FB Financial Corporation (FBK) — Q1 2023 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2023, with balance-sheet comparisons to December 31, 2022 and operating results compared with Q1 2022. FB Financial operates through FirstBank and reports Banking and Mortgage segments, serving markets across Tennessee, Alabama, southern Kentucky, and north Georgia.
Financial results and position
| Metric | Q1 2023 / March 31, 2023 | Comparable period / prior date |
|---|---|---|
| Net interest income | $103.7 million | $88.2 million in Q1 2022 |
| Net interest margin, tax-equivalent | 3.51% | 3.04% in Q1 2022 |
| Net income; diluted EPS | $36.4 million; $0.78 | $35.2 million; $0.74 in Q1 2022 |
| Noninterest income | $23.3 million | $41.4 million in Q1 2022 |
| Noninterest expense | $80.4 million | $89.3 million in Q1 2022 |
| Loans held for investment | $9.37 billion | $9.30 billion at December 31, 2022 |
| Total deposits | $11.18 billion | $10.86 billion at December 31, 2022 |
| Cash and cash equivalents | $1.32 billion | $1.03 billion at December 31, 2022 |
| Total borrowings | $312.1 million | $415.7 million at December 31, 2022 |
| Allowance for credit losses on loans | $138.8 million; 1.48% of loans | $134.2 million; 1.44% at December 31, 2022 |
- Profitability and margins: Income before taxes was $46.1 million, versus $44.5 million a year earlier. The tax-equivalent net interest margin improved, principally as loan yields rose; higher deposit funding costs partially offset the benefit. The efficiency ratio improved to 63.3% from 68.9%.
- Revenue and costs: Total noninterest income fell 43.6%, chiefly because mortgage banking income declined to $12.1 million from $29.5 million. Noninterest expense decreased 9.9%, reflecting lower mortgage-related staffing, commissions, and advertising, partly offset by higher other expenses and regulatory costs.
- Cash flow: Operating activities provided $98.4 million, investing activities used $18.3 million, and financing activities provided $212.8 million. Cash and cash equivalents increased $292.9 million during the quarter.
- Credit quality: Nonperforming assets were $79.9 million, or 0.61% of assets, compared with $87.5 million and 0.68% at year-end 2022. Nonperforming loans held for investment were 0.49% of loans. Net charge-offs were $0.4 million, or 0.02% of average loans; the allowance rose mainly due to loan growth and a more cautious economic forecast.
- Liquidity and capital: Management reported $1.61 billion of on-balance-sheet liquidity and $6.78 billion of additional available liquidity sources. Estimated uninsured and uncollateralized deposits were $3.26 billion, or 29.1% of deposits. Company regulatory ratios included CET1 of 11.3% and total capital of 13.6%; management said the Company and Bank exceeded applicable capital requirements.
- Investment portfolio: Available-for-sale securities were valued at $1.47 billion and carried $207.3 million of net unrealized losses, largely attributed to interest rates. The Company reported no held-to-maturity securities and said it did not intend, and was unlikely to be required, to sell the loss-position securities before recovery.
Material changes and management commentary
- Net interest income increased 17.6% year over year as loan yields and average loan balances rose. The cost of interest-bearing liabilities increased to 2.61% from 0.34%; the cost of total deposits rose to 1.94% from 0.20%.
- Mortgage interest-rate lock volume declined 71.4% year over year to $375 million. The filing attributes the decline to higher rates, weaker mortgage demand, margin pressure, and the 2022 exit from the direct-to-consumer channel. The Mortgage segment recorded a $0.2 million pretax loss.
- Deposits increased from year-end, but the mix shifted: noninterest-bearing deposits fell $187.5 million while interest-bearing checking and money-market balances increased. Management cited competition for deposits and growth in public deposits.
- Management described liquidity as more than adequate and said it had positioned the balance sheet in response to banking-sector stress. It also noted that construction commitments had declined and expected construction balances to decrease in coming quarters; it anticipated more moderate growth in commercial real estate lending.
- No specific earnings or margin guidance was provided. The filing identifies inflation, interest-rate changes, deposit competition and withdrawals, banking-sector volatility, recession risk, commercial real estate conditions, credit management, and regulatory changes among material risks.
- The Company declared a $0.15 per-share quarterly dividend after quarter-end. It repurchased 136,262 shares in January under its existing program. Management reported no material pending legal proceedings.
Important facts for investors to verify
- Whether the higher net interest margin can be sustained as deposit costs rise and deposit composition changes.
- Trends in uninsured and uncollateralized deposits, deposit retention, and the usability of stated contingent liquidity sources.
- Credit performance and reserve adequacy, particularly in construction, commercial real estate, residential lending, and consumer loans as forecasts weaken.
- Whether mortgage production and banking income stabilize following the channel exit and continued industry-wide demand pressure.
- The effect of interest-rate movements on the securities portfolio’s unrealized losses, liquidity, and capital, as well as sensitivity-model assumptions.
- Progress on reducing construction commitments and the related consequences for future loan growth and earnings.