Good morning, and welcome to FB Financial Corporation Second 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's earnings release and this morning's presentation are available on the Investor Relations page of the company's website at www.firstbankonline.com. Today's 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 now like to turn the presentation over to Mr. Chris Black, FB Financial's Senior Vice President and Director of Strategic Finance. Please, go ahead.

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 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 not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks is 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 a result -- 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.

Thanks, Chris and good morning. Thanks for joining us on this call to review our results for the second quarter. We appreciate your interest in FB financial. On today's call, I want to review the highlights of our second quarter, and then I'll turn the call over to James Gordon, our Chief Financial Officer, who will review our financial results in more detail. After James' comments, we'll open up the call for your questions. We're very pleased to report excellent results for the second quarter of 2017. We hit or exceeded many of our key goals for the quarter. I want to highlight our strong team across FirstBank that continues to deliver the service that our customers have come to expect. And they are the key in delivering our positive results for the quarter. We reported record loans and deposits, with good growth in loans and continued stability in deposits. The core margin remained above our long-term guidance. Mortgage execution was very positive in the face of less than favorable -- less -- in the face of a less favorable market than in comparable quarters, and the efficiency of the core bank improved. Also I want to highlight our excitement about the pending acquisition of the Clayton Bank that will expand our presence in Tennessee both in new and existing markets, and we remain on track with an expected close of the transaction at the end of the month. We're pleased with our loan growth for the quarter. Our loan growth accelerated in the second quarter and was up to 14.8% annualized on a linked-quarter basis, which is above our long-term range of 10% to 12%. We're pleased not with just the pace of growth, but also we had balance across our markets and balance across all of our loan…

Thanks, Chris, and good morning, everyone. First I want to highlight our core result shown on Slide 3. Our diluted core earnings per share were $0.49 and core net income of $12.9 million, which compares to pro forma core net income of $10.3 million last quarter. Our core return on average assets rose to 1.61%, and our core return on average tangible common equity was 13%. On Slide 4, which shows our pro forma, GAAP reported return on average assets increased 48 basis points since 2013 to 1.32% for the first half of 2017. This graph demonstrates the strong and consistent growth in our profitability that we have achieved over the last 4 years and that we continue to deliver this quarter with the 1.40% core return on average assets, this was up 9 basis points on a linked-quarter basis. The bottom half of Slide 4 shows the key drivers to our profitability. The first graph shows our loan-to-deposit ratio, which has continued to shift with a higher percentage of loan set for sale at 16% and our loan sale for investment at 72% as we have steadily leveraged our core deposit franchise. Our net interest margin continues to be at or above our long-term targets and we continue to work through the challenging interest rate environment. Noninterest income increased 14.7% from the previous quarter, driven by expected seasonal growth in Mortgage Banking income. And finally, our nonperforming assets to total assets was down 20 basis points to 58 basis points from the second quarter last year. Next, and looking at Slide 5 at the outline of our historical yields and cost, as detailed previously, we had another healthy period for NIM, which was 4.19% in the second quarter. Adjusting for 11 basis points in accretion benefit, our core net…

Thank you, James. We had a very good second quarter with solid growth in loans and deposits. Our strong performance was diversified across our product areas and our markets, highlighting the strength of our franchise in Tennessee, Northern Georgia and in Alabama. As in past quarters, our banking operations continued to grow our core earnings. In the latest quarter, in addition to loan and deposit growth, we benefited from a continued strong net interest margin. We also continued to benefit from lower costs related to our stable asset quality. Our mortgage operations had a good quarter. We believe we have further opportunities to enhance the mortgage operations and to improve their efficiency. We look forward to our combining of our operations with the Clayton Banks in the next quarter. Since we announced the proposed acquisition, the First Bank and Clayton teams have spent considerable time together, and we are very positive about our potential as one bank, one team. The Clayton Banks operate in very good markets and have demonstrated their ability to effectively compete and grow their operations. We expect the combination of our markets, our customers and our associates to be significantly additive to our results. We believe they will be a solid contributor to building shareholder value going forward. We appreciate your interest and investment in FB Financial. We look forward to updating you next quarter on our progress in integrating with the Clayton Banks and our expectations of continued growth in the second half of 2017. Operator, this concludes my remarks for the morning's call, and we would like to open the line for questions.

[Operator Instructions] And we'll go to David Eads, UBS.

Maybe if we start on loan growth, really good quarter, it seems like the growth is pretty broad based. I think, James, you mentioned higher demand, can you just kind of talk through us some of the more specifics of what was causing -- I mean, is it just increased enthusiasm by customers? Or is there anything else going on that caused demand to pick up this quarter?

