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FB Financial (FBK)

Participants
Chris Holmes President and Chief Executive Officer
James Gordon Chief Financial Officer
Wib Evans President, FB Ventures
Catherine Mealor KBW
Peter Ruiz Sandler O’Neill
Gordon McGuire Stephens Inc.
Call transcript
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Operator

Good morning and welcome to FB Financial Corporation’s Second Quarter 2018 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 also be available during the question-and-answer session. 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. Today’s call is being recorded and will be available for replay on FB Financial’s website for the next 90 days. participants placed all mode. a time, this have in been listen-only At call questions for be the The open after will presentation.

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

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

Chris Holmes

will am appreciate turn followed quarter quarter that I additional your good to review our We provide your will and and call results Financial. who be commentary our Chief then joining second will over of on to us Financial our highlights results on Carla XXXX. going Officer, to financial I James Gordon, by the our the questions. in call, much, for today’s FB and second this the very morning. review Thank interest you all you On Thank for call of

of in We are and by quarter, our team our plan long-term but pleased results after year the quarter quarter outlook more for the even executing with our energized consistency year. our and after

X.XX%. growth grew annualized point team and delivering We increase our contractual loans able revenue, in by our expenses. peer-leading of return XX.X%. X to balance XX%. Our the to increase our while our a and This for growth cost. quarter accretion this the to HFI out tangible only and on our the customer point basis interest to measure margins to and first on quarter margins, collections is With assets equity our ourselves controlling average basis The our XX% was increase which a came adjusted deposits, by in from deposits deposit and growth X in benefit X.XX%. NIM led was climbed non-accrual return margin loan Adjusting yield common balances we and adjusted X.XX% interest with and internally, another strong loans in net how

I are how be. numbers want are few to that our exceptional very of and believe things proud bank we can just other they We There highlight. these show

they some we close we Next our what year. X we to envisioned. quarter book conversion all doubled the all needed had synergies, modeled the positive. than have retail growth or and strengths The original that team out to year. during tangible of We where we quarters mortgage pre-tax where and also Both we multiple executed in improve. we Clayton on our have operations didn’t the combined continuing Bank’s XX% customary closing have mortgage as with excluding company brought through pre-tax have This examples is plan our industry measure partners areas and anniversary is followed we we from we such brought reality. actually originally the adjusted consistent down the maintain than surpassing meet that growing has metrics than better growth XX% vision in of plans, learned challenging XX% very resolve like in contribution week, to announced last result the second Clayton XX% pre-tax all of last financial transaction profitability, range. efficiencies etcetera EPS new back of XXXX, our cost while be XXXX integration we and laid the of now a goals. mortgage a benefits February total our celebrate were mortgage up the year bank accretion, for Bank since contribution, integration shareholders the the Together, the the the have the is out with more and faster segment a reaped largely of bank represented the the cost the laid lot out had these and late plan value the conversion bank’s Also since This is dilution, reinforce our our quarter, same in to in which the segment and financially from company’s savings, and combined to to merger. turned this transaction profitability income, quarter business of to When

continues total we and with enhanced XX% growth XX.X% quarter. generation for sheet and risk-based tax federal by of common our the assets our at of tangible recent tangible reported to reform payment support equity balance dividend earnings our capital to Our the capital as

capital or quarter, offering secondary second Our flexibility continue organic the completed return faster shareholders through capital In value growth. shares. also $XXX us Mr. Ayers’ shareholder million we gives generation growing of to through of our through acquisitions, to

that the we we and result replicate can XX% the while of in have since through on. Ayers’ will sale a With involvement ownership at a an be for We and stock his hard to Mr. not has diluted shares, of those sits approximately acquisition. changed that’s foundation the it’s a from build continue company issuing likely in to offering. great as believe there unless

markets in are We in presence great those great markets. a with

and throughout and strong attractive have a we note, We that have talent. an we to a organizational revenue producers model to operational On few very XX markets are addition some weeks. delivery expected a between of network the announce a backbone XX that’s structure, and excited with and workplace our the business density over next

We from think in are and the together folks of all We FirstBank like advisory Alabama forward in markets and FB customer-facing years Cookville, investment these into contributions anticipate the these welcoming to come. Florence, of family on bringing these Huntsville, them our key folks group. some we to to meaningful Alabama taken Knoxville, look they our our When maximum call organically, to presented. potential we James review be more enabling evaluate grow to over optionality if us position. opportunistic provide us opportunities execute more our factors like on some With detail. put, turn and to overview, to in when and to M&A Simply the I financial that to M&A get strategic results want and and

