U.S. Markets closed

Edited Transcript of FBK earnings conference call or presentation 25-Apr-17 1:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 FB Financial Corp Earnings Call

Nashville Apr 25, 2017 (Thomson StreetEvents) -- Edited Transcript of FB Financial Corp earnings conference call or presentation Tuesday, April 25, 2017 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Chris Black

FB Financial Corp - SVP, Director Strategic Finance

* Chris Holmes

FB Financial Corp - President, CEO

* James Gordon

FB Financial Corp - CFO

* Wib Evans

FB Financial Corp - President, FB Ventures

================================================================================

Conference Call Participants

================================================================================

* Catherine Mealor

KBW - Analyst

* Ben Lurio

JPMorgan - Analyst

* Peter Ruiz

Sandler O'Neill - Analyst

* Tyler Stafford

Stephens - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning and welcome to the FB Financial Corporation's first-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 the question-and-answer session.

Please note FB Financial 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 call is being recorded and will be available for replay on FB Financial's website for the next 30 days. (Operator Instructions)

With that I would like to turn the presentation over to Mr. Chris Black, FB Financial's Senior Vice President and Director of Strategic Finance. Please go ahead.

--------------------------------------------------------------------------------

Chris Black, FB Financial Corp - SVP, Director Strategic Finance [2]

--------------------------------------------------------------------------------

Good morning. During this presentation, FB Financial may make comments which constitute forward-looking statements. All forward-looking statements are subject to risks and uncertainties and other facts that may cause actual results, performance or achievements of FB Financial to differ materially from any results that are expressed or implied by such forward-looking statements.

Many of such factors are beyond FB Financial's ability to control or predict and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks as contained in FB Financial's 10-K filed with the SEC. 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 on FB Financial's website at www.FirstBankonline.com. I would now like to turn the presentation over to Chris Holmes, FB Financial's President and CEO.

--------------------------------------------------------------------------------

Chris Holmes, FB Financial Corp - President, CEO [3]

--------------------------------------------------------------------------------

Thank you, Chris. Good morning, everyone, and thank you for joining us on this morning's call to review our results for the first quarter of 2017. We certainly appreciate your interest in our Company. We're pleased to report record loans and deposits for the first quarter of 2017. We had a strong quarter where we hit or exceeded many of our key goals and continued to deliver the service that our customers have come to expect from us. We also remain excited about the Clayton Banks acquisition that will expand our presence both in Tennessee but also in some existing markets in Tennessee, both existing and new markets.

On today's call, I'm going to review the highlights of our first-quarter and then I'll turn the call over to James Gordon, our Chief Financial Officer, who will review our results -- our financial results in some more detail. After James's comments we'll open up the call to your questions.

This quarter our total revenues were up 7.7% from the first quarter of last year to $61.3 million. Our revenue growth benefited from both our core bank and also our Mortgage operations. Our net interest margin rose to a strong 4.28% in the first quarter compared to 3.99% in the fourth quarter and 4.03% in the first quarter of last year. Taking out accretion, our customer driven net interest margin was 4.12%, also strong, and a 22 basis point increase over first quarter of 2016. Our margin improvement benefited from the growth in our customer focused balance sheet and also some from accretion in the current interest rate environment.

While loans held for investment were up 11% to a record $1.9 billion from the first quarter of last year, our loan growth on a linked-quarter basis went up annualized 11.5% from year end. We had loan growth in both our metro and community mortgage and in every major loan category compared to last year.

On deposits, our total deposits grew 9.4% to $2.7 billion from the first quarter of last year and were up 4.5% on an annualized basis from the fourth quarter of 2016 driven by some seasonal inflows of deposits. Non-interest-bearing is an important measure for us. Deposits represent -- continue to represent 25.8% of our deposit base and increased 12.7% in Q1 of 2017 from the prior year.

Our mortgage origination operations remained solid with interest rate lock commitment volume up 9.2% to $1.6 billion compared with the fourth quarter of 2016 and up 31% from the first quarter of last year. Importantly, the increase included a higher percentage of purchase volume over previous periods reaching 60% in the first quarter 2017, increased from 46% in the fourth quarter 2016.

