FB Financial Corporation Reports Second Quarter 2021 Results

Reports Q2 diluted EPS of $0.90, ROAA of 1.46%

FB Financial Corporation (the “Company”) (NYSE: FBK), parent company of FirstBank, reported net income of $43.3 million, or $0.90 per diluted common share, compared to $0.70 per diluted common share in the same quarter last year and $1.10 in the previous quarter. Excluding non-operating activity, adjusted net income was $42.3 million, or $0.88 per diluted common share, compared to $0.74 per diluted common share in the same quarter last year and $1.12 in the previous quarter. The Company's return on average assets for the second quarter was 1.46% (1.43% adjusted) and return on tangible common equity was 16.1% (15.8% adjusted). The Company recorded growth in loans held for investment ("HFI") of $151.6 million in the second quarter, or 8.63% annualized. Excluding Paycheck Protection Program ("PPP") loans, the Company recorded HFI loan growth of $239.9 million, or 13.9% annualized. The Company recorded total reversals of loan loss provisions amounting to $13.8 million, bringing the allowance for credit losses ("ACL") to 2.01% of HFI loans, or 2.03% adjusted, to remove PPP loans.

For the six months ended June 30, 2021, the Company reported net income of $96.2 million, or $2.00 per diluted common share, compared to $23.6 million, or $0.74 per diluted common share, for the same period in 2020. Adjusting for non-operating items, EPS was $2.00 and $0.92 for the first six months of 2021 and 2020, respectively. The Company’s book value per common share at quarter-end was $28.96 and the tangible book value ("TBV") per common share was $23.43, representing a 16.4% annualized increase in TBV from the previous quarter-end.

President and Chief Executive Officer, Christopher T. Holmes stated, “The team delivered an outstanding quarter of loan growth and also lowered deposit costs by 10 bps during the quarter. These efforts contributed to net interest income growth of 4.83% quarter over quarter, or 19.4% annualized. We also added value for our shareholders by increasing our tangible book value per share at an annualized rate of 15.8%, during the first half of the year.”

Performance Summary

Balance Sheet Strength

The Company reported loan balances (HFI) of $7.20 billion, an increase of $151.6 million, or 8.63% annualized, from March 31, 2021. Excluding PPP loans, adjusted loans (HFI) were $7.14 billion, representing an increase of $239.9 million, or 13.9% annualized, on a linked quarter basis. The contractual yield on loans decreased to 4.31% in the second quarter of 2021 from 4.39% in the first quarter of 2021.

Additionally, during the quarter, on balance sheet liquidity decreased to $2.13 billion, or 18.3% of tangible assets, from $2.26 billion, or 19.3% of tangible assets. During the second quarter of 2021, investment securities increased by $179.3 million from the previous quarter to $1.41 billion, or 11.8% of total assets.

The Company's net interest income on a tax-equivalent basis for the second quarter of 2021 was $87.3 million, an increase from $83.4 million in the previous quarter. The Company's net interest margin (“NIM”) was 3.18% for the second quarter, compared to 3.19% for the first quarter of 2021. The NIM for the second quarter of 2021 was impacted by a 13 basis point decline in the yield on interest-earning assets and a 16 basis point decline in the cost of interest-bearing liabilities on a linked quarter basis. As of June 30, 2021, $256.3 million in PPP loans had been forgiven, which accounts for 81.4% of originated PPP loans. For the second quarter of 2021, the average yield on PPP loans was 4.74%, inclusive of $1.1 million in loan fees recognized during the quarter.

During the second quarter of 2021, customer deposits decreased by $56.1 million to $10.16 billion. The Company's total cost of deposits declined by 10 basis points to 0.31% and the cost of interest-bearing deposits decreased to 0.41% from 0.53% in the previous quarter. Additionally, on July 1, 2021, the Company redeemed $20.0 million of subordinated debt with an effective interest rate of 4.73%.