James Gordon

everyone. Thanks, Chris and morning good

our First, results want as quarter X. to I this Slide highlighted operating for recap on exciting

adjusted million, earnings net return was assets Our average diluted equity of adjusted an and $XX.X per XX.X%. X.XX% common adjusted of on share on delivering tangible return an $X.XX income adjusted outstanding on of

enacted reform the trends consistent delivering. of growth, underlying and are organic the the almost was Clayton Slide company’s that demonstrates income to from X illustrates net Bank’s the profitability the allowing fundamental year-over-year performance performance driven double. Our tax merger we benefit and by the

and balanced return a for has been half we has on to control and year loan Our low-cost income, consistent and strong loan deposit in first low by improvement X cost achieve fees the risen credit of supported of Slide profitability adjusted assets customer fundamental net healthy as our our by driven elements and core deposit stable a base. expense margin the average to strong sound interest This growth margin, continue the strong base, X.XX% profitability. presents our yields, quality. non-interest growth, particular,

service efforts collective our margin of trusted value to interest net we whom and exceptional serve Our reflects to advisors as deliver team for everyday. customers our the

points collections. see, about XX benefited nonaccrual can accretion again was and by you As interest net of our basis margin interest

of be in range, to our a range now to Our X.XX% base above we are which current long-term NIM increasing our was X.XX% to expectations. reflect

to in expect current quarters the loan up also to improving with We in back our as on deposit settle environment customers emphasis rising environment We a benefiting remain coming environment. range that rising-rate the the also due into a yields well competitive pick our do be will strength. to rate is sheet positioned and that continue balance confident from deposits rates overall, rising for costs

this believe and that as well year-to-date, growth quarter, We you in XX% XX% the on of periods. for growth for in Moving target our above we be normal should new the where Chris had outstanding future will full next our long-term our to to slightly mentioned be given range. XX% don’t we our to a loan us, us certainly before on to loan future XX% slide within range see fall growth we previously, quarters. do back settling guidance are range year And XXXX rate above expect XX% and

target. Our on objective not and quarterly consistent, remains growth, the profitable merely hitting relationship-driven focusing

corner, the to see quarter. CRE permanent we concentration above in continued top-right jump we XXX% could continue financing our levels unexpected CRE this However, did the and markets the and ratio and robust, be development in construction repayments portfolio. have, our Noting

down on a At our the to of the regulatory cuts development portfolio in are development servicing growth this Letter mortgage a which Tier committed growing about term. XXX% us role. asset certainly XXX% X factor, also XXX% below a on and While and servicing bank, assets million construction We Intent of and our we loans below capital our forma CRE to in XX% capital back up of line over pro risk-based of a free and should loans is on down thresholds. under sell limitation, with guidance disallowance construction played our capital the basis remained long $XX guidance staying at on point,

a deposits billion, rate to the disclosed net a quarter of of some Slide saw balances and to which Al-in, of in on from secondary X the period XXXX. our an These quarter point quarter, to from forward. quarter. basis this fed quarter, We some year $X.X first short-term larger related the some we previously relative recent growth deposit basis up the deposits up along deposits to target our accounts in increase were during $X proceeds moving approximately increase cause million our the merger, last the XX% in beta inflows, the XX from this annualized going with including larger of total this XX.X% X, from in XX% point Now equating of offering. benefited funds customer customer variability second contributed basis cost deposit could our

environment, but we betas in deposit that of funding continue focus we we steady our expect additional on customer strength. base are to a As low-cost deposits this growing will near-term remain confident key expansion competitive our

in contributed segment the This is of second the contributed represents It that of XX.X% in pre-tax mortgage million mortgage $X.X is adjusted XX% the our and X, included. operations down Slide is retail $X.X company’s pre-tax when to range our turning to the XX.X% earlier. XXXX quarter total target Now second million line quarter, our and in XX% income. mentioned footprint with Chris from

Our quarter pricing of last in commitment quarter quarter interest to both lock margin. the weighing are last to volume in during and and $X $X.X year. billion volumes Competitive this particularly billion second declined $X.X pressure billion correspondent rate channel on compared the

due to and was quarter primarily from margin channels. change Our consumer to direct this TPO mix in due retail our up

impact. loan intent service entered of of end $X.X quarter, with the of approximately a into letter Towards to the material billion we no sell

expect We transaction quarter. to the close this during third

our impact or contribution quarters of provided continued X balances. MSR of million pressures. has This of $X associated also to non-interest million and million the a to in had the $X the that year-over-year pre-tax XXXX. However, contribution with margin planned approximately to million due previous we last sales, $X.X this bearing million of mortgage mortgage reduction $X in of the and total the to million the further the including May during guidance $X is compared of roughly $XX pre-tax half year total volume second to MSR down account deposits anticipated Including the footprint expect retail impact an escrow we of sales between revision

