Good morning, and welcome to FB Financial Corporation's First Quarter 2019 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 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 at the company's Web site at www.firstbankonline.com and the SEC Web site at www.sec.gov. Today's call is being recorded and will be available for replay on FB Financial's Web site approximately an hour after the conclusion of the call. At this time, all participants have been placed in a listen-only mode. The call will be open for questions after the presentation. During this presentation, FB Financial may make comments which constitute forward-looking statements under the federal security laws. All forward-looking statements are subject to risks and uncertainties and the other facts 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 listeners are cautioned to not put undue reliance on such forward-looking statements. A more detailed description of these and other risks is contained in FB Financial's periodic and current reports filed with the SEC, including FB Financial's most recent Form 10-K. Except as required by law, FB Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation whether as a result of new information future events or otherwise. In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to comparable GAAP measures is available in the FB Financial's earnings release, supplemental financial information, and this morning's presentation which are available on the Investor Relations page of the company's Web site at www.firstbankonline.com and on the SEC's Web site at www.sec.gov. I would now like to turn the presentation over to Chris Holmes, FB Financial's President and CEO.

Thank you, Ally, and good morning, and thanks for joining us on this call to review our results for the first quarter of 2019. We appreciate your interest in FB Financial. On today's call, I'll review the highlights of our first quarter, and then I'll turn the call over to James Gordon, our Chief Financial Officer, who will provide additional analysis on our financial results, followed by your question. [Technical difficulty] by our team with several key accomplishments this quarter, delivering excellent financial results, integrating our branch acquisition, making some hard decisions in mortgage, but most of all, serving our customers in the FirstBank way. Our associates are the core strength, and will continue to deliver strong returns for our shareholders over the course of time. And for the third straight year, we were included on the list of the Best Performing Community Banks in the U.S. between $3 billion and $10 billion assets by S&P Global Market Intelligence, coming in at number 23, and the only Tennessee bank making the list. This quarter, we delivered exceptional growth in profitability driven by strong fundamental performance, seasonal growth in deposits, and increased yields on earning assets. This performance delivered an adjusted return on average assets of 1.63% and adjusted return on tangible common equity of 15.7%, and an adjusted EPS of $0.66 a share. The four themes for the quarter that I want to highlight on the call, first, our continued balance between growth and margin, our mortgage realignment, our credit quality, and fourth, our capital management. In addition, I'll give you an update on the recently closed branch transaction and integration. First, covering our balance sheet growth and margin, we delivered solid loan growth with a 13.2% annualized growth over the fourth quarter, slightly over our long-term target of 10%…

Thanks, Chris, and good morning everyone. Our adjusted diluted earnings per share were $0.66 for the first quarter of 2019. Our results from this quarter reflect the competitive deposit landscape in mortgage environment that we have been experiencing, offset by growth, overall expense control, increased yields particularly on loan fees and loans held for sale in a benign credit environment. Slide four illustrates the underlying fundamental trends of the company's profitability and demonstrates the consistent performance that we are delivering. Our increase in adjusted return on average assets over the years as well as our performance this quarter serve to demonstrate the strength, the durability of our core franchises earning power. The sustained level of profitability has been driven by balanced loan growth, a margin that remains one of the highest among our peers, expense control and fundamentally sound credit quality. Slide five presents the fundamental elements of our net interest margin specifically loan yields and fees as well as deposit cost trends. As Chris mentioned, we were above our target range this quarter mostly due to increased yield on our loan sale for sale of loan fee income. We believe that those will both normalize in the coming quarters with an additional five to 10 basis points decline in margin related to the branch transaction. We continue to anticipate being in the 415 to 430 NIM range for the remainder of 2019. For some detail, the approximately $385 million of loans that we brought in with the branches had a contractual yield of approximately 4.65% while the approximately $598 million of deposits had a cost of approximately 1.03%. So far we've not been renewing wholesale funds and higher cost public funds CDs that have interest cost in the 225 to 230 range utilizing the excess liquidity from the branch…

Thank you, James. Once again, we appreciate your interest and investment in FB Financial. Operator, that completes my remarks for this morning's call, and we'd now like to open it up for questions.

Thank you. [Operator Instructions] We'll take our first question from Catherine Mealor from KBW. Please go ahead.

Thanks. Good morning.

Morning, Catherine.

