Good morning and welcome to the FB Financial Corporation's First Quarter 2024 Earnings Conference Call. Hosting the call today from FB Financial are Chris Holmes, President and Chief Executive Officer; Mr. Michael Mettee, Chief Financial Officer. Also joining the call for the question-and-answer session is Mr. 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 open for questions after the presentation. During the presentation, FB Financial may make comments which constitute forward-looking statements under federal securities laws. Forward-looking statements are based on management's current expectations and assumptions and are subject to risks and uncertainties. Other factors may cause actual results to differ materially and the 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 place 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 reconciliation of the non-GAAP measures to comparable GAAP measures is available in the 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.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. Please go ahead, sir.

Thank you, Chuck. Good morning, everyone, and thank you for being with us today. We appreciate your interest in FB Financial. For the quarter, we reported earnings per share of $0.59 and adjusted earnings per share of $0.85. Our tangible book value per share has increased at a compound annual growth rate of 13.5% since our initial public offering. We are satisfied with our quarterly results, which demonstrate significant progress toward achieving our aim of top-tier financial performance. Our adjusted return on average assets was 1.27%, with an adjusted pre-provision net revenue return on average assets of 1.63%. We also saw adjusted earnings per share grow by 10% compared to the fourth quarter of 2023 and by 12% compared to the same quarter last year. In my previous outlook for 2024, I mentioned that our strong balance sheet, reinforced operational foundation, and emerging earnings momentum positioned the bank favorably. After this quarter, I am even more confident in those points. Our capital ratios are improving, with a tangible common equity to tangible assets ratio of 10% and a total risk-based capital ratio of 15%. The composition of our loan portfolio is aligning well for a bank of our size in expanding markets. We have a construction and development concentration of 83% and a commercial real estate concentration of 255%, both as a percentage of risk-based capital. Operationally, we are doing well, with enhanced communication between our customer-facing and back-office teams. The efficiency gains from improved processes are evident, with our core efficiency ratio increasing by over 500 basis points year-over-year. Additionally, we've seen positive trends in net interest margin, non-interest income, and non-interest expenses this quarter. Our increase in the yield on loans held for investment has exceeded the rise in the cost of interest-bearing deposits for two consecutive quarters, maintaining our net interest margin at 3.42%, down slightly from 3.46% last quarter. Our mortgage business had an excellent quarter, contributing $3.1 million pre-tax, a significant improvement compared to last year. Our banking segment generated $11 million in fee income, driven by the efficiencies of our operating platform, with core non-interest expenses declining by 3.3% from the fourth quarter and more than 10% year-over-year. This led to a 12.8% growth in adjusted pre-provision net revenue compared to the last quarter. While our profitability isn't at historic levels yet, we are heading in the right direction. Looking ahead, we will focus on effectively deploying our accumulated capital to create long-term shareholder value. Our priority is organic growth, which was lacking this quarter. We did experience a $120 million reduction in loan balances, primarily due to a $128 million drop in construction lending and a $49 million payoff from a limited SNC relationship due to an acquisition. While we typically avoid SNC lending, this particular relationship fit our geographic and partnership criteria. Excluding these unique cases, we saw slight growth in the remainder of our portfolio, around 2% annualized. We are targeting mid-single-digit organic loan growth for the year, confident in the economic health of our markets, with a goal to return to our historical growth rate of 10% to 12% by 2025. We have brought on experienced revenue producers in the first quarter and continually seek to expand our team. Our favorable size and excess capital position us well to build our presence and market share, supported by strong leadership and a local authority operating model. We also plan to moderate our construction and CRE concentration ratios while shifting focus to operating accounts and C&I relationships, aiming for a C&D concentration of 75% to 85% and a CRE concentration at around 250% or less. Our commercial capabilities and treasury management team will benefit from corporate relocations and market share growth as larger competitors face disruptions. Our second capital deployment priority is strategic M&A, where we are well-positioned as a partner for smaller banks, especially given our excess capital. Our strong risk compliance and operations will help us navigate the current environment. Our third priority involves enhancing our balance sheet and earnings through capital optimization transactions. Recently, we sold over $200 million of securities and reinvested the proceeds, achieving a net spread pickup of 3.8% that impacts pre-tax income by nearly $8 million without integration risks. We're also advancing our $100 million stock repurchase plan, recently purchasing about $4.8 million worth of stock. In summary, I’m proud of our team's achievements this quarter. Our profitability metrics are moving in a positive direction, and I believe we have the necessary foundation to keep progressing. Now, I’ll turn it over to Michael for more details on our financial results.

