FB Financial Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 15, 2025

Key Takeaways

  • Combination with Southern States Bank solidified, targeting a Q3 close with integration plans underway.
  • First-quarter EPS of $0.84 (adjusted $0.85) and 12.8% CAGR in tangible book value since IPO, plus $169 million loan growth at a 7.14% annualized rate.
  • Net interest margin rose 5 bps to 3.55% while cost of interest-bearing deposits fell 24 bps, with pro forma margin expected at the high end of 3.55–3.60%.
  • Core noninterest expense increased, lifting the efficiency ratio to 59.9% in Q1 due to higher compensation and lack of last quarter’s tax benefit; Q2 expense guide is $66–68 million.
  • Strong capital ratios of 10.5% tangible common equity/asset, 12.8% CET1, and 15.2% total risk-based capital support further share repurchases and growth investments.
AI Generated. May Contain Errors.
Earnings Conference Call
FB Financial Q1 2025
00:00 / 00:00

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Operator

Good morning and welcome to Financial Corporation's First Quarter twenty twenty five Earnings Conference Call. Hosting the call today from FB Financial are Chris Holmes, President and Chief Executive Officer and Michael Matti, Chief Financial Officer. Also joining the call for the question and answer session, we have Travis Edmonson, 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.

Operator

At this time, all participants have been placed in a listen only mode. The call will be opened 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

Operator

Financial's 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 ks. 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.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.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

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 first quarter, I'd like to take just a minute to acknowledge the remarkable life of Mr. Jim Ayers.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Earlier this month, our former Chairman for more than thirty five 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.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

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 $20,000,000 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 $13,000,000,000 in assets, Few know that our history beckons back to Scottsdale, 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.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

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 is 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 31, we announced our planned combination with Southern States Bank.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

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 fifteen 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.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

This announcement, rounded out the quarter for our team where we balanced our attention between the Southern States transaction and continuing to grow and improve our existing FirstBank franchise. For the quarter, we reported EPS of $0.84 and adjusted EPS of $0.85 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. Pretax pre provision net revenue was $51,100,000 or $52,200,000 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 $169,000,000 and at an annualized rate of 7.14%, primarily in focus areas like C and I and owner occupied CRE, while continuing to decrease construction exposure.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

At quarter end, we ended with approximately $9,800,000 investment. We maintained our returns this quarter reporting an adjusted return on average assets of 1.23%. Our adjusted return on average tangible common 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.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

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 the 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.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

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 need us most to provide timely service, quality products in a place of security for their financial resources and that's what we're going to continue to do. Secondly, we also believe the history shows that times of uncertainty bring great opportunity for those that are disciplined and prepared.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

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 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 Matti.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

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 $107,600,000 and non interest income of $23,000,000 for the quarter, in solid revenue even with two less days in the quarter. Reported non interest expense was $79,500,000 or $79,100,000 on an adjusted basis and provision expense came in at $2,300,000 for the quarter. All in, reported net income was $39,400,000 or $40,100,000 on an adjusted basis.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

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 down brokered another high cost deposit balances.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

We will continue to reprice these portfolios along with about $600,000,000 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 $775,000,000 in the back half of the year at a weighted average rate of 3.8% that will reprice in the 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 $2,000,000 in headwinds more than offset by the positive margin gains I previously noted. Through 2025, I'll reiterate our margin expectation to remain between 3.553.6% 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 $23,000,000 or $23,600,000 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 $1,800,000 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 $79,200,000 as compared to $72,700,000 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 four zero one match restart, and month of merit, long term incentive compensation and incremental increases in other employee focused benefits.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Finally, as we noted last quarter, we had a $2,600,000 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 66,000,000 to $68,000,000 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 and I portfolio that was largely reserved for but ultimately charged off during the quarter. In total, our allowance for credit loss balance decreased to $151,000,000 during the quarter and our ACL to HFI decreased to 1.54% from 1.58% from the fourth quarter.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

The moving pieces in our allowance include a reserve build due to loan growth offset by the charge off and a shift in portfolio mix from higher reserve construction loans to lower reserve C and I 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 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.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

For example, during the first quarter, we brought bought back about $10,000,000 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 in earnings and tangible book value for our shareholders. With that, I'll turn the call back over to Chris.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

All right. Thanks, Michael, for the color. And to conclude, I'm pleased with our results for the quarter and look forward to keeping you all updated as we move through the combination with Southern States over the coming months. Thank you again for your interest in FB Financial. And operator, at this time, we'd like to open the line for questions.

