FB Financial Corp (FBK) 2016 Q3 法說會逐字稿

Good morning, everyone and welcome to FB Financial Corporation's third-quarter 2016 earnings conference call. Hosting the call today from the 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, FirstBank's Senior Vice President and Director of Strategic Finance. Please go ahead, sir.

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 factors 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 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 S-1 Registration Statement 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. Our 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 like now to turn the presentation over to Chris Holmes, FirstBank's President and CEO.

Thank you, Chris and good morning, everybody. Thank you for joining us on our first conference call since our initial public offering was completed in September. We appreciate your interest in FB Financial.

We are very pleased to report record revenues, loans and deposits in our first quarter as a public company. We had a great quarter where we hit or exceeded many of our key goals and we continued to deliver the high level of service that our customers have come to expect.

On today's call, I will review the highlights of the third quarter and then I will turn the call over to James Gordon, who is our Chief Financial Officer and he will review our financial results in more detail.

Before we jump into the results in the quarter, I want to take a minute and I want to review some of the background information on FB Financial and FirstBank that we reviewed with investors during our recent IPO. It's not information that we will cover on every call, but on the initial call some of the background on our key strategic drivers and how they affect our operations may give some appropriate insight.

So referring to our presentation and moving past the disclaimers on page 1 and 2, so we are going to turn to page 3 of our third-quarter presentation, I want to reacquaint you with some of these strategic drivers. On page 3, this covers some things that we repeatedly emphasized to our associates; the three principles that really define our success and they are captured on this page.

The first of those is a strong financial performance. We are accustomed to delivering profitability and growth. We've been a private company, but strong financial performance is one of our key hallmarks. The second one of those is being a great place both for customers and associates. We've got to be a great place to work and that comes through to our associates, but also to our customers and that's captured by what we refer to as our community bank culture and our family values.

The third one of those is our distinctive business model. We have complementary positions in both the high-growth metropolitan markets and our stable community markets. That gives us a very balanced business model, but especially anchors us with low-cost deposits and helps build us a foundation of our low-cost deposit base and then we've built a scalable mortgage platform on top of that. And so those are the three things that we emphasize repeatedly as strategic drivers of our business and those are all pulled together and tied together by our experienced senior management team that just gives us the foundation that we are going to continue to build on.

On slide 4, our markets include 6 metropolitan and 12 community markets across Tennessee, Northern Georgia and Northern Alabama. In total, we have 45 branches across our footprint.

One key differentiator for our Company is the balance between our high-growth metropolitan markets and our stable community markets. We have 60% of our branches in the metropolitan markets of Nashville, Chattanooga, Jackson, Memphis, Knoxville and Huntsville, Alabama and those comprise 72% of our loans and 57% of our deposits. Our community markets account for 26% of our loans and 41% of our deposits. This mix gives us solid loan growth prospects from our metro markets and stable consistent performance from our community markets.

On slide 5, some of our key highlights for the third quarter before I turn the call over to James. We are very proud that our offering was the largest bank IPO in Tennessee history. In the offering, we raised about $129 million in gross proceeds and we are excited that each of our full-time associates received a stock award. The IPO funds will play an important part in our plans to expand through organic growth in our existing markets, as well as for complementary acquisitions.

Overall, we are pleased with the strong core results for the quarter. This quarter, we set a new record for revenues of $71.6 million, an increase of 39.9% over the same quarter last year. The increase was driven by solid loan growth that drove our net interest income and record growth in our mortgage business that drove our non-interest income.

Our net interest margin rose to 4.05% for the third quarter compared to 3.95% for the same quarter last year, the result of our customer-focused balance sheet. We had record mortgage loan originations of $1.36 billion for the third quarter, a 72.8% increase from the third quarter last year. Loans held for investment grew 8.7% to $1.79 billion from the third quarter of last year, which represents 10% annualized growth over the June 30, 2016 loan balance. Total deposits grew 16% to $2.64 billion from the third quarter last year.

