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FB Financial Corp (FBK) Q1 2024 Earnings Call Transcript Highlights: Steady Growth Amidst ...

  • EPS: Reported at $0.59; adjusted EPS at $0.85.

  • Tangible Book Value Per Share Growth: Compound annual growth rate of 13.5% since IPO, excluding AOCI impact.

  • Adjusted Return on Average Assets: 1.27%.

  • Adjusted PPNR Return on Average Assets: 1.63%.

  • Adjusted EPS Growth: Increased by 10% from Q4 2023 and 12% from the same quarter last year.

  • Capital Ratios: Tangible common equity to tangible assets ratio at 10%; total risk-based capital ratio at 15%.

  • Loan Portfolio Concentrations: Construction and development at 83%, CRE at 255% of risk-based capital.

  • Core Efficiency Ratio Improvement: Over 500 basis points from the same quarter last year.

  • Net Interest Margin: Steady at 3.42%.

  • Mortgage Pre-Tax Contribution: $3.1 million.

  • Banking Segment Fee Income: $11 million.

  • Core Non-Interest Expense: Down 3.3% from Q4 2023 and over 10% year-over-year.

  • Adjusted Pre-Provision Net Revenue Growth: 12.8% compared to Q4 2023.

  • Loan Balance Contraction: $120 million during the quarter.

  • Stock Repurchase: Approximately $4.8 million worth of stock purchased in the current quarter.

  • Net Interest Income: $99.5 million.

  • Core Non-Interest Income: $23.6 million, with $11 million from banking.

  • Core Non-Interest Expense: $71.9 million, with $59.8 million from banking.

  • Adjusted Pre-Provision Net Revenue Earnings: $51.2 million; banking segment at $48.2 million.

  • Securities Portfolio Restructuring: Sold $208 million of securities, reinvested at a higher yield, estimated pre-tax income impact of just under $8 million.

  • Allowance for Credit Losses: ACL to loans held for investment at 1.63%.

  • Provision Expense: $782,000.

  • Capital Ratios: Common equity tier 1 ratio over 12.5%.

Release Date: April 16, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • FB Financial reported EPS of $0.59 and adjusted EPS of $0.85, showing strong progress towards peer-leading financial performance.

  • The company has grown its tangible book value per share at a compound annual growth rate of 13.5% since its IPO.

  • FB Financial's adjusted return on average assets was 1.27%, and adjusted PPNR return on average assets was 1.63%, with adjusted earnings per share growing by 10% relative to the fourth quarter of 2023 and 12% relative to the year-ago quarter.

  • The bank's capital ratios continue to improve, with a tangible common equity to tangible assets ratio of 10% and a total risk-based capital ratio of 15%.

  • FB Financial's core efficiency ratio improved by over 500 basis points from the first quarter of last year, indicating operational performance and cohesiveness across the team.

Negative Points

  • FB Financial experienced a $120 million contraction in loan balances during the quarter, driven by a decline in construction lending and a significant payoff from an SNC relationship.

  • The net interest margin was steady but showed a slight decrease to 3.42% versus last quarter's 3.46%.

  • Organic loan growth was missing from this quarter's performance, with only slight growth on the remainder of the portfolio around 2% annualized.

  • The bank's construction and development concentration is at 83% and CRE concentration at 255%, both as a percent of risk-based capital, which may indicate a need to moderate these concentrations.

  • FB Financial's mortgage segment, while solid, is subject to seasonal activity and interest rate environment fluctuations, with expectations of quarterly contributions in the $1 million to $2 million range.

Q & A Highlights

Q: Hey, good morning, guys. Just want to clarify on the NIM guidance. Are you expecting that to remain flat, even including that securities restructure impact? A: (Christopher Holmes - FB Financial Corp - President, Chief Executive Officer, Director) Yeah. I mean Feddie, we think it's going to stay in that same range. I mean, you have a little bit of public funds coming in, which is a little bit of an offset, but that's 3.40%, 3.45% range.

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Q: Got it. And also on the funding side, I know there was a jump in other borrowings linked quarter, did you guys tap bank term funding before it closed or was that something else? A: (Christopher Holmes - FB Financial Corp - President, Chief Executive Officer, Director) Yeah, we actually did that on the last couple days of 2023. So you didn't see it in your -- in the average balances for the fourth quarter. But that's actually with that $130 million-ish for the first quarter. And yes, it was done before it was capped.