Operator

Yes, sir. We will now begin the question and answer session. The first question comes from Stephen Scouten with Piper Sandler. Please go ahead.

Stephen Scouten
Stephen Scouten
MD & Senior Research Analyst at Piper Sandler Companies

Hey, good morning everyone.

Stephen Scouten
Stephen Scouten
MD & Senior Research Analyst at Piper Sandler Companies

I guess I would love to touch on kind of loan growth trends what you're seeing kind of boots on the ground. Obviously, the markets are telling us one thing about uncertainty. People are getting maybe a little bit more spooked about C and I lending just at a high level. So I'm wondering if you could give us some color kind of what you're seeing and hearing from your customers, how you feel about continued growth in C and I and kind of how you're thinking about loan growth for the rest of the year given all the uncertainty?

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Yes. Hey, Stephen. Good morning. It's Chris. So I would say a couple of things.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

I'd say at the macro level, Travis, I'm going let Travis comment because our Chief Banking Officer who's with us this morning. But I would say from macro level, you do hear some reticence about major projects and major moves. But I think at little more micro and client level, you generally get again, some of the same, but on a smaller to a smaller degree continuing to move forward with more business as usual, but maybe some aversion to new big projects until there's a little more of a stable path forward. So Travis, would want ask that, to clarify on that?

Travis Edmondson
Travis Edmondson
Chief Banking Officer at FB Financial

Yes. Yes, that's right, Chris. Across our geographies, our pipelines actually remain fairly robust. We haven't seen a drastic movement in our anticipated loan activity throughout the rest of this year. Now that could change based on how all these things land, but every time you read the paper, it's a little bit different.

Travis Edmondson
Travis Edmondson
Chief Banking Officer at FB Financial

But as of today, I think our outlook remains in that high single low double digits area.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Yes. True. And good. We look more near term, we haven't seen a lot of fallout is the fact of the matter on the near term, so the very near term.

Stephen Scouten
Stephen Scouten
MD & Senior Research Analyst at Piper Sandler Companies

Got it. Okay. That's very helpful. And how about Asheville and Tuscaloosa How I mean, I know it's still really early innings there as you continue to build out kind of in those new markets.

Stephen Scouten
Stephen Scouten
MD & Senior Research Analyst at Piper Sandler Companies

But what are you seeing there maybe even anecdotally and just kind of how you feel about the pace of expansion in those newer markets?

Travis Edmondson
Travis Edmondson
Chief Banking Officer at FB Financial

Yes. Hey, this is Travis again. We feel really good about both those markets. Tuscaloosa has gotten off to a real strong start. The team down there has already brought on a lot of key relationships.

Travis Edmondson
Travis Edmondson
Chief Banking Officer at FB Financial

The Asheville team, with all that they've been through second half of last year, they had more important things to worry about, getting their families back situated. But we're starting to see that pick up too throughout the first quarter and we expect a lot of momentum to continue in both those markets throughout this year.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Yes. And Stephen, I'll just add to that. Yes, this is Michael. We did hire nine new revenue producers in the first quarter and those are two places where we've continued to add talent. And it appears and we're hearing that momentum will continue as grow there.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

So we're very, very positive on Tuscaloosa Nashville and the opportunity.