Commercial Loans Held for Sale (HFS)

As of June 30, 2021, the fair value of commercial loans HFS totaled $124.1 million, a decrease from $175.0 million at March 31, 2021. The decline in fair value resulted primarily from the resolution of five relationships and payment activity on the remaining ten relationships, which resulted in gains from changes in fair value of $1.4 million in the second quarter of 2021 compared to a loss of $0.9 million experienced in the first quarter of 2021.

Chief Financial Officer Michael Mettee stated, “We continue to lower our commercial loans HFS exposure. These loans continue to perform satisfactorily, and we experienced a positive mark-to-market on the portfolio this quarter. As we have discussed in prior quarters, this portfolio continues to decrease as a result of external refinances and 62% of the commercial HFS loan balances resulting from the Franklin combination have been resolved.”

Mortgage In Line with Expectations

Noninterest income was $49.3 million for the second quarter of 2021, compared to $66.7 million for the first quarter of 2021 and $81.5 million for the second quarter of 2020. Mortgage banking income was $35.5 million for the second quarter of 2021, compared to $55.3 million for the first quarter of 2021 and $72.2 million for the second quarter of 2020.

The Company's total mortgage banking pre-tax direct contribution for the second quarter of 2021 was $0.5 million, compared to $16.3 million for the first quarter of 2021 and $33.6 million for the second quarter of 2020. Interest rate lock commitment volume totaled $1.77 billion in the second quarter of 2021 compared to $1.89 billion in the first quarter of 2021 and $2.24 billion in the second quarter of 2020.

Mettee noted, “The mortgage business performed as we expected in the second quarter, with the decrease from the prior quarter related to lower lock volumes and declining margins.”

Expense Management

Noninterest expenses were $93.0 million for the second quarter of 2021, compared to $94.7 million for the first quarter of 2021 and $80.6 million for the second quarter of 2020. Core noninterest expense was $93.1 million for the second quarter of 2021, $94.7 million for the first quarter of 2021, and $79.0 million for the second quarter of 2020.

During the second quarter of 2021, the Company's core efficiency ratio was 68.9%, compared to 63.0% in the first quarter of 2021 and 57.5% for the second quarter of 2020. The Banking segment was flat with the previous quarter with a core efficiency ratio of 58.6% while the Mortgage segment efficiency ratio increased to 97.9% for the second quarter of 2021 from 70.4% in the previous quarter.

Mettee noted, “We continue to manage our expense structure as we invest in our teams to support our customer centric model, our growth expectations and our risk management framework.”

Credit Strength

The Company recorded total reversals in provisions for credit losses of $13.8 million in the second quarter of 2021, including a reversal of provision for credit losses on unfunded commitments of $1.0 million. The Company continues to maintain a strong balance sheet with an ACL of $144.7 million as of June 30, 2021, representing 2.01% of loans HFI, or 2.03% when adjusted to exclude PPP loans. This compares to an ACL percentage of 2.24% of loans HFI, or 2.29% when adjusted to exclude PPP loans as of the prior quarter-end.

The Company's net charge-offs to average loans was 0.02% for the second quarter of 2021 compared to net charge-offs to average loans of 0.05% in the first quarter of 2021. The Company's nonperforming assets decreased to 0.66% of total assets as of June 30, 2021, compared to 0.77% at March 31, 2021. Nonperforming loans were 0.83% of loans HFI at June 30, 2021, compared to 0.94% at March 31, 2021. Deferrals resulting from the COVID-19 pandemic decreased to $73.9 million, or 1.03% of loans HFI, as of June 30, 2021, compared to the aggregate balance deferred during the crisis of $1.64 billion. Of the $73.9 million in remaining deferrals, $25.1 million, or 0.35% of loans HFI, as of June 30, 2021, are receiving a full deferral of principal and interest, while $48.8 million, or 0.68% of loans HFI, as of June 30, 2021, are making interest payments and deferring principal payments.

Holmes commented, “Credit quality remains strong, and our local economies continue to prosper, resulting in a release from our ACL in the second quarter. I would expect to see future releases from our ACL in the coming quarters if these trends continue.”

