FB Financial Corporation — Q3 2023 Form 10-Q
Business context and reporting period. FB Financial is a Nashville-based financial holding company operating primarily through FirstBank, with Banking and Mortgage segments and 81 full-service branches across Tennessee, Alabama, southern Kentucky, and north Georgia. This unaudited filing covers the quarter and nine months ended September 30, 2023; balance-sheet comparisons are to December 31, 2022. Dollar amounts below are in millions unless noted.
Key financial metrics
| Metric | Q3 2023 | Comparable period / change |
|---|---|---|
| Net interest income | $100.9 | $111.4 in Q3 2022 |
| Net income attributable to FB Financial | $19.2; diluted EPS $0.41 | $31.8; diluted EPS $0.68 in Q3 2022 |
| Net interest margin, tax-equivalent | 3.42% | 3.93% in Q3 2022 |
| Net income after credit-loss provision | $98.1 | $100.0 in Q3 2022 |
| Noninterest income / expense | $8.0 / $83.0 | $22.6 / $81.8 in Q3 2022 |
| Efficiency ratio / adjusted efficiency ratio | 76.2% / 63.1% | 61.1% / 60.7% in Q3 2022 |
- For the nine months, net interest income was $306.1 million versus $301.7 million; net income attributable to FB Financial was $90.9 million versus $86.4 million; diluted EPS was $1.94 versus $1.83. Tax-equivalent NIM was 3.44% versus 3.50%.
- At September 30, total assets were $12.49 billion, loans held for investment were $9.29 billion, deposits were $10.64 billion, and total shareholders’ equity was $1.37 billion. Loans were essentially flat from year-end; deposits declined 2.0% and assets declined 2.8%.
- Cash and cash equivalents were $848.3 million, down from $1.03 billion at year-end. Nine-month cash flow was $136.7 million provided by operations, $120.3 million provided by investing, and $435.8 million used in financing; ending cash decreased $178.7 million.
- Borrowings totaled $226.7 million, down from $415.7 million at year-end. This included $128.6 million of net subordinated debt; no FHLB advances were outstanding at quarter-end.
- On-balance-sheet liquidity was $1.35 billion, with an additional $6.78 billion of stated available liquidity sources. Management said liquidity was more than adequate for short- and long-term needs.
- Company regulatory capital ratios were 14.1% total risk-based capital, 12.1% Tier 1 risk-based capital, and 11.8% CET1; FirstBank’s were 13.8%, 11.8%, and 11.8%, respectively. Both met applicable capital requirements.
Material changes and management commentary
- Funding costs compressed quarterly earnings. Q3 interest income rose to $173.9 million from $128.5 million, but interest expense increased to $73.0 million from $17.1 million. Management attributed the margin decline chiefly to higher deposit funding costs as customers shifted toward interest-bearing products.
- Securities repositioning reduced reported income. The company sold $76.6 million of available-for-sale securities, recording a $14.2 million loss, and reinvested proceeds primarily in agency securities yielding an average 6.43%, versus 1.36% on securities sold. The portfolio had $265.2 million of gross unrealized losses at quarter-end, which management attributed to interest rates rather than credit; it reported no expected need to sell securities before recovery of amortized cost.
- Mortgage activity remained pressured. Nine-month mortgage banking income fell 43.7% to $36.3 million; mortgage loan sales declined to $988.0 million from $2.72 billion. Management cited higher rates, affordability constraints, weaker demand, and the 2022 exit from its direct-to-consumer channel. The Mortgage segment recorded a $1.5 million nine-month pretax loss, improved from a $19.1 million loss.
- Expense actions and unusual items. Q3 noninterest expense included $4.8 million of early-retirement and severance costs. Nine-month expense declined to $244.7 million from $268.1 million, reflecting lower mortgage-related expenses and the absence of $12.5 million of prior-year mortgage restructuring costs, partly offset by severance and higher regulatory fees.
- Credit indicators weakened modestly. Loans on nonaccrual increased, primarily after one commercial and industrial relationship moved to nonaccrual. Nonperforming loans held for investment were $54.5 million, or 0.59% of loans, versus $45.8 million, or 0.49%, at year-end. Nonperforming assets were $88.7 million, or 0.71% of assets. The loan allowance rose to $146.1 million, or 1.57% of loans, from $134.2 million, or 1.44%.
- Management increased loan-loss reserves in response to weaker economic forecasts, including recession risk, persistent inflation, and higher rates. A specific reserve of $3.1 million was recorded for the newly nonaccrual C&I relationship. Net charge-offs were low at 0.02% of average loans for the nine months.
- Deposits declined by $216.8 million from year-end, reflecting seasonal public-fund and noninterest-bearing deposit declines and migration to higher-yielding accounts. Brokered and internet time deposits increased to $175.5 million from $1.8 million. Estimated uninsured and uncollateralized deposits were 28.8% of total deposits, down from 32.9% at year-end.
- Subsequent events: On October 16, 2023, the company announced a reduction-in-force and incurred approximately $0.9 million of termination costs. It also announced plans to close seven branches, expected in Q1 2024 subject to customer notifications; closure costs had not yet been determined.
Outlook, risks, and contingencies
The filing provides no specific earnings, margin, or growth guidance. Management cautioned that actual results may differ materially from forward-looking expectations. Highlighted risks include interest-rate movements and deposit competition, inflation and recession conditions, deterioration in commercial real estate fundamentals, problem-credit management, banking-sector volatility, regulatory changes, cybersecurity and third-party technology risks, and political or market instability. The company also added a risk concerning possible U.S. debt-ceiling disruption or credit-rating downgrades and potential effects on government-backed securities, collateral requirements, and borrowing costs.
Unfunded commitments to extend credit and letters of credit totaled $3.20 billion. Management stated that ordinary-course legal proceedings were not expected to have a material effect; the filing reported no material pending legal proceedings. The company’s securities portfolio remains exposed to further interest-rate-driven fair-value changes, and mortgage servicing rights are sensitive to prepayment and discount-rate assumptions.
Most important facts for investors to verify
- Whether elevated deposit costs continue to outpace asset-yield increases and further pressure NIM and earnings.
- Whether the C&I nonaccrual relationship or broader commercial real estate trends lead to additional delinquencies, charge-offs, or reserve increases.
- How the securities sale and reinvestment affect future income, liquidity, and realized or unrealized losses.
- Whether mortgage production and servicing income stabilize, given lower origination volumes and market-rate sensitivity.
- Actual costs and expected savings from the announced workforce reduction and seven branch closures.
- Deposit mix, uninsured-deposit levels, and the accessibility of the stated contingent liquidity sources under stress.