Stephen Scouten
Stephen Scouten
MD & Senior Research Analyst at Piper Sandler Companies

Okay. That's helpful. I'm sorry.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

John. I'll just add one last point is, in both of those markets, we didn't jump at the first opportunity we had to go there. In each of those, we've had we've entertained opportunities before, but we the quality of the people make all the difference in the world. And so we really pleased with our teams there and we have in both of those places entertained opportunities before we actually pull the trigger.

Stephen Scouten
Stephen Scouten
MD & Senior Research Analyst at Piper Sandler Companies

Got it. Got it. And that new hire activity is helpful. I think if I'm looking at my notes correctly, you had nine new revenue producers in the fourth quarter as well, maybe like 32 for the year last year. So is that kind of a ratable pace at this point?

Stephen Scouten
Stephen Scouten
MD & Senior Research Analyst at Piper Sandler Companies

Or does that slow with the Southern States merger or do you kind of just continue to add personnel given all the excess capital and the desire to kind of continue to build the franchise?

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Yes. No, we don't want that slow. We want if anything we wanted to gain momentum and we I made reference in our call. I think I may have used this phrase on the call. I know I used it internally.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

We have to walk and chew gum at the same time. And so we want to continue to add in that in our existing markets as we add new markets through the combination with Southern States. And so we'll continue to we'll aim to continue that pace.

Stephen Scouten
Stephen Scouten
MD & Senior Research Analyst at Piper Sandler Companies

Okay, great. And one just point of clarity, with the share repurchase, I mean, it looks like if

Stephen Scouten
Stephen Scouten
MD & Senior Research Analyst at Piper Sandler Companies

I'm doing the math right, you bought back stock around $48 in the quarter. Obviously, unfortunately, it's trading a bit lower than that today. And if I'm doing the math right, you have maybe $73,000,000 left in that authorization. How should we think about the potential aggressiveness at these levels with the deal pending?

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

We have the capital and we want to and we do have $73,000,000 as you said, we've got about $73,000,000 remaining on the authorization. And so when we think the stock is undervalued, then it's going make sense for us to be in the market. And so I would think of it as if we think the stock is undervalued, then we're going be in the market.

Stephen Scouten
Stephen Scouten
MD & Senior Research Analyst at Piper Sandler Companies

Great. Thanks so much for the color. Appreciate the time with Owens.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

All right. Thanks, Steve.

Operator

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

Brett Rabatin
Director of Research at Hovde Group

Hey guys, good morning.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Good morning, Brett.

Brett Rabatin
Director of Research at Hovde Group

Wanted to start off with the balance sheet and last year you started off the year kind of in the same way where the balance sheet overall is kind of flattish in the first half of the year and then the growth really took off in the back half of the year. And with the deal pending, it kind of looks to me like you're managing the deposit costs. Obviously, you'll have some liquidity with the deal. You use some during the quarter with cash balances lower. Should we expect 2Q to be similar and you guys are kind of just managing deposit costs until the deal closes?

Brett Rabatin
Director of Research at Hovde Group

Or should we expect stronger balance sheet growth irrespective of the transaction?

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Yes, Brett. Good morning. Yes, I guess the quarter did look a lot like last year in the way that I'd even equate the quarter front half, back half, most of the loan growth occurred in March really had a lot of payoffs early in the quarter. So there was no reason to kind of be overfunded on some of the higher cost deposits. We paid down brokered by about 50,000,000 So we'll continue to manage as we have been, balancing liquidity, margin, growth.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

But as Travis mentioned, our pipelines are pretty strong, which means we always say the same thing internally and externally, we've got to continue to grow core relationships and deposits. And so that's what we're out focused doing every day is try to get operating accounts and core customers. And so if there's people willing to pay what we consider to be above market on deposits that's kind of excess interest or hotter money, then it doesn't always make sense for us to hold on to them if you can find cheaper. And so that's kind of the way we approach it. Our markets, customers up about 9%, ten % in the quarter and some of that more corporate type deposit activity was what balanced us out to flat.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