We also reported continued improvement in our asset quality metrics. Nonperforming assets to total assets improved to 56 basis points in the first quarter of 2017. That's down 27 basis points from the first quarter of last year. We reported net recoveries of 31 basis points in the first quarter of 2017, driven largely by the recovery of single credit. Overall, this resulted in a small reverse provision in a period end loan loss ratio of 1.20% which we view as being in our target for that ratio.

With that overview of the quarter, I want to turn the call over to James to review our financial results in some more detail.

--------------------------------------------------------------------------------

James Gordon, FB Financial Corp - CFO [4]

--------------------------------------------------------------------------------

Thanks, Chris, and good morning to everyone. First I want to highlight our core operating results for the quarter. Diluted earnings-per-share were $0.42 on core net income of $10.3 million which compares to pro forma core net income of $9.7 million in the same quarter last year. Our core return on average assets was 1.31% and our core return on average tangible common equity was 14.8%.

Next, looking at slide 4, which shows our pro forma reported return on average assets increasing 41 basis points since 2013 to 1.25% for the quarter. This presents the strong and consistent profitability growth we have achieved over the last four years and continued to deliver this quarter with a 1.31% core return on average assets.

The bottom half of slide 4 shows the key drivers to our profitability. The first graph shows our loan-to-deposit ratios and the mix of our loans held for sale. Second, our net interest margin has improved 25 basis points since the first quarter of last year. Noninterest income was flat compared with the first quarter of last year and, finally, our nonperforming assets to total assets is down 27 basis points from the first quarter of last year, declining in each of the last six quarters to 56 basis points at the end of the first quarter.

Next, on slide 5, the graph shows our historical yields and costs. As stated previously, our NIM in the first quarter of 2017 was 4.28%. When adjusted for 16 basis points of accretion benefit, our core NIM was 4.12%, slightly above our long-term outlook of 3.85% to 4.05%. Key drivers of our net interest margin have been our strong core deposit base with a total cost for 32 basis points for the quarter which is up three basis points year-over-year.

Our non-interest-bearing deposits which were 25.8% of total deposits and over half of our deposits are in transactional accounts. Overall, our balance sheet is positioned to benefit from the current rate environment driven by our strong deposit base and our current mix of earning assets.

Next, on slide 6, our loans are up 11% to $1.9 billion at the end of the first quarter compared with last year and were up 2.8% or 11.5% annualized from the fourth quarter of 2016. Importantly, our average loans rose 13% on an annualized basis over the fourth quarter of 2016. The chart at the top right of this page reflects our construction and CRE concentration levels at 76% and 155% of total capital, respectively, well below the 100% and 300% regulatory guidelines leaving room for other growth.

Slide 7 again illustrates our key metrics for our deposit franchise, driven by our continued strategic focus on core deposits. Our total deposits are up 9.4% to $2.7 billion since the first quarter of last year. This growth is attributable to non-interest-bearing deposits that were up 12.7% to $696 million from the first quarter of last year. At the end of the latest quarter, non-interest-bearing deposits totaled 25.8% of total deposits.

Our cost of deposits has remained relatively stable over the past year around 30 basis points and edged up slightly to 32 basis points in the first quarter reflecting the current rate increases. Included in non-interest-bearing deposits again were $48 million of mortgage servicing escrow deposits up from $45 million at the end of the fourth quarter.

Next on slide 8, our mortgage banking income was $25.1 million for the first quarter of 2017. This was up 2.4% from the first quarter of last year but was down 4.2% from the fourth quarter of 2016. In the first quarter, our interest rate pipeline was down 16% to $449 million from the fourth quarter but our (inaudible) volume was up 9.2% to almost $1.6 billion. This was primarily due to the expansion of our correspondent channel we started in mid-2016.

These changes also reflected a decline in gain on sale in the first quarter of 2017 compared with fourth quarter of 2016. In the first week of April, we sold approximately $12 million of MSRs with no material gain or loss and expect to continue to sell on a fairly regular basis as we have done in previous periods. Additionally, during the quarter, we changed our accounting method for MSRs to fair value to allow for MSR hedging in the future, as desired.

