FB Financial Corporation

and welcome to FB Financial Corporation's second 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 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 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 Law. 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 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 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 dot firstbankonline.com, and on the SEC's website at www.sec.gov. I would now like to turn the presentation over to Mr. Chris Holmes, FB Financial's president and CEO.

Right. Good morning, Betsy, and thank you to everyone for joining us on the call this morning, and thank you for your interest in FB Financial. For the quarter, we reported EPS of $0.067. and adjusted EPS of 88 cents. We've grown our tangible book value per share, excluding the impact of AOCI, at a compound annual growth rate of 12.2% since our IPO. The second quarter turned out to be a very busy quarter at First Bank and across the industry. At First Bank, the quarter began on the heels of our merger announcement with Southern States on March 31st. The very next day, our teams hit the ground running, and we quickly deployed our integration working group, began the regulatory application process, and started mapping out systems, processes, and people across the two organizations. I'm particularly proud of the teams from both companies and their responsiveness and ability to execute in such a short period of time, in such a short time frame. Within approximately 90 days, we announced the merger, applied for and received regulatory approval, and legally closed the transactions. In addition to closing the transaction, we put ourselves on track to fully convert systems, rebrand locations and markets, and integrate teams by the end of Q3. During this quarter's execution, we're also very diligent about continuing to update our acquisition playbook, so we're compounding knowledge from each transaction. We're set up very well to continue to pursue opportunities like the one with Southern States. Simultaneously to the efforts on the transaction, April 2nd brought some major news for global economies and markets and our communities. Policy announcements out of Washington, the Liberation Day, began impacting trade policy and financial markets with the announcement of reciprocal tariffs across a broad range of goods and impacting a host of nations that trade with the U.S. Financial markets saw increased volatility on the news, and we began reviewing and dissecting customer profiles to identify those that might be impacted by these policies. As the U.S. engaged in trade negotiations and made announcements of tariff delays and newly negotiated deals, we saw increased speculation in markets and volatility during the quarter. Today, it seems like the financial markets have digested this activity, along with other geopolitical events, and have become a bit more optimistic on the path forward. And our view matches that optimism. As I stated in the last quarter, whether we're faced with prosperity or uncertainty, we stick to our core beliefs, and our mission remains to build a better future for our customers, associates, communities, and shareholders. History shows that times of uncertainty or change bring the greatest opportunities, some of the greatest opportunities for success for those that are disciplined and prepared. Our teams are smart and capable. Our foundation is solid and our geography is favorable. It's because of these things that we have confidence regardless of the economic conditions or financial landscape. In the midst of a quarter filled with distractions, and heavier workloads across our executive, administrative, and operational teams, at the front line, we were still able to deliver a solid order of operating results. In addition to the activities I've acknowledged, we also executed a significant securities transaction in the quarter, selling approximately $266 million of our investment securities at a free tax loss of $60 million. The impact of this transaction seen throughout our GAAP results for the quarter, where we reported pre-tax, pre-provisioned net revenue of a negative $4.4 million and net income of $2.9 million. On an adjusted basis, which primarily emanates from the one-time events like the securities trade, our pre-tax, pre-provisioned net revenue was $58.6 million, which was a PPNR ROA of 1.81% and net income of $40.8 million. During the quarter, we grew both sides of the balance sheet on a period-ending basis. We grew loans at an annualized rate of 4.2% and deposits at an annualized rate of 7.2%. Growth numbers, while better than most, we consider to be pedestrian, but we continue to be optimistic about the second half of 25 and 2026, given the economic outlook, market strength, and pipeline activity. Our annualized growth through the first six months of the year was 5.6% in loans, helper investment, and 3.4% in total deposits. And we remain on track for the mid to high single-digit growth targets we have for ourselves. As I look forward to the second half of the year into 2026, I'm very bullish on three key areas for the company. Our earnings profile, our growth prospects, and our balance sheet strengths, all of which enable us to grow value for our shareholders. First, on our earnings profile, in the near term, the transaction with Southern States adds immediate scale and accretive earnings to the company. And with our speedy deal execution, we'll begin to see positive impacts from the deal in the third quarter. In the long term, this deal strengthens our franchise in key cities where we operate today, principally Birmingham and Huntsville, while also expanding our franchise contiguously into new markets in Georgia and Alabama. These new markets actually include a number of communities with strong growth prospects benefiting from their adjacency to Metro Atlanta. Additionally, this quarter's securities restructure transaction further adds to our earnings momentum for both the second half of 2025 and 26. Secondly, our growth prospects. Growth is one of the foundations of success in banking, and it broadly comes in two forms, organic and inorganic, and we're bullish on both forms. Organically, our markets continue to present us with opportunities to hire talented professionals and grow our new relationships. We also see opportunities on the horizon to capitalize on market disruption coming from upstream M&A activity across the industry. These put us in an enviable position. Inorganically, we're in a favorable position to see additional opportunities similar to the deal we just closed in July. earlier this month. And finally, we continue to be in a solid position on capital, liquidity, and credit. As a result, we're able to be on our toes and playing offense at a time when competitive market forces remain challenging to navigate for banks, the regulatory environment is reasonable, and bank valuations could get closer to historical levels. We think these conditions present opportunities and we're excited about those possibilities. With that, I'm now going to turn it over to Michael Matee, our CFO, to provide a deeper look at our financial results for the quarter, as well as commentary around our guidance going into the second half of the year. Michael?