So it's managing the balance sheet. We'll continue to do that as we go into the combination, but also just part of our ethos.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Yes. And I would just add one thing to that Brett is, there's always as you know, I mean, there are always numbers moving underneath the surface and so that we try to bring to light on calls like this. And so if you looked at actually our core customer numbers on deposits, they would actually be pretty good for the first quarter. And if we can but we also as Michael said, we were able to take some higher cost stuff and just let it go frankly. That wasn't really what we'll call core customer. They were deposits, but they weren't they were really price based versus core customer.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

And so if we continue, which and we anticipate we will to have good core customer through adding customers and growing balances, then we would see a little more actually, I'll call it, total asset balance sheet growth in the second quarter as opposed to just in the back half of the year. So we do want to do that. As Michael said, an important point, we didn't really see the loan growth come in until March. We're monitoring the pipelines. We kind of knew what was going to happen there.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

And so it was okay with us to have a little bit less of some high cost stuff in that went out in the first quarter that netted to an okay growth number, but underneath we were actually pretty happy with it.

Brett Rabatin
Director of Research at Hovde Group

Okay. That's great color on that. And then the other question I wanted to ask was just around construction. And I think this is the first quarter and at least the last four or five that you've actually had an increase in commitments to construction. And it worries me a little bit that Nashville wants as many hotel rooms as they do to host the Super Bowl, but we'll see how that plays out.

Brett Rabatin
Director of Research at Hovde Group

Just wanted to hear what you guys thoughts on the increase in construction commitments and just if you think there's opportunities in that particular bucket from here?

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Yes. So we're still on our concentration ratio about 64%. And so we're still in good shape there from a risk overall risk standpoint. And so that doesn't bother us. And remember not all of our construction comes in also Knoxville and Chattanooga and Dalton and Birmingham and so it's kind of spread around.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Nashville continues to be the strongest geography in our region, but we're watching some of the same things that you talk about. We haven't booked hosting the Super Bowl yet, but we're hopeful. And so we are I guess the way we would be envision it would be we think about our hospitality concentration number overall. We manage that. It's certainly our range in terms of concentration.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

And but the hospitality space especially in certain markets is one that we watch carefully including frankly Nashville right now. Are there's a ton of supply. If you've noticed on sales of hotels recently, they seem to have kind of capped out and they're kind of actually backing off a little bit on cost per door things like that. And so we're watching those and not adding a lot to that hospitality concentration right now. We do have I can think of one deal that we do have.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

It's actually not in Nashville, but it's with and this is what we're going look at more than anything. It's with a customer that we know well. We've done tons of transactions with and they guarantee it and we're happy as a clam to get to do it. Okay. But again that one happens to not be in Nashville.

Brett Rabatin
Director of Research at Hovde Group

Okay. Great. Appreciate all the color.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Thanks, Brett.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Thanks, Brett.

Operator

The next question comes from Russell Gunther with Stephens. Please go ahead.

Russell Gunther
Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

Hey, good morning guys.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Good morning, Russell.

Russell Gunther
Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

The margin, so legacy FPK near term outlook, one, could you just let us know what you're contemplating from a Fed cut and shape of the curve perspective in there? And then second part, the kind of pro form a NIM guide around $360,000,000 Does that consider plans to liquidate the target securities portfolio and either reinvest higher or pay down borrowing?

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Hey, Russell. Good morning. Travis mentioned that every time we pick up the newspaper, the economic outlook changes. I actually don't read the newspaper. I use electronic stuff to track the economy. So I think, yes, use X, I guess.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

That was a not so subtle.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Yes.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Not so subtle, Josh Kratz.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

No, we're more advanced. I just want to say we're more advanced than the paper newspaper. But we're not smart enough to predict rates, at least I'm not. What we have in the model is basically two rate cuts, which is what we've had the whole year. I would say, we were expecting steepness in the yield curve and over the past two weeks, it's inverted, uninverted.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

