FB Financial Corporation

Good morning and welcome to FB Financial Corporation's first quarter 2025 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, we have 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 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 this presentation, FB 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 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. 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, and this morning's presentation, which are available on the investor relations page of the company's website at www.fbfinancials.com. www.firstbankonline.com and on the SEC's website at www.sec.gov. I would now like to turn the presentation over to Mr. Holmes, FB Financial's President and CEO.

All right. Thank you, Drew, and thank you all for joining us on the call this morning. We always appreciate your interest in FB Financial. And before we move into our prepared comments around the first quarter, I'd like to take just a minute to acknowledge the remarkable life of Mr. Jim Ayers. Earlier this month, our former chairman, for more than 35 years, Jim Ayers passed away peacefully at his home. Many of you on this call knew Jim professionally as a strong and tough leader, but more than that, We knew him as a caring role model, a dear friend, and a relentless entrepreneur. From humble beginnings, Jim began his entrepreneurial journey shining shoes as a child in his hometown of Parsons, Tennessee. Eventually, he went on to attend the University of Memphis, where he would earn an accounting degree, start his family, and pursue his professional career. Jim started a nursing home company at the age of 26 that became one of the largest and most successful in that industry. And he'd go on to lead and grow multiple businesses, including his involvement in First Bank. Jim's success led to a friend, Steve White, approaching him about buying Farmer State Bank. Jim and Steve bought the bank, which had less than 20 million in assets at the time in 1984, with each partner owning 50%. Ultimately, Jim acquired the 50% he didn't own from his partner. And because of Jim's leadership, that single branch bank through growth and acquisition transformed into the first bank brand that we are today. While we're now a public traded company with $13 billion in assets, few know that our history beckons back to Scotts Hill, Tennessee, where to this day, the Farmer State Bank branding remains because of a handshake deal that the name of the bank would not change in that community and that Jim insisted that we honor that handshake even as we grew. It's principles like this that Jim instilled in his companies and continue to ground First Bank today. In conclusion, I'd like to honor Jim as an entrepreneur, businessman, friend, and mentor, but most of all, as a person dedicated to excellence and service in all that he did. For any of you that may not have known or known of Jim, I encourage you to look into the initiatives of the Ayers Foundation, which has already provided for the college education of thousands of students from rural Tennessee communities through the Ayers Scholarship Program. The lasting impact of Jim's life will evolve through this program and through the culture of companies like ours. With that, I'll now turn to our usual order of business. A couple of weeks back on March 31st, we announced our planned combination with Southern States Bank. In our announcement call, I discussed how the cultural fit, market opportunity, and financial profile of this combination made a lot of sense. And I can say 15 days later that our conviction around this deal is stronger today than at the announcement. In the days following our announcement, myself and our leadership team made personal visits to all the Southern States locations where we had the opportunity to meet the great people that underpin the southern states organization since then our team has established an integration office formed key work streams outlined our timelines and begun collaborations with southern states counterparts as we said previously we still envision a q3 close and our teams will be prepared this announcement rounded out the quarter for our team where we balanced our tension between the Southern States transaction and continuing to grow and improve our existing First Bank franchise. For the quarter, we reported EPS of 84 cents and adjusted EPS of 85 cents. We've grown our tangible book value per share, excluding the impact of AOCI at a compound annual growth rate of 12.8% since our IPO in 2016. Pre-tax pre-provision net revenue was $51.1 million, or $52.2 million on an adjusted basis. During the quarter, our team continued to grow organically, focusing on forming new relationships across our markets and deepening current relationships through additional products and services. As a result, loan balances grew by $169 million and at an annualized rate of 7.14%. primarily in focus areas like CNI and owner-occupied CRE, while continuing to decrease construction exposure. At quarter end, we ended with approximately $9.8 million in loans held for investment. We maintained our returns this quarter, reporting an adjusted return on average assets of 1.23%. Our adjusted return on average tangible cost of equity of 12.3% is below our internal targets, partially because we're holding a lot of capital. We ended the quarter with a tangible common equity to tangible assets ratio of 10.5%, a preliminary CET1 of 12.8%, and a preliminary total risk-based capital ratio of 15.2%. As we grow both organically and through combination opportunities like the one with Southern States, I continue to emphasize the strength of our operating foundation. Our teams and technology are in place to scale, and our financial position, capital, liquidity, credit, earnings, are all on sound footing with positive momentum. With this, we remain poised for any economic environment. Over the past few weeks, we've seen volatile markets with a flood of economic news and policies coming out of Washington. As with any change in administration, we knew that policy changes would impact the broader economic picture. Economic uncertainty has been on the rise, and we're watching and trying to determine impact on our clients and communities just like everyone else. When faced with uncertainty, we believe two things. First, our mission as an organization remains unchanged. building a better future by serving our customers and communities well, providing a great place to work and grow for our associates, and managing our organization to provide solid returns to our shareholders. While we're classified as a regional bank and we touch five states in the southeast, our focus remains on our customers and our communities. It's times of uncertainty where our customers need us most, and need us most to provide timely service, quality products, and a place of security for their financial resources, and that's what we're going to continue to do. Secondly, we also believe that history shows that times of uncertainty bring great opportunity for those that are disciplined and prepared. We believe that with a smart, capable team in place, a solid financial foundation, and a favorable geography, our company is poised to advance through any economic cycle. We'll We will, of course, continue to monitor markets, tariff policy, tax rules, regulatory requirements, and we'll react as necessary to steer our company. But in times of uncertainty, our playbook is to, first, make sure we understand, second, formulate a plan, and third, to execute. And it's through these principles that we'll view the changing landscape in the days to come. Now to provide a deeper look at the quarter's financial results and some insight into the tactical steps we're taking around the economic uncertainty, I'd like to pass the call over to our Chief Financial Officer, Michael Mateek.

