FBK - FB Financial Corporation Reports 2019 First Quarter Results

FB Financial Corporation (the “Company”) (NYSE: FBK), parent company of FirstBank, reported net income of $19.6 million, or $0.62 per diluted common share, for the first quarter of 2019, compared to net income of $19.8 million, or $0.63 per diluted common share, for the first quarter of 2018. On an adjusted basis excluding merger-related and mortgage restructuring expenses, net income per diluted common share was $0.66 for the first quarter of 2019 compared to $0.66 for the first quarter of 2018.

President and Chief Executive Officer, Christopher T. Holmes stated, “Our team continues delivering outstanding service to our clients while bringing new clients into FirstBank each day. As a result, during the first quarter, we continued to see strong loan and customer deposit growth of 13.2% and 16.5% annualized, respectively. While achieving this growth, we also remained focused on profitability and saw our net interest margin increase by 11 basis points from the previous quarter.”

Additionally, on April 1, 2019, the Company announced plans to sell its wholesale mortgage operations and on April 5, 2019, FirstBank completed the acquisition of 14 branches from Atlantic Capital Bank, N.A. The acquisition of the branches will add approximately $598 million in deposits and $385 million in loans to the Company’s balance sheet. The results of the acquired branches will be included in periods ending after April 5, 2019.

Holmes continued, “In early April we announced the restructuring of our mortgage operations and plans to sell our third party origination (‘TPO’) and correspondent channels. We also completed the Atlantic Capital branch acquisition on April 5, 2019 which added approximately $165 million of liquidity to our balance sheet. We have completed the system conversions and branch consolidations and are excited about the customers and teams we added in East Tennessee and North Georgia. With our first quarter performance, mortgage restructuring, and Atlantic Capital branch acquisition, we are excited and optimistic about the outlook for the remainder of the year.”

Strong Growth and Improved NIM

The Company grew loans (HFI) by $119.3 million during the first quarter of 2019, or 13.2% annualized. The Company also increased its contractual yield on the portfolio by 10 basis points to 5.66% during the first quarter of 2019 compared to the fourth quarter of 2018 and by 38 basis points compared to the first quarter of 2018.

During the first quarter of 2019, the Company grew customer deposits by $165.1 million, or 16.5% annualized, while total deposit growth was 12.8% annualized. The net growth in customer deposits was partially impacted by seasonal increases in public fund deposits and mortgage servicing escrow deposits of $40.4 million and $16.7 million, respectively. The cost of customer deposits increased to 112 basis points from 100 basis points in the fourth quarter of 2018.

The Company’s net interest margin (“NIM”) was 4.61% for the first quarter of 2019, compared to 4.50% and 4.64% for the fourth quarter of 2018 and the first quarter of 2018, respectively. Accretion related to purchased loans and nonaccrual interest contributed 17 basis points to the Company’s NIM in the first quarter of 2019 compared to 17 and 20 basis points for the fourth quarter of 2018 and the first quarter of 2018, respectively. Average loans held for investment increased to 79.1% of total average interest earning assets and the overall yield on earning assets increased 21 basis points on a linked quarter basis, driven primarily by the increased yield on loans held for sale and loan fees.

Noninterest Income Impacted by Mortgage Environment

Noninterest income was $29.0 million for the first quarter of 2019, compared to $27.2 million for the fourth quarter of 2018 and $33.3 million for the first quarter of 2018. Mortgage banking income was $21.0 million for the first quarter of 2019, compared to $19.0 million for the fourth quarter of 2018 and $26.5 million for the first quarter of 2018. Interest rate lock commitment volume totaled $1.36 billion in the first quarter of 2019 compared to $1.31 billion in the fourth quarter of 2018 and $2.13 billion in the first quarter of 2018.

During the first quarter of 2019, the Company’s total mortgage direct contribution was $0.7 million, excluding mortgage restructuring expenses of $1.1 million, compared to the $1.8 million loss in the in the fourth quarter of 2018.

Holmes commented, “With the exit of the TPO and correspondent channels, we are focusing our efforts and resources on the retail and consumer direct origination channels. These origination channels are well aligned with our strategic plan and provide more consistent and predictable financial results than wholesale origination channels.”

Operating Efficiency Gains Maintained

Noninterest expense was $55.1 million for the first quarter of 2019, compared to $53.7 million for the fourth quarter of 2018 and $56.2 million for the first quarter of 2018. Adjusted for merger-related and mortgage restructuring expenses, noninterest expense was $53.4 million for the first quarter of 2019, $53.3 million for the fourth quarter of 2018 and $55.0 million for the first quarter of 2018.

Chief Financial Officer, James R. Gordon stated, “Noninterest expenses remained stable within the Banking segment. Our core efficiency ratio was 64.9%, driven by our Banking segment core efficiency ratio of 54.7% compared to 57.9% in the first quarter of 2018.”

Asset Quality Remains Strong

During the first quarter of 2019, the Company recognized a provision for loan losses of $1.4 million, reflecting loan growth, renewals of previously acquired loans, stable credit metrics and net charge-offs of 0.06% of average loans. The Company’s nonperforming assets at March 31, 2019 were 0.57% of total assets compared to 0.61% at December 31, 2018. Nonperforming loans were 0.41% of loans held for investment at March 31, 2019, compared to 0.46% at December 31, 2018.

