FB Financial Corporation (FBK) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; balance-sheet comparisons are to December 31, 2022 unless noted. FB Financial operates FirstBank, with Banking and Mortgage segments across the Southeast. Dollar amounts below are in millions unless stated otherwise.
Financial results and position
| Metric | Q2 2023 | Comparable period / date |
|---|---|---|
| Net interest income | $101.5 | $102.2 in Q2 2022 |
| Net income attributable to FB Financial | $35.3; diluted EPS $0.75 | $19.3; diluted EPS $0.41 in Q2 2022 |
| Tax-equivalent net interest margin | 3.40% | 3.52% in Q2 2022 |
| Noninterest income | $23.8 | $33.2 in Q2 2022 |
| Noninterest expense | $81.3 | $97.0 in Q2 2022 |
| Return on average assets / common equity | 1.10% / 10.3% | 0.62% / 5.74% in Q2 2022 |
- First-half performance: Net interest income was $205.2 million versus $190.4 million in 2022; net income attributable to FB Financial was $71.7 million versus $54.6 million; diluted EPS was $1.53 versus $1.15. Tax-equivalent NIM was 3.45% versus 3.28%.
- Credit provisions: Q2 included $2.6 million of provision on held-for-investment loans, offset by a $3.7 million reversal for unfunded commitments, for a net provision reversal of $1.1 million. First-half loan provision was $7.6 million, partly offset by an $8.2 million unfunded-commitment reversal.
- Balance sheet: Total assets were $12.89 billion; loans held for investment were $9.33 billion, up modestly from year-end. Total deposits were $10.87 billion, approximately flat, and borrowings were $390.4 million. Shareholders’ equity was $1.39 billion; book value per share was $29.64 and tangible book value per share was $24.23.
- Cash flow: First-half operating cash flow was $106.6 million, compared with $528.6 million in the prior-year period. Cash and cash equivalents increased to $1.16 billion from $1.03 billion at year-end. Mortgage loan originations and sales materially affect operating cash flow.
- Capital and liquidity: On-balance-sheet liquidity was $1.44 billion, with $6.42 billion of additional stated available liquidity sources. Company CET1 and total risk-based capital ratios were 11.7% and 13.9%; FirstBank’s were 11.7% and 13.6%. Management said liquidity was more than adequate and both entities met regulatory capital requirements.
Material changes versus comparable periods
- Q2 net income rose substantially year over year, although net interest income was slightly lower. Higher loan yields and balances were offset by sharply higher deposit funding costs; deposit cost was 2.38% for Q2 versus 0.25% a year earlier.
- Mortgage banking income fell to $12.2 million from $22.6 million in Q2 and to $24.3 million from $52.1 million for the first half. Lower mortgage demand, rising rates and the prior closure of the direct-to-consumer channel contributed. Mortgage loan sales fell to $330.3 million in Q2 from $869.7 million.
- Noninterest expense declined, partly because 2022 included $12.5 million of mortgage restructuring costs and because mortgage staffing and production were lower. First-half expenses also reflected higher regulatory fees and assessments.
- Deposits shifted toward interest-bearing products: noninterest-bearing balances declined $276.3 million from year-end, while money market and savings balances increased $274.7 million. Brokered and internet time deposits rose to $239.5 million from $1.8 million.
- The allowance for loan losses rose to $140.7 million, or 1.51% of loans, from $134.2 million, or 1.44%, at year-end. Management attributed the increase primarily to a weaker economic forecast. Net charge-offs remained low at 0.03% of average loans in Q2.
Outlook, management commentary and risks
- The filing provides no formal numerical earnings or revenue guidance. Management expects construction and non-owner-occupied CRE balances to decline in the near term as loans mature and unfunded commitments decrease; it expects moderated growth in owner-occupied CRE.
- Management cited inflation, possible further rate increases, recessionary forecasts, banking-sector volatility, deposit competition and possible deterioration in CRE fundamentals as relevant risks. The credit-loss forecast uses the Moody’s baseline scenario and reflects projected asset-quality deterioration.
- The available-for-sale securities portfolio had $226.0 million of net unrealized losses at June 30, attributed by management to interest rates rather than credit concerns. Management stated it was unlikely the company would need to sell securities before recovery; the company reported no held-to-maturity securities.
- Q2 NIM pressure reflects deposit repricing and customer migration to higher-yielding accounts. The company’s interest-rate sensitivity analysis is asset-sensitive, but management cautioned that model assumptions, deposit behavior and actual outcomes may differ materially.
- Other notable items: the Durbin Amendment fee cap reduced interchange income after a temporary exemption expired; LIBOR-linked instruments are transitioning to SOFR-based fallback rates. The company reported no material pending legal proceedings and no material subsequent events through issuance.
Important facts for investors to verify
- Whether deposit costs, deposit mix and use of brokered funding continue to pressure NIM and liquidity.
- Trends in non-owner-occupied CRE, construction commitments, criticized/classified loans, delinquencies and the adequacy of the allowance.
- Whether mortgage production and banking income stabilize, and how the Durbin Amendment affects ongoing fee revenue.
- The realization and capital implications of the securities portfolio’s unrealized losses, alongside the stated contingent-liquidity capacity.
- Reconcile reported cash-flow trends with mortgage origination and sale volumes; assess the company’s interest-rate and deposit-beta assumptions against actual results.