FB Financial Corporation — FY2019 Form 10-K
Reporting period: Year ended December 31, 2019; the filing was signed March 13, 2020. FB Financial is a Nashville-based bank holding company operating primarily through FirstBank, alongside a mortgage banking segment. Its footprint included 68 full-service branches and eight other banking locations in Tennessee, North Alabama and North Georgia.
Financial performance and condition
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net interest income | $226.0 million | $204.1 million |
| Total noninterest income | $135.4 million | $130.6 million |
| Total operating revenue (net interest income plus noninterest income) | $361.4 million | $334.7 million |
| Net income | $83.8 million | $80.2 million |
| Diluted earnings per share | $2.65 | $2.55 |
| Net interest margin, tax-equivalent | 4.34% | 4.66% |
| Efficiency ratio | 67.7% | 66.8% |
| Return on average assets / equity | 1.45% / 11.6% | 1.66% / 12.7% |
| Cash and cash equivalents at year-end | $232.7 million | $125.4 million |
| Total assets / loans held for investment | $6.12 billion / $4.41 billion | $5.14 billion / $3.67 billion |
| Total deposits / borrowings | $4.93 billion / $304.7 million | $4.17 billion / $227.8 million |
| Shareholders’ equity | $762.3 million | $671.9 million |
Fourth-quarter 2019 net income was $21.6 million and diluted EPS was $0.68. Annual cash flows were $63.9 million from operations, $(182.9) million from investing and $226.3 million from financing; cash increased by $107.3 million. The filing attributes lower operating cash flow in part to mortgage-loan origination and sale activity.
Credit indicators weakened year over year: nonperforming loans rose to 0.60% of loans from 0.46%; nonperforming assets increased to $47.1 million, or 0.77% of assets, from $31.4 million, or 0.61%. The allowance for loan losses was $31.1 million, 0.71% of loans, versus $28.9 million, 0.79%, in 2018. FirstBank’s year-end capital ratios included 12.1% total risk-based capital, 11.5% Tier 1 risk-based capital and 11.5% CET1; the company reported these ratios above regulatory minimums.
Material changes versus FY2018
- Net income increased 4.5%, while net interest income grew 10.8%; loan growth and the 2019 Atlantic Capital branch acquisition supported interest income.
- Margin fell 32 basis points to 4.34%, as deposit costs rose: cost of total deposits increased to 1.10% from 0.76%. Noninterest expense grew 9.6% to $244.8 million, reflecting growth, staffing, acquisition and restructuring costs.
- Total assets grew 19.2%, loans held for investment 20.2%, and deposits 18.3%. Excluding the Atlantic Capital transaction, reported growth was 6.78% for assets, 10.0% for loans and 4.18% for deposits.
- Net charge-offs rose to $4.8 million from $0.2 million; nonperforming loans and troubled debt restructurings also increased.
- The company sold its wholesale mortgage channels in 2019, focusing on retail and ConsumerDirect. Mortgage lock volume declined 17.1% to $5.90 billion, but mortgage sale margin improved to 2.12% from 1.59%.
Outlook, risks and unusual items
- The filing provides no quantified earnings or growth guidance. Management emphasized profitable growth, core deposits, efficiency, technology investment and continued acquisition opportunities.
- CECL was adopted January 1, 2020. Management estimated an opening allowance for credit losses of $60–$70 million, versus the year-end 2019 allowance of $31.1 million, with an estimated after-tax retained-earnings reduction of $20–$31 million. These were preliminary estimates subject to refinement; the company elected a three-year regulatory-capital phase-in.
- Subsequent to year-end, Farmers National was acquired on February 14, 2020, for approximately $50 million in stock and cash. A proposed Franklin Financial Network merger, announced January 21, 2020, had an implied value of approximately $602 million and was expected to close in third-quarter 2020, subject to approvals and other conditions.
- COVID-19 was identified as a pandemic in the first quarter of 2020. The filing warned of potential customer repayment, market, interest-rate and operational impacts; the scale was uncertain at filing date.
- Key risks include Tennessee and Nashville concentration; real-estate collateral and commercial real estate, C&I and construction exposures; deposit concentration and funding costs; interest-rate and mortgage-market sensitivity; acquisition integration; cyber and third-party service-provider risks; and regulatory changes, including possible additional requirements if the Franklin merger takes total assets above $10 billion.
- Mortgage servicing rights fell to $75.5 million from $88.8 million. Faster-than-expected prepayments drove a $26.3 million fair-value decline, partly offset by $9.3 million of derivative hedging gains. No material legal proceedings were reported. Management reported effective financial-reporting controls; the auditor issued an unqualified opinion.
Investor verification priorities
- Confirm the final CECL allowance, retained-earnings adjustment and subsequent credit-quality trends.
- Assess whether deposit repricing and funding costs continue to pressure net interest margin and earnings.
- Review nonperforming loans, charge-offs, reserve coverage and concentrations in real estate, construction and large borrower relationships.
- Evaluate mortgage servicing-rights valuations, prepayment assumptions, hedge effectiveness and mortgage-channel profitability.
- Check integration results, purchase accounting and capital/liquidity effects from Farmers National and the proposed Franklin transaction, including any regulatory consequences of crossing $10 billion in assets.
- Monitor the realized financial effects of COVID-19 and whether the filing’s stated risks translated into credit losses, funding pressures or operating disruption.