FB Financial Corporation Reports First Quarter 2022 Results

FB Financial Corporation (the “Company”) (NYSE: FBK), parent company of FirstBank, reported net income of $35.2 million, or $0.74 per diluted common share, compared to $1.10 per diluted common share in the same quarter last year and $1.02 in the previous quarter. Adjusted net income was $35.4 million, or $0.74 per diluted common share, compared to $1.12 per diluted common share in the same quarter last year and $0.89 in the previous quarter. The Company's return on average assets for the first quarter was 1.13%, return on average common equity was 10.1% and return on tangible common equity was 12.4%. The Company recorded growth in loans held for investment ("HFI") of $400.3 million in the first quarter, or 21.3% annualized.

The Company’s book value per common share at quarter-end was $29.06 and the tangible book value ("TBV") per common share was $23.62. Adjusting TBV to remove accumulated other comprehensive (loss) income, the Company's adjusted TBV per common share was $25.12, representing a 9.51% annualized increase on a linked quarter basis and a 13.3% increase over the prior year.

President and Chief Executive Officer, Christopher T. Holmes stated, “Our team produced strong results in most of our key performance drivers in the first quarter. The core bank produced impressive loan growth, consistent non-interest bearing deposit growth, clean credit metrics and continued momentum in adjusted earnings per share ("EPS") and adjusted tangible book value growth. The interest rate environment is a challenge for our mortgage business, but the bank is positioned for significant benefits as rates increase.”

Balance Sheet and Net Interest Margin

The Company reported loan balances (HFI) of $8.00 billion, an increase of $400.3 million, or 21.3% annualized, from December 31, 2021. The contractual yield on loans decreased to 4.15% in the first quarter of 2022 from 4.17% in the fourth quarter of 2021.

The Company's net interest income on a tax-equivalent basis for the first quarter of 2022 was $88.9 million, a decrease from $90.5 million in the previous quarter. The Company's net interest income was reduced in the quarter by $2.2 million from accelerated purchase accounting premium amortization caused by the payoff of two purchase credit deteriorated ("PCD") loans with balances totaling $21.4 million. The two loans were included in the Company's classified assets at the time of payoff. The $2.2 million of premium amortization negatively impacted the net interest margin ("NIM") and yield on interest-earning assets both by 7 basis points during the quarter. The Company's NIM was 3.04% for the first quarter, compared to 3.19% for the fourth quarter of 2021. Also impacting the net interest margin was a balance sheet mix shift from the prior quarter as lower mortgage origination volumes caused average mortgage loans held for sale to decline by $230.0 million, while interest-bearing deposits with other financial institutions increased by $319.8 million. The Company benefited from a 4 basis point decline in the cost of interest-bearing liabilities on a linked quarter basis.

During the first quarter of 2022, total deposits increased by $159.4 million to $11.00 billion and noninterest bearing deposits increased by $47.5 million, or 7.03% annualized, both on a linked quarter basis. The Company's total cost of deposits declined by 2 basis points to 0.20% and the cost of interest-bearing deposits decreased to 0.27% from 0.30% in the previous quarter.

Noninterest Income

Noninterest income was $41.4 million for the first quarter of 2022, compared to $53.2 million for the fourth quarter of 2021 and $66.7 million for the first quarter of 2021. Banking segment noninterest income was $12.0 million for the first quarter of 2022, compared to $21.9 million for the fourth quarter of 2021 and $11.4 million for the first quarter of 2021. Commercial loans held for sale change in fair value reduced noninterest income by $174 thousand in the first quarter of 2022, compared to $9.9 million of income in the fourth quarter of 2021, when two loans paid off resulting in $9.4 million in gain and $473 thousand in positive change in fair value, and compared to the first quarter of 2021, the change in fair value was a loss of $853 thousand. This loan portfolio consists of seven relationships with a carrying value of $78.2 million at March 31, 2022, down from $79.3 million at December 31, 2021.

Mortgage banking income decreased to $29.4 million in the first quarter, compared to $31.4 million in the fourth quarter of 2021 and $55.3 million compared to the first quarter of 2021. The Company's total Mortgage banking pre-tax net loss for the first quarter of 2022 was $0.3 million, compared to contributions of $0.7 million for the fourth quarter of 2021 and $16.3 million for the first quarter of 2021. Interest rate lock commitment volume totaled $1.31 billion in the first quarter compared to $1.48 billion in the fourth quarter of 2021 and $1.89 billion in the first quarter of 2021.

Chief Financial Officer, Michael Mettee noted, “The mortgage segment faced headwinds including an increasing interest rate environment, housing inventory shortage, and compressed margins. The basically break-even results for the quarter were comprised of negative operating results offset by gains in our mortgage servicing rights.” Mettee continued, “We have made adjustments to our mortgage model and will continue to adjust our operations with a commitment to running a business that provides shareholder returns through market cycles.”

Expense Management

Noninterest expenses were $89.3 million for the first quarter of 2022, compared to $90.9 million for the fourth quarter of 2021 and $94.7 million for the first quarter of 2021. Core noninterest expense was $89.3 million for the first quarter of 2022, $89.5 million for the fourth quarter of 2021, and $94.7 million for the first quarter of 2021. Core Banking segment noninterest expense was $59.6 million for the first quarter of 2022, compared to $60.1 million for the fourth quarter of 2021 and $55.7 million for the first quarter of 2021. Core Mortgage segment noninterest expense was $29.7 million for the first quarter of 2022, compared to $30.8 million for the fourth quarter of 2021 and $39.0 million for the first quarter of 2021.

