FB Financial Corporation (NYSE: FBK) — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. Financial amounts below are in U.S. dollars; figures are rounded.
Business context
FB Financial is a Nashville-based bank holding company operating primarily through FirstBank, with banking markets in Tennessee, North Alabama, North Georgia and Southern Kentucky, plus a national mortgage business. At year-end, it operated 81 full-service branches and reported $11.21 billion of assets. The company reports Banking and Mortgage segments.
2020 included the February acquisition of Farmers National and the August merger with Franklin Financial Network. Franklin added $3.63 billion of assets, including $2.79 billion of loans and $3.12 billion of deposits; Farmers National added $258 million of assets. Both transactions materially expanded the company and increased share count.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Net interest income | $265.7 million | $226.0 million |
| Noninterest income | $301.9 million | $135.4 million |
| Net income attributable to FB Financial | $63.6 million | $83.8 million |
| Diluted EPS | $1.67 | $2.65 |
| Net interest margin, tax-equivalent | 3.46% | 4.34% |
| GAAP efficiency ratio | 66.4% | 67.7% |
| Adjusted efficiency ratio, tax-equivalent | 59.2% | 65.4% |
| Return on average assets | 0.75% | 1.45% |
| Return on average equity | 6.58% | 11.6% |
- Revenue drivers: Mortgage banking income rose to $255.3 million from $100.9 million, reflecting high refinancing volume, lower rates and improved sale margins. Net interest income increased with acquired and PPP loan volume, but margin contracted as rates fell.
- Credit costs and asset quality: Provision for credit losses on loans and unfunded commitments totaled $108.0 million, versus $7.1 million in 2019. The year-end allowance for credit losses was $170.4 million, or 2.41% of loans held for investment, compared with $31.1 million, or 0.71%, a year earlier. Nonperforming loans rose to 0.91% of loans from 0.60%; nonperforming assets were $84.2 million.
- Balance sheet and liquidity: Assets were $11.21 billion, loans held for investment $7.08 billion, deposits $9.46 billion and shareholders’ equity $1.29 billion. Cash and cash equivalents increased to $1.32 billion from $232.7 million. The loans-to-deposits ratio was 74.9%.
- Debt and capital: Year-end borrowings were $238.3 million, including $189.5 million of subordinated debt. FirstBank’s total risk-based capital ratio was 14.9%, CET1 ratio 12.6% and leverage ratio 10.5%; the Bank met “well-capitalized” standards.
- Cash flow: Operating activities used $269.3 million, investing activities provided $309.4 million and financing activities provided $1.05 billion. Cash and cash equivalents increased $1.09 billion during the year. Mortgage loan originations and sales substantially affect operating cash flows.
Material changes versus 2019
- Net income fell about 24%, principally reflecting higher credit-loss provisions, acquisition and integration expenses, and lower net interest margin. Merger costs were $34.9 million versus $5.4 million.
- Noninterest income more than doubled, primarily due to mortgage banking. Mortgage loan closing volume reached $6.65 billion; refinancing represented 77.6% of interest-rate lock volume, versus 56.2% in 2019.
- Year-end assets, loans and deposits increased substantially, mainly through the Franklin and Farmers National transactions. Excluding acquisitions and PPP loans, management reported assets up 16.0%, loans down 3.4% and deposits up 24.2% year over year.
- FirstBank repaid $250 million of FHLB advances, incurring $6.8 million in prepayment costs, and issued $100 million of subordinated notes.
- The company adopted CECL on January 1, 2020; the transition reduced retained earnings by $25.0 million. Prior-period figures were not restated, limiting direct allowance comparisons.
Outlook, commentary, risks and unusual items
- The filing provides no specific earnings or margin guidance. Management reported improving commercial activity late in 2020 but emphasized continuing uncertainty about the pandemic’s duration and effects; it cautioned that borrower distress may emerge after assistance programs expire.
- COVID-19 support included PPP lending: approximately 2,900 loans originated, with $212.6 million outstanding at year-end. Company-sponsored deferrals remaining in effect totaled $202.5 million, or 2.9% of loans; $1.40 billion of loans previously deferred had exited deferral. Management said most remaining deferrals were performing.
- Credit exposure warrants attention: 77.9% of loans had real estate as a primary or secondary collateral component; commercial real estate was 36% of loans and construction 17%. Loans in industries management identified as “of concern” represented about 23.8% of loans.
- Mortgage results benefited from an unusually favorable low-rate refinancing environment and may decline if rates rise. Mortgage servicing rights are valuation-sensitive; year-end MSRs were $80.0 million, while 2020 servicing income was offset by fair-value declines and hedging effects.
- Management expects increased compliance costs after assets exceeded $10 billion and anticipates some merger-related separation costs into the first half of 2021. Integration execution, interest-rate changes, credit quality, deposit competition, cybersecurity, and LIBOR transition are identified risks.
- Off-balance-sheet commitments to extend credit and letters of credit totaled $2.79 billion. Mortgage loan repurchase and indemnification exposure is also present; the reserve was $5.9 million.
- No material legal proceedings were pending as of the filing date. The auditor gave an unqualified opinion on the financial statements. Management assessed internal control over financial reporting as effective, but acquired operations representing about 35% of consolidated assets were excluded from that assessment under the applicable acquisition transition guidance.
The company declared $0.36 per share in dividends for 2020 and subsequently declared $0.11 per share for February 2021 payment. It made no purchases under its 2020 $25 million repurchase authorization; a new $100 million repurchase plan was approved in February 2021.
Most important facts for investors to verify
- Whether credit performance, deferrals, criticized loans and charge-offs deteriorate as COVID-related support winds down, and whether the $170.4 million allowance remains adequate under updated forecasts.
- How much of 2020 mortgage revenue and earnings is sustainable if refinance volumes and sale margins normalize or interest rates rise.
- Franklin and Farmers National integration progress, realization of expected cost savings, remaining merger expenses and effects of share issuance on per-share returns.
- Underlying deposit trends and funding costs, liquidity access, and the impact of large public deposits and acquisition-related balance-sheet growth.
- Capital and dividend capacity, the planned $100 million repurchase, and the effect of regulatory and compliance costs following the $10 billion asset threshold.
- Cash-flow interpretation: reported operating cash flow was negative amid large mortgage origination and sale activity; evaluate it alongside balance-sheet liquidity and financing flows.