FB Financial (FBK)

Chris Black IR
Chris Holmes President and CEO
James Gordon CFO
Wib Evans President, FB Ventures
Tyler Stafford Stephens, Inc.
Catherine Mealor KBW
David Eads UBS
Call transcript
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Good day, everyone and welcome to the FB Financial Corporation’s Third Quarter 2017 Earnings Conference Call. Hosting the call today from FB Financial is Chris Holmes, President and Chief Executive Officer. He is joined by James Gordon, Chief Financial Officer and Wib Evans, President of FB Ventures, who will be available during today’s question-and-answer session. Please note FB Financial's earnings release and this morning's presentation are available on the Investor Relations page of the company's website at www.firstbankonline.com. Today's conference is being recorded and will be available for replay on FB Financial's website for the next 30 days. I Mr. like that, conference turn With to over Instructions] would to now the [Operator of Banking Black Chris CFO [ph]. Please go ahead.

Chris Black

Good morning.

obligation such beyond During statements not risks may result otherwise. statements. facts listeners are are expressed of Financial forward-looking such this any make comments, put and of of or or is actual such any results Financial to cause which a XX-K of ability predict Financial in by presentation, to results on contained Financial's other the factors events FB statements any constitute forward-looking and A that cautioned and or may contained presentation new update description All to detailed are forward-looking uncertainties and or with forward-looking to whether undue Many subject FB to and Financial's future as other FB FB filed more revise reliance differ statements. control information, achievements from this in FB risks statements. SEC. performance these forward-looking implied materially or disclaims

FB may of these to GAAP of comparable turn include website Financial's the would measures like financial presentation available I directly now non-GAAP a as defined financial remarks to measures CEO. President the by A SEC most addition, In to GAAP and on FB measures presentation the Financial's measures Holmes, non-GAAP Regulation reconciliation G. certain is Chris comparable at www.firstbankonline.com. and over

Chris Holmes

Financial. to I’ll highlights appreciate third your and call turn Chris. quarter We the review in then for thank over the for FB our third call you, you joining results us of key our Gordon, results performance. our Thank morning execution to of by Chief points where On on pleased review this most came to the of Good together quarter a and followed questions. financial call, everyone XXXX. I’ll the today’s on some outstanding interest who comments our and to Officer We're report the XXXX. provide It's for third quarter delivered very James your will additional quarter our Financial result of

strong that First banking a customers our team they’ve deliver expected delivering -- segment, segment, areas contribute continued have continuation for We shareholders. passionate in They’re a folks our quarter in what to this excellent Bank to of our our that and our for every results themselves responsible our of support come day. mortgage is across and

family. So Bank we’re XXX and to team First been our course, continue Those our that to American realize And thrilled are have The has city. team, already smoothly Bank formerly were the better that of to that Trust, an I’d every Clayton new welcome let’s we bolstering begun integration associates many associates to of the with benefits. officially and and over are going quarter thank day. say into you get this

Now, on credit interest We net record margin, in good quarter. improvement. stable growth lows strong results, and the efficiency reported rates, quality deposits, mortgage strong

quarter, loans specifics, we're excludes the Clayton acquired our happy XX.X% Banks. from to which this the growth loan As the annualized with

current the excluding challenging competitive. are said, X.X% greatest basis on second the delivered we not On in customer acquisition. the deposit and our continued growth, terms deposits, also the one product growth when of loan our but quarter only both that in our diversity. and the deposit assets XXXX in deposits base grew With geographic dynamics of was customer market range of above of those and an annualized in from terms Our is historical assumed and the balance

key one advantages. We the cost competitive continued the deposit of side their to on it's of balances both balance sheet, in of in focus terms our and

on the which on NIM customers, X.XX% and well more we higher to employing are to the interest, loan X.X% a based in fees James effects going is our was forward margin net of focused relationship NIM consider the the Our sheet our the as outlook margin. of to any from serve needs in as the core But benefits. non-accrual going interest benefited while quarter, for accretion, balance for before we interest depth the strong is but accretion range during net other X.X% maintaining touch or our his revised comments, merger.

merger, our benefits merger, the the leverage strategic overall contribution to segment net of and increasing operating On income. two pre-tax the of we’re banking the driving

of nearly both efficiency of XX% goal During the than stated XX.X% third pre-tax of goal segment to contribution greater segment’s XX% progress we XX%. core banking of show and our reaching quarter, closer these the our core banking to on reporting moving