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 $99.5 million, reported non-interest income was $8 million, adjusting for the loss of $16.2 million related to our securities restructuring trade and about $600,000 on the sale of OREO. Core non-interest income was $23.6 million, of which $11 million came from banking. We reported non-interest expense of $72.4 million and adjusting for $0.5 million of FDIC special assessment expense. Core non-interest expense was $71.9 million, $59.8 million of which came from banking. Altogether, adjusted pre-provision net revenue earnings were $51.2 million, and banking segment adjusted pre-provision net revenue earnings were $48.2 million. Going into more detail on the margin at 3.42%, our net interest margin held relatively flat with the prior quarter’s 3.46%. Contractual yield on loans held for investment increased by 12 basis points, but those gains were offset by a decline in loan fees of 8 basis points, due to a methodology update of our loan fee deferrals. Going forward, we anticipate loan fees remaining in the same relative band and having less quarterly volatility than we have seen in the past. Meanwhile, our cost of interest-bearing deposits increased by 9 basis points in the quarter. For the month of March, our contractual yield on loans held for investment was about 6.55% and yield on new commitments in March were coming in around 8.3%. As a reminder, 49% of our loan portfolio remains floating rate with $2 billion of those variable rate loans repricing immediately with the move-in rates and $1.8 billion of those loans repricing within 90 days of a change in interest rates. Of our $4.7 billion in fixed-rate loans, we have $478 million maturing over the remainder of 2024 with a yield of 6.73%. For the month of March, cost of interest-bearing deposits was 3.5% versus 3.49% for the quarter. As I mentioned on last quarter's call, we now have a significant amount of index deposits that will reprice immediately with a change in the Fed Funds Target rate. Those balances stood at $2.9 billion as of the end of the first quarter. As we made a focused effort to minimize our reliance on public funds over the past two years, that build will be less dramatic for us than it has been in the years past. And we anticipate our public funds topping out in the $1.7 billion to $1.8 billion range in the second and third quarters, as compared to the $1.6 billion that we had on the balance sheet at the end of the first quarter. On the securities portfolio, we sold $208 million of securities with a yield of 2.14% and reinvested the proceeds at 5.94%. We estimate the earn-back was just a little over two years. That transaction occurred in the second half of March, so we saw very little benefit from that trade in the first quarter. We'll continue to look for profitable deployments of capital in order to improve earnings, but without sacrificing longer-term growth, intangible book value per share. With all of those moving pieces, we expect the margin to stay relatively flat over the coming quarters in the absence of any rate cuts, as repricing loan yields and rising deposit costs continue to mostly offset each other. Moving to non-interest income, non-mortgage non-interest income continues to perform in the $10 million to $11 million range and we'd expect it to remain in that band plus or minus for the remainder of the year. Mortgage had a really strong quarter with a total pre-tax contribution of $3.1 million, which we were very pleased with. For the remainder of the year, we would expect quarterly contributions in the $1 million to $2 million range for mortgage, depending on seasonal activity and interest rate environment in any given quarter. Our non-interest expense continued to see the benefit of operational changes made over the past two years, and the core banking segment expense was $59.8 million for the quarter as compared to $62.6 million in the fourth quarter of 2023 and $66.8 million in the first quarter of 2023. At this point, we will bring our prior guidance for banking segment expenses down to $250 million to $255 million from our prior range of $255 million to $260 million. On the allowance for credit losses and credit quality, credit was mostly a non-event again this quarter as we experienced 2 basis points of charge-offs. As part of the operational improvements that we've made over the past couple years, our internal analysis on our credit portfolio continued to improve. As such, while our non-performers have ticked up over the past year, and while we're paying close attention there, we feel reasonably confident with the quality of that portfolio, and we feel comfortable that we are very well-reserved. Speaking more to the allowance, our ACL to loans held for investment increased a further 3 basis points during the quarter to 1.63%. But our provision expense was only $782,000 as continued decline in unfunded commitments led to a $1.1 million release in reserves on those unfunded commitments. On capital, as Chris mentioned, we have developed very strong capital ratios with TCE to tangible assets of 10% and common equity tier 1 ratio that is now over 12.5%. We continue to balance retaining excess capital for organic and strategic growth against optimizing near-term earnings through balance sheet restructuring with the goal of building long-term shareholder value through strong and consistent CAGRs for both earnings per share and tangible book values per share. With that, I'll turn the call back over to Chris.