And so we're playing right along with whatever is happening right now. So from a forecast perspective, we just haven't we haven't changed from the beginning of the year because just like on tariffs, whether we're picking up the newspaper or turning on the TV, it's like chasing ghosts at this point. So we expect more status quo deposits to reprice lower loans, reprice modestly lower as well and that's why we're pretty stable in our margin outlook. Obviously the economy is kind of a wildcard. The combined entity, like I said, we're on the high end.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

The prior question was really about liquidity and gaining some liquidity and maintaining that. And so we're kind of playing that by year as the economy plays out. There's certainly room to liquidate the investment portfolio and reinvest. We'd love to reinvest right in loans, not in bonds, not a whole lot of wholesale funding to pay down, but there's some upside there. Some of it, I'll call conservatism in the guide is we just we don't know what's happening while we're on this call globally from an economic basis. We'll just keep doing what we're doing.

Russell Gunther
Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

Yes. No, I fully understand and appreciate the color in your guys' thoughts there. Maybe then switching gears to fee income and the mortgage banking outlook, you addressed the somewhat stronger performance this quarter. How are you guys thinking about that in 2Q relative to the 1Q result and then the impact that might have on the aggregate non interest expense guide for 2Q?

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Yes. Actually, I'm glad you brought mortgage up. We're pretty we're pleased with their performance. We're not expecting a great first quarter given where rates were in housing and affordability. So strong quarter from a, what we'll call operating basis, money on the pure origination basis.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

And then servicing we had less loans refinance or pay off and so that helped on servicing income as well. The volatility helped with kind of hedge performance. So early April, I'd say we were off to a pretty good start when the ten year went down below 4%. A lot of momentum has slowed a little bit, but pipelines, Travis mentioned pipelines on the commercial side, spent some time with some of our originators on Sunday and they said, hey, our pipelines, people are just waiting, ready to go if rates move lower. Lot of volatility of 100 basis points in rate range and mortgage in two weeks, which could dampen some of that enthusiasm, would dampen if it stays in the upper sixes.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

So there are five straight quarters of profitability, actually probably a little bit longer than that. And so we expect that to continue. We'd love to see similar performance, but it's also very economically dependent. And then for the NIE guide in total, we kind of think about it right as we'll take additional non interest expense right in mortgage as long as we're getting that efficiency ratio in that mid-80s. We'd love to be low to mid-80s, got a little bit of work.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Low to mid-80s on mortgage.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

On mortgage, yes. Thank you. Clarifying point. And so that NIE will go up.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

It's generally why we point to banking is because that's a little bit of a wildcard because it follows revenue.

Russell Gunther
Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

It. Okay. Thank you, Michael. And then just last one for me, sort of on your charge off expectations for the year. Last couple of quarters have been really credit specific.

Russell Gunther
Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

So just curious as to line of sight you have going forward. And then if there were to be negative surprises or weakness related to the current macro volatility, where would you be most concerned about that showing up in your book?

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Yes. So I'll go first. A couple of things. I'd we expect the year to actually be probably a little less than where we started the year in the first quarter. So we've historically if you go back that's about eleven or twelve years, we've historically been a little less than where we are.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Looks like that would be kind of where we'd stay for the year would be a little below where we were in the quarter. And then the second part of your question on where we would expect things, where we've seen things has really been on the C and I front as opposed to more on the real estate front. And so that's probably that continues to be the case. We've seen a real estate bump or two, but they haven't they've just been things that we needed to work through as opposed to things that had any charge off or loss content to them. So that's been the case.

Travis Edmondson
Travis Edmondson
Chief Banking Officer at FB Financial

Yes. And just to give some color around the charge off this quarter, that's a company that we've been working with for over eight years. They got into a bad contract and a long lawsuit and they've very forthcoming with their issues and we've worked with them. It just came time where we needed to charge off the credits. But overall, our NPAs and NPLs both improved this quarter.