We expect overall mortgage market conditions to improve as we enter the second quarter with seasonal growth expected in our markets. We will continue to see competitive pressure on our margins and to see growth in our lock volumes. Our operating model continues to be nimble and we will continue to make adjustments through both revenue enhancements and expense reductions to deliver results.

We expect a continued shift in our mix as our correspondent channel matures during 2017 and our Consumer Direct channel continues its migration to a more purchase minded focus. We also expect to reach full capacity on two retail offices we opened in mid-2016. Our outlook for mortgage volumes in 2017 is for growth in the second quarter with continuing growth in the second half and expect 2017 volumes to increase from 2016 on a full year basis. This, combined with other factors, should result in a bottom-line contribution for mortgage for the full year 2017 that is relatively flat versus 2016.

Next, looking at our operating leverage ratios on slide 9, and our continued focus on improving both those metrics. Our efficiency ratio was in the 60s for our Banking segment during most of the last year and improved slightly to 64.4% in the first quarter of 2017. Our Mortgage segment showed continued solid progress last year in approving its efficiency ratio but has been negatively impacted in the first quarter by lower revenues and higher expenses primarily driven by commissions recognized at closing.

We believe there are a number of factors that will benefit operating efficiencies as we continue to grow the Bank. We've invested in our overall operating platforms, growth in the existing markets will improve our leverage and we believe our efforts to centralize certain functions will improve our operational capacity. We believe we have existing capacity to grow our business in our metro markets and especially in Nashville without significant additions of bankers.

Also, our effective tax rate of 35.7% for the first quarter was lower due to the impact of stock vesting and distributions. We expect our effective tax rate to be approximately 37% for the remainder of 2017.

Next on slide 10, our asset quality continues to be strong and we've continued improving it over the past year. Since the first quarter of 2016, our nonperforming assets were down 27 basis points to 56 basis points at the end of the first quarter of 2017. Classified loans are down $8 million, a decrease of over 17% to $38 million during the same time period. Our loan-loss reserve to loans held for investment was 1.2% at March 31, 2017 and net charge-offs to average loans were in the net recovery position for the quarter.

Notably, we recorded a $1.7 million recovery in the first quarter, which was related to one specific customer relationship. This resulted in net recoveries of 31 basis points of average loans and drove the loan-loss provision to a reverse provision of $257,000. Going forward, we expect provision for loan growth and net charge-offs maintaining a reserve in the 1.2% range.

Slide 11 shows our capital position -- shows that our overall capital position versus each of the key measures are well above the amounts required by the regulatory agencies to be well-capitalized their highest rating. Each allows for our planned growth going forward. With that overview, I want to turn the call back over to Chris for closing comments.

--------------------------------------------------------------------------------

Chris Holmes, FB Financial Corp - President, CEO [5]

--------------------------------------------------------------------------------

Thanks, James. We had a good quarter with record loans and deposits. Our strong performance was diversified across our product areas and across all our markets. Overall, the bank continues to execute on our strategy and continues to grow core earnings capacity through improved margins, strong loan and deposit growth and lower costs related to asset quality.

The contribution from our Mortgage operations also improved as we adjusted our strategy to be more nimble in the market. We're optimistic on our future with the confidence we have in our team and the strength of our markets, our continued ability to outgrow competitors in our markets by attracting new customers and the future opportunity with the Clayton Banks.

We are very positive about our Company and the opportunity we have to build shareholder value in the future. We look forward to updating you next quarter on the progress we have for the first half of 2017. Operator, that completes my remarks on this morning's call and we would like to open the call up for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Catherine Mealor, KBW.

--------------------------------------------------------------------------------

Catherine Mealor, KBW - Analyst [2]

--------------------------------------------------------------------------------

Thanks. Good morning. I wanted to start on the margin. The legacy loan yields came down about 10 basis points linked quarter. Can you all give any color into what drove that and what you are seeing on new and renewed loan yields and how we should think about the direction of that as we move through the year as growth continues and rates presumably move higher? Thanks.

--------------------------------------------------------------------------------

Chris Holmes, FB Financial Corp - President, CEO [3]

--------------------------------------------------------------------------------

Sure, Catherine. I'll comment first and James may want to add some color. That -- kind of what we think of as the contract rate on that yield of 469 is down from the fourth quarter but if you look over the last say five quarters, we run in a range of actually about 465, 466 up to about -- the high point was 479.