Wanted to start on mortgage, I know you gave guidance that your bottom line guidance for mortgage really hasn't changed despite the sale of the wholesale piece. So can you help us just on the expense side of it, how much of expense reductions that we could see on the mortgage side this year after that sale?

Yes, Catherine, this is Wib. And so both these third-party channels are obviously not our heaviest expense, but they're also our lowest margins. I won't give you an exact number on that, but our expense range would be somewhere in the 15% to 19% range of our total expenses on a run rate. And on the revenue side would be probably in the 18% to 22% range.

Okay. And maybe another way to ask it is there a different way to think about what the mortgage efficiency ratio should look like once these pieces are backed out, or has not changed…

Yes, we don't know exactly what that's going to like. I would tell you that it's going to come down. Our efficiency ratio has been a bit, as you know, higher than what we would like. And so I would think that that number is going to be down in that 89% to 90% range.

Okay, that's helpful, thank you. And then on the share buyback, Chris, you mentioned that you were kind of splitting the buyback between this year and next year. As we think about how active you may in the half that you're thinking for 2019, is that price sensitive or are you comfortable now that ACBI is closed and past that acquisition that you'll be active in the market pretty soon after earnings or does that depend on where the price goes?

Yes, it's price sensitive. It is price sensitive. And if you'll remember when we announced the buyback we hadn't announced the branch transaction yet. And so the reason for those, diving the 50 into 25 and 1925 and to 20 -- we, again, we used some excess capital, so we didn't raise any capital when we announced the branch transaction. And so that's the reason for the split, and then it will be price sensitive, so we may or may not be in the market just depending on what the price is.

Okay. That's helpful, great. Thank you. I'll jump out. Congrats on a great quarter.

Thanks, Catherine.

We'll take our next question from Peter Ruiz from Sandler O'Neill. Please go ahead.

Yes, thanks. Congrats on the nice quarter, guys.

Thank you, Peter.

Just wanted to maybe follow-up on the buyback, I guess how are you guys thinking about the $25 million this year relative to maybe what the opportunities and discussions are looking like on the M&A front. I feel like maybe previous commentary kind of leaned towards maybe continuing to pursue other capital deployment opportunities. So are you kind of seeing maybe the discussion shift a little bit so that maybe the buybacks are a little bit more attractive or any puts and takes there?

Yes, as we think about opportunities for capital buyback is not our -- or necessarily our highest and best use, just like we deployed it when we make the branch acquisition, we'll continue to look for ways to get the highest return. And so we'll continue to look on the M&A front, that's a relatively active market especially in smaller banks. That being said, you've seen us be patient and disciplined on that front. You'll continue to see us be patient and disciplined on that front. And so we're not looking to run out, and we're kind of waiting for opportunities to come to us. But that's certainly generally a higher -- a better use. That being said, we're going to have to buyback there, we'll be able to deploy it, especially if we felt that our stock price was not appropriately reflected in the marketplace, it gives us a tool there to utilize the capital appropriately. So that's really the way that we look at it.

And then maybe on the loan growth, just -- obviously continue to surpass that longer-term guidance. And I know you're not necessarily looking for a quarterly target, but are you kind of seeing any changes on the paydown front, have paydowns eased? What's the competition looking like in your markets right now?

Yes, good question. And actually you did hit on something -- we actually had some relatively significant paydowns in the quarter, and had some fees related to that from some early payoffs. I think that's not unique to us. I think that's going on in the marketplace, but again we continue to have strong demand across the footprint. We're fortunate to be in -- most people know national is a great market. And so there continues to be strong demand in national, but there is also -- we are in another great markets, and so, one of the things we have been really pleased with over the last couple of years is how the other markets have really become real contributors on growth in both loans and deposits. And so, that's something that if you kind of look at our timeline and look at our balances over the last several years -- last three or four years, you have seen that that really be a change in the makeup of our company. So we are getting demand from all around. And so, I think I may have made this statement last quarter. I have certainly made it before, that's a fairly comfortable and controlled growth rate for us. And so, we anticipate keeping it in that range. Again it could be just like this quarter. It could be a little above. It could be a little below. But demand continues to be strong. And, we continue to be able to absorb the pay offs and continue in that 10% to 12%, in this case 13% range. And so, we think that that's -- we are still comfortable with that.

Great. Thanks so much.

Thanks, Peter.

Thanks, Peter.

We will take our next question Alex Lau from JP Morgan. Please go ahead.