All right, thank you, Michael. To conclude, we're proud of our team for a strong start to the year and for the company that they're building. So that concludes our prepared remarks. Again, thank you to everybody for your interest. And operator, at this point, we'd like to open up the line for questions.

We will now begin the question-and-answer session. The first question will come from Feddie Strickland with Janney Montgomery Scott. Please go ahead.

Hey, good morning, guys.

Good morning, Feddie.

Just want to sort of clarify on the NIM guidance. Are you expecting that to remain flat, even including that securities restructure impact?

Yeah. I mean – Feddie, we think it's going to stay in that same range. I mean, you have a little bit of public funds coming in, which is a little bit of an offset, but that's kind of around the 3.40%, 3.45% range.

Got it. And also on the funding side, I know there was a jump in other borrowings linked quarter, did you guys tap bank term funding before it closed or was that something else?

Yeah, we actually did that on the last couple days of 2023. So you didn't see it in your average balances for the fourth quarter. But that's actually with that $130 million-ish for the first quarter. And yes, it was done before it was capped.

Got it. Just one last question for me, and I'll step back. I know there's been some weakness in equipment finance, particularly over-the-road trucking at some of your peers. Am I correct in assuming you have some of that in your trucking equipment finance, maybe in that transportation segment that you break out in the deck? Can you speak to whether you're seeing any weakness there?

Yes, Travis, I'll let you comment. We do have a few sizable, long-established trucking companies that are privately owned, and the answer is no. We haven't observed any weaknesses with those clients. We do not engage in long-term equipment leasing in that sector, but we do have some trucking clients.

Yeah, that's correct, Chris. I mean, we have some well-established clients that we've been through several cycles with them. The trucking industry is obviously one that is up and down. But here recently with our trucking clients, we talked actually about this earlier this year. Very good reports from them, and we see no issues.

Understood. That's helpful. Thanks for the color guys, and congrats on a great quarter.

Yeah, thank you.

All right, thanks, Feddie.

The next question will come from Brett Rabatin with Hovde Group. Please go ahead.

Hey, guys. Good morning.

Good morning, Brett.

Good morning, Brett.

I wanted to start with the loan growth guidance of mid-single digit this year. And it's obviously for ‘25, it's low double digit. Can you guys talk about how much more you expect the construction portfolio to come in here? And then, you know, if you're going to have mid-single digit growth in construction abatement, does that mean that loan growth this year could also be, on a core basis, closer to your low double digit number?

Yes, regarding concentration, we are at 83% of risk-based capital, and a suitable range for us to operate would be around 75% to 85%. In this environment, there could be instances where the levels might fall below what some might prefer. Considering our geography, which you are familiar with, and the number of long-term clients as well as ongoing in-migration in the area, we feel confident at this level. Similarly, for our commercial real estate concentration, we believe that a 250% concentration level is reasonable and considers risk appropriately, so that's where we aim to be, with slight variations possible. Does that address your question, Brett?

Yes, to some degree that's helpful. If I consider loan demand, we've mentioned before that some people might be holding off due to rates, and many are saying that demand isn't as strong as it could be. Are you anticipating that demand will increase, which would drive loan growth moving forward? What are your expectations regarding loan demand while being selective? I noticed we're going to have a new tallest tower downtown with a significant new project.

Yeah, we're not on that one just for the record.

I know who's on that one. Yeah, it's a big project.

We're not on that one just for the record. And so, yes, demand is softer. I'd say generally across the board it's softer. It hasn't evaporated, but it's softer. And so when we look out and we go mid-single digits for the year, you know, there's a little bit of hope in that, I guess is the way I would put it because we do see softer demand. But again, I'm kind of repeating myself here, but we still do see some demand. And it comes from all parts of our footprint, not just Middle Tennessee, but we're seeing it in North Georgia, we're seeing it in Alabama, we're seeing it in East Tennessee. So we're seeing it in all those places. We have a steady flow from West Tennessee, which is a legacy footprint. And so that's kind of flat at this point. Travis, would you add any color on that?