That 479 was actually on the last quarter was actually a little high related to some nonaccrual interest that we collected back in the last quarter. And so we still feel pretty good about the contract rate this quarter and we feel pretty good about it moving forward.

We are starting -- we've seen a couple of things just commentary on the market. We have actually been able to hold the loan yield for the most part. We continue to focus on variable rates versus fixed rates. A little bit of shift there but part of the reason we break it out the way we do on our HFI chart is so that we can highlight the different levers. And, if you'll notice, our fee income was actually pretty good this quarter and so again those things are somewhat -- levers that we can pull.

So I'll summarize that by saying we continue to feel pretty good about where it is, especially given where rates are headed relative to the previous quarters. James, you want to add something to that?

--------------------------------------------------------------------------------

James Gordon, FB Financial Corp - CFO [4]

--------------------------------------------------------------------------------

Yes, the only thing I would echo is what Chris said was on the nonaccrual adjustments. Those are unpredictable and we don't break those out. They are not overly significant but can cause volatility from quarter to quarter. The other item I would mention is we've now with the latest increases, have gone through most of our floors, where it's about 75 million left in the money, if you will. So we've priced through those, so we're set to take advantage of that and we're seeing, both on the rate and the fee side, better pricing overall in the market, which should help drive that up over time.

--------------------------------------------------------------------------------

Catherine Mealor, KBW - Analyst [5]

--------------------------------------------------------------------------------

Okay, that's really helpful. Thanks. And then moving over to mortgage, and James, you mentioned a little bit about your efficiency plans within the mortgage. If we break out the Mortgage segment and then we also look at the retail mortgage piece, it feels like the higher efficiency ratio really came this quarter in the retail mortgage piece of the business how and so can you give us a little bit of color there? Was there anything maybe temporary that we saw in that this quarter. And perhaps what a short outlook for the retail mortgage efficiency ratio? Where should that trend to over time?

--------------------------------------------------------------------------------

James Gordon, FB Financial Corp - CFO [6]

--------------------------------------------------------------------------------

It should still trend to in that 80% range. I think as the revenues recover where you're able -- because there is a certain base of fixed costs and both -- in all the channels in Mortgage, but particularly on retail we have brick and mortar and other things that attribute to that. And so as the revenue recovers to more sustainable or higher levels, the fourth and the first quarters are generally going to be the lowest revenue in all the channels, but particularly in revenue, I'm sorry, in the retail channels. So we would expect that to come back into that 80% as it grows to a more normalized level in the second and third quarter.

--------------------------------------------------------------------------------

Catherine Mealor, KBW - Analyst [7]

--------------------------------------------------------------------------------

Okay. That's helpful. Great quarter, guys. Thank you.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Ben Lurio, JPMorgan.

--------------------------------------------------------------------------------

Ben Lurio, JPMorgan - Analyst [9]

--------------------------------------------------------------------------------

Hey, good morning, everyone. Just wanted to touch on loan growth first. You guys put up strong loan growth I think within that 10% to 12% range you guys target. I guess currently how do the loan pipelines look and maybe just comment on expectations for full-year growth and have you any particular key drivers that you see? Thanks.

--------------------------------------------------------------------------------

Chris Holmes, FB Financial Corp - President, CEO [10]

--------------------------------------------------------------------------------

Yes, Ben, so we're pleased with where we are for the first quarter because that can be a slower quarter. So, having a linked quarter growth over 11%, I would say we are pleased with that. The pipeline continues to be absolutely strong, and so we continue to look at 10% to 12% range. You probably recall that I've said -- if it's 9%, we don't get too upset, if it's 13%, we don't get too upset. And we kind of our -- we think that's a responsible level of loan growth where we can handle the credit and handle the execution and make good decisions around that. And we're comfortable with that going forward as we -- especially as we look at the pipeline right now. We're comfortable with that going forward.