Travis Edmondson
Travis Edmondson
Chief Banking Officer at FB Financial

So we're seeing some positive trends. And I would just echo Chris, we don't expect elevated charge offs through the remainder of the year from where we were in the first quarter.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Yes. And Travis and I talk about this a lot, but 14 basis points on a kind of industry wide is I'd say pretty good word by your team. And so elevated at 14 basis Yes.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

That's what I was going to take note of the fact that Travis used the word elevated with 14 And so that's kind of that's any indication.

Russell Gunther
Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

Yes.

Russell Gunther
Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

No, I understand and appreciate you guys taking my question.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Thanks Russell.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Thanks Russell.

Operator

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

Catherine Mealor
Managing Director at Keefe, Bruyette & Woods (KBW)

Thanks. Good morning.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Good morning.

Catherine Mealor
Managing Director at Keefe, Bruyette & Woods (KBW)

Just one follow-up question on expenses. You kind of came into the high end of the range that you gave last quarter, Michael. And then I feel like for the full year, you had been talking about a 4% to 5% kind of growth rate. But if we look at the range of expense guide that you gave for next quarter and just bring that for the full year, it looks like we're now at like around a 9% or so growth range. And so just kind of curious where that higher expenses is coming from?

Catherine Mealor
Managing Director at Keefe, Bruyette & Woods (KBW)

I'm assuming it's just from the hires that you've continued to have. And so just curious if that does anything to kind of forward thinking on efficiency? Or with that higher expense level, I'm assuming we should assume revenue comes pretty quickly with it. But just kind of curious what maybe changed since last quarter? Thanks.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Good morning, Catherine. You're quick on the modeling I guess.

Catherine Mealor
Managing Director at Keefe, Bruyette & Woods (KBW)

There were a lot of questions before me so I was able to do a little work.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

So yes we were on the higher end a little bit of that or most of it was kind of compensation related things that kicked in. The clock starts on expenses on day one at midnight and the revenue did come is coming later in the quarter. So we expect that operating leverage to pick back up. There are couple of lumpy things in the first quarter that led to the miss. Yes, so we had a pretty good year in 2024, so proud of that.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

But that leads to higher payroll taxes in the first quarter and some RSU awards that we had a little quirk that gets expensed in the first quarter. And so that lumpiness kind of comes out through the rest of the year, which enables us to perform at a more normal expense base. We have hired as already mentioned on the call, a significant amount of revenue producers and you just said that there's a lag there, which can push our expense base higher. 9% would not be something that would be digestible in this room. And so it would be on the lower end of that.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

I think if you look in that five to 7% range, 5% to 6%. So certainly slightly higher. We've invested a lot in our employees, our associates and we're happy about that. We think it's deserved, but there's a couple of things that were a bit higher this quarter that we'll get back in line.

Catherine Mealor
Managing Director at Keefe, Bruyette & Woods (KBW)

Okay. That's helpful. So don't take this 66,000,000 to $68,000,000 run rate into next quarter and then grow that. We might even kind of see that come to the lower end of the range as we get to the back half of the year.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

That's right. It's more about stability in that number than a growth off that number.

Catherine Mealor
Managing Director at Keefe, Bruyette & Woods (KBW)

Okay. That's great.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

That makes sense.

Catherine Mealor
Managing Director at Keefe, Bruyette & Woods (KBW)

That's helpful. Yes, it definitely does.

Catherine Mealor
Managing Director at Keefe, Bruyette & Woods (KBW)

Okay. That's great. And then I think you touched on this a little bit earlier too, but just on the growth piece, can you help us just kind of think about the risk of CRE paydowns as we get to the back half of the year and how sensitive you think that is to the ten year and kind of any large payoffs do you see kind of a head that may offset some of the new origination growth that you're seeing?

