FB Financial Corporation Reports First Quarter 2023 Results

FB Financial Corporation (the “Company”) (NYSE: FBK), parent company of FirstBank, reported net income of $36.4 million, or $0.78 per diluted common share, for the first quarter of 2023, compared to $0.81 in the previous quarter and $0.74 in the first quarter of last year. Adjusted net income* was $35.7 million, or $0.76 per diluted common share, compared to $0.85 in the previous quarter and $0.74 in the first quarter of last year.

The Company grew deposits to $11.18 billion (12.2% annualized), loans held for investment to $9.37 billion (2.96% annualized), and adjusted tangible book value per common share* to $27.06 (8.09% annualized) during the first quarter of 2023 from the previous quarter. Net interest margin ("NIM") was 3.51% for the first quarter compared to 3.78% and 3.04% in the fourth and first quarters of 2022, respectively.

President and Chief Executive Officer, Christopher T. Holmes stated, “For the past three quarters we have been preparing the Company and our balance sheet for potential challenges brought on by the forces of increasing interest rates, slower economic growth, a stubbornly high rate of inflation and shrinking liquidity. We began using a mantra of liquidity, credit and capital in the first half of 2022 and that has resulted in the Company being well positioned for the current banking environment. Our liquidity position, credit quality metrics and capital ratios all improved during the quarter. In a time of uncertainty in the banking industry, we were proud to grow our deposit base this quarter and believe that speaks to the strong relationships that we have with our customers. As we look forward to the remainder of the year, we are focused on maintaining a strong balance sheet so we can continue serving our customers through the current economic cycle."

Balance Sheet and Net Interest Margin

The Company reported loan balances ("HFI") of $9.37 billion at the end of the first quarter of 2023, an increase of $67.8 million, or 2.96% annualized, from the end of the previous quarter. The contractual yield on loans increased to 5.90% in the first quarter of 2023 from 5.45% in the previous quarter.

Total deposits increased by $327.1 million in the first quarter to $11.18 billion. The increase in total deposits was driven by an increase in public funds of $313.2 million. The Company's total cost of deposits increased to 1.94% during the quarter, and the cost of interest-bearing deposits increased to 2.53%. Noninterest-bearing deposits decreased during the first quarter of 2023 to $2.49 billion from $2.68 billion as of the end of 2022. Additionally, Federal Home Loan Bank advances with an average interest rate of 4.89% were paid down by $50.0 million during the quarter.

The Company’s net interest income on a tax equivalent basis decreased to $104.5 million in the first quarter from $111.3 million in the prior quarter. The decrease was primarily related to higher cost of deposits partially driven by a shift from noninterest-bearing to interest-bearing deposits, which resulted in an increase in interest expense of $21.4 million. This shift in deposits also impacted the NIM, which decreased to 3.51% for the first quarter of 2023 from 3.78% from the previous quarter. Other items contributing to the NIM decrease included an increase in public funds, lower loan fees, repricing of existing deposits, and a lower ratio of loans to deposits as the Company enhanced its balance sheet liquidity profile.

Holmes continued, "Our focus on liquidity and balance sheet management has served us well in recent months. We have consistently increased our on-balance sheet liquidity, including cash and cash equivalents, and maintained dry powder including untapped contingency funding sources."

Noninterest Income

Noninterest income was $23.5 million for the first quarter of 2023, compared to $17.5 million and $41.4 million for the fourth and first quarters of 2022, respectively. As a result of the payoff of two syndicated national credits during the first quarter of 2023, net changes in fair value of commercial loans held for sale resulted in a gain of $0.9 million, compared to a loss of $2.6 million in the prior quarter and a loss of $0.2 million in the first quarter of 2022.

Mortgage banking income increased to $12.1 million in the first quarter of 2023, compared to $9.1 million and $29.5 million in the fourth and first quarters of 2022, respectively. Interest rate lock commitment volume during the same periods totaled $375.0 million compared to $281.7 million and $1.31 billion, respectively.

Chief Financial Officer, Michael Mettee noted, “We successfully moved our commercial loans held for sale portfolio from $350.3 million when we closed the Franklin Synergy transaction in 2020 to just two relationships with a value of $9.5 million, recognizing a total gain of $10.2 million since acquisition. Additionally, our restructured retail mortgage business operated at basically breakeven in a challenging operating environment and a seasonally slow quarter for mortgage activity."

Expense Management

Noninterest expenses were $80.6 million for the first quarter of 2023, compared to $80.2 million for the prior quarter and $89.3 million for the first quarter of 2022. During the first quarter of 2023, the Company's core efficiency ratio* was 63.4%, compared to 61.0% in the previous quarter and 68.1% in the first quarter of 2022.