We also reported continued improvement in our asset quality metrics. Our nonperforming assets to total assets improved to 0.68% for the third quarter of 2016 and were down from 0.97% for the same quarter last year. Tangible book value per share was $11.56 and tangible common equity to tangible assets was 8.84% for the end of the quarter.

With that overview, I'm going to turn the call over to James to review our financial results in some more detail.

Thanks, Chris and good morning. As Chris mentioned, our third-quarter results were very positive. Before going into the details, let me cover some key items impacting our third-quarter results.

First, prior to our IPO, we were an S-corporation and did not incur federal income taxes. However, in connection with our IPO and resulting conversion to a C-corporation, we recorded a one-time tax charge of $13.2 million as reflected in our GAAP reported amounts.

For our third-quarter information, we've also included pro forma results to reflect income tax expense on a C-corporation basis and excluding the one-time tax charge of $13.2 million. We refer throughout these amounts as pro forma preceding each applicable measure to reflect a combined C-corporation tax expense for all periods presented in our information.

Additionally, we have provided pro forma core results that exclude certain income and expense items to adjust reported amounts. We believe adjusting for these items provides a clear picture of our strong fundamental results for the quarter, as well as a period-to-period comparison.

I would like to again highlight the strong core results shown here. Diluted core earnings per share were $0.70 on net income of $12.8 million, which compares to core net income of $10 million in the same quarter last year. Our core return on average assets was 1.69% and our return on average tangible common equity was 22.7%.

On slide 6, our pro forma income is up 28% since the third quarter of last year to $12.8 million. The bottom half of slide 6 shows the key drivers of our strong profitability. The first graph shows our loan-to-deposit ratio and the increased percentage of loans held for sale over the last five quarters. Second, our net interest margin has improved 10 basis points since the third quarter of last year. Next, non-interest income is up 62.5% due to the strong performance of our mortgage business. Finally, our nonperforming assets to total assets is down 29 basis point in the last year, dropping in each of the last five quarters to 68 basis points at the end of the third quarter.

The graph on the top of slide 7 shows our historical yield [in recent calls]. As Chris previously stated, our net interest margin in the third quarter of 2016 was 4.05%, which is near the top end of our long-term outlook of 3.85% to 4.05%.

Key drivers of our net interest margin have been our strong core deposit base, which was 98% of core deposits at the end of the third quarter. Our non-interest-bearing deposits increased to 27.5% of deposits and over half of our deposits are in transactional accounts. Our total cost of deposits for the quarter was 30 basis points, remaining flat over the last year.

Additionally, relationship loan pricing, combined with our customer-focused balance sheet have contributed to our improvement in our net interest margin. Finally, we've utilized our loans held for sale as a viable alternative to the investment portfolio providing us with a higher yield on these assets than we could achieve in our investment portfolio.

The table at the bottom right of this slide shows the composition of our held-for-investment loan yield and reflects the impact from the accretion on acquired loans and loan syndication fees in the second quarter of 2016. Excluding the accretion and syndication fees, our net interest margin was 3.93% for the third quarter of 2016 and 4.03% for the second quarter of 2016 compared to 3.89% in the third quarter of 2015, all within our expected range. The 10 basis point decline from the second quarter of 2016 reflects the overall volume and lower rates on the loans-held-for-sale portfolio, along with other changes in our balance sheet.

As shown on slide 8, our loans were up 8.7% to almost $1.8 billion at the end of the third quarter compared with last year and were up 2.5%, or 10% annualized from the end of the second quarter of 2016. The graphs at the bottom of this page show the solid progress we made in growing C&I loans to 40% of total loans, up from 38% last year.

The chart at the top right of this page reflects our construction and CRE concentration levels of 83% and 185% capital respectively, well below the 100% and 300% regulatory guidelines.

Slide 9 highlights our growth in deposits, our stable cost of deposits and our growth in non-interest-bearing deposits reflecting our continued strategic focus on core deposits. Our deposit franchise is one of the greatest assets of the Company. Our total deposits are up 16% to $2.6 billion since the third quarter of last year. This growth is attributable to non-interest-bearing deposits that were 27.1% to $726 million from the third quarter of last year.