Thank you, Chris, and good morning, everyone. As Chris mentioned, it's been a busy quarter at First Bank. I'll take a few minutes to walk through this quarter's earnings, and then I'll provide some forward-looking commentary on the second half of the year. Net income on a reported basis for the quarter was $2.9 million or $40.8 million on an adjusted basis, the large disparity being the securities loss that Chris referenced earlier. On net interest income and margin, we reported net interest income of $111.4 million, which represents a 3.5% increase from the prior quarter and an 8.6% increase from the same quarter last year. On a tax equivalent basis, we expanded our margin by 13 basis points in the quarter from 3.55% to 3.68%. We achieved this through a mix of loan growth and a cost of funds management, namely through managing down higher cost non-relationship based deposits. And on a dollar basis, we also benefited from an additional day in the quarter. In non-interest income, we reported a loss of $34.6 million. And that's a result of the $60 million securities trade. Absent the loss, our core non-interest income was $25.8 million, which represents a 9% increase over last quarter and an 8% increase over the same quarter last year. These gains were led by stronger swap fees, higher mortgage banking revenue, and a number of other increases across our fee categories. On the security sale, we decided to sell a group of securities that were earning 1.6% or so. in aggregate. And we'll do a couple things with those proceeds. First, we'll look to redeem our sub-debt and our trust preferreds in the third quarter. And second, we'll retain the remaining capital and cash as a way to sort of front-run our loan growth needs going into the second half of 2025. Towards the end of June, new loan yields were coming in north of 7%. So all in, we estimate this transaction and our planned deployment of funds to give us a yield pickup of approximately 6%. with a payback period of less than four years. Looking at expenses, we reported total non-interested expense of $81.3 million or $78.5 million on an adjusted basis. Our reported number includes $2.7 million of merger and integration costs, and you can expect to see that line item peak in the third quarter as we've now closed the transaction and will soon convert and integrate Southern Estates and First Bank systems onto unified platforms. On an adjusted basis, our core efficiency ratio improved to 56.9% from last quarter's 59.9%. And the same quarter last year where we reported 58.3%. Last quarter, we had some seasonal HR related expenses for stock compensation, and those did not repeat this quarter. This was partially offset by increased salary expense for the first full quarter of annual merit and increased headcount production based roles within the organization. Moving on to credit, I first want to highlight, and you'll see the mention in our deck, that we migrated to a new allowance model during the quarter. Our new model is designed to increase the granularity of our inputs, improve the precision of our forecast, and enhance our ability to review and challenge modeled results. We'll account for this change in estimate, and you can expect to see the disclosures effect in our 10Q filing in August. While there were some movements between the underlying components, In the aggregate, the model change had a net impact to the company's reserves of approximately $395,000. Provision expense for the quarter was $5.3 million, which includes the $395,000 for the model change. The remaining amount was driven by loan growth in the quarter, along with updated forecast assumptions in the model. The ending balance of the allowance for loan losses was $149 million, or 1.51%, for our loans helper investment balance. compared to 151 million or 1.54% last quarter. The ending balance in the reserve for unfunded commitments was 12.9 million and the increase was largely driven by the model change. Charge-off levels were muted this quarter as we reported 481,000 in net charge-offs or an annualized net charge-off rate of about two basis points. Non-performing loan balances did increase this quarter as we had three large credits migrate into that classification. We've been monitoring these credits for a few quarters now. Each is well secured, and we believe the loss content within each of those to be negligible. To close out my commentary on the income statement, I'll take a minute to touch on taxes for the quarter. This quarter, our total tax number was a benefit driven by a few key components. First, our reported pre-tax income figure for the quarter was negative as a result of the $60 million securities loss that I previously touched on. which created a tax benefit. Second, we had a one-time tax benefit of approximately $10.7 million in our tax line