We of will quarter. efficiency which continue the operations mortgage XX.X% to focus overall our on were improving for the

quarter Our mortgage across channels had and and from four delivery of benefited third-party strong origination, and direct, all third contributions retail, consumer growth a seasonal operations correspondent. our

in our purchase consumer modest We our mortgage our contribution total our track pre-tax refinancings Overall, in was goal direct year. on continue financings our to operations from shift increase for to delivery mix to core which money from the we're year-over-year channel.

solid this going our metrics well and by as serviced Our were financial pleased other real additional merger the I’m review as to asset quarter over that mortgage But our the from merger. turn driven With asset quality a Ginnie of more the impacted an to percentage our estate detail. call loans option some NPAs continued repurchase by reporting quality. we're Mae as in certain by to with the to assets operations. results James overview increased originated

James Gordon

good morning everyone. Thanks Chris and

results to highlighted want operating our for that’s core I Slide the First on quarter X. strong recap

of XX% return on average term XX.X diluted earnings outstanding quarter XX%. X.XX% last $X.XX share and an delivering of and Our core a up assets net tangible were of common equity per from core our million, income

-- X on the our Slide key merger product and recaps and the assumptions. targets Next,

book previous at accretive X% earnings ultimately per our This quarter, versus merger share that tangible of was the ended value to core and accretive $XX.XX expectation to dilution. our

the growth. strong future was equity a Additionally, additional raise fuel tangible ratio common capital X.X% to

loan that by by funded deposit and in as XX% a quarter return a deposit that strong non-interest is loan presents the core base, driven our the being continue yields fundamentals assets probability drive strong quality. of the X strong credit synergies costs Slide on income, fundamental to consistent and savings low by and core the for strong quarter, net other we our Slide accretion remain growth and reflects and at cost our loan over the non-accrual to At our end the on X year-to-date This months interest from controllable. offset few year-to-date this X.X% profitability. average to deposit costs, to deliver X.XX% in yields the interest strong growth to X.XX% ratio excluding has strong which growth loan margin. partially continue in XXXX will the driving deposit higher and next demonstrate We merger, NIM increased reported risen shows our quarters.

to well benefit as be rising from to continue well. rates We positioned

Moving and slide the mentioned onto Chris previously, as we next quarter. this great had growth loan

been the acquired loan XX.X% year-over-year or has growth loans. XX.X% excluding Our

term. the within XXX% concentration our we committed few cross the right long at construction to and a development be slightly or some XXX% bit of and short-term levels quarter. a We Moving will point top at regulatory our may inched but remain believe staying quarters, occurrence concentration over to next guidance to above that around corner, this closer the

slide third of X, XX% on since quarter year. were last billion, the our Next X.X customer up deposits

and primarily on down cash seller merger portion merger. a will paid purposes. of time forward, First be will from appropriately for the coming the managed liquidity which A the the funding positive that we transaction in the excludes quarters likely focus customer brokered to the deposits, to Bank, Going growing move large deposits, which was and will Internet in

upward, This well quarter, near forces and our from saw but the legacy roughly reserve. to First will the Bank point below data, in expected term federal X a likely rates be continue by to basis deposit cost movement increasing pressured a X the competitive

the X, as Next from slide. mortgage opening his on in excellent and as slide we here an had highlighted comments, operations, noted our banking Chris quarter on

in Our year-over-year of income third quarter XX.X X.X% on basis basis. mortgage quarter rose banking on and million XX.X% down was up a to a which was linked XXXX, the

during expect of on XXXX, to before quarters to we XXXX into first reminder, seasonality and based and a the historical quarter build As fourth third revenues and second quarter volumes of of into would the decline heading the beginning XXXX.

this prior hedged quarter. the the total quarter, fully million by the hedge disclosed MSR to quarter, assets to asset this XX or of at previously end the began we As

we exclude the volatility not rates expect in of change less changes from forward, the and core value Going interest MSR earnings from fair releases. fair value future in

our Next efficiency is operating on slide XX and leverage.