At the end of the latest quarter, non-interest-bearing deposits rose to 27.5% of total deposits and were a significant factor in maintaining our total cost of deposits at 30 basis points and our net interest margin at 4.05% for the third quarter of 2016.

I would like to note that included in non-interest-bearing deposits at quarter-end are $62 million of mortgage servicing escrow deposits, as well as certain proceeds from the IPO of approximately $65 million held by our primary shareholder.

Our mortgage banking revenues reflected on slide 10 hit new highs in the third quarter with revenue up 87% from last year to $36.9 million. Mortgage banking revenue was also up 23% from the linked quarter. The revenue growth was attributable to a 73% increase in originations with excellent contributions across each of our six diversified origination channels.

The graph on the right breaks down mortgage loan originations for each of our channels over the last five quarters. These channels include consumer direct, our new correspondent banking channel, reverse, third-party originations and our retail and retail footprint originations. We've seen growth in each of the channels over the past year with our largest contribution being from our consumer direct channel, our online platform, that grew over 70% since last year and accounted for about 50% of total mortgage originations in the latest quarter.

Additionally, we are in the process of completing a sale of a significant portion of our MSR asset. During the fourth quarter, we expect to complete the sale and will incur up to $2.5 million in transaction-related expenses. Our $2.4 million MSR impairment charge this quarter reflects those anticipated sales. Beginning in the first quarter of 2017, our mortgage servicing revenues and related costs will decline, as well as related declines in mortgage servicing escrow deposits.

One area of constant attention is improving operating leverage and efficiency. Over the past five quarters, our efficiency ratio has been in the mid to low-60s for our banking segment and our mortgage segment has seen progress over the past year. Our focus on improving our operating efficiency has benefited from our scalable platform that is designed to drive and support our growth across our markets, our capacity to grow in our metropolitan markets, especially Nashville, with limited investments in new branches or bankers.

We've continued to centralize our opportunities while protecting our decentralized client service model. We expect our recent conversion to a new core operating system will further enhance these overall efforts in this regard.

Our hiring has been opportunistic. We've continued to focus on the best talent in our markets as they become available and we've also benefited from the completed integration of the Northwest Georgia Bank acquisition.

On slide 12, we are very proud of our strong asset quality and we've continued to make progress on improving it over the past year. Since the third quarter of 2015, our nonperforming assets are down 29 basis points to 68 basis points at the end of the third quarter. Classified loans are down $22 million, a decrease of over 35% to $40 million during the same time period.

Our loan loss reserves to loans held for investment was a strong 1.3% at September 30, 2016 and our net charge-offs to average loans have been in a net recovery position in three of the last five quarters, although we do expect net charge-offs to normalize in the coming quarters in the 10 to 15 basis point range.

FB's capital position is also very strong as presented on slide 13. As Chris noted earlier, we completed our initial public offering last month and added $55.5 million to our capital base from the net proceeds. We have a very simple capital base with 84% of total capital represented by common equity.

The chart on the left-hand side of the slide breaks down our capital levels further and shows our strong position for each of the key measures all well above the amounts required by regulatory agencies to be a well-capitalized institution. With that overview, I want to turn the call back over to Chris for closing comments and then we will open the call for your questions.

Thank you, James. We had a great quarter with record revenues, loans, deposits and mortgage originations. Our success is due to our great client base and our outstanding team at FB Financial. I want to close by thanking you for your interest in FB Financial. We are very excited about our new shareholders and we are focused on building long-term shareholder value.

I also want to take a moment to speak to our FB associates, our FirstBank associates. With n acquisition, a core systems conversion and An IPO all in the last 12 months, you executed in an amazing way. While making that happen, you also produced the record results we just summarized. Thank you for your commitment and your dedication and the heart that you pour into our Company every day. You should take tremendous pride in the value you are creating with your work and as new shareholders, we all have even more incentive to drive performance and long-term success.