last also NIM additional will expansion help the our we of However, over and believe growth this XXXX. offset that the quarter lower continued contribution half mortgage

by XX.X% strong our from our and leverage banking for quarter a this our in of quarter-over-quarter to operating The organic expense efficiency realize prior XX% from ratio goal quarter, improvement the banking margin, leverage revenue closer driven Next, improved moving segment operating allowing through XX.X% segment. near-term to strong scale. to us growth was increasing the control

slightly may of in the near However, earlier, mentioned the teams Chris the impact addition new term. that

and quarter-over-quarter flat relatively was higher ratio efficiency is like. than segment’s mortgage Our we would

ratio have expect expenses. anticipate we moves over and transformational the made incremental currently move and continue rather making any operational improve We profitability, mortgage don’t efficiency We institute to but improve revenues efficiency. are as to both time to

rate we an also of quarter the we the quarter did XX.X% effective adjusted than items first for Together, not Our offering related to as was of deductions tax compensation, and effective significant for of have second higher XX.X% in had secondary the nondeductible second rate the resulted quarter. impact expenses. tax equity the these

we continue disclosed, full effective will XX.X% previously be rate As believe the range. XX.X% year tax to in our XXXX to

asset to As a as assets sound strong our observe remains quality decreased shown and environment. provides for grew on foundation the company. quarter, enhanced our NPA and the Slide XX, organically continued we for to

ratio basis HFI Our basis of by X remains points solid is nonperforming from points, XX loan evidenced which quarter. down loan last portfolio as our

strong levels future growth capital enabling both through organically and our remain acquisition. Next, strategic

us relatively strong our giving our to add value quarter equity capital tangible remains flexibility end results the XX.X% share, share to $XX.XX $X.XX accretive at financial our the driven after by Our Since and per increased potentially sources. merger. as the by first or needed per quarter book structure IPO, simple, non-common has

penalized were mortgage capital we our large previously, servicing mentioned for in As assets.

that risk-based our planned approximately We already of capital Tier we X mentioned quarter. third and eliminate have deduction this during the XX% $XX should estimate this sale of capital million up free the will quarter above

per I the back in share, our able continued for Chris a call we the call turn a X%. payout overview, be closing that questions. will $X.XX dividend approximately to your open are With we the shareholders’ return to represents quarterly to of want Lastly, of and portion pleased which of then form to equity ratio for of over comments

Chris Holmes

Thank growth continuing second outstanding you, James. and profitability. balanced to We deliver had quarter, an

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

Operator

Please Thank first Instructions] very from We will madam. ahead, you from now sir. our Mealor go much, take KBW. question [Operator Catherine

Catherine Mealor

quarter. great Thanks. Good morning and

Chris Holmes

Thanks, Catherine. Good morning.

Catherine Mealor

Good morning.

this growth you be the like bit question and what a quarter? Can little end-of-period this just color just larger first markets bit there really concentrated are give growth, seems also is coming the to that my that So, any Thanks. the balances portfolios, in on of within more Nashville a because drove and drove was in color fantastic It more obviously about quarter. it? and it’s really that growth seemed loan little construction C&I just any growth the so the

Chris Holmes

Yes, Catherine.

on so even quarter and big was things in economy driven driven actually the more is that it, of for the across it our the contribution well. continues was – a it Memphis markets You economy cylinders, on day And say the good quarter, been we the geography really last pretty a – pulled really, and been one the years market. loan to did well as from train. and larger had the A Nashville transaction we from number it note of continued growth and continues was train great Nashville’s us We for one would It’s had us well growth. really pulled that types. much has and the hit much of exciting and end the from really perform towards pretty to case, portion in contributions a of it engine that’s to had I for really the has perform big but was be has continues all other Nashville to contributions of been and the across

had also one Chattanooga our both from market We transactions. larger

all gets in larger balance million, for transactions we that so there would the much terms answer to your us a do be $XX in million, have couple range. don’t in above north that did So of it something at of us for that be large would and question, $XX in of we but

couple had so the And those during we a of quarter.