Yeah. I mean, I think that demand has softened compared to 2022, when everybody was growing gangbusters. We still see a lot of opportunities, but we've continued to be disciplined in going after relationships and not transactions. And so that's part of it as well. And we will continue to do that. We will have some more runoff on ADC, but we're getting to the point now on ADC and CRE where we'll start replacing it with more relationships. So we just hope that the contrary from that is not as significant, as it has been the last few quarters.

Okay. That's helpful. And then my other question, Michael, was just around the loan fees and the change there. How much did that dollar-wise or margin impact the quarter relative to 4Q?

Sure.

Okay. Okay. That's helpful. Thanks for all the color guys.

The next question will come from Catherine Mealor with KBW. Please go ahead.

Thanks. I want to ask on expenses. I know that you've lowered the expense target for the core bank, Michael, just by a little bit to $250 million to $255 million. But I know that Chris, you also mentioned that you had hired a few revenue producers this quarter. And so just kind of curious on the give and take there, is all of your new hires fully reflected in the guide that Michael gave? And maybe talk a little bit about places that you're cutting and how you're able to cut expenses while you're still ramping up hiring. Thanks.

Yes. Last year, as we were planning, we made some significant expense reductions, but we also planned for some new hires on the revenue side and some investments. It was a careful process to decide on the cuts. However, I want to emphasize that we tell our leadership team and managers that whenever we have the opportunity to bring bankers into our footprint, we will seize it regardless of the expense environment. We are open to hiring whenever possible. For instance, if we had the opportunity to hire 50 people this quarter, we would, and those costs would be seen separately. While I don't anticipate hiring 50, it's possible we could bring in four or five, which might have a slight impact, but it wouldn't be significant because we have accounted for some of that in our plan.

Okay, great. As a follow-up to the discussion on deferred fees from earlier, was the primary change in the expense guidance related to that fee change, Michael, rather than anything else?

So partially, I'd say – it was a quick math, right? If you go down, it's probably 50% of it or so was the fee change. And then part of it is, we said this last quarter, and you've known us for a while, right, we're going to deliver and then talk about it. And so we continue to try to be mindful of those expense numbers and getting better about it every day through the management process. So a little bit of it's over delivery and then a little bit of it's the loan deferral change, fee deferral.

Okay, perfect, great, that's helpful. And maybe just on the buyback, it was great to see you buy back a little bit this quarter. I know, you said it's organic growth first and then buyback and maybe M&A's after that when that comes back, but is it fair to think as we move through the rest of the year, as organic growth remains slow that you'll continue to be active in the buyback really kind of until growth comes back or how do we think about that balance?

Part of the decision to buy back shares is influenced by the stock's price. When the stock is perceived as undervalued, it makes sense to purchase it. This plays a significant role in our decision-making. Additionally, mergers and acquisitions are another factor we consider. We will remain active in buybacks as long as we have the necessary approvals and the stock remains undervalued in our view. We continuously evaluate the return on that capital and adhere to specific parameters.

Great okay, thank you.

Catherine, I want to emphasize one more point regarding expenses, particularly in relation to some of Michael's comments about expense initiatives. We typically don’t spotlight these initiatives at the beginning or end of the process. However, in our previous quarter's call, we mentioned that we had reduced our run rate by $20 million. As you know us well, you can trust that when we state an amount like $20 million, it indicates that we’re confident we’ve achieved at least that. This is part of the reason we provided additional guidance this quarter.

That makes sense. And yes, you're right on that. All right, thank you, Chris.

All right, thanks.

The next question will come from Stephen Scouten with Piper Sandler. Please go ahead.

Hey, good morning, everyone.

Good morning, Stephen.

Chris, I want to clarify that when you mention organic growth, it includes the new hires and any team transitions that may happen. I’d like to confirm that. Additionally, could you discuss how you perceive that in relation to M&A opportunities today, considering the current rate environment and the return on securities, and how you expect this to evolve throughout the year and possibly into 2025?

Yes, when we discuss organic growth, we are considering the addition of new people and teams, which requires capital investment. Initially, this incurs costs, but if the investment yields the expected returns, it represents a solid return on capital compared to other options available to us. We are always focused on this opportunity and currently see favorable conditions, both in terms of our company's size and market disruptions, as well as our value proposition for associates seeking stable, long-term positions. This positive outlook is reinforced by outreach from potential partners. Regarding mergers and acquisitions, we approach this area with careful consideration due to the inherent risks, including execution challenges. Even if the financials align, successful execution is crucial and often difficult. Therefore, we remain selective and prioritize opportunities that we believe suit our strategy instead of responding to unsolicited offers. However, if a compelling opportunity arises, we will be very interested, which is part of why we maintain our current capital position to pursue such opportunities, even during challenging times that may impact our balance sheet.