We are very positive about our Company, our markets and our ability to continue to deliver strong performance and to continue to build shareholder value in the future. We look forward to updating you next quarter as we close out 2016. Operator, that completes my remarks for the morning's call and we would now like to open the line up for questions.

Thank you, sir. (Operator Instructions). Catherine Mealor, KBW.

So your loan growth had a nice pickup in the back part of the quarter. I think the end-of-period loan growth is about 10%. Can you talk about your pipeline going into next quarter and expectations for growth in fourth quarter and maybe even into next year?

Yes, Catherine, sure. You are exactly right. Loan growth ticked up more at the end of the quarter so our average for the quarter is down some, but the end-of-period growth is a number that's within our typical range. We have said that we target growing loans at 10% to 12% and for the last, really go back a year, we've been on the lower end of that range, even slightly below that range at times.

We have maintained our margin and as we look forward, we are hanging around the bottom end of that range, maybe even slightly under that range, but that's -- as we look into the next quarter, we see it being similar to what it has been the last couple, which would be near the bottom end of that range, maybe even a percentage point or two under. And if we look into next year, we would target that 10% to 12% as what we would be targeting.

And the pipelines have been steady, some markets better than others. Nashville has certainly been the [bell] cow when it comes to loan growth for us, but also Memphis has done pretty well. Jackson, Tennessee has also done pretty well and remember that Huntsville is a new market for us and so they don't have -- their prior-year numbers are low, so their percentages are higher, but the numbers aren't that great.

That is helpful. Thank you, Chris. And then maybe one follow-up on the margin. James, you gave some color around what drove the core margin compression this quarter, just the higher balances of loans held for sale and maybe some lower syndicated loan fees. So how should we think about the core margin? We back out the accretion, you are about 3.93%. What is your outlook for the direction of the core margins as we move into next year? Thanks.

We've given the range that we would operate over a longer-term basis in that 3.85% to 4.05% and I think that 3.93% is roughly right in the middle. So I would say roughly in the middle of that range, and some of that will be dependent upon the level of the loans held for sale. Obviously, the rates on that have come down, which has driven up the volume of activity and changed the mix within the earning assets on that. As rates maybe begin to move up to whatever level they move up and we deploy some of that investment portfolio, that will begin to stabilize in the midpoint of that range, I believe.

Okay, great. I'll hop out and -- go ahead.

I guess our headline loans and deposit loan yield deposit costs have remained reasonably stable. In this environment, it's not easy to hold the loan yield, but it has held reasonably stable; deposit costs the same. And so -- but they are holding reasonably stable at the mid to lower part of that range. The fees on the accretion tend to bump them up to the higher end of that range and so -- and the fees can be a little bit lumpy, especially the syndication fees can be a little bit lumpy and that's why we try to break that out.

So I would say that's -- we've been able to hold steady for the most part on contract rate and that could drop a basis point or two or three, but same on deposit cost, it could drop a basis point or two. Notice it was up a couple basis points for the quarter, but it could also drop a basis point or two, so it should -- if that helps you at all?

It does, it does. Great. Thanks. I will let some other analysts jump in. Great quarter, guys. Thanks.

Peter Ruiz, Sandler O'Neill.

Good morning, guys. Congratulations on a nice quarter. So I was just wondering if you could maybe talk a little bit about mortgage and with the correspondent picking up, what are the moving parts here and what do you expect looking into 2017 and maybe also a little bit of color around the pricing as rates rise here and if you are seeing any better pricing at all?

Sure, Peter, and I want to answer and Wib Evans is here, who is President of FB Financial Ventures and manages directly our mortgage area and so I'm going to let Wib add some color. I will just say obviously volumes have been up as a reflection of rates and that was certainly a help during the quarter. And as we talked about in the roadshow, bringing on the correspondent also has provided some initial volume and consumer direct continues to be a provider there. Wib, do you want to comment just on what we see on margins and volumes moving forward?

Yes, Chris. Our expectation around those volumes are going to be somewhat reduced going into the fourth quarter and we probably see that again in the first quarter of 2017 just primarily due to seasonality and just an overall tightening of the market just a little bit.