– geographically. And its around and so it’s spread spread around

So, for good those again are signs us.

and do – on are that. like say – will at that be because over size consistently in we continue a to that this think I loan we We to said can to in and growth We XX%. growth, perform double-digit we we want

the limit. our is of doing that way transaction doing if Our we growth lending a helps capable legal transaction but way, that numbers, like million like size, We short really we still and fully really that. of our $XX feel are

still in any too avoiding credit. much diversification keeping good concentration are a one We on

quarter. that did So help in the

Catherine Mealor

want what negative saw guess Thank that driving fair is the the the guide of annual the locked value pipeline back the either or Okay, the kind this the year? helpful. then does guide the of year swing additional that half so guidance, And include or – clarity for that’s lower you. this any guidance I is on mortgage or of the in of what quarter kind Thanks. mortgage down in we was positive

Chris Holmes

driven but pipeline balances causes the was majority our built The that fair the you really interest of the margins, by pipeline sale noticed from the up has down commitment. that in really lock on income change value Catherine, gain has gain the the the don’t breakout of lock in interest value the to rate clarity income estimate the provide on a driven the on more up commitments. do pipeline. We the combined The the little we fair and swing fair that really end-of-period swing. value so is really change Well, quarter-to-quarter, rate if and

rate gain of component based year. the forecast is the because The between included, yes, really a last of issue more that fair and over timing it’s the short lock else. off commitment answer interest than value really that’s is the So, anything half

Catherine Mealor

it. Got

Okay.

– that you in pipeline guidance would about that positive So back not in isn’t the half large locked are be including a think way swing the to it? year, a your necessarily of

Chris Holmes

se. incremental the just not volume, value per necessarily but Yes, change in some fair

Catherine Mealor

Thank you. Alright. Thank queue. much. Okay, helpful. will to so that’s the I you back turn

Chris Holmes

Catherine. you, Thank

Operator

will We go Please our Sandler next Ruiz O’Neill. question Peter ahead. from from take now

Peter Ruiz

you? are How guys. morning, Good

Chris Holmes

Peter, we are good. Thank you.

Peter Ruiz

a second with just the surprised in a guess I comments am growth, half. producers guess of the to take bit little hit that XX with of may time look I online opportunity of revenue maybe But to the is your in on what long-term that? it I them in just bucket little does or that to next maybe bit not of just maybe a kind refill to couple here for maybe on commentary running, to ground XXXX growth? here see the like the to loan but and maintain coming So, help outpace these terms there XX slowdown guidance weeks, Is

Chris Holmes

Yes.

and would a XX on on of got folks folks that them are say board. are XX XX, we and range there already As committed the half about bring I reason have is we those to of

fully for few have a production committed, we The should not aren’t tailwind X others, got and we and to get think us are but on just yet are a the yet that other then side. going but totally be half committed, announced that or we X

production headwinds a side as well. on the have We few

come the so then of it is impact and consider come that’s this later near first for our – with we to going on a as two begin be quarter so year. of where lot some being guidance consider And there takes when really them generally next up those and coming of month could of we have on, could a so are to and to that’s both kind long-term balances coming those we folks year, expense or

Peter Ruiz

larger you just I just And Do rising guess Deposit the the on. there at kind really near if of you growth deposit beta all? coming great. obviously the for stay deposits outside know deposit see some maybe is NIM, had that deposit other lumpy you on that’s been touching balances range of some your those some industry current that some have changes you I from growth? see think growth And benefit was overall. can, Okay, maybe strong. continued beta changing there more deposit dynamics any strong

Chris Holmes

Yes.

So, that see seen our deposits, going funding think you customer to quarters quarters. and and growth, we see on but the next couple beta more bank, this get quarter so key we have wholesale goes just much good let higher probably funding. just the we some of we we asset deposit have on couple to relenting going part do longer is that specific And continue next had have to competitive least competitively the that growth to and really leave that as actually also we betas at we and customer to margin have to have that. grow comment strong of And that continue are we don’t continue in of than

So is we from we that yes, answer that beta it are prepared for good investment. up and think in that’s is where deposit a the go and will this quarter

what’s going base. And the we because trade. deposit to today, loans asset deposits, that’s that’s between so good on base, grow continue to grow us the pretty a our to allow going And to and our beta are

there. there, position the tell to of of competitive. we metropolitan we balances a that commercial And markets don’t base. see retail our move that position both got a and the number grow will to of It’s I that our we generally, competitive can like review so more be base I anything continue calls the mixture to and terribly already. transcripts methodically unique we community we the will up. We markets, On like so you deposits fact like continue both because just know to deposit and deposit have able from

said, couple strictly an funding, base, quarters we extra are as as to that. like retail got to a commercial we so continue of and base well that size advantage, grow that us we’ve the I think our on next bring over banks of a lot a unlike we and So and continue deposit the make gives investment

James Gordon

and public that pressures indexed are our is we of of expectations would don’t a some the weighed in will and some the is quarter moving beta funds, the although and in fourth first base, early term near then third also through the later second the increasing, Peter, the quarter against which rates decline amount in forward up and typically over the the then given the quarters fourth in add, is there significant and our quarter and have expected The see which rebuilding balance cost will seasonal rising, the movements no moves, as we in-line more but deposit than deposits then other will but real that, true that on competitive major in on the likely other thing growth I to of sheet. the have it side to fund

Peter Ruiz

I the in Thanks. will back step appreciate Okay, the queue. color.