Thank you, Chris, and good morning, everyone. I'll take a minute to walk through this quarter's earnings and touch on our outlook as we move through 2025. We reported net interest income of $107.6 million and non-interest income of $23 million for the quarter. resulting in solid revenue, even with two less days in the quarter. Reported non-interest expense was $79.5 million or $79.1 million on an adjusted basis, and provision expense came in at $2.3 million for the quarter. All in, reported net income was $39.4 million or $40.1 million on an adjusted basis. Looking at margin for the quarter, Net interest margin was up five basis points on a tax equivalent basis to 3.55%, which is within our previously guided range. We saw contractual interest rates on loans decreased nine basis points, while our yield on interest earning assets decreased 10 basis points to 5.91%, as the first quarter included the first full quarter of impact from rate cuts from the prior year. This impact was partially offset by yields on new loan production, which averaged right over 7% in the first quarter. On the liability side of the balance sheet, we continue to see benefits from cost of funds management and deposit repricing during the quarter. Our cost of total interest bearing deposits decreased 24 basis points, reflecting our efforts to manage downbrokered and other high cost deposit balances. We will continue to reprice these portfolios along with about 600 million in CD deposit balances that are set to renew in the second quarter. Those are at a weighted average rate of about 4.2%, and then we have an additional $775 million in the back half of the year at a weighted average rate of 3.8% that will reprice into lower market rates. On a dollar basis, net interest income was down $740,000, largely impacted by the two fewer days in the quarter, which accounted for about $2 million in headwinds, more than offset by the positive margin gains I previously noted. Through 2025, I'll reiterate our margin expectation to remain between 3.55% and 360% on a standalone basis, and once combined with southern states, we anticipate to solidify the margin in the upper end of that range. On non-interest income, we remain relatively flat, reporting $23 million or $23.6 million on an adjusted basis. Mortgage banking benefited from lower market interest rates, which benefited our lock volumes during the quarter when compared to the fourth quarter, and our mortgage servicing economics improved during the quarter as well, resulted in mortgage banking income being up about 1.8 million. These gains were slightly offset by lower swap fees and other fee-related revenue streams that were impacted by fewer days in the quarter. Looking at expenses, core non-interest expense increased to 79.2 million as compared to 72.7 million in the fourth quarter, resulting in a core efficiency ratio of 59.9% compared to 54.6% in the prior quarter. Compensation expense was higher in part due to performance-based compensation and seasonally higher HR-related expenses, such as payroll tax and 401 match restart, month of merit, long-term incentive compensation, and incremental increases in other employee-focused benefits. Finally, as we noted last quarter, we had a $2.6 million franchise tax benefit in the fourth quarter, which did not repeat in the first quarter, accounting for almost half of the quarter-over-quarter increase. Looking forward, we expect our expense range in our banking segment to approximately be $66 to $68 million in the second quarter. On credit, charge-offs remain higher than historical levels, with an annualized net charge-off rate of 0.14%. This was driven by credit in the C&I portfolio that was largely reserved for, but ultimately charged off during the quarter. In total, our allowance for credit loss balance decreased to $151 million during the quarter, and our ACL to HFI decreased to 1.54% from 1.58% from the fourth quarter. The moving pieces in our allowance include a reserve bill due to loan growth, offset by the charge off and a shift in portfolio mix from higher reserve construction loans to lower reserve CNI loans. We maintain our baseline scenario as we continue to evaluate the economic uncertainty surrounding tariffs and the ultimate impact on our customers. As we deal with the changing landscape, we're analyzing specific industries, larger relationships, and ultimately spending time with customers to understand the potential impact on their business. Finally, on capital, we continue to maintain strong capital ratios, including the tangible common equity to total assets of 10.5% and a preliminary common equity tier one ratio of 12.8%. Our team continues to look for ways to put our capital to work. For example, during the first quarter, we bought back about 10 million in stock, and we announced the combination with Southern States Bank, and after this deal, Our capital levels will remain strong and we'll be ready for additional deployment opportunities. With the ultimate aim of delivering consistent long-term growth and earnings and tangible book value for our shareholders. With that, I'll turn the call back over to Chris.