Mettee noted, “The Company's core efficiency ratio* moved higher during the quarter driven by pressure on top line revenue. Expense management will continue to be a focus as we navigate through the uncertain economic forecast and recent banking industry turmoil.”

Credit Quality

The Company recorded net provisions for credit losses expense of $0.5 million in the first quarter of 2023, comprised of $5.0 million of provision expense related to loans HFI, offset by a reversal of $4.5 million of provision expense attributable to a reduction in unfunded loan commitments. Notably, the Company reduced unfunded loan commitments in the construction and land development category by $298.8 million from the previous quarter. The Company maintained an allowance for credit losses of $138.8 million as of March 31, 2023, representing 1.48% of loans HFI compared to $134.2 million, or 1.44% of loans HFI, as of the end of 2022.

The Company experienced net charge-offs of $0.4 million in the first quarter of 2023. Net charge-offs to average loans HFI for the first quarter of 2023 remained unchanged from the previous quarter, amounting to 0.02% for both periods.

The Company's nonperforming loans as a percent of loans HFI as of the end of the first quarter held steady at 0.49% from the previous quarter and 0.51% at the end of the first quarter of 2022. Nonperforming assets as a percentage of total assets showed an improvement in the first quarter of 2023 to 0.61% compared to 0.68% at the end of 2022.

Holmes commented, “Credit metrics for the Company exhibited improvements during the quarter. Charge-offs were flat and our asset quality showed improvement across the board. We had an increase in our allowance for credit losses to loans held for investment ratio as the economic growth outlook remains subdued and downside risks have increased.”

Capital Strength

Holmes continued, “We built on an already strong capital base during the quarter, even as we increased our dividend 15.4%, increasing tangible common equity to tangible assets* to 8.68% and Common Equity Tier 1 ratio to 11.3%.”

Summary

Holmes finalized, "The challenges in the first quarter for the banking industry validated our active management of liquidity, credit and capital over recent quarters. As always we are focused on delivering for our customers, associates, communities and shareholders during all market cycles and we are prepared for a range of economic outcomes as we move through the remainder of the year."

WEBCAST AND CONFERENCE CALL INFORMATION

FB Financial Corporation will host a conference call to discuss the Company's financial results on April 18, 2023, at 8:00 a.m. (Central Time). To listen to the call, participants should dial 1-877-883-0383 (confirmation code 3946795) approximately 10 minutes prior to the call. A telephonic replay will be available approximately two hours after the call through April 25, 2023, by dialing 1-877-344-7529 and entering confirmation code 9142688.

A live online broadcast of the Company’s quarterly conference call will be available online at https://event.choruscall.com/mediaframe/webcast.html?webcastid=msOfFBMF. An online replay will be available on the Company’s website approximately two hours after the conclusion of the call and will remain available for 12 months.

ABOUT FB FINANCIAL CORPORATION

FB Financial Corporation (NYSE: FBK) is a financial holding company headquartered in Nashville, Tennessee. FB Financial Corporation operates through its wholly owned banking subsidiary, FirstBank with 82 full-service bank branches across Tennessee, Kentucky, Alabama and North Georgia, and mortgage offices across the Southeast. FirstBank has approximately $13.10 billion in total assets.