reported than objective we quarter and much segment. closer slightly to As on efficiency levels on comment, other for On forward. operating approximately income rate, and our was Also, merger the results slightly to move we’ve leverage the was XX.X% by was tax and and a acquired. drive process third the been in contribution was the XX% stated, term of than effective we of as our long driven The on team. XX.X% earnings core exempt the accelerated both less lower will seek which and lower expectation, goal driving the efficiency previously of banking it segment core XX% and merger this our short the mortgage has improving tax municipal based higher the

XX% tax outlook be Our in before range cuts going any tax would to potential rate the forward. the for XX%

the increased to serves the attributed the obligation, increase growth million approximately core be operations. previously new of merger, assets the quarter year. XX.X Next though the our have X.X quarter. loans Ginnie was of the upon million, even X.X excess are over repurchase contributed due the increase a quality Based to recorded guidance, sold for assets assets on intent for of loans delinquent which and the no XX, asset remains this facilities currently of our has Mae and to bank sale for Ginnie to slide with million, the and did strength by loans, channel in Non-performing Mae required last these majority held foreclosed no which which totaling corresponding be bank, to land can the accounting

future XX, Next both acquisitions. on enabling growth and capital our strategic remain through organically strong, slide levels

going additional capital flexibility structure simple, giving Our remains forward. as needed us

we the our a a We shelf-registration shares and statement coming universal S-X year the one in and eligible and primary are to anniversary of the shelf-registration file now shares IPO the statement secondary in Clayton also following covering acquisition. days, the intend issued

call and that any we whether be With Chris over future efficiently the capital we’ll quickly markets, open While accept for this the nor future good enable to we the and acquisitions assess us call intention markets the with capital has comments that then current in questions. consider closing the in keeping turn otherwise. [indiscernible] neither to overview, or let’s your back to to corporate health will connection to

Chris Holmes

great the with Clayton Thanks combination outstanding delivering Banks. we’ve an James. and made on strides our And in We profitability. recent integrating quarter third growth had fully

and Northern Georgia was our highlighting Our this Financial you our Alabama questions. the diversified strong like interest of performance investment FB your and franchise now and Tennessee, updating completes in for continued and and we appreciate up business our markets We and our that quarter morning's call across look next in business. strength Operator our would forward any mortgage open on call in to the to progress. our remarks


our appears It Stafford Instructions] with Inc. Stephens, comes [Operator from first question Tyler

Tyler Stafford

the to moving start just pieces saw the wanted impact. us on terms and on side? was in hike FB that the with June side, given I deposit legacy of margins pressure deposit the how of out lot seeing the on impact you I out for the Clayton a guys pricing there parse guess deposit the quarter on you’re pricing can first this and guess Clayton franchise of I much you

Chris Holmes

parts to pieces. Yet going Tyler, the talk moving about and I’m James some of let

James Gordon

range So the couple, legacy in risen comments, a first my in a thing on X costs to merger, absent Tyler, said have would I X I our points as basis probably think basis. the

cost that the broker the wholesale of and driven over and by more carry - higher So from acquisition in non-interest increase that was remaining primarily on to. percentage million deposits rate a a a carry only XXX add higher have historically less little deposits and a basis mix less roughly deposits bearing

mix the deposits breaks and then down, basis X about contribution So or from points remaining have X basis been would due it points and the to of Clayton. X roughly

Tyler Stafford

would in I didn’t deposits portion to your touched you you or prepared I remarks, a that? expect they keep that on off sorry. realize it's that about would of but the not that added, that What amount, run a you brokered missed huge

Chris Holmes

deposits it renew not matured. those keep to won’t attention mature. our to be we’ll those once it until expect it turn but would would customer mature, into they once We - We

James Gordon

CDs million the move of to would public that the mature as sources allowed that actually of well customer We quarter, we we of other the hopefully to said, or funding rate funded higher money brokered XX to about roll with Chris between $XX merger about date end as we that million and off and forward. as deposits replace expect entered as

Tyler Stafford

And about it your the you in you? expectations did quarter missed may But this near-term can I on James, also. And margin with Clayton? remarks, impact have from prepared touched and full if you talk not,

James Gordon

our that that’s to portion updated a can and non-accrual get XXX we not XXX. not two be that’s including including not say that's items. for we so have range we’ll and it’s if including about some XXX we’re to we we - about not is those XXX the and core quarter on think accretion if that that’s including get come XXX that's interest range We And this to and so where across, before accretion,

