments in September were coming in around 7.8%. About half of our loan portfolio remains floating rate, with $2 billion of those variable rate loans having repriced immediately with the recent move in rates, and $2 billion of loans that were repriced by the end of the fourth quarter. Of our $4.8 billion in fixed rate loans, we have $150 million maturing over the remainder of 2024, with a yield of 6.69%. In 2025, we have $459 million maturing with a yield of 5.83%. For the month of September, cost of interest-bearing deposits was 3.55% versus 3.58% for the quarter, and cost of non-brokered interest-bearing deposits was 3.49% versus 3.53% for the quarter. As I have noted previously, we now have a significant amount of index deposits to reprice immediately with the change in the Fed Fund's target rate. Those balances stood at $2.7 billion as of the end of the third quarter. For the fourth quarter, we expect margin to be in the 350 to 360 range following September's 50 basis point rate cut and expect to stay relatively flat around that range with future measured interest rate cuts. Moving to a adjusted non-interest income at 12.1 million core banking non-interest income was again stronger than expected driven by investment services income our baseline expectation in the given quarter is maybe slightly higher now 11 to 12 million dollars mortgage had another profitable quarter with a total pre-tax contribution of 575 000. we expect mortgage to continue to perform in this range for the balance of the year and are focused in on continuing improvement of our efficiency in this business in 2025. We continue to focus on managing our expenses and core banking expense with $63.3 million for the quarter as compared to $61.3 million in the second quarter and $63.9 million in the third quarter of 2023 as we added relationship managers and increased our accrual for short-term incentive compensation. We expect banking expenses of 63 to 65 million in the fourth quarter, leading to total bank expenses for the year of 248 million to 250 million. For 2025, we would expect 4% to 5% expense grade for the company, excluding any large team lift-out opportunities. On the allowance for credit loss and credit quality, credit quality remains sound this quarter as we experience three basis points of charge-offs. Our non-performing loans, to loans held for investment did tick up and is at 0.96%. The increase is driven by two commercial credits, which we expect minimal if any loss content, and some softness in our consumer loans, specifically mortgage and some manufactured housing loans. These consumers are generally more affected by upticks in unemployment and inflation, and we've seen some impact of that in our portfolio as it appears to be returning to pre-COVID levels. Speaking to the allowance, our allowance for credit loss to loans held for investment was at 1.65% at the end of the quarter, as our outlook on the economy remained roughly the same as the prior period. On capital, and as Chris mentioned, we've developed very strong capital ratios with TCE tangible assets of 10.4% and common equity tier one ratio of 12.7%. We continue to focus on the best ways to deploy that capital to deliver consistent long-term growth and earnings, and tangible book value. I'll now turn the call back over to Chris.