Chris Holmes

Peter. Thanks

Operator

Our comes Instructions] Stafford Stephens Tyler [Operator question Inc. from next from

Gordon McGuire

This Gordon Tyler McGuire on is go? you actually for how

Chris Holmes

How fine, you? are We are Gordon.

Gordon McGuire

well. Pretty

account include the a out line, to sales seems be that gain for in So of my know outlook apart but could on to I’m the sale guide, it going lower gain flat? back and margins commentary, prepared pressured you looks guide So back on from mentioned to volumes James how much sales came and pretty anticipate if arguably, lower I would a or mortgage sale? I the first more pick fee like similar me, MSR all from MSR May be the guide question trying it so in muted MSR outlook the I sales much of the your guess it guide versus did the to

James Gordon

included we dynamics from MSR kind was we the year or had more really guidance a may X year but in sales market later this this to revised probably level market have do getting heading really cumulative, quarter the our sale with been of sale. to had were X so have little X Yes, really guidance the sale X previous the so just in MSR of the anticipated the year, capital the depending really very and on into starting those the

Gordon McGuire

could those you it. if guess some your gain wonder additional next for to and volumes sale then Got on quarter I commentary I so some this on the flat any on just flat or provide rebound margin outlook, quarter? And I piece, were volumes you would point, improved that those expect think

Wib Evans

road Evans, pressure down a not we tell so, correspondent is group much changing expect and continues we our of performing continue year at kind see our see if mix that retail at all, on and about you like growth a purely would our margin around, with overall and looks are, we’re down Wib and look obviously, levels continue part the mix see and latter this we Gordon, get that that margin from that go our that would correspondent expectation, issue up they of sit group continue don’t I would just for today the to the turned it’s today that to and is pick here it to we to those but it perspective. the sale will us volumes outperform

Gordon McGuire

just Got it. lastly... And then

Chris Holmes

this primarily is mix my to is I comments did as consumer retail retail, obviously which we change to when from positive, TPO a increasing. in very direct have particularly noted quarter and the tradeoff And in that

James Gordon

margins, to gain-on-sale margin. the trade-off Yes,

Chris Holmes

Yes, to the gain-on-sale margin.

Gordon McGuire

from $X.X quarters think the that the how the future do sale within in MSR pre-tax do about and be you impact Perfect. And amortization to million relative this the your you of quarter, think could contribution what guide? forecasting kind of in

James Gordon

be. probably It will

range, in in So $XXX,XXX, that our somewhere in range, should the drop we value. the change the that overall are XX% given somewhere by selling in roughly drop it or of say, it mix XX% the of XX% relative fair call portfolio, portfolio and roughly $XXX,XXX so that that about I portfolio, would one-third one-third so

Gordon McGuire

would you grow servicing as And obviously just amortization excluding you build just the portfolio that any build over grow, said as time? future would sales, that

James Gordon

that’s all couple it moving of it it, relatively the you so in etcetera. of at of look balance is pure balances part biggest overtime Yes, but our I last, of also parts net it, just kind the if roughly X payouts, over in so the because the quarters to mean it’s and it’s not hedging percentage going the kind stay relatively stays of that call consistent terms call decay amortization, actual is the

Gordon McGuire

one NIM bit kind high a me the it last the back drove expect was fees as the quarter, XQ on would pretty assume this expect, guidance just real of substantially would gets for up came normalize? range, I that then you that core And I of this think kind form quickly quarter, you Sure. to production good NIM, would but towards on that origination your expansion

Chris Holmes

right. Gordon, read it Yes, exactly you That’s well.

Gordon McGuire

That’s all you. I had guys. Thank

Operator

closing As would now this there further questions call are to additional turn for speakers the no or I like remarks. any back our time, at to

Chris Holmes

call. Very good. on Thank you once joining again the us for

proud team are of next the you joining and you Thank proud look our forward very company of to We again quarter. much. us and

Operator

Ladies today’s gentlemen, call. today. this conference all now conclude participation your you for and Thank will

You disconnect. now may