If I had to -- just a comment on markets, probably most pleased with the fact there have been some quarters where we've really relied on Nashville more than some of our other markets, and, of course the economy is strong here and it continues to be strong. We've probably got broader participation across our markets in terms of the growth and the contribution. So that's something we focused on with teams and so that's really good for us to see because it (technical difficulty) see everyone contribute.

And so for the full year, we're optimistic on that range. The pipeline is in good shape, and the yields are holding up. As we see some banks that are at a -- that are having trouble with the construction threshold or CRE threshold, so that helps in terms of everybody being able to be a little bit more selective on the deals being able to get a little better pricing, and so we do see that in some places in the market. But, that's some color on that. Is that what you are looking for?

--------------------------------------------------------------------------------

Ben Lurio, JPMorgan - Analyst [11]

--------------------------------------------------------------------------------

Yes, thanks. That's very helpful. I guess then just moving to deposits, maybe can you just comment on what you're seeing in terms of any pricing competition and maybe specific markets you are seeing more or less competition. And then, I guess, how you guys you think about betas going forward for the rest of the year.

--------------------------------------------------------------------------------

Chris Holmes, FB Financial Corp - President, CEO [12]

--------------------------------------------------------------------------------

Sure, on the deposits we are seeing some more competition on the deposit side. I'd say it's targeted, but we are seeing, in general, rates slowly begin to increase but we're also seeing some more targeted competition on some specific relationships. And so we are continuing to combat that, so we've certainly seen the deposit market pick up in terms of its competitiveness. James, you want to comment on our betas?

--------------------------------------------------------------------------------

James Gordon, FB Financial Corp - CFO [13]

--------------------------------------------------------------------------------

Yes, so I would say on the money market side, it's probably -- we're seeing the most pressure particularly from the larger banks. I think the loan growth being a little bit more muted in some of the more traditional community banks. We're seeing less pressure on CDs at this point. We would expect some of that to moderate on the money market side and probably if loan growth picks up in the more traditional community banks, additional pressures on the CD side.

But, you know, on our betas, we continue to leave those. We are probably doing, through the first three rate increases or so, we've done better than our betas because we have been able to keep our deposit costs in that 30 basis points so we feel pretty comfortable with the betas that we're using, that they are very conservative and we'll continue to hold that. But we know there's a point where you won't be able to hold it at 30 basis points. It will begin to move up from just overall pressures, whether it's the next rate hike or just continued competitive pressures to do that, but we believe we can control those better than the betas that we're using to do our modeling.

--------------------------------------------------------------------------------

Chris Holmes, FB Financial Corp - President, CEO [14]

--------------------------------------------------------------------------------

And I'll make one last comment regarding that. Remember that we're pretty much customer deposit funded for our entire balance sheet, even including our held for sale portfolio in mortgages and so we use -- we don't use much wholesale funding. We do use Federal Home Loan Bank, it tends to be overnight funding, but other than that we don't use much wholesale funding, so there's a lever that we can pull there.

That being said deposit growth is important to us moving forward and then as we are thinking about the markets, we think about where things are moving. I think in 2018 and beyond, deposit funding could get much tighter and so we think that advantage there is going to be the fact that we do have not s customer funded balance sheet on the deposits side and if we don't have lines on the wholesale funding. And we've got -- we feel like we've got the ability to grow deposits whereas I don't think necessarily all the banks, especially our size and smaller would have that same confidence.

--------------------------------------------------------------------------------

Ben Lurio, JPMorgan - Analyst [15]

--------------------------------------------------------------------------------

Got it. Thanks for all the color.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

(Operator Instructions) Peter Ruiz, Sandler O'Neill.

--------------------------------------------------------------------------------

Peter Ruiz, Sandler O'Neill - Analyst [17]

--------------------------------------------------------------------------------

Morning, guys. Just wanted to follow-up on mortgage. Just wondering if you guys could give a little color on the pricing you are seeing in the market -- as that kind of changes over the last six months with higher interest rates and the volume mix change and maybe the overall pricing. Any change there?

--------------------------------------------------------------------------------

Chris Holmes, FB Financial Corp - President, CEO [18]

--------------------------------------------------------------------------------

Sure, Peter. Wib Evans is here with us, who is our executive over our Mortgage area. I'm going to let Wib comment on the pricing there and the changes.