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Yes. Paydowns, I'm kind of think about it all the way through 2026, probably roughly 20%, twenty five % of the book matures, call it in the next, what is that, nineteen months or so, eighteen months. Should reprice higher actually, we have seen some really good activity on which we take as a positive although it moves off the balance sheet. In the first quarter, we had some elevated payoffs. Chris mentioned multifamily.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

We had some things go to the permanent market when rates dipped. I'd say Black actually went to dip below four fifty ish down in that 04/25 range. So we did see elevated payoffs, that's opportunity for us. We've got really strong relationships. Chris mentioned the construction one.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

These are reoccurring customers. So while they may go to the permanent market, generally we're in the driver's seat for the next deal. And so that's a positive. The CRE piece of it, our credit team, every month we get a report and they're looking at individual credits and their reprice risk and debt service ratios and making sure that everything is still cash flows. We I'll let Travis opine, but we haven't seen anything of concern and we've been able to overcome kind of the payoff side with growth as well.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

So we expect that to continue, but I'll let Travis.

Travis Edmondson
Travis Edmondson
Chief Banking Officer at FB Financial

No, Will said, no, we do expect to continue to see just the cycle of our business, right, where we bring on a project, the project goes to permanent market, which is a good thing for our overall health of our borrowers. So we don't expect much change over the next eighteen months with that.

Catherine Mealor
Managing Director at Keefe, Bruyette & Woods (KBW)

Great. Thank you. And our condolences to Mr. Ayers' family and friends. I've really enjoyed working with him over the years and he does leave an incredible legacy.

Catherine Mealor
Managing Director at Keefe, Bruyette & Woods (KBW)

So I appreciated your comments at the start of the call, Chris. Thanks.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

All right. Thank you so much, Kevin.

Operator

The next question comes from Christopher Marinac with Janney Montgomery Scott. Please go ahead.

Christopher Marinac
Christopher Marinac
Director of Research at Janney Montgomery Scott

Hey, thanks. Good morning. Chris, it's been two weeks since our last call with you and all of this external noise. I'm just curious to what extent this may or may not influence kind of how you think of the reserve in future quarters. And I appreciate the detail on the slides about how you allocate.

Christopher Marinac
Christopher Marinac
Director of Research at Janney Montgomery Scott

I'm just kind of curious if that is going to lead to behavior change for you or even to what you see your customers doing these next several months?

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Yes. Been two weeks, but it feels like two months, maybe even two years, given all that's transpired. Remember, we added add to that in our case the loss of Mr. Ayers and all that goes around that. And so it's been it has been a very eventful two weeks.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

And so you sort of a tired crew sitting around the table this morning. So Michael, might let you comment on how we think of that.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Yes. Morning, Chris. So it's interesting we've debated this pretty heavily internally. The Moody's model, we're using Moody's baseline, actually in the first quarter had economic improvement, There wasn't any tariffs loaded into things. There was a lot of noise.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

So we still with baseline, but we make sure that we felt like the ACL was appropriate for the risk we knew about at the time. And again, Travis mentioned, every time you start looking at a portfolio and start going down a path, you see the next news flash that says, yes, that's off. So the benefit of our banking model and our style of banking is we spend a lot of time with our customers, our relationship managers are in contact with our customers a lot. And so we're spending a lot of time focused on individual credits and relationships and industries to try to figure out what that should look like. And on top of that, with Southern States, we have very similar balance sheet profile fixed and floating that combined the combined entity looks very good.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

And so we've got some credit mark in there that brings their ACL up to ours. And so we should be appropriately reserved there as well as we kind of wait to see what happens. And it's a minute by minute kind of exercise at this point and we hope that we get some more consistency as we kind of look forward.

Christopher Marinac
Christopher Marinac
Director of Research at Janney Montgomery Scott

Great.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Hey, Chris. Can I I'm going add just one thing to Sure? And as we think about it, we build our balance sheet and one of our I guess even dropping back from that, key part of our value proposition frankly is just peace of mind and we want to make sure our customers and our associates have that. So that we look at volatility or potential I won't use the R word, but potential challenges down the line as frankly times of opportunity. And so we look at our if you look at where our capital is, if you look at where our reserves are, if you look at the granularity of our balance sheet and you look at the geographic diversity of our balance sheet, all of that makes for a very high degree of stability especially in rocky times. And so you won't see us you'll see us continue to keep all of those things in force, especially over the next couple of quarters as we're working through. So you'll see us continue to maintain pretty high capital level, high levels of reserve. So you'll see us intentionally do that, maintain those at least through the next couple of quarters.

