Business Overview and Financial Performance
FB Financial Corporation (FBK) is a financial holding company headquartered in Nashville, Tennessee, operating primarily through its wholly-owned subsidiary bank, FirstBank. FirstBank provides a comprehensive suite of commercial and consumer banking services to clients in select markets across Tennessee, Kentucky, Alabama, and North Georgia. With a history dating back to 1906, FB Financial has grown to become a respected community bank, weathering various economic cycles and adapting to industry changes.
FB Financial's business model is centered around its two operating segments: Banking and Mortgage. The Banking segment generates the majority of the company's revenue from interest on loans and investments, loan-related fees, trust and investment services, and deposit-related fees. The Mortgage segment, on the other hand, contributes significantly through origination fees and gains on sales in the secondary mortgage loan market, as well as from mortgage servicing revenues.
FB Financial Corporation was founded in 1906 as First National Bank in Nashville, Tennessee, with the aim of serving the local community and providing banking services to businesses and individuals in the Nashville area. In its early years, the bank focused on traditional commercial and retail banking products, including checking and savings accounts, commercial loans, and real estate lending.
Throughout the following decades, FB Financial expanded its branch network across Tennessee, opening additional locations to better serve its growing customer base. The 1980s and 1990s saw the bank diversifying its product offerings, adding wealth management, investment, and mortgage banking services to complement its core commercial and consumer banking operations.
In 2003, FB Financial took a significant step in strengthening its capital position by forming two trust preferred securities subsidiaries to issue $30 million in capital trust preferred securities. This move provided the bank with additional capital to support its continued growth and expansion efforts. Around this time, the bank also began making strategic acquisitions of smaller community banks in Tennessee and surrounding states, further extending its geographic reach and customer base.
The 2008 financial crisis presented significant challenges for FB Financial, as it did for many banks across the country. However, the company's conservative underwriting practices and diversified business model helped it weather the economic downturn better than some of its peers. FB Financial emerged from the crisis in a strong position, allowing it to capitalize on acquisition opportunities and continue expanding its footprint in the Southeast.
Financials
Over the years, FB Financial has demonstrated a strong financial profile. As of the latest reported quarter, the company's total assets stood at $12.92 billion, with a tangible common equity to tangible assets ratio of 10.4% and a common equity Tier 1 capital ratio of 12.7%, well above regulatory requirements. The company's net interest margin, a key profitability metric, has remained relatively stable, averaging 3.44% over the past three years.
For the fiscal year 2023, FB Financial reported revenue of $678.41 million, net income of $120.22 million, operating cash flow of $211.07 million, and free cash flow of $190.84 million. In the most recent quarter (Q3 2024), the company achieved revenue of $89.52 million, representing a 4.6% year-over-year growth. However, net income decreased by 46.7% to $10.22 million, primarily due to a $40.16 million loss on investment securities sales. Operating cash flow for the quarter was $40.975 million, with free cash flow of $44.836 million.
FB Financial's Banking segment reported net interest income of $104.3 million in Q3 2024, up from $99.4 million in the prior year period. Provisions for credit losses on loans and unfunded commitments were $1.9 million, down from $3.3 million in Q3 2023. Noninterest income for the Banking segment was a loss of $28.4 million, compared to a $4.0 million loss in the year-ago quarter, primarily due to the aforementioned net loss on investment securities sales. Noninterest expense for the Banking segment decreased to $63.3 million from $68.7 million in Q3 2023, driven by lower salaries and benefits. Overall, the Banking segment reported pre-tax income of $10.8 million in Q3 2024, down from $23.4 million in Q3 2023.
The Mortgage segment reported net interest income of $1.7 million in Q3 2024, up slightly from $1.6 million in Q3 2023. Provisions for credit losses were $0.1 million, compared to a $0.4 million reversal in the prior year quarter. Mortgage banking income decreased to $11.6 million from $12.0 million in Q3 2023. Noninterest expense for the Mortgage segment decreased to $12.9 million from $14.3 million in the year-ago quarter. The Mortgage segment contributed $0.6 million in pre-tax income in Q3 2024, compared to a $0.2 million pre-tax loss in Q3 2023.
Navigating Challenges and Maintaining Momentum
FB Financial's performance has been tested by various industry and macroeconomic factors, but the company has consistently demonstrated its ability to adapt and maintain momentum.
One significant challenge the company faced was the COVID-19 pandemic, which disrupted economic activity and loan demand across the banking industry. However, FB Financial's diversified business model and prudent risk management practices allowed it to navigate the turbulent period relatively well. The company's net income for the year ended December 31, 2023, was $120.22 million, with a return on average assets of 0.95% and a return on average equity of 8.74%.