As far as margins go, we are already starting to see a little bit of compression. We don't think that's going to be excessive, but we do see a little bit of it starting already, so we think that we will see that into the fourth quarter, deeper into the fourth quarter and into the first quarter of 2017.

Okay. That's great. And maybe if you could just talk a little bit about expenses. Obviously, maybe you see some relief depending on what happens in mortgage in the fourth quarter, but are there any opportunities left maybe with the conversion that was completed in the second quarter, or maybe any additional professional fees, or anything like that related to the IPO?

Sure, Peter. I'm going to comment and then we will let James add some additional color. On the expense side, just a couple of things. One, of course, the mortgage expense is highly variable. Our volumes are at record levels and so, consequently, our mortgage expenses are up this quarter, but our net is up as well. So that's all good. We expect that. And a large portion of those expenses are variable compensation.

On the bank side, the expenses are within reason. We did the core systems conversion in May of this year. We did the IPO in September and consequently, we frankly haven't [thrown] out a lot of expense out of the system that we anticipate getting in the coming year, coming quarters. Fourth quarter, we are probably not going to see a lot of that, but it will probably be similar to this quarter just from a pure bank side, but as we -- one of the big benefits of that conversion is giving us much deeper information and some better insight and just helps us manage our business in a more granular way. As we get that, we will also see some efficiencies come out of the system, but that takes a little bit of time as we are implementing that. So, James, do you want to add to that?

Yes, I think a couple other comments on the IPO costs. We've been at the IPO process for the better part of 18 months, so the majority of those costs have been largely built into our run rate. We did exclude from the core the cost of the one-time grants. However, we did not include in the core -- or exclude from the operating results anything related to the ongoing amortization of the other expenses. So those are built into the run rate and will also replace other existing plans, so those are largely built into the run rate.

If you look at the bank segment, excluding the about $6.5 million of expenses in there related to the mortgage retail footprint origination channel, that would put you at about $21 million at the bank level, which would put us at the middle part of the 60s on efficiency ratio of the bank.

As Wib mentioned, the mortgage revenues will come down some heading into the fourth and the first quarter, which would probably drive the efficiency ratio on mortgage back closer to the upper 70s because of the leverage of the fixed cost portion of that, which is maybe about 40% of the total mortgage cost base.

And then I think the other comment I would make is looking out, I think this is really what Chris was saying too, on what the system has really done was not a big cut in expenses, but allows us to grow and manage those expenses going forward. So our outlook for the increase in non-interest expenses on the core base would be in the 3% range going into 2017 from that, which will allow us to control the overall cost to manage the efficiency ratio down over time.

Peter, I want to make one other comment. Wib just reminded me. We did bring on that correspondent group in mortgage. We brought those on in early 2016 and we brought on about 20 folks up front with that. They didn't start producing revenue until really this quarter and so that's something where we've been operating at an operating loss and that was a couple -- that was a couple hundred thousand or so a month is what that was.

Great. That's awesome. Thanks, guys. That's it for me.

David Eads, UBS.

Good morning. So you guys talked a little bit about the deposit growth and the costs went a little bit higher this quarter and I just want to make sure I understand the moving pieces of -- is there an effort to grow deposits as quickly as possible and if deposit growth is exceeding loan growth, since it sounds like you are still kind of -- were they rate-dependent in deploying that between securities and loans held for sale? So I just want to get a little more color on that whole thought process.

Sure. So on deposits, those are important to us and we want to continue to grow them organically. Again, we target roughly an 8% rate or so, at least in the near term is what we've been targeting. We've gotten some help from some different things. One was the IPO we got some help because we happen to have a very good customer that's also a very large shareholder, so we got some help there on the deposit side in the third quarter.

We brought in the mortgage deposits with our mortgage servicing business that we break out and show you, so that provides some growth and so we want to continue to try and grow it in that 8% or so range. With a focus on non-interest-bearing, we always highlight that percentage and we highlight it internally and we want to continue to try to let that be the focus and so we are doing that -- a lot of that is coming through our commercial bankers and our Treasury management department is where a lot of that is coming.