Tyler Stafford

from apples am is to you correctly. this XXX XXX So the quarter hearing the with I is the XXX apples not - quarter, this that to XXX

James Gordon

right. that's Yes

Tyler Stafford

one you quarter your guys And how did savings. then the this cost and be of just Clayton much Did realization the around recognize what remaining timing last would for from cost or saves. you me

James Gordon

Tyler, is James. this

So the XX%. total estimated the at sales X.X were about cost

onto our the realizing at that. are well of the interchange the about following It least will the end have XXX,XXX first interchange as will about benefit of and the, forward systems well. the motion of XX, just be closing begin by as not in which have XX% conversion roughly branches that things We business to - putting a contract expansion set majority other the on we them the in will as the about our quarter contractual going approximately to of converting a in at following realize increase and XXX,XXX revenue, year of year conversion

roughly some be we’ve will XXXX. as like the talked be that of into heading well. baked that in reinvestments should of technology in of all Some But branches about offset and

Tyler Stafford

takes interchange increase the the XXX,XXX should beginning once to There be And guess a of revenue will year? I XXX,XXX that conversion place. start

James Gordon

be at bit of the little but so year, should month a have to realizing a it start the able be of or we Yeah, only will the at beginning we end for that XXXX. and

Tyler Stafford

it quarter be just side, ‘XX expectation And on XQ terms savings cost the of that would be - run your clean a XQ, it a then rate. in be would pretty

James Gordon

We should right. in have XQ. to That’s everything start


Our next question from comes Catherine KBW. Mealor with

Catherine Mealor

margin what in. in cost in XX% think efficiency come ratio your ratio, all, came and target. you range as a you’re have the about to cost additional a and efficiency we, bank quarter to XXs previously, targeting here savings. of first the think from the continue we segment you the down now about to lot both comments Can are So on mid this the you clearly some higher as savings

Chris Holmes

versus And segments I’m going to talk overall. two about the

last So if we maybe the back you quarter, go were last [indiscernible] quarter.

XX, down been little so just has. that consistently so month said And [indiscernible] has segment and banking trailing it we that would to so two when got we this XX%. months, we we down, it knew had And over

what try would the XX our we said goal we that was soon it under as will be it to first goal get - under – was And next we've XX. as achieve set to we to under get so XX, XX% get and

we that to it sooner than there. So And will achieve think later. then we’ll rather from continue we drive

That down. other a drive We under to haven’t going get named other it focus. than will XX%. it we’re But continue be to target to to any continue

as from processes out ’XX, we the still we’ll will cost combination to and we’ll XXXX. improving but get reporting will operations - actually help some stated continue core then that well. conversion as operating our get the refined Clayton first We’re in And did quarter some to that savings we continue from to

be consistently we’ve feel where should operating ’XX we and accountabilities like appropriate model, holding that. a really our got So measurements year, to improve

Catherine Mealor

And then one margins. more question on the

Are and just core look contractual higher to move in lot walk came level then factors that interest XXX that a through you we How yielding of bring us June with of just that on think coming is Banks that that from environment? at assuming lower where that is Clayton can Clayton from to if a of the higher loans. that increase, from can XXX. a rate rate So a assuming over kind much your at us Can that we're went loans grow to. the of hike or think directionally continue there in that dynamics help just you could I'm

James Gordon

Catherine, James. this is

the majority think from I the came of movement mix.

So more movements by couple seven, pricing the areas more some direct It term pressure It quarters going of in being rate most we the in of think up lot because seen First to pressures we've over a probably ten still whole commercial eight upward the near merger. longer in from last one the fixed I seems product see term movement was X.X% in or up loan the are will over side, others. had the competitive basis some in of a included of rate and the points of see we’ll margin don’t that, forward. not from range so have environment. our pushing legacy even movement in Bank rate kind and five, of We portfolio pick that. seven lot from years to the X% yielding them brought the driven that month as with

run So all non-accruals. noise forward. that I obviously rate lot balanced going think the XXX a strips from have the be of that the And will roughly out