related to the statute of limitations expiring on an amended tax filing. The filing was handed properly and in a timely manner by the company, but ultimately was not accepted by the IRS, resulting in the return of funds to the company. In total, the return amount was $8.7 million. And additionally, we released $2 million in accrued interest on the previously owed amounts, which we released through tax expense upon the closure of the matter. Looking at the balance sheet, we did see both loan and deposit growth during the quarter on an ending balance basis, but we expected more. As Chris outlined, this quarter did bring unexpected macroeconomic headwinds. And as a result, we did see a number of deals in our pipeline get pushed in the second half of 2025 as many customers took a temporary wait and see approach to the uncertain and volatile market conditions. Loan growth in the quarter was concentrated within residential mortgage buckets as one to four family and lines of credit increased 56 million in aggregate, as well as commercial real estate non-owner occupied balances, which increased 45 million. On deposits, we saw an uptick in both non-interest bearing and money market accounts as our community and Metro banking teams continued to focus on growing relationships across the footprint And broker deposits were up in the quarter, which was largely a product of our liquidity management strategy. And interest bearing checking was down as we deliberately managed down a pool of higher cost non-relationship deposits. Looking at average balances in the quarter, we did see the balance sheet shrink as we saw a decline in both total assets and total liabilities, primarily due to the timing of balance movements within the quarter. Averages were impacted by the deliberate runoff of higher cost deposits that I just mentioned. which also drove the average balance decline in cash. Conversely, ending balances were impacted in large part by a large short-term public funds deposit that we retained in cash due to its short-term nature. Also reflected in cash were the proceeds from the security sale, which we'll deploy in due time. Both of those transactions took place right near quarter end. All right, so I'll take a moment to provide some thoughts on full year 25. With the completion of the Southern States merger on July 1st, our view going forward will be on a combined basis. And obviously, we'll be working through some combination in the most efficient, effective way possible. So the timing of the leverage we're pulling may vary as we get into conversion. On net interest margin, we expect our net interest margin to be in the $370 to $380 range the back half of the year. That includes the reinvestment of proceeds from the security sale this quarter and the incorporation of Southern States balance sheets. The team at Southern States obviously was also very busy in the quarter and they restructured their investment portfolio using the funds to pay off wholesale and broker deposits and optimizing capital treatment associated with their investment portfolio. The remaining proceeds from the investment sales will be utilized in the combined company to reinvest into loan growth. In non-interest income, we expect to see modest growth across various lines as we remain focused on increasing total relationships. And from a non-interest expense standpoint, We continue to have confidence in our modeled cost saves that equate to approximately 25% of Southern States annual non-interest expense. As a result, our banking non-interest expense should land between $285 million to $295 million for the full year 25. On a combined First Bank and Southern States basis, we anticipate our core banking efficiency ratio to be in the low 50s by the fourth quarter and achieve our targeted 50% efficiency ratio in 2026. Southern states' standalone efficiency ratio is historically lower than ours, and in the near term, we'll also begin to see the benefits of deal synergies that we previously modeled. Simultaneously, in our legacy First Bank franchise, we continue to drive our teams toward internal expense goals, which are more aggressive than some of the outside expectations. Acknowledging that we did have extra noise in our tax line item this quarter, I want to reiterate a forecasted effective tax rate in that 21% to 23% range for the remainder of the year. On the balance sheet, we'll continue with our strategy of working down non-core high-cost deposits, which will weigh on our average earning assets, and by year end, will be offset by core loan and deposit growth. And then finally, on capital and liquidity, We'll continue to deploy our excess capital in meaningful ways to drive shareholder value while continuing to maintain a safe and sound position for our company. And with that, I will pass the call back to Chris.