Yes, David, good morning, this is Chris. And I don't think it's -- you've heard us say 10% to 12%, and if it's above that we don't get terribly excited -- If it's above that by a couple percentage points, we don't get terribly excited, and if it's below that by a couple percentage points, we don't get terribly upset because we've been in that range for a long time. And so when we look at anything specific, I'd say it's pretty much -- it's not specific, I think it's across the board with all types of customers, all types of markets and all types of products. There -- we have had some construction lending that has occurred over the last, I don't know, probably 4 quarters and we've had some draws on that. That helps some when you get some of those, but other than that, it's pretty normal activity that's broad-based across existing customers, it's adding some new customers. Again, there's some CRE in there, there's actually quite a bit of C&I in there, there's some construction draws in there, and let's say, it's come across -- we've seen it, primarily driven by our metropolitan markets. And Nashville really leading the pack, Memphis has also had a really good year. And then we have -- and then our community markets probably had a better second quarter than they did first. So does that help? James, you had any other color to that?

Frankly, it's just been across, and I think that's demonstrated by the mix of the portfolio, stayed relatively unchanged by categories over the quarter.

I would also -- a lot of the times you'll hear the word chaos interjected, usually not when you're talking about growth like this, but we've -- we get payoffs just like everybody else and we factor that in when we talk about those -- that normal 10% to 12%. And we had some payoffs during the quarter as well. So, I'd say, it's -- and we'll get some next quarter, so it's just a normal part of the business, but we have those mixed in there as well.

Right, and that's helpful. Maybe just kind of staying on that payoff point, you talked about the construction growth, is that -- you expect that's going to continue at sort of a similar pace? Or is there going to be a point where you kind of come to the end of draws and maybe some of those get refinanced elsewhere and you might have a -- have that growth kind of turn around a little bit?

Yes, it certainly could. We've got a couple of projects, I guess, that -- specifically, that started growing up that I can think of in the second quarter, and so had draws throughout the second quarter. But again, it's a normal part of the process. And when we think about the pipeline, we're adding some today as well that won't start growing until third or fourth quarter. And so, again, the 14.7%, 14.8% is a little above what we have typically run but it's -- but the pipeline remained pretty good. And so I don't see that as being where we have a big tumble down the road because, I'd say, it's pretty steady. We have seen, I will say, in a marketplace, banks are a -- perhaps more -- ourselves, we've been this way, a little more cautious on construction, particularly with certain asset classes. And so -- and we've seen now that from some other banks that are, I'd say, as cautious as we are there. And so you could see some slowdown in the marketplace, but our pipeline is fairly steady. Again, no big bubbles in it and no great depressions in it.

Great. Now maybe moving over to NIM, couple of moving pieces this quarter. You -- the core NIM is still a touch above the guidance range, can you give us any sense of where that might go from here? It sounds like you might have a little bit of upside from the June rate hike and maybe a little bit just higher levels from the loan syndication fees and what have you. So is there potentially a little bit of upside? Or how should we think about that next quarter?

Yes, and I will comment first on -- that our -- that contract rate as -- and of course, I'd say, we disclosed quite a bit of information there just -- and so you -- to dissect that. It's helpful to us, and we think it's probably helpful to you. And so as we -- we haven't seen -- and we get -- we've been asked about this not only on these calls but we get asked about this a lot, as to what are you seeing in terms of the impact of the rate increases? Particularly -- we probably get asked more on deposit betas than anything, but if you think about loan -- the loan side, it's not unlike the deposit side, and frankly, we haven't seen a lot of that translate -- the rate increase, we haven't seen a lot of that translate into dollars of more interest income. That being said, we have seen, particularly with the last increase, a little more of at least -- and I have to give this almost anecdotally because we don't have the numbers, we feel like we're seeing a little more upward movement in contract rates, just hadn't shown through on the numbers yet. And -- but we do think that there is some upside, and I don't want you to go -- I don't want that to relate to -- to cause you to go running away in jubilation, but we do see some upside there in the coming quarters on both the loan side, on the interest income and the rate that we get on the loans, if we look again at what's coming down the pipe and if we just kind of a look at the trends monthly. But we also see some increase in the cost of deposits. We've kept the cost of deposits, we were up only 2 basis points for the quarter. So we see some increase in the cost of deposits, so we do see the rates translating to now the both increases in our loan yield but also our deposit costs. James?