Catherine Mealor

okay. it Got

James Gordon

but should settle not in little a lot than It a higher. bit that higher

Catherine Mealor

I over rate, I you're at And presume. we growing, not that rate not incremental time, growing mean then margin, think now I than as you’re a loans clearly about X% time we over mean as model right higher your

Clayton’s that and becomes as a that fair guess to time, grows normalize of I towards is loan I yielding your portfolio asset assumption? over and compress less So classes, weighted starts higher that kind would assume

James Gordon

a I Yeah, think assumption. that's fair

I think it correct. you got

Catherine Mealor

it of about And can us on you’re into lastly volumes kind we think be mortgage, year. about lower. help just you mortgage help can and quarter how as move fourth us, But we next will margins understand you seasonally thinking

James Gordon

Evans corresponding a mortgage saying I’ll be some executed start we channels the margin we planned in And going for down terms quarter, first by expectations. that planned year. be tied quarter. year, with in what what seen picked to execution we’ll is the our what – with have well. lot Wib it rates. been for in on to fourth We’ve to next our what the about what delivery of little call, just to down Wib by of growth volumes that Wib thinking. mortgage, good you I’m But is in we’re by up lower rates on let be happens channel year. going we’re mortgage comment in our of seasonally this thinking happens business of on a down lot we’re next going A be to happens further And this and the team have to and just year that’s

Wib Evans

I Catherine a up channel that is and line to continued our will that more business we develop so see little of what I would we tell So others. corresponded than

business. For the slightly side; We’ll be be we’ll the channels. on on most footprint focus to focused retail on to most flat of part up expect XXXX we our relatively our

in so And the of probably growth a that. most part, bit we’ll But flat. slight for relatively to we’d see little

Chris Holmes

Really year. similar this to


question our with from UBS. David appears next Eads [Operator It Instructions] comes

David Eads

organic about growth a good talking loan quarter. you're this Obviously really

from of and the for held comfortable on also side that You you loan deposit and side about deposit is now talk where the of you how sale, ratio to XX%. for at going the Can look trajectory you’re plus here? organic at loans think mentioned high sort loan loans just goes growth you if

Chris Holmes

lot Good thinking a recently. And Sure. been about that we've questions.

XX% historically most we’ve for that pretty of the XX% have this for quarter. we to that So been XX% and the held year, And through much all guided over year.

the is quite XX% lower exactly probably and we are As few to something going growth couple We're had XX% in of does think higher. a roughly held range. forward, quarters. to to Keep you're is that things. in One portfolio. deposits sale we range that next that see what’s If guess mentioned, loan that loans that going our are even mind include now be end back not going the we for of to from where

for So you sale it’s out, portfolio that if interpret XX%. held

of we is good. concerned not about could two that. of pretty So we to sale feel likely but there are take some of in we that, couple whenever is it as you comfortable portfolio, next There we’re happens the two a just American you what will together. the and payoffs this to -- quarters. it desire combining and range feel is reality held factors the of our for impacted three Because create that’s some. continued just One that, It the we Clayton think City, typically I integration so higher, take like in or so you’re over merging getting where will other do companies higher, is we a probability experience

now slower a The Second we to has to environment. make a to we fact And very responsible Ferrari XXX, so what speed a little choosing we is kind things in that see is the of environment. matter markets. fortunate The the rate, go driving the places. we little really is drive while and a going think in think credit the can credit one highway than good. are there the racy just may it given at we XX% are others, prudent because down some out good environment that we limit of credit right XX% some be be been in is really We're

So to credit on some higher standards from side. that’s there come going the

the mentioned We regulatory guidelines. also

are quarter, but year guideline, side start within it where place seasonality on on been. much a and that we’re capital doing our sometime, have are that to we little getting on slower. plenty aren’t things that’s based going will We’re got XXX% room first thinking the construction. We’ve that. you've risk got on construction quarter, And the slow cautious and XXX% we of and natural as will getting the then on loan we're in hits so it the closer closer We're stay CRE to – fourth on as down the another

to the side, XX% even maybe deposits So be on maybe are we much strength faring for Also market beyond on couple least for at and now of the going -- and a has us. XX% for gotten competitive is just that. we’re range a better deposit next The well. think quarters right the the to quite