And so on the deposit cost side, probably not going to drop very much. I think the drop just comes from the change in mix from non-interest-bearing at this point. Given how long rates have been down, probably not going to see a lot of decline in that cost and where it can vary a basis point or two or three is in money market deposits and interest-bearing -- really the money markets are where it can vary for us, is where it can vary a basis point or two or three, but we don't expect to see wide variations there.

If rates increase, which is I guess very -- I don't want to guess -- but if rates increase, it remains to be seen how that impacts all of us, but that certainly could have some impact, but we don't think an initial rate increase has a major impact.

I think as Chris said, a slow rate jump by 25 basis points, whatever, will only have a modest -- you know we had one this time last year. Our basic cost to deposits is remaining in that 28 to 30 range over the last five quarters with that.

On your question on the loans held for sale, right now, we have largely funded that through the customer deposit base so we would have those funds if that goes down to redeploy in the investment portfolio and the reason that that would good down with rates that are probably going up, it would be an opportunity to go into the market. We've chosen to fund the mortgage loans held for sale and not put any leverage in the balance sheet.

We have borrowed a little bit in wholesale markets to fund a little bit of the excess in the loans held for sale, but we have the ability to leverage some additional borrowings to drive the balance sheet up some if we need to as well in the investment portfolio at hopefully a slightly higher rate environment that we've been able to avoid over the last six to nine months and not extend that duration in periods when rates were down. So it gives us an opportunity to protect our asset liability management position going forward and our interest rate risk as well. So it served two purposes -- one, on the margin itself, as well as protecting our interest rate risk in these periods of extremely low rates due to our excess funds created by the deposit portfolio.

All right. That's helpful color. And then, just curious, I know it's early days, but if -- since the IPO, there's been any kind of change in conversation and thoughts around M&A and the potential for doing an acquisition now that you have a currency?

So really no change in our metrics, change in how we view it. We'll continue to view it in a disciplined way that we have in the past. One of the things that we were -- maybe one change is that we were told by some of our friends that do that business, advise banks for a living, that we would see more calls, more -- in terms of quality and quantity as a result of the IPO and I would say that has occurred.

And I would say that -- so I would say that we are getting more calls in terms -- and I would say the quantity and quality of those calls is perhaps a little better than it's been. But no change in how we view it. We are still going to be looking at the same return metrics. We are also still going to be looking at trying to do things that really help us on an operating leverage standpoint.

All right. Thanks so much.

(Operator Instructions). Tyler Stafford, Stephens.

Congratulations on the nice first quarter out of the gate. I wanted to maybe follow up first on a couple of the earlier questions. I guess first on expenses. Do you have the actual dollar of the variable mortgage compensation expense this quarter?

Not directly, Tyler. That's something we can provide, but if you figure roughly 60% of that cost is mortgage cost or variable, that would be a rough approximate. It's not just salaries, but a few other things, but primarily compensation being the biggest part of that.

Okay. And then the systems conversion expenses, are those primarily running through the data processing and the other expense line items and that's why we saw those increase and I guess should we be thinking about those staying somewhat elevated for a couple more quarters and then some alleviation in mid-next year?

Those should start going down immediately. Those were some transition costs of that. Those should start to return back to the normal levels in the future quarters after this quarter.

Okay. After 3Q?

Yes.

Okay. The deposit service charges were down call it almost 20% this quarter. Is there any seasonality within those charges, or was there an adjustment of some kind that was made?

There is some seasonality you get out of the summer travel and some of those kinds of things. Year-over-year, it's not down as much. Linked quarter, it was down some. I think as most of the industry is experiencing, [NSLs] are flattening and coming down on an overall basis while debit card interchange fees are replacing some of that, but not all of that. So it's just a mix, no really unusual trends. There is a bit of seasonality. Fourth quarter tends to be higher with the holiday season and some of those kind of things.

Okay. That's helpful. Over on the mortgage business, can you talk about the different pricing you are seeing across the six different channels and if there's one that you typically get better pricing on or worse pricing on?