Christopher Marinac
Christopher Marinac
Director of Research at Janney Montgomery Scott

Great. Thank you both for that color. And I guess my only follow-up just as I know it's early, but if you think of a range of outcomes, is it possible that customers want to build more lines of credit with you and or tap those as we head into the next few months?

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Yes, I think absolutely it's possible.

Travis Edmondson
Travis Edmondson
Chief Banking Officer at FB Financial

Yes, it's very possible, but our utilization on our lines year to date has been very stable compared to historical numbers, but that is a possibility that we're keeping an eye on.

Christopher Marinac
Christopher Marinac
Director of Research at Janney Montgomery Scott

Sounds good. Thank you all. Appreciate it.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Thanks, Chris.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Thanks, Chris.

Operator

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

Steve Moss
Steve Moss
Director - Banking & Arlington at Raymond James Financial

Hi, good morning.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Good morning, Steve.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Good morning.

Steve Moss
Steve Moss
Director - Banking & Arlington at Raymond James Financial

Maybe just following up on Michael's comments from earlier with regard to loan pricing. It sounds like in terms of loan yields going forward here, I mean, with the expectation of Fed rate cuts, those will be coming down. But just curious, where are new loans coming on the books these days?

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Steve, good morning. Yes, they're coming on around between 7%, seven ten % kind of on average. I think and we have this conversation internally a lot. With rates coming down, that means a lot of things, right? And generally, that's on the short end.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

And if you get some steepness in the curve, you price off the belly of the curve, you should see some stability in there. We've seen certainly seen rates come down on new production with all the Fed rate cuts. But we're in those low seven today on a kind of combined basis.

Steve Moss
Steve Moss
Director - Banking & Arlington at Raymond James Financial

Okay, great. And then I guess just in terms of any it sounds like you guys are not willing to or not looking to hedge the balance sheet in any way just maintain kind of fixed and floating rate position that you guys have versus putting on swaps or anything synthetic to make yourselves liability sensitive or anything of that nature?

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Yes. Actually, that's a great question because we talked about this yesterday. I talked to our Treasurer last night about it. And because we're constantly evaluating, right, the cost benefit of that. Generally for us, the cost of hedging has outweighed the benefit.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

And we got to manage our deposit side of the balance sheet and our loan side and our team does a pretty good job of that, especially in periods of stability. We can have margin expansion. Hadn't been that stable lately globally, there's a lot of noise, think as Chris said, but underneath the water here it's been pretty stable with discipline on loan and deposit pricing and the team is doing a good job. So for now, we're not putting on any hedges but we do evaluate it constantly as to when it would be appropriate to do it.

Steve Moss
Steve Moss
Director - Banking & Arlington at Raymond James Financial

Okay, great. Well, that's everything for me. Really appreciate all the color there. Thank you very much.

Michael Mettee
Michael Mettee
Chief Financial Officer at FB Financial

Thanks, Steve.

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

Thanks, Steve.

Operator

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

Chris Holmes
Chris Holmes
President and Chief Executive Officer at FB Financial

All right. Thank you all very much for joining us today. We always appreciate your interest and we look forward to getting into the second quarter and we'll look forward to reporting again in another three months. So everybody have a great day. Thanks.

Operator

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

Executives
    • Chris Holmes
      Chris Holmes
      President and Chief Executive Officer
    • Michael Mettee
      Michael Mettee
      Chief Financial Officer
    • Travis Edmondson
      Travis Edmondson
      Chief Banking Officer
Analysts
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