So we more but to over to is portfolio, just considered held fare think we competitive. get two that while continue XX%. deposit -- quarters if for but want well, our were to been our were we a going you back It's even loans. go at deposits pricing loan ago, And since XX% we you investment ratio, we've just on emphasized if to

it’s that and as loans much got will we stretch we little haven’t a that’s So stretch muscles emphasize over so to time. we’ve a while to since had to deposits begin some been that lightly, take

margin. ramping really feel we derivative going grow then we on continue with side. good our -- about the think side on be and margin of the the rates, business, we also side XX% but we’re the up in that and we’ll to deposit the our quite actually about of to think we at the loans business probably good be things, on to realistic these So pretty They’re margin but want all good,

David Eads

more little a any exactly theory, kind or there helpful. multifamily very bit you I bit is mostly is you racy. credit can pricing little in That’s a I on broad in mean or you mean, comments are elaborate that of conditions. the are some seeing getting just just kind where of Maybe, things made,

Chris Holmes

a for than get just expansion, you it's it's real that urged or that’s so lot estate or when that’s longest of a seen read made, else. or it's multifamily office and mean, We've comment real in expansions lot specific anything any nothing into There's into of hospitality I don’t been continue see just to loans -- just whether history. it more being the and estate whether

really so, we getting we particularly And on thin. the see is pricing see what terms, will

a longer. bit getting will see little We that seeing see. We’re of things maturities typically you

We relaxation button will for be hot which personal is see can for -- guarantees of us. instance, a

things we of that those of off all just to terms. we so, could just office more frankly opportunities And typically us and -- but calls backed we some that see of get, we more because could just those back

David Eads

you All right. a loans, do now, going to quickly X% think think that's that about portfolio. that just you to elsewhere? Thanks. after And loan that book, the what grow we deal, it’s little go, of book should doing trend the to you're just is about lower, kind on total bit Are more origination consumer going of other the where looking as

Chris Holmes


Kimzey easy -- have is like frankly which seeing The portfolio, the So, the Retail from we segment, but I MH. it in not MH to team a grow. we It's will our say quarter growth comes a done. you’re it this good like. we on this, team MH great we run They’ve do they’re combination, that’s -- Jim know really to off They that got pretty we’ve continue been and Kevin pretty and team what business. with Clayton Clayton they hands and are the come over much much well.

deal. when are them struck visit the We have been than frankly communities out to and we with impressed

grow we from everything it, hasn't so been they’re us. growing a because consumer And do on continue are Kevin that we that and grow. consumer it, his doing. and big -- and much, MH And retail we we little commercial from retail team for ranges grown the bit, that That's continue of pieces growth want to like like to what the tougher home that we we do but the grown little segment other cars, loans traditional we’ll they're it that. a piece to frankly We will that then them equity segment and been more want to and that continue haven't a slowly. side and has it and so much We like growing the so just segment the to boats to RV And side just however, Retail haven't than in that frankly then more. been but would like we've

David Eads

of comments closed. couple you just comment and deal about guys the if that kind last has just giving made of how on opportunities right. a All one, now M&A, M&A you could I so wonder the And approaching capital been position you for are Clayton guys

Chris Holmes

Sure. Yeah.

approached So really that’s closing important one saying channel is several the we're opportunities through off, over one where all next working have are I the to the We of area are and and X a to or that. of is opportunities. M&A guess is at so of to weeks balance dialogs another market X very it on focus and fair here, focused closed, and there weeks, that’s active we we're so right. continue we actively The see do continue conversion us that the first with companies have Clayton, next there, having an intensely number other

what in of that could what footprint We're expand terms back be In deposit looking that got outside we're our that there, you have footprint of always things, something just something we mostly criteria geography. footprint because also did that had solid that like, or at our look doing some looking we’re the we do we've at in banks would if said, we them, but we to go franchises. if those actually in footprint said would

look and things earnings capital for. that consider -- us. acquisitions. generate both to with, is leverage to leverage at We We’re that's are operating are looking we things those really we to the and as want Operating accretive important


time. the or no any Instructions] over additional turn I appears now would back speakers for [Operator at questions the to our closing this like other we have queue conference in remarks. to It

Chris Holmes

We we in for on on status everyone joining call. our you you it. to forward Okay. all again next updating Thank the of that Thank That’s questions. interest quarter. FB you appreciate and had to us the your look Financial you,


you conclude does today's That your for participation. conference. Thank