Capital Strength

“We remain in a position of strength with total capital to risk weighted assets of 14.9% and tangible common equity to tangible assets of 9.52%. The Company is well positioned to deploy capital as opportunities arise,” commented Holmes.

Summary

Holmes further commented, “The second quarter of 2021 highlighted our organic growth capability and our team's focus on execution coming out of the pandemic and the combination with Franklin. The Company remains steadfast in its commitment to customers, associates and shareholders and looks forward to the opportunities ahead.”

WEBCAST AND CONFERENCE CALL INFORMATION

FB Financial Corporation will host a conference call to discuss the Company's financial results at 8:00 a.m. CT on July 20, 2021, and the conference call will be broadcast live over the Internet at https://services.choruscall.com/mediaframe/webcast.html?webcastid=K9kfsusM. An online replay will be available approximately an hour following the conclusion of the live broadcast.

ABOUT FB FINANCIAL CORPORATION

FB Financial Corporation (NYSE: FBK) is a financial holding company headquartered in Nashville, Tennessee. FB Financial Corporation operates through its wholly owned banking subsidiary, FirstBank, the third largest Tennessee-headquartered community bank, with 81 full-service bank branches across Tennessee, Kentucky, Alabama and North Georgia, and mortgage offices across the Southeast. FirstBank serves five of the largest metropolitan markets in Tennessee and has approximately $11.9 billion in total assets.

SUPPLEMENTAL FINANCIAL INFORMATION AND EARNINGS PRESENTATION

Investors are encouraged to review this Earnings Release in conjunction with the Supplemental Financial Information and Earnings Presentation posted on the Company’s website, which can be found at https://investors.firstbankonline.com. This Earnings Release, the Supplemental Financial Information and the Earnings Presentation are also included with a Current Report on Form 8-K that the Company furnished to the U.S. Securities and Exchange Commission (“SEC”) on July 19, 2021.

BUSINESS SEGMENT RESULTS

The Company has included its business segment financial tables as part of this Earnings Release. A detailed discussion of our historical business segments is included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2020. Further discussion on the revisions to segment reporting made in the first quarter of 2021 is included in the Company's 10-Q filed with the SEC for the period ended March 31, 2021, and investors are encouraged to review that discussion in conjunction with this Earnings Release.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this press release that are not historical in nature may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding the projected impact of the COVID-19 global pandemic on our business operations, statements relating to the benefits, costs, and synergies of the merger with Franklin Financial Network, Inc. (“Franklin”) (the “merger”), and FB Financial’s future plans, results, strategies, and expectations. These statements can generally be identified by the use of the words and phrases “may,” “will,” “should,” “could,” “would,” “goal,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target,” “aim,” “predict,” “continue,” “seek,” “projection,” and other variations of such words and phrases and similar expressions. These forward-looking statements are not historical facts, and are based upon management's current expectations, estimates, and projections, many of which, by their nature, are inherently uncertain and beyond FB Financial’s control. The inclusion of these forward-looking statements should not be regarded as a representation by FB Financial or any other person that such expectations, estimates, and projections will be achieved. Accordingly, FB Financial cautions shareholders and investors that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, and uncertainties that are difficult to predict. Actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. A number of factors could cause actual results to differ materially from those contemplated by the forward-looking statements including, without limitation, (1) current and future economic conditions, including the effects of inflation, interest rate fluctuations, changes in the economy or supply-demand imbalances affecting local real estate prices, and high unemployment rates in the local or regional economies in which we operate and/or the US economy generally, (2) the effects of the COVID-19 pandemic, including the magnitude and duration of the pandemic and its impact on general economic and financial market conditions and on our business and our customers' business, results of operations, asset quality and financial condition, as well as the efficacy, distribution, and public adoption of vaccines, (3) changes in government interest rate policies and its impact on our business, net interest margin, and mortgage operations, (4) our ability to effectively manage problem credits, (5) the risk that the cost savings and any revenue synergies from the merger or another acquisition may not be realized or may take longer than anticipated to be realized, (6) the ability of FB Financial to effectively integrate and manage the larger and more complex operations of the combined company following the merger, (7) FB Financial’s ability to successfully execute its various business strategies, (8) the impact of the recent change in the U.S. presidential administration and Congress and any resulting impact on economic policy, capital markets, federal regulation, and the response to the COVID-19 pandemic, (9) the potential impact of the proposed phase-out of the London Interbank Offered Rate ("LIBOR") or other changes involving LIBOR, (10) the effectiveness of our cyber security controls and procedures to prevent and mitigate attempted intrusions, (11) the Company's dependence on information technology systems of third party service providers and the risk of systems failures, interruptions, or breaches of security, and (12) general competitive, economic, political, and market conditions. Further information regarding FB Financial and factors which could affect the forward-looking statements contained herein can be found in FB Financial's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and in any of FB Financial's subsequent filings with the Securities and Exchange Commission (the “SEC”). Many of these factors are beyond FB Financial’s ability to control or predict. If one or more events related to these or other risks or uncertainties materialize, or if the underlying assumptions prove to be incorrect, actual results may differ materially from the forward-looking statements. Accordingly, shareholders and investors should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date of this release, and FB Financial undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to time, and it is not possible for FB Financial to predict their occurrence or how they will affect the company.