Good morning.

Good morning, Alex.

Hi, so I wanted to touch on the deposits. So now that the Fed is on hold with rate hikes, are you seeing any easing on deposit pricing competition in your markets?

Yes, actually it's not as stressed as it was. It has eased somewhat from say third and fourth quarters. We still see some -- I predict there're one-off rate promotions and hear about some rates out there that just don't make any sense to us, but I would say just in general if you are talking about our markets, we have seen it. We have seen the competition moderates as I think particularly the outlook, if you now look at the outlook for the rest of the year it looks like the projections are not more rate hikes and some project maybe a cut even later in the year or sometime next year. So, I think as folks will gather in the future, we have seen competition become less intense.

Great. Thanks for that.

Thanks Alex.

Thanks, Alex.

[Operator Instructions] And we will take our next question from Jennifer Demba from SunTrust. Please go ahead.

Hey guys, it's actually Steve on for Jennifer.

Good morning, Steve.

Good morning Steve. I love Jennifer's voice change.

No worries. You guys mentioned being a little more cautious with the growth here. What does that entail? It doesn't seem to be affecting kind of your loan growth numbers. Where there any certain segments you don't want to lend to? Or, is it more based on kind of the borrower customer relationship?

Yes, a little of both. Projected borrower customer relationship, we see some things where you would have -- some things maybe you would have done that you -- in certain times, but when you look at and you think, boy, the economy could be slower in 2020 or 2021. It maybe you either don't do or you do in a smaller way. You do focus on your longtime good customers if you want to make sure you have capacity. We have got a lot of longtime really strong customers that we have done business with for decades. And you want to make sure that you've got capacity to serve them would be a couple of adjustments. And then other one would be maybe on -- would be on particular segments. There are some things that tend to be a little more sensitive to the cycle in some areas that you would -- where you would begin to be a little more selective. And so, all the typical things, constructions, multifamily, you know, some other pieces of our balance sheet where we got some specific customers that may have a specific niche, but you know from history that that niche is going to be a little more sensitive to the cycle that you also maybe -- that you maybe looking at, and introducing your exposure or beginning to limit your exposure. I wouldn't say -- I wouldn't really say anything, are we reducing our step to exposure, but maybe limiting it moving forward.

And I think the other [indiscernible] is really not so much for the credit, but as the funding side of it, given what incremental cost of funding -- you know, where it's today relative to loan yields on an overall basis are relatively flat particularly where the curve is positioned. We're being a little bit cautious on the growth, and what pressure that to put on there within range. I think there is plenty of activity to do more of that -- you need to balance it against the credit and the funding side of our balance sheet.

Perfect, thanks. And then, of course I have to ask you, but any thoughts on seesaw implementation here, any thoughts on kind of day one in backyard, or I know it's a tough one to put numbers on so far…

You, Steve come on man, you can ask…

We are just open, Congress will intervene. That's our strategy. Only kidding, obviously it will be an impact I think some of the moving parts of that we're still -- we're beginning, and the score will begin actually able to run parallel. We'll start to have a better feel of that by the end of the third quarter. So I think we'll be in line with most people in the community bank. I think the -- our allowance methodology was closer in some respects with a five year look back, which is probably within our average loan maturity or average loan life. So while it will have some impact, it will -- we think it will be in line with others, but not -- it shouldn't be out, and of course the other piece is the doubling up our impact of acquired non-PCI loans. That has a little bit of the doubling impact all of that. That portfolio right now continues to come down over the course of the year before implementation. So we'll see how that rolls through, because we continue rolling those maturities into the allowance each quarter to take care of that. So, I think the hard part to predict is what it does to the provisioning going forward. The initial adoption I think is going to be within reason that the ability to manage the provision, post-adoption is probably the most concerning part about it depending on how your portfolio moves in a particular quarter or period, and how that could drive the produce.

Okay. Thanks, guys.

Thanks, Steve.

Thanks.

[Operator Instructions] We'll take our next question from Daniel Cardenas from Raymond James. Please go ahead.

Good morning, guys.

Good morning, Daniel.

Just a couple questions in terms of dollar amount, I mean what was the impact on paydowns in Q1, and then as I think as it relates maybe can you help what impact it had on the margin as I'm trying to work down to a core margin for you guys?