Q: Got it. Just one last question for me, and I'll step back. I know there's been some weakness in equipment finance, particularly over-the-road trucking at some of your peers. Am I correct in assuming you have some of that in your trucking equipment finance, maybe in that transportation segment that you break out in the deck, can you speak to whether you're seeing any weakness there? A: (Christopher Holmes - FB Financial Corp - President, Chief Executive Officer, Director) Yes. And I will -- Travis, I'm going to let you comment on -- make a comment. And then we do have two, three trucking companies that are sizable but long-established companies -- let's say, privately owned companies -- and no is frankly the answer. We haven't seen weaknesses in those clients. We don't do any just long-term equipment leasing or we don't do equipment leasing in that space, but we do have some trucking clients. (Travis Edmondson - FB Financial Corp - Chief Banking Officer) Yeah, that's correct, Chris. I mean, we have some well-established clients that we've been through several cycles with them. The trucking industry is obviously one that is up and down. But here recently with our trucking clients, we talked actually about this earlier this year. Very good reports from them, and we see no issues.

Q: Hey, guys, good morning. I wanted to start with the loan growth guidance of mid-single digit this year. And it's obviously for '25, it's low double digit. Can you guys talk about how much more you expect the construction portfolio to come in here? And then, if you're going to have mid-single digit growth in construction abatement, does that mean that loan growth this year could also be on a core basis, closer to your low double-digit number? A: (Christopher Holmes - FB Financial Corp - President, Chief Executive Officer, Director) Yes so first off on the concentration, we're at 83% of risk-based capital, and we really would make a good spot for us to operate is probably 75% to 85%, something like that. Sometimes -- and I would support that this way, sometimes you could see maybe, especially even in this environment, things going lower, than some may want to go lower than that. If you look at our geography -- you know, you actually live in our geography, so you know it well. And the number of long-term clients that we have and the -- in-migration that continues in our geography, we feel pretty good at that level. Same way on the just commercial real estate concentration. We think that 250% is a pretty fair and risk thoughtful rate concentration level for us and so that's where we -- those are targeted, will be plus or minus on those, but that's the places that we target. Does that answer your question, Brett?

Q: Yeah, to some extent that's helpful. If I'm thinking about loan demand, I think we talked about it, maybe some folks are waiting for rates, what have you, and so a lot of folks are saying demand is not as strong as maybe it might end up. Are you expecting demand to pick up that drives loan growth from here? What are you expecting in terms of loan demand and you guys being selective? I saw we get -- we're going to get a new highest tower downtown with a big new project. A: (Christopher Holmes - FB Financial Corp - President, Chief Executive Officer, Director) Yeah, we're not on that one, just for the record. And so, yes, demand is softer. I'd say generally across the board it's softer. It hasn't evaporated, but it's softer. And so when we look out and we go mid-single digits for the year. There's a little bit of hope in that, I guess is the way I would put it because we do see softer demand. But again, I'm repeating myself here, but we still do see some demand. And it comes from all parts of our footprint, not just Middle Tennessee, but we're seeing it in North Georgia, we're seeing it in Alabama, we're seeing it in East Tennessee. So we're seeing it in all those places. We have a steady flow from West Tennessee, which is a legacy footprint. And so that's a flat at this point. Travis, would you add any color on that? (Travis Edmondson - FB Financial Corp - Chief Banking Officer) Yeah. I mean, I think that demand has softened compared to 2022-ish, when everybody was growing gangbusters. We still see a lot of opportunities, but we've continued to be disciplined in going after relationships and not transactions. And so that's part of it as well. And we will continue to do that. We will have some more runoff on ADC, but we're getting to the point now on ADC and CRE where we'll start replacing it with more relationships. So we just hope that the contrary from that is not as significant, as it has been the last few quarters.

Q: Okay. That's helpful. And then my other question, Michael, was just around the loan fees and the change there. How much did that dollar-wise or margin impact the quarter relative to 4Q? A: (Michael Mettee - FB Financial Corp - Chief Financial Officer) Yeah, it's a good question Brett. It's about $2 million. But it's offset a little bit in the expense side. So it's a net neutral to the P&L. And it's just part of a normal process is -- you look through your cost originate, your loan durations. And so we modified some of our amortization and so that pushes some of the fee recognition

This article first appeared on GuruFocus.