SUPPLEMENTAL FINANCIAL INFORMATION AND EARNINGS PRESENTATION

Investors are encouraged to review this Earnings Release in conjunction with the Supplemental Financial Information and Earnings Presentation posted on the Company’s website, which can be found at https://investors.firstbankonline.com. This Earnings Release, the Supplemental Financial Information and the Earnings Presentation are also included with a Current Report on Form 8-K that the Company furnished to the U.S. Securities and Exchange Commission (“SEC”) on April 17, 2023.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Earnings Release that are not historical in nature may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding the Company’s future plans, results, strategies, and expectations, including expectations around changing economic markets. These statements can generally be identified by the use of the words and phrases “may,” “will,” “should,” “could,” “would,” “goal,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target,” “aim,” “predict,” “continue,” “seek,” “project,” and other variations of such words and phrases and similar expressions. These forward-looking statements are not historical facts, and are based upon management's current expectations, estimates, and projections, many of which, by their nature, are inherently uncertain and beyond the Company’s control. The inclusion of these forward-looking statements should not be regarded as a representation by the Company or any other person that such expectations, estimates, and projections will be achieved. Accordingly, the Company cautions shareholders and investors that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, and uncertainties that are difficult to predict. Actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. A number of factors could cause actual results to differ materially from those contemplated by the forward-looking statements including, without limitation, (1) current and future economic conditions, including the effects of inflation, interest rate fluctuations, changes in the economy or global supply chain, supply-demand imbalances affecting local real estate prices, and high unemployment rates in the local or regional economies in which the Company operates and/or the US economy generally, (2) changes in government interest rate policies and its impact on the Company’s business, net interest margin, and mortgage operations, (3) any continuation of the recent turmoil in the banking industry, including the associated impact to the Company and other financial institutions of any regulatory changes or other mitigation efforts taken by government agencies in response, (4) increased competition for deposits, (5) the Company’s ability to effectively manage problem credits, (6) any deterioration in commercial real estate market fundamentals, (7) the Company’s ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions, (8) the Company’s ability to successfully execute its various business strategies, (9) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, including legislative developments, (10) the potential impact of the phase-out of the London Interbank Offered Rate ("LIBOR") or other changes involving LIBOR, (11) the effectiveness of the Company’s cybersecurity controls and procedures to prevent and mitigate attempted intrusions, (12) the Company's dependence on information technology systems of third party service providers and the risk of systems failures, interruptions, or breaches of security, and (13) the impact of natural disasters, pandemics, and/or acts of war or terrorism, (14) international or political instability, including the impacts related to or resulting from Russia’s military action in Ukraine and additional sanctions and export controls, as well as the broader impacts to financial markets and the global macroeconomic and geopolitical environments, and (15) general competitive, economic, political, and market conditions. Further information regarding the Company and factors which could affect the forward-looking statements contained herein can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and in any of the Company’s subsequent filings with the SEC. Many of these factors are beyond the Company’s ability to control or predict. If one or more events related to these or other risks or uncertainties materialize, or if the underlying assumptions prove to be incorrect, actual results may differ materially from the forward-looking statements. Accordingly, shareholders and investors should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date of this Earnings Release, and the Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to time, and it is not possible for the Company to predict their occurrence or how they will affect the Company.

The Company qualifies all forward-looking statements by these cautionary statements.

GAAP RECONCILIATION AND USE OF NON-GAAP FINANCIAL MEASURES

This Earnings Release contains certain financial measures that are not measures recognized under U.S. generally accepted accounting principles (“GAAP”) and therefore are considered non-GAAP financial measures. These non-GAAP financial measures may include, without limitation, adjusted net income, adjusted diluted earnings per common share, adjusted and unadjusted pre-tax pre-provision earnings, core revenue, core noninterest expense and core noninterest income, core efficiency ratio (tax equivalent basis), adjusted return on average assets and equity, and adjusted pre-tax pre-provision return on average assets. Each of these non-GAAP metrics excludes certain income and expense items that the Company’s management considers to be non-core/adjusted in nature. The Company refers to these non-GAAP measures as adjusted (or core) measures. Also, the Company presents tangible assets, tangible common equity, adjusted tangible common equity, tangible book value per common share, adjusted tangible book value per common share, tangible common equity to tangible assets, on-balance sheet liquidity to tangible assets, return on average tangible common equity, and adjusted return on average tangible common equity. Each of these non-GAAP metrics excludes the impact of goodwill and other intangibles. Adjusted tangible common equity and adjusted tangible book value also exclude the impact of net accumulated other comprehensive loss.

The Company’s management uses these non-GAAP financial measures in their analysis of the Company’s performance, financial condition and the efficiency of its operations as management believes such measures facilitate period-to-period comparisons and provide meaningful indications of its operating performance as they eliminate both gains and charges that management views as non-recurring or not indicative of operating performance. Management believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrate the effects of significant non-core gains and charges in the current and prior periods. The Company’s management also believes that investors find these non-GAAP financial measures useful as they assist investors in understanding the Company’s underlying operating performance and in the analysis of ongoing operating trends. In addition, because intangible assets such as goodwill and the other items excluded each vary extensively from company to company, the Company believes that the presentation of this information allows investors to more easily compare the Company’s results to the results of other companies. However, the non-GAAP financial measures discussed herein should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which the Company calculates the non-GAAP financial measures discussed herein may differ from that of other companies reporting measures with similar names. Investors should understand how such other banking organizations calculate their financial measures with names similar to the non-GAAP financial measures the Company has discussed herein when comparing such non-GAAP financial measures. See the corresponding non-GAAP reconciliation tables below in this Earnings Release for additional discussion and reconciliation of these measures to the most directly comparable GAAP financial measures.

(FBK - ER)

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