FB Financial qualifies all forward-looking statements by these cautionary statements.

GAAP RECONCILIATION AND USE OF NON-GAAP FINANCIAL MEASURES

This Earnings Release contains certain financial measures that are not measures recognized under U.S. generally accepted accounting principles (“GAAP”) and therefore are considered non-GAAP financial measures. These non-GAAP financial measures include, without limitation, adjusted earnings, adjusted diluted earnings per share, adjusted and unadjusted pre-tax pre-provision earnings, core revenue, core noninterest expense and core noninterest income, core efficiency ratio (tax equivalent basis), Banking segment core efficiency ratio (tax equivalent basis), Mortgage segment core efficiency ratio (tax equivalent basis), adjusted mortgage contribution, adjusted return on average tangible common equity, adjusted pre-tax pre-provision return on average tangible common equity, adjusted return on average assets and equity, and adjusted pre-tax pre-provision return on average assets and equity. Each of these non-GAAP metrics excludes certain income and expense items that the Company’s management considers to be non-core/adjusted in nature. The Company also includes an adjusted allowance for credit losses, adjusted loans held for investment, and adjusted allowance for credit losses to loans held for investment, which all exclude the impact of PPP loans. The Company refers to these non-GAAP measures as adjusted measures. Also, the Company presents tangible assets, tangible common equity, tangible book value per common share, tangible common equity to tangible assets, return on average tangible common equity and adjusted return on average tangible common equity. Each of these non-GAAP metrics excludes the impact of goodwill and other intangibles.

The Company’s management uses these non-GAAP financial measures in their analysis of the Company’s performance, financial condition and the efficiency of its operations as management believes such measures facilitate period-to-period comparisons and provide meaningful indications of its operating performance as they eliminate both gains and charges that management views as non-recurring or not indicative of operating performance. Management believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrate the effects of significant non-core gains and charges in the current and prior periods. The Company’s management also believes that investors find these non-GAAP financial measures useful as they assist investors in understanding the Company’s underlying operating performance and in the analysis of ongoing operating trends. In addition, because intangible assets such as goodwill and other intangibles, and the other items excluded each vary extensively from company to company, the Company believes that the presentation of this information allows investors to more easily compare the Company’s results to the results of other companies. However, the non-GAAP financial measures discussed herein should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which the Company calculates the non-GAAP financial measures discussed herein may differ from that of other companies reporting measures with similar names. Investors should understand how such other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial measures the Company has discussed herein when comparing such non-GAAP financial measures. See the “Use of non-GAAP Financial Measures” and the corresponding non-GAAP reconciliation tables in the Supplemental Financial Information as well as “Use of non-GAAP Financial Measures” and the Appendix in the Earnings Release Presentation dated July 20, 2021, for additional discussion and reconciliation of these measures to the most directly comparable GAAP financial measures.

FBK - ER

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