--------------------------------------------------------------------------------

Wib Evans, FB Financial Corp - President, FB Ventures [19]

--------------------------------------------------------------------------------

Yes, so Peter, what I would tell you about pricing, we are seeing -- we're continuing to see competitive pressure on our margins across pretty much all of our channels and we expect to see that throughout the rest of 2017. We are -- we saw a lot more pressure -- or it has eased up I guess a bit here in the last or the first month of this quarter in April than we saw last quarter.

I will tell you that the fourth quarter and first quarter of 2017 were really tight. We saw a dramatic shift downward but we're starting to see that pick back up and we're being able to thicken up our margins a little bit as we go into the second quarter, and we expect to see that, although we think the pressure is still going to be there and we're having to watch that tightly to compete.

--------------------------------------------------------------------------------

Peter Ruiz, Sandler O'Neill - Analyst [20]

--------------------------------------------------------------------------------

That's great. And I guess just following up maybe on -- just loan growth. Obviously, you reiterate the 10% to 12% range and I understand that it kind of seems like maybe you are kind of capping it at the higher end of the range even if you saw better growth, but are you seeing any actual increased optimism in your customer base actually turning into real opportunities? Has anything changed?

--------------------------------------------------------------------------------

Chris Holmes, FB Financial Corp - President, CEO [21]

--------------------------------------------------------------------------------

Yes, Peter, the -- I wouldn't say we're capping it at 12%. We -- like I said, you may see us do 13% to 14% in the quarter. But given just how we view the market, we could -- and I guess I would make this example, we get a lot of opportunities and if we weren't thinking about trying to think three or four, even six or a quarters ahead, we could probably hit 20% just given what's going on in some of our markets. But again, we think responsibly that double-digit growth -- and that's still growing faster than the market and so, again, we don't want to get too optimistic when it comes to credit quality and things like that just given the fact that the economy could turn unexpectedly on any of us.

So we don't cap it, but as we think about where we are operating at capacity that's comfortable for us, that's about what it equates to. And then in terms of customer optimism, I guess we're fortunate with good markets and we do have some continued customer optimism especially in our C&I. Our C&I customers actually all reflect good optimism.

We continue to have good real estate activity. We -- on the real estate, I would also though, add, that there are pockets where we are more cautious and I think that it's wise to be more cautious. A couple of specific areas, multifamily. There are some places in our markets where we're quite cautious on that. We are actually quite cautious on retail right now, given some of the announcements that you've seen over the last few months about what's happening with retailers, we're actually quite cautious on retail. And then we're cautious on hospitality. There are some specific areas on hospitality in our markets where we take a really cautious approach.

Now I would say there is no shortage of opportunities in any of those areas because we are seeing a lot of opportunities. But we're -- but again, we're taking a slightly more cautious approach. So going back to the initial comments on what we could probably top about 25% if we wanted to, I say if we wanted to -- if we were less thoughtful about say four quarters down the road. But we are trying to be prudent there. And so we continue to -- but I'd say over all, we continue to see optimism among the client base, and that has been the case now for a long time and especially in our Nashville market, which is our largest market.

It's been that way for a long time and continues to be that way. But I'd say also when you go to the markets that are slightly smaller, Knoxville, Chattanooga, Memphis, we'd probably see more optimism there than we did in each of those. We probably see more optimism than we did two years ago.

--------------------------------------------------------------------------------

Peter Ruiz, Sandler O'Neill - Analyst [22]

--------------------------------------------------------------------------------

That's really great color. Thanks so much.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

Tyler Stafford, Stephens Inc.

--------------------------------------------------------------------------------

Tyler Stafford, Stephens - Analyst [24]

--------------------------------------------------------------------------------

Hey, good morning, guys. Very nice quarter, congratulations. Chris, maybe just to start on your comments that you just mentioned just about your cautious view on multifamily and retail, is that cautious view more pronounced in any one of your markets? Or is that a general statement across your four or five markets, metro markets?

--------------------------------------------------------------------------------

Chris Holmes, FB Financial Corp - President, CEO [25]

--------------------------------------------------------------------------------

Yes, it's both. We're -- we don't -- it's both, so we're generally more cautious on all those segments that I mentioned. That being said, I'd say particularly right inside the central district of Nashville there's been a lot of hotel development, and so for hospitality there I think it pays to be very prudent.