Sure, Tyler. Wib will talk to you about that.

Yes. Our margins, as I mentioned, are getting a little bit more compressed. We would see on the retail side of our business somewhere between a 325 and 360 margin. On the TPO side of our business, probably 110 to 120 range. Consumer direct generally would run for us about 150 to 170 and then on the correspondent side, we would see somewhere between 50 an 80 basis points. And that retail level, it would include both footprint and non-footprint mortgages.

Okay. So as correspondent grows and becomes a bigger portion of the overall originations, that gain-on-sale margin in the aggregate should compress more?

Should compress our total overall, yes, slightly.

Right. Yes. Okay. And then maybe last one for me. Just since this is the first public call for you guys, can you just go over how you do think about M&A and the financial metrics that you target and look at, where you are looking at from a geographic standpoint and then the size range?

Sure. On the metrics, we look at -- the first thing we want to do is make sure it's accretive and so we are trying to get EPS accretion. We are looking at the earnback -- the tangible book value earnback period and we put three years out there as kind of a guideline for us in terms of what we try to be, or where it would cause us to begin to back away and we always, of course, look at our internal rate of return and I would say this -- we want to try to get a 20% plus IRR whenever we are looking at doing a transaction and so those are the things that we look at.

And I want to say this, this is our first call as a public company and so we've done eight bank acquisitions during our history, or at least sense Jim Ayers has been a shareholder of the bank and so those previous eight were all cash and when you are an all-cash buyer and it is real cash coming out of somebody's pocket, you look at those metrics very closely and you don't fool yourself on those metrics. We all know that you can move a number here or there to try to get in underneath your metric, but you might not actually achieve that on the back end.

I will tell you that we're -- when I say we are well-disciplined, it's because we come from a place where we spend real green money that is somebody's real green money and so therefore, it teaches you a level of discipline that I would say most probably don't have when they approach the M&A market.

And then geographically where we are looking is we are really looking within our footprint. We could potentially expand the footprint very slightly. We are not looking to do that, but if the right opportunity came in, we could maybe expand it slightly. Like I said, we are not looking to. Where we really would love to see things are in our metropolitan markets where we've got really small marketshare, or a really small presence. For instance, we are very small in Knoxville today. We are very small in Huntsville today. We are still small in Memphis today.

While we are approaching $1 billion in Nashville, that's still not big enough either and so any of those markets, we would love to find a partner and also our community markets. Some of our community markets, we are 30%, 40%, even 50% marketshare and obviously those aren't places where we'd look to do an acquisition, but if there's -- it's not unusual today to have a bank that is in both metropolitan and community markets and we are an ideal candidate, an ideal partner for those, even a preferred partner for those because we understand how to operate in both of those types of markets and most banks don't. And so that's some color on what we look for.

That's very helpful. Thank you, guys.

(Operator Instructions). Ben Lurio, JPMorgan,

Good morning. Most of my questions have actually been asked already, but was hoping you could maybe just comment specifically on what you're seeing with the gain-on-sale margins in the consumer direct channel quarter-to-date. Thanks.

Gain-on-sale margin (inaudible).

Ben, we have had good luck with that in the third quarter and we are seeing, as I mentioned, a little bit of compression. We are in the 150 to 170 range now and that line of business is so fickle and it changes daily, so I give you that fairly wide range, but we are within that range today and that's where we have been and we are still seeing good levels of lot volume there as well.

Okay. Thanks. And then I guess just looking at the correspondent channel, so was that fully ramped up in third quarter, or is there still some ramping up in the fourth quarter in terms of having it fully ramped up? Thanks.

Absolutely still some ramping up to do. We are not fully ramped up.

Thanks for the color.

And, gentlemen, with no more questions in the queue, I will turn the call back over to Chris Holmes for any additional or closing remarks.

Okay, once again, we really appreciate your interest in FB Financial Corp. We are glad to have the new shareholders that we have and we are proud of a good first quarter as a public company. And so I want to say to everybody happy Friday and have a great weekend. Thank you very much.

Thanks, everyone.

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