Thank you for that information, Chris. As I'm considering your guidance on a relatively steady net interest margin and a potential mid-single-digit increase in loan growth for the year, do you believe we have reached or are nearing the lowest point for net interest income on a quarterly basis? In other words, do you think it’s possible to increase net interest income from approximately $100 million this quarter throughout 2024?

We believe we are in a position where we shouldn't experience much further decline. Future growth will largely depend on the increase of net interest income, which is influenced by developments on the asset side and our ability to expand that side. Naturally, we are uncertain about interest rates, and we are asking ourselves similar questions. However, we remain optimistic that we can make progress in the coming quarters while also maintaining a realistic perspective. This is why Michael’s guidance has not been overly ambitious, and we have refrained from making overly aggressive forecasts for several quarters. We have been more optimistic in most areas, achieving better results in margin and net interest income, as well as controlling expenses and non-interest income. This gives us confidence in maintaining our position. Moving forward, our focus will be on building our growth, particularly by increasing relationship-based deposits and expanding quality core loans.

Yeah, and Stephen, I just add to that. Certainly, the investment portfolio trade benefits, net interest margin, kind of back to Feddie's question, I may not have answered it really well, but I will say, new deposits are still expensive. I mean, so as you grow deposits, it can impede some of your net interest income. Hopefully, you offset that with the loan growth that Chris was just talking about, because you are earning nice-size yields, as we mentioned, 8.3% on new commitments on loans. So the math works if you can find the growth, but deposits are free, I'll say that. And so there's a balance in there, and a little bit of an unknown.

What are you seeing regarding the mixture of deposits at this time? It seems that the non-interest-bearing deposits at the end of this quarter didn't decrease much. Do you think we've moved past most of the outflows, and could the non-interest-bearing deposits stabilize around 20 percent of total deposits? What is your perspective on the mix shift?

Throughout most of the quarter, we maintained numbers similar to the previous quarter, although there was a slight decline at the end. However, we are now back above that level this quarter. The 20% figure is significant to me, as it reflects our combination with Franklin Financial in 2020, which is the pro-forma result. I hope that this serves as a minimum level, and we are actively working to exceed it. Our core operating accounts have remained quite stable.

Yeah. Okay. Thanks for that.

Thanks. We monitor this daily, and you usually see a direct comparison. It was positive for most of the quarter, and then, quite literally, it dropped in the last week. However, in the first week of the new quarter, it's risen again. Currently, it's higher than it was at the end of the quarter. To summarize, I believe we're in a stable range regarding the non-interest-bearing accounts.

That's great. Thanks for all the color and I hope you guys keep under-promising and over-delivering. We appreciate it.

Thanks, Stephen.

The next question will come from Alex Lau with J.P. Morgan. Please go ahead.

Hi, good morning. I want to start off with mortgage. Can you talk about what drove the positive contribution from the change in fair value of loans and derivatives in the quarter? And how do you think about this contribution to the $1 million to $2 million quarterly expectations in the quarters ahead?

Yeah, Alex, that's a good question. If you look at slide 14 or 15, the mortgage slide in the deck, it's really about pipeline growth. The team did a great job, even better than expected, on new rate lock commitments during the quarter. We saw an increase of about $135 million in the pipeline, which drives the fair value higher. Some mortgage rights recognize income on a pull-through basis related to the rate lock, which was a key factor. I also want to commend them on managing expenses effectively. They've done a good job there. We discuss banking segment expenses and the overall company a lot, but they continue to improve efficiency, which is certainly appreciated. Regarding how we view this going forward, I believe the fourth quarter was likely the seasonal low point, with the first quarter expected to perform better than anticipated in the marketplace. We expect things to balance out here. Typically, we would see a spike in the second and third quarters. Rates have increased significantly since the end of the quarter, which has tempered that a bit. We'll just have to see how it all plays out in relation to the interest rate environment.

The reason it's a bit challenging to forecast is that, as Michael mentioned, there’s a mark-to-market effect on your pipeline. Generally, as your pipeline increases, it tends to have a positive impact, whereas a smaller pipeline usually results in a negative impact. Our pipeline was slightly larger at the end of the quarter.

