Business context and reporting period
FB Financial Corporation is a Nashville-based bank holding company operating FirstBank and a mortgage banking business across Tennessee, Alabama, southern Kentucky and north Georgia. This Form 10-K covers the fiscal year ended December 31, 2021; it is an annual report, not a standalone fourth-quarter earnings report. The supplied filing text does not provide a clear standalone Q4 income statement. The company reported 82 full-service branches, total assets of $12.60 billion, and 1,962 full-time-equivalent employees at year-end.
Financial performance and condition
| Metric | 2021 | 2020 |
|---|---|---|
| Net interest income | $347.4 million | $265.7 million |
| Net interest margin, tax-equivalent | 3.19% | 3.46% |
| Noninterest income | $228.3 million | $301.9 million |
| Noninterest expense | $373.6 million | $377.1 million |
| Net income attributable to FB Financial | $190.3 million | $63.6 million |
| Diluted earnings per share | $3.97 | $1.67 |
| Net cash from operating activities | $54.9 million | $(270.0) million |
Return on average assets was 1.61% (0.75% in 2020); return on average equity was 14.0% (6.58%). The GAAP efficiency ratio improved to 64.9% from 66.4%; the adjusted tax-equivalent ratio rose to 65.8% from 59.2%.
At December 31, 2021, total assets were $12.60 billion, loans held for investment were $7.60 billion, deposits were $10.84 billion, and shareholders’ equity was $1.43 billion. Cash and cash equivalents totaled $1.80 billion, versus $1.32 billion a year earlier. Borrowings were $171.8 million, down from $238.3 million. Total capital, Tier 1 leverage and CET1 ratios were 14.5%, 10.5% and 12.3%, respectively, at the holding company; FirstBank met the regulatory “well-capitalized” standard.
Material changes versus 2020
- Net income rose substantially, with a $41.0 million reversal of credit-loss provisions in 2021 versus $108.0 million of provision expense in 2020. Management attributed the reversal to improved economic forecasts and credit indicators under CECL; it is a significant contributor to the earnings comparison.
- Net interest income increased 30.7%, reflecting higher average loan balances and lower deposit costs. Net interest margin nevertheless declined 27 basis points to 3.19%, amid low rates, balance-sheet mix and excess liquidity.
- Noninterest income declined 24.4%, principally because mortgage banking income fell $87.8 million to $167.6 million. Mortgage sale margin compressed to 2.97% from 3.79%, and interest-rate lock volume declined about 20%.
- Noninterest expense edged down, as the absence of $34.9 million of 2020 merger costs offset higher personnel and operating costs. Salaries, commissions and benefits increased to $248.3 million.
- Loans grew 7.4% and deposits 14.6% year over year. The deposit mix shifted toward lower-cost checking and money-market balances, while time deposits declined.
- Asset quality improved: nonperforming loans fell to 0.62% of loans from 0.91%; nonperforming assets declined to $63.0 million, or 0.50% of assets, from $84.2 million, or 0.75%. The allowance for credit losses decreased to $125.6 million, or 1.65% of loans, from $170.4 million, or 2.41%.
Outlook, commentary and risks
The filing gives no specific earnings or revenue guidance. Management described continued uncertainty from COVID-19 and variants, supply-chain disruption, inflation and interest-rate changes. It expected rising rates to weigh on mortgage refinancing and noted low housing inventory, industry capacity and margin pressure. Mortgage results are therefore exposed to lower volumes and pricing; mortgage banking revenue was $167.6 million in 2021.
Management reported an asset-sensitive interest-rate position. Its model estimated that an immediate +100 basis-point shock would increase first-year net interest income 10.8%, while a -100-basis-point shock would reduce it 6.32%; these are model scenarios, not forecasts, and depend on assumptions. The company ceased using LIBOR for newly originated or refinanced loans in Q4 2021 and is transitioning existing contracts to alternatives.
- Credit and concentration exposure: about 82% of loans had real estate as a primary or secondary collateral component. Construction was 17% and commercial real estate 36% of loans; the company’s construction concentration ratio was 99.8% of Tier 1 capital plus allowance, and its CRE ratio was 256.0%.
- Funding risk: uninsured deposits were estimated at $4.88 billion, or 45% of deposits. The company reported ample liquidity and no borrowings against its $325 million of correspondent-bank lines at year-end.
- Regulatory changes: management expected interchange-fee restrictions under the Durbin Amendment to apply in the second half of 2022, creating potential pressure on fee income. The company also cited higher compliance costs after crossing $10 billion in assets.
- Other risks include mortgage repurchase and servicing obligations, interest-rate and securities valuation risk, cyber and third-party service-provider risks, competition, acquisition integration, and the continuing effects of the pandemic. No material pending legal proceedings were reported.
- The company declared $0.44 per share in 2021 dividends, repurchased 179,276 shares during the year, and had $92.4 million remaining under its $100 million repurchase authorization at year-end. The board’s future distribution decisions remain subject to regulatory and financial constraints.
Most important facts for investors to verify
- How much of the sharp earnings increase reflects the $41.0 million provision reversal, and whether credit costs normalize as forecasts and loan growth change.
- Whether lower mortgage volumes and margins, rising rates and housing supply constraints further reduce mortgage earnings and servicing-rights values.
- The sustainability of net interest income and the company’s interest-rate sensitivity under actual deposit repricing, loan floors and changing balance-sheet mix.
- The composition, stability and concentration of uninsured deposits, and available liquidity under stress.
- Credit performance and loss reserves in real-estate-backed, construction and commercial lending, including trends in troubled debt restructurings and classified loans.
- The effects of 2022 interchange-fee restrictions and ongoing regulatory and technology spending on fee income and expenses.
- The auditor reported fairly presented GAAP financial statements and effective internal control, with no material weaknesses reported. Its critical audit matter was the judgment involved in CECL forecasts and qualitative adjustments.