During the first quarter of 2022, the Company's core efficiency ratio was 68.1%, compared to 67.0% in the fourth quarter of 2021 and 63.0% for the first quarter of 2021. The Banking segment core efficiency ratio was 58.7% versus the previous quarter of 57.5%.

Mettee noted, “Our efficiency ratio increase was primarily driven by investments in our teams including customer facing and back office areas. We are continuing to capitalize on opportunities to add talent to our teams in both the front and back office while protecting the talent that we have and need to retain. The mortgage segment also drove an increase in our efficiency ratio, which is due to lower volumes at lower margins, leading to lower top line revenue.”

Credit Quality

The Company recorded a total net reversal in provisions for credit losses of $4.2 million in the first quarter of 2022, including an increase in provision for credit losses on unfunded commitments of $1.9 million. The Company continues to maintain a strong balance sheet with an allowance for credit losses ("ACL") of $120.0 million as of March 31, 2022, representing 1.50% of loans HFI compared with 1.65% as of December 31, 2021.

The Company experienced net recoveries of $0.6 million during the quarter or 0.03% to average loans compared to net charge-offs to average loans of 0.12% in the fourth quarter of 2021. The Company's nonperforming assets as a percentage of total assets continued to improve, decreasing to 0.44% as of March 31, 2022, from 0.50% as of December 31, 2021. Nonperforming loans were 0.51% of loans HFI at March 31, 2022, compared to 0.62% at December 31, 2021.

Holmes commented, “The Company delivered net recoveries for the quarter and continues to closely monitor areas that could lead to future credit challenges. Our markets continue to deliver new opportunities, specifically in construction and commercial real estate, but we are cautious on the broader economy and we are being thoughtful in our approach to our new projects. Inflation and monetary policy actions also bring caution regarding our consumer portfolios and we are positioning for challenges that may arise in that portfolio.”

Summary

Holmes summarized, "The first quarter brought strong loan and deposit growth and continued momentum in our core banking business. Our mortgage business will continue to face headwinds, but the banking segment with our asset sensitive balance sheet is well situated for a rising rate environment. We will continue looking for ways to create value for our shareholders and appreciate your support."

WEBCAST AND CONFERENCE CALL INFORMATION

FB Financial Corporation will host a conference call to discuss the Company's financial results on April 19, 2022, at 8:00 a.m. (Central Time). To listen to the call, participants should dial 1-888-317-6003 (confirmation code 7317111) approximately 10 minutes prior to the call. A telephonic replay will be available approximately two hours after the call through April 26, 2022, by dialing 1-877-344-7529 and entering confirmation code 2649204.

A live online broadcast of the Company’s quarterly conference call will be available online at https://services.choruscall.com/mediaframe/webcast.html?webcastid=kkReaZ0x. 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, the third largest Tennessee-headquartered community bank, with 81 full-service bank branches across Tennessee, Kentucky, Alabama and North Georgia, and mortgage offices across the Southeast. FirstBank has approximately $12.7 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 18, 2022.

BUSINESS SEGMENT RESULTS

The Company has included its business segment financial tables as part of the Supplemental Financial Information, which is available in connection with this Earnings Release. A detailed discussion of our historical business segments is included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2021.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this press 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 a rising interest rate environment, real estate markets, and the Company’s mortgage segment. 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) the ongoing effects of the COVID-19 pandemic, including the magnitude and duration of the pandemic and the emergence of new variants, and its impact on general economic and financial market conditions and on the Company’s business and the Company’s customers' business, results of operations, asset quality and financial condition, (3) ongoing public response to the vaccines that were developed against the virus as well as the decisions of governmental agencies with respect to vaccines, including recommendations related to booster shots and requirements that seek to mandate that individuals receive or employers require that their employees receive the vaccine, (4) those vaccines' efficacy against the virus, including new variants, (5) changes in government interest rate policies and its impact on the Company’s business, net interest margin, and mortgage operations, (6) the Company’s ability to effectively manage problem credits, (7) the Company’s ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions, (8) difficulties and delays in integrating acquired businesses or fully realizing costs savings, revenue synergies and other benefits from future and prior acquisitions, (9) the Company’s ability to successfully execute its various business strategies, (10) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, including legislative developments, (11) the potential impact of the proposed phase-out of the London Interbank Offered Rate ("LIBOR") or other changes involving LIBOR, (12) the effectiveness of the Company’s cybersecurity controls and procedures to prevent and mitigate attempted intrusions, (13) 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 (14) 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, 2021, 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 Banking segment pre-tax, pre-provision earnings, Banking segment core noninterest income, Mortgage segment core noninterest income, Banking segment core noninterest expense, Banking segment core revenue, Mortgage segment core revenue, Banking segment core efficiency ratio (tax equivalent basis), Mortgage segment core efficiency ratio (tax equivalent basis), adjusted return on average assets and equity, and adjusted pre-tax pre-provision return on average assets and equity. 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 also includes an adjusted allowance for credit losses, adjusted loans held for investment, and adjusted allowance for credit losses to loans held for investment, which all exclude the impact of PPP loans. 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, return on average tangible common equity, adjusted return on average tangible common equity, and adjusted pre-tax pre-provision 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) income.

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 other intangibles, 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 similar or 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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