Thank you for that. And moving on to credit, regarding your commentary in the press release for the reason to adding to your loan loss reserves, you mentioned being cautious on the economy. And can you explain what asset classes are you more cautious on? And also how does this translate into your net charge-off outlook and when this is expected to normalize?

Yeah, Alex, we're paying attention to your boss's recent comments. If you examine the asset classes, you'll see that we're quite comfortable with our current concentrations. We do have some exposure to commercial real estate, though we are not overly invested in it. We appreciate how this is allocated among multifamily, office, and various other asset types. Additionally, we have a consumer portfolio associated with our manufactured housing division, which we value and that performs well for us. However, we maintain significant reserves on the consumer side. In fact, when those loans are recorded, we typically reserve at a rate of 5%.

So, Alex, I want to point out that there was an increase in the construction sector, as you can see on page 11 of the presentation. This isn't due to issues within the portfolio but rather uncertainty in the commercial real estate multi-family area, where we experienced a slight rise in our funded commitments percentage-wise. We're now trying to maintain that level amidst various challenges this quarter nationally. Regarding Brett's question about the major projects in Nashville, those are not ours, but we are being cautious about any potential ripple effects in our area. The second part of the question was about our charge-off expectations. According to our commentary in the presentation, over the last ten years, we've averaged 5 basis points annually for charge-offs, and we're starting off strong this year. We often discuss internally what the normal levels are and when we might expect them to return. If we analyze the portfolio, we would say we're still a ways off from what’s considered normal for the industry, which is typically around 15 to 20 basis points. However, we have not observed that yet, but we are staying alert to potential industry issues.

It's a challenging situation, and Michael pointed out something we've been discussing. Over the past ten years, we've averaged just under 5 basis points in charge-offs. It's important to note that our manufactured housing portfolio contributes to this; we experience some charge-offs each quarter in that area. It's similar to a consumer product like credit cards, which inevitably have some charge-offs every month. Aside from that, we haven't seen much for a decade, and we don’t believe that’s typical. We’re uncertain about when things will return to normal or what that normal will even look like. However, we are prepared for whenever it does happen.

Thank you for that. And just a follow-up on the NIM guidance. What do you assume for your rate cut outlook for this year?

We have two events scheduled, one in September and one in November, which have minimal impact. As you may know, our rate outlook has been quite unconventional, and without a clear ability to forecast credit, we may face even greater challenges with interest rates.

We are but I'm going to give Michael and team a little credit because when we built the budget back in August and September, they put two rate cuts back in August and September of 2023. They had two rate cuts, one in September, one in November, back in August of 2023. So we don't know what's going to happen but that was certainly not consensus at the time that was built into our budget and we haven't changed we just we kept it like that.

Great thanks for answering my questions.

Thanks Alex.

The next question will come from Matt Olney with Stephens. Please go ahead.

Hey, good morning. I just want to go back to the discussion around the new hires that you made. I think you touched on it briefly, but any more color on what type of bank they came from, what geography, and just how many, and then taking a step back on the loan growth guidance, just how much of the mid-single digit guidance for this year, is driven by those new hires?

Bigger banks are where they have come from.

So three of the five are bigger banks and two of them – one, they're both smaller banks.

Got it. So it's a combination of factors, and while we're seeing mid-single digit growth, that's just one aspect of the overall organic growth picture. Some of it comes from taking market share and supporting our long-time employees in expanding their businesses, as many of them have been with us for decades.

Okay. Chris, you previously mentioned that the bank is always looking for opportunities in terms of new hires based on what is available. How would you describe the current opportunities for attracting new talent in production?

I believe this is the best time for us in terms of our positioning. We are large enough to attract talent from bigger competitors, which allows them to successfully operate here. Our model, focused heavily on local authority, appeals to experienced bankers. We're noticing an increase in inbound calls, more than we typically receive. We're consistently engaging with various professionals in the market, and it seems like there are a few more bankers expressing interest in making a move. Travis agrees with this observation.

Okay, that's a great color, Chris. And then I guess going back to the M&A discussion, I'm curious what you're hearing and what you're seeing from that point of view. And it's been a quite few months, obviously, but there was a M&A deal announcement last night, so it's a good reminder that there is still some M&A. I'm curious kind of what you're hearing and seeing and just remind us of your strategic priorities when it comes to M&A.