More recently, the company has had to contend with the changing interest rate environment. As the Federal Reserve has implemented a series of rate hikes to combat inflationary pressures, FB Financial has proactively managed its asset-liability composition to mitigate the impact on its net interest margin. The company's strategy of maintaining a well-matched balance sheet, with a significant portion of its loan portfolio and deposits tied to variable rates, has allowed it to navigate the rate environment relatively well.
Geographical Footprint and Expansion Efforts
FB Financial's branch network is primarily concentrated in Tennessee, Alabama, Kentucky, and North Georgia, with 77 full-service branches as of the latest reported quarter. The company's geographical footprint has been a key strength, as it has been able to capitalize on the robust economic growth and favorable demographic trends in its core markets.
In addition to organic growth, FB Financial has also demonstrated a strategic approach to acquisitions, actively seeking opportunities that align with its culture, geographic presence, and financial objectives. The company's disciplined acquisition strategy has allowed it to expand its reach and enhance its competitive position within its existing and contiguous markets.
Risk Management and Regulatory Compliance
Prudent risk management has been a hallmark of FB Financial's operations. The company has a well-diversified loan portfolio, with a focus on maintaining appropriate concentrations across different loan categories and industry sectors. Its robust credit underwriting standards and proactive monitoring of asset quality have enabled it to maintain relatively low levels of nonperforming loans and charge-offs, even during challenging economic periods.
Additionally, FB Financial places a strong emphasis on regulatory compliance, ensuring that its operations adhere to the various rules and regulations governing the banking industry. The company's adherence to these standards has helped it maintain the trust of its customers, regulators, and the broader community it serves.
Liquidity
FB Financial maintains a strong liquidity position to meet its operational needs and regulatory requirements. The company's liquidity management strategies include maintaining a diverse funding base, consisting of core deposits, wholesale funding sources, and access to various credit facilities. This approach ensures that FB Financial can meet its financial obligations and support its growth initiatives while maintaining flexibility in different market conditions.
As of September 30, 2024, FB Financial reported a debt-to-equity ratio of 0.32 and held $951.75 million in cash. The company has a $370 million unsecured line of credit and $1.36 billion in remaining FHLB borrowing capacity. FB Financial's current ratio and quick ratio both stand at 1.21, indicating a strong ability to meet short-term obligations.
Shareholder Value and Capital Allocation
FB Financial has a track record of delivering value to its shareholders. The company has paid consistent quarterly dividends, with the most recent dividend declared at $0.17 per share. Over the past three years, the company's tangible book value per share has grown at a compound annual rate of 12.9%, highlighting its ability to generate sustainable shareholder returns.
FB Financial's capital allocation strategy is focused on three primary areas: organic growth, strategic acquisitions, and balance sheet optimization. The company's disciplined approach to capital management has enabled it to maintain a strong capital position, supporting its growth initiatives and providing flexibility for future opportunities.
Industry Trends and Future Outlook
The banking industry has experienced a compound annual growth rate (CAGR) of 4.2% in revenue over the past five years. FB Financial has outperformed this industry average, growing revenue at a 5.8% CAGR during the same period.
Looking ahead, FB Financial has provided guidance for the near future. For the fourth quarter of 2024, the company expects its net interest margin to be in the 3.50% to 3.60% range, following a recent 50 basis point rate cut, and anticipates it to remain relatively flat around that range with future measured interest rate cuts. For full-year 2024, FB Financial expects banking expenses of $248 million to $250 million.
Looking further ahead to 2025, the company projects 4% to 5% expense growth, excluding any large team lift-out opportunities. FB Financial anticipates mid-single-digit loan and deposit growth in the fourth quarter of 2024 due to some seasonality and is aiming for low double-digit loan and deposit growth in 2025, with the bigger challenge expected to be on the deposit side.
In terms of recent performance, FB Financial reported adjusted earnings per share of $0.86 for the third quarter of 2024, up 2.4% from the prior quarter and 21% year-over-year. The company also reported an adjusted return on average assets of 1.25% and an adjusted pre-tax pre-provision net revenue increase of 2.7% from the prior quarter and 20% year-over-year. FB Financial's adjusted efficiency ratio remained roughly flat with the prior quarter at 58.4%.
Conclusion
FB Financial Corporation has demonstrated resilience and adaptability in navigating the dynamic banking industry. Its diversified business model, prudent risk management, and strategic growth initiatives have allowed the company to maintain momentum and deliver value to its shareholders. As FB Financial continues to leverage its geographic footprint and capitalize on the economic trends in its core markets, it is well-positioned to sustain its long-term success. The company's strong financial performance, coupled with its forward-looking guidance and growth strategies, suggests a positive outlook for FB Financial in the coming years.