Yes, I would say a couple of things on that. As we burn through the floors, which were now down to around $50 million in floors that are in the money, if you will, that' down from $300 million a year ago when all the rate increases started, so we burned through most of that. And I think the initial response to rate increases are a little bit of tightening in spreads, which has happened on the variable rate side, but we -- as the portfolio is fully repriced now with roughly 49% in the variable bucket, we should see some lilt in that loan yields and the 5 to 10 basis points in the coming quarters, based on the period-end weighted average rate of the outstanding portfolio. Some of that will likely be, as Chris said, eaten up by some trends upward in the deposit cost, but net-net that should benefit the net interest margin. Then the second opportunity just to -- it's -- all of that's on kind of a FirstBank stand-alone basis, so obviously, we're -- we'll be blending in the Clayton Banks this quarter. And with their higher-yield portfolios, slightly offset by our higher cost of deposits, we still believe that could have a 10 basis point pick up on the overall NIM expectations, relative to our 3.85% to 4.05% range that we're giving. So I think a couple of opportunities there to continue to move that forward and take advantage of the rate environment that we're in.

[Operator Instructions] And we'll next go to Catherine Mealor, KBW Investments.

Maybe just 1 follow-up on the loan yields. Can you update us or to quantify the percentage of your variable rates that are impacted by floors? And how many more hikes we need to see to grow farther through that?

Okay, Catherine, on -- at the end of the quarter, we had about $50 million in floors and some of those are much higher floors. So we've pretty much eaten through the floors at this point, so they'll be a relatively nonfactor going forward. As long as rates continue to move forward, it would be a slight benefit as they -- if they move forward in a significant way. But it'll take another 75 basis points or something on those floors, those are kind of what I call the core kind of floors that are left so a very minimal impact going forward on that front.

Okay. And then 1 question on the mortgage margin. The gain on sale margin declined this quarter as we've been expecting, just given the mix shift that you're seeing in the correspondent business ramping up, but can you -- can I take us a bit back and think about that gain on sale margin? And is it mostly just on the mix shift? Or are you also seeing overall pressure in just mortgage margin overall as well?

Yes, Catherine, Wib Evans, who is here with us, and I'm going to let Wib address that.

Okay. Just can you let...

Yes, so, Catherine, what we're seeing -- yes, Catherine, we have seen a little bit of pressure on the margin, since year-end especially, and I would say about a quarter of that margin compression is due to that, the rest of it is due to the mix on the correspondent growth.

Okay. And so, really, if you think about your forecast staying the same, it feels like you're getting just a really more -- even though your margins are compressing, you're getting a little bit more volume and so all-in bottom line is feeling good? Or is it more on the expense side that's keeping your bottom line contribution flat year-over-year?

Well, a little bit of both. Obviously, with March compression on most of our senior channels or legacy channels, we're experiencing a little bit lower profit margins on those channels. But our correspondent business continues to ramp up and we just started that mid-last year. And so as we do that, our expense level is going to be a little higher. Also, margins are lower on that business and so you'll see -- it takes -- we've had some falloff in our Consumer Direct business and expect to continue to see that throughout the rest of the year. And so I think the guys -- as James mentioned, we expect to be flat year-over-year, relatively flat year-over-year on the profit side yet volumes to be up a because of that correspondent growth.

And I just want to comment, one follow-up comment on that because I think it's significant by these -- by the mortgage and the whole management team, but late last year, there was a lot of conversations about declining mortgage volumes and what -- and the impact that, that would have. And we spent some time talking about the correspondent channel, which we brought on in 2016, ramped in the second half of 2016 and into 2017, and said we thought that, yes, volumes in existing channels would be down some but that, that volume should make up for that and keep us reasonably close on a contribution basis for mortgage. And the reason I highlight that because that's exactly what the team has executed. And so bringing that on had the desired effect. And then the shift, also a very conscious shift to more purchase money versus refinance, again, which -- and has caused a decrease in the Consumer Direct or the online channel for us. And so good execution on what the team had planned to do, going back to mid- '16 and keeping that contribution relatively consistent. And we also said that, that was the goal versus having -- we've had 2 or 3 years -- 4 years, I guess, of pretty rapid growth in the mortgage department, and it was to continue to focus on some quality initiatives, continue to focus on some efficiency initiatives and so that team is executing well.

[Operator Instructions] And there appears to be no additional questions in the queue at this time.

Very good. Thank you all for joining us. We appreciate your support and good quarter, and we look forward to the next one. Thanks, everyone, have a great day.

And that does conclude today's conference call, we thank you all for joining us.