So I would say we don't track every paydown, but I would say there were three or four larger ones that were probably in that 30-plus million dollars in the aggregate that contributed. If you look at loan fees, there -- and contributed quarter-over-quarter about nine basis points. So probably half of that growth was from some of those paydown fees.

Great.

But we expect the overall, the loan fees to come back in as I said in my comments, to the levels that we were experiencing in 2018 on average. They were a little bit lower in the fourth quarter. So until we do it quarter-to-quarter and we do track gross and net growth and net payoffs, but we had -- as James said, approximately three -- actually three that were -- in the aggregate were in the 30 million range.

Good. And then you credit metrics are good very manageable, but maybe some color on watch list trends, what that looks like perhaps on a linked quarter basis as well as the year-over-year basis, and if there's anything out there that's causing you concern right now?

Yes. So, our watch list actually continues to be stable. And so, when we look at our – the internal metrics that aren't publicized, they all actually continue to be quite stable. If you remember back in the fourth quarter, we had one loan that was just over 5 million that were non-accrual, still on non-accrual. So that number jumped up some related to one loan. Other than that, the numbers continues to perform fairly well. And that -- and by the way, that loan is better than it was, and so, the underlying metrics from classifieds to watch list to past dues actually continue to be good. We worry about, and you've seen in the market, we worry about a one-off coming up, you can always be -- I always say that, you can always be subject to some one-off, and we worry about that, but frankly, when we look at metrics and we try to highlight things that are going to be problems, we're not seeing cause for alarm. You hear us -- hopefully you hear us, I mean as we say -- I said earlier in my comments, we're closer to the end of the cycle, we don't know where that's coming, we're on guard for that, and so, we're watching, we're trying to be really diligent there and watching all of those metrics. And other than a one-off here or one-off there like we had in the fourth quarter, we're seeing continued strength.

Yes, and basically every one of the categories from fourth quarter to first quarter were down around $5 million, whether PCI classified as watch, past dues I think we're in the lowest level I think they have been in two-plus years since we acquired the Clayton Bank. So, everything is on a very positive basis now that's -- it's a moment-by-moment deal on some of those, but nothing out of the ordinary, but they are all down and only up slightly year-over-year, so…

Okay, good. And then, last question from me, then I'll step back. On your pro forma TCU ratio of kind of that 8% to 9%, is that at the lower end of your comfort range, or would you be willing to take that number down lower if you found the right transaction?

Yes, that is our comfort range. If we had the right transaction we may go below that for some limited period of time, and then bring it back. As you see given just your return numbers, we generate capital fairly quickly, and so, for the right transaction it wouldn't bother us to take it down from there, but on a steady stake basis, we would like to see it in that range.

All right, good. Congrats on a good quarter, guys.

Thanks, Daniel.

We'll take our next question from Tyler Stafford from Stephens Incorporated. Please go ahead.

Hey, good morning, guys.

Good morning, Tyler. How are you doing?

Good. Hey, I apologize I just hopped on; so I apologize if you guys discussed this already. Can you just talk about given the TPO and the Correspondent channel exit, what you'd expect from a kind of new blended gain on sale margin going forward, and then any expense offset that we should be thinking about as a result of the exit of those two channels?

Wib will answer that…

Yes. So Tyler, here is what we would be thinking, obviously those are our two lowest margin channels, and so, the data [ph] that we have given previously on our consumer direct and our retail channels would hold up as we go forward and once we get these transactions closed. And so, those numbers range up in the 350 range, 325 to say 350 on the retail front, and probably -- I would call it 150 to 180 probably on the consumer direct front. And so, as we look at a blended number, our consumer direct generates a little bit more volume as does our retail group, and we're still looking at somewhere north of 3 billion in total production on annualized basis going forward out of those two channels.

Okay, got it. Thanks for that. And then just -- I guess -- did you guys discuss already the expense offsets, I mean is that…

Yes, we did, and…

Okay.

And we are looking on expense side somewhere in the -- call it 15% to 18% range of our total expenses, and on the revenue front 18% to 22%.

Okay, I will hop out. Thanks, guys.

All right. Thanks, Tyler.

And we have no further questions. I would now like to turn the call back to Chris Holmes for any additional remarks.

Okay, thank you very much. We appreciate everybody joining us for the call, and again, we appreciate your interest in the company, and we look forward to continued success for all of us. Everybody have a great day. Thanks. Bye.

Thanks.

And that concludes today's conference. Thank you for your participation. You may now disconnect.