Sure, I can address that question. Our strategic priorities begin with culture, as it's essential for us to align with organizations that share similar values. Additionally, we are keen on the deposit side of the balance sheet and value legacy deposit bases; about half of our deposits come from retail, so we appreciate having a retail component. Geographically, we are flexible and have been successful in both smaller markets and metropolitan areas, where retail bases can often be found. Naturally, we will always consider the financials, and it's crucial that the management aligns well for any venture to succeed. Strategically, we focus on areas adjacent to our current geography. Regarding the overall environment, there seems to be significant interest, likely due to the challenging operating and regulatory conditions ahead, which may lead some teams to explore partnering options. However, it's important to note that there are currently fewer qualified buyers compared to the past, partly due to the regulatory hurdles that larger banks face. Once a buyer becomes engaged, they may face limitations for an extended period, all of which fosters ongoing dialogue in the industry.

Okay. All right, guys. We'll appreciate the great commentary and great quarter. Thank you.

Thanks, Matt.

Appreciate it, Matt.

The next question will come from Steve Moss with Raymond James. Please go ahead.

Good morning.

Hey, Steve. Good morning.

Good morning, Steve.

Good morning. I know it's a small increase, but I'm curious about what drove the rise in NPAs this quarter. Also, was this related to the increase in reserves for construction?

Yeah, good morning, Steve. The increase in NPAs was, like you noted, slight. And it's really just the normal churn of the portfolio. We had several additions, but we also had several upgrades coming out of it. And we don't see anything systemic, but we haven't gotten the all-clear sign, as our Chief Lending Officer, Greg Bowers, tells us quite frequently. And then we talk about it in our earnings release, we put in some infrastructure over the last year, 1.5 year specifically around the second line of defense. And quite frankly, we just have more eyes on our portfolio than we have in years past. And that's also probably attributed to us being more timely as a recognition of loans that we need to really pay attention to.

The model highlights where risk may exist in the economy. While increases in non-performing assets do affect your reserve calculation, they are not the primary cause of the increase.

Okay, that's helpful. And then in terms of the office portfolio, Just curious, you know, I see the disclosures here on Page nine of the deck are helpful, but with the Class B and C portfolios, I see that weighted average occupancy in the 70s. Just curious, is that kind of normally where they come on? Or is that kind of an effect of just lower office rentals? Just curious, how to think about those occupancy rates and credit performance.

Yeah, usually in the B and especially the C, a lot of those relationships are value-add where people buy maybe underperforming office buildings and use their expertise to get them more performing. So the occupancy is a little bit lower and quite frankly we underwrite it to a lower occupancy rate for that very reason.

Thank you for that. Regarding the balance sheet restructuring and the transaction completed late in the quarter, it seems you are open to pursuing more transactions. I'm interested in knowing if you can provide some details on the extent of those plans, especially considering the recent fluctuations in rates, which may have altered the situation compared to a few weeks ago.

It's a lot less exciting than it was a few weeks ago. We're glad we made the move when we did. It's really about balancing priorities, as Chris mentioned, with organic opportunities coming first. If we can find the right partner, we want to ensure that the capital looks favorable in that combination. We could restructure the entire portfolio and still maintain a common equity tier 1 around 11.5% to 11.6%, which is well above the well-capitalized threshold. This would be quite beneficial to earnings per share. We review this every day and assess the entire situation, but it ultimately comes down to priorities and balancing potential opportunities. So, it's an ongoing daily discussion.

Yeah, Steve, I'll just add that if you look at our metrics, the one that's most frustrating to me is our return on tangible common equity. This isn't because our earnings are particularly poor, but rather because we have a significant amount of tangible common equity. We think about how to deploy that every day. We dislike diluting our tangible book value, so we are very careful before we take any tangible book value, as Michael mentioned, this had a 2.1 year earn back on it. We will proceed with that and that's how we approach these transactions. We're considering the dilution versus the accretion we receive from it. As Michael pointed out, we don't exclude anything, including restructuring the entire portfolio, which we could easily do without jeopardizing our capital ratios. We'll consider all of that, but we are taking action on the opportunities that make sense. We're focused on how to achieve a better return on our tangible common equity right now, and we're open to any suggestions as well.

All right. Well, I appreciate all the color. Thank you very much, guys.

Okay. Thank you. Thanks, Steve.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Chris Holmes for any closing remarks. Please go ahead.

Thank you all for being here today. I appreciate your questions and I look forward to speaking with some of you for further clarification. We value your interest in FB Financial and we will connect again next quarter. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.