We've seen a lot of multifamily development, so it pays to be prudent. We do have some multifamily projects that we are very seriously evaluating, but they tend to be more suburban type where the numbers look better for us in terms of demand versus supply, and so there's -- that's a little bit of color on that.

In the same way -- well, I mentioned hospitality. And then in retail, it's everywhere. We're reviewing the portfolio and we are just exercising caution on deals moving forward. Now, we just pulled back the reins on all of those, boy, we would probably disappoint you on loan growth. So it's a matter of trying to understand your markets, know your markets and be selective.

--------------------------------------------------------------------------------

Tyler Stafford, Stephens - Analyst [26]

--------------------------------------------------------------------------------

Yes, sure. Okay, thanks. Chris, any update on the progress of Clayton? What's been the response from the team since the acquisition was announced? And just any observations you made as you gotten to know their team a little bit better?

--------------------------------------------------------------------------------

Chris Holmes, FB Financial Corp - President, CEO [27]

--------------------------------------------------------------------------------

Sure. Just on the personal front, as we're working with some of their key executives now very closely, obviously, nothing but great comments about their folks, and have enjoyed building the relationship. We share a lot in common, a lot of values that are common and so on the personal front, I'd say it couldn't be better. We really like their folks and can't speak for them, but I do think that they are enjoying our folks as well. So I think those relationships are working well. We're very pleased with them.

On the regulatory front, we have filed all our applications for approval. We remain in dialog with regulators on that approval process and we are working towards a close in the third quarter is what we're working towards right now.

--------------------------------------------------------------------------------

Tyler Stafford, Stephens - Analyst [28]

--------------------------------------------------------------------------------

Okay. Thank you for that, and then maybe just a couple housekeeping items. Do you have the remaining discount accretion at 1Q?

--------------------------------------------------------------------------------

Chris Holmes, FB Financial Corp - President, CEO [29]

--------------------------------------------------------------------------------

Remaining -- James, do you know that number?

--------------------------------------------------------------------------------

James Gordon, FB Financial Corp - CFO [30]

--------------------------------------------------------------------------------

It's around $3 million. We'll have that in the 10-Q, but it's right around $3 million. It's not significantly more or less than $3 million. I don't have that number right in front of me, but we'll have it in the 10-Q (inaudible).

--------------------------------------------------------------------------------

Tyler Stafford, Stephens - Analyst [31]

--------------------------------------------------------------------------------

Okay, no, that's fine, that's fine. What about the variable mortgage compensation expense this quarter? Do you have what that number is handy?

--------------------------------------------------------------------------------

Chris Holmes, FB Financial Corp - President, CEO [32]

--------------------------------------------------------------------------------

Wib, have you got that number?

--------------------------------------------------------------------------------

Wib Evans, FB Financial Corp - President, FB Ventures [33]

--------------------------------------------------------------------------------

Yes, I do. It's running about 60%, Tyler.

--------------------------------------------------------------------------------

Tyler Stafford, Stephens - Analyst [34]

--------------------------------------------------------------------------------

Okay.

--------------------------------------------------------------------------------

Wib Evans, FB Financial Corp - President, FB Ventures [35]

--------------------------------------------------------------------------------

A little bit north of that, but right around that number.

--------------------------------------------------------------------------------

Tyler Stafford, Stephens - Analyst [36]

--------------------------------------------------------------------------------

Got it. Okay, that's it for me. Thanks, guys. Congrats again.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

(Operator Instructions) With no additional questions in the queue I'll turn the call back to your host for any additional or closing remarks.

--------------------------------------------------------------------------------

Chris Holmes, FB Financial Corp - President, CEO [38]

--------------------------------------------------------------------------------

All right. Thank you very much for joining us, all of you for joining us today. Again we appreciate your interest in FB Financial and we're positive about the direction of the Company. So everybody have a great rest of the week and we'll talk to you next quarter.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

And with that, ladies and gentlemen, this will conclude your call for today. We do thank you for your participation and you may now disconnect.