Capital Positioned for Growth

“Our earnings continue to drive strong capital levels capable of sustaining our growth, including the completed Atlantic Capital branch acquisition after quarter end. Our tangible common equity to tangible assets of 10.5% and per share growth in tangible book value of 18.3% year-over-year easily accommodate our quarterly cash dividend of eight cents per share. The deployment of excess capital through the completed branch acquisition will improve our returns on equity and tangible equity in future periods,” commented Gordon.

Summary

“Overall, our Company continues to capitalize on strong momentum by continuing to deliver solid organic growth and profitability while being opportunistic on the acquisition front. We remain committed to helping our customers and associates achieve their goals while providing shareholders outstanding returns,” Holmes concluded.

WEBCAST AND CONFERENCE CALL INFORMATION

The live broadcast of FB Financial Corporation’s earnings conference call will begin at 8:00 a.m. CT on Tuesday, April 23, 2019, and the conference call will be broadcast live over the Internet at https://www.webcaster4.com/Webcast/Page/1631/27772. An online replay will be available approximately an hour following the conclusion of the live broadcast.

ABOUT FB FINANCIAL CORPORATION

FB Financial Corporation (NYSE: FBK) is a bank holding company headquartered in Nashville, Tennessee. FB Financial operates through its wholly owned banking subsidiary, FirstBank, the third largest Tennessee-headquartered community bank, with 66 full-service bank branches across Tennessee, North Alabama and North Georgia, and mortgage offices across the Southeast. FirstBank serves five of the largest metropolitan markets in Tennessee and has approximately $5.7 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 22, 2019.

BUSINESS SEGMENT RESULTS

The Company has included its business segment financial tables as part of this Earnings Release. A detailed discussion of our business segments is included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2018, and investors are encouraged to review that discussion in conjunction with this Earnings Release.

FORWARD-LOOKING STATEMENTS

This Earnings Release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that have been made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements in some cases through the use of words such as “believes,” “anticipates,” “expects,” “may,” “will,” “assumes,” “should,” “predicts,” “could,” “would,” “intends,” “targets,” “estimates,” “projects,” “plans,” “potential” and other similar words and expressions of the future or otherwise regarding the proposed acquisition, including the timing, anticipated benefits and financial impact thereof, and the outlook for our future business and financial performance.

These forward-looking statements include, without limitation, statements relating to FB Financial’s assets, business, cash flows, condition (financial or otherwise), credit quality, financial performance, liquidity, short and long-term performance goals, prospects, results of operations, strategic initiatives and the timing, benefits, as well as statements relating to the anticipated benefits and financial impact of FB Financial’s mortgage segment restructuring and the acquisition by FirstBank of the Atlantic Capital branches, including: acceptance by the customers of the acquired Atlantic Capital branches of FB Financial’s products and services, the opportunities to enhance market share in certain markets, market acceptance of FB Financial generally in new markets, expectations regarding future investment in the acquired Atlantic Capital branches’ markets and the integration of the acquired Atlantic Capital branches’ operations, disposition, and other growth opportunities. Forward-looking statements are based on the information known to, and current beliefs and expectations of, FB Financial’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by such forward-looking statements. A number of important factors could cause actual results to differ materially from those contemplated by the forward-looking statements in this presentation including, without limitation: FB Financial’s ability to achieve the anticipated benefits and cost synergies of the mortgage segment restructuring, the parties’ ability to meet expectations regarding the accounting and tax treatment of the Atlantic Capital acquisition; the possibility that any of the anticipated benefits of the Atlantic Capital acquisition will not be fully realized or will not be realized within the expected time period; the risk that integration of the acquired Atlantic Capital branches’ operations with those of FB Financial or will be more costly than expected; the effect of the announcement of the closing of the Atlantic Capital acquisition on employee and customer relationships and operating results (including, without limitation, difficulties in maintaining relationships with employees and customers); general competitive, economic, political and market conditions and fluctuations; and the other risk factors set forth in our December 31, 2018 Form 10-K, filed with the Securities and Exchange Commission on March 12, 2019, under the captions “Cautionary note regarding forward-looking statements” and “Risk factors”. Many of these factors are difficult to foresee and are beyond our ability to control or predict. We believe the forward-looking statements contained herein are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations and speak only as of the date that they are made. We do not assume any obligation to update any forward-looking statements as a result of new information, future developments or otherwise, except as otherwise may be required by law.

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 include, without limitation, adjusted net income, adjusted diluted earnings per share, core revenue, core noninterest expense and core noninterest income, core efficiency ratio (tax equivalent basis), Banking segment core efficiency ratio (tax equivalent basis), Mortgage segment core efficiency ratio (tax equivalent basis), adjusted mortgage contribution, adjusted return on average assets and equity and core total revenue. 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 measures. The corresponding Supplemental Financial Information and Earnings Release Presentation also presents tangible assets, tangible common equity, tangible book value per common share, tangible common equity to tangible assets, return on tangible common equity, 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.

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 “Use of non-GAAP Financial Measures” and the corresponding non-GAAP reconciliation tables in the Supplemental Financial Information as well as “Use of non-GAAP Financial Measures” and the Appendix in the Earnings Release Presentation issued April 22, 2019, for a discussion and reconciliation of these measures to the most directly comparable GAAP financial measures.

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