Clayton Banks acquisition accretive to EPS and TBVPS, driving record revenues

Reported diluted EPS of $0.27; Core diluted EPS of $0.60, up 22% on a linked-quarter basis

NASHVILLE, Tenn.--(BUSINESS WIRE)-- FB Financial Corporation (“FB Financial”) (NYSE: FBK), parent company of FirstBank, reported its results today for the third quarter of 2017. Effective July 31, 2017, the Company completed its merger with Clayton Bank and Trust in Knoxville, Tennessee and American City Bank in Tullahoma, Tennessee (collectively, the “Clayton Banks”). Accordingly, the third quarter results of the Company include the Clayton Banks results since July 31, 2017.

For the quarter ended September 30, 2017, the Company reported net income of $8.4 million, or $0.27 per diluted common share. Core net income was $18.5 million, or $0.60 per diluted common share, excluding merger-related charges and other items discussed below, for the third quarter of 2017, up $0.11 per share, or a 22.4% increase on a linked-quarter basis.

President and CEO Christopher T. Holmes stated, “This quarter was very exciting for the Company as we celebrated the one year anniversary of our Initial Public Offering and the completion of our acquisition of the Clayton Banks. Our results for the quarter were highlighted by record loans, deposits and revenues driving a 22% linked-quarter increase in core diluted EPS to $0.60 per diluted share. We also welcomed over 200 new associates to the team along with many valued customers. Our team looks forward to successfully integrating the operating systems by the end of the year.”

Third Quarter Key Highlights

• Return on average assets (ROAA) of 0.80% and core ROAA of 1.76%
• Loans held for investment (HFI) grew to a record $3.11 billion, up 73.7% over September 30, 2016
• Total deposits grew to a record $3.72 billion, up 40.8% over September 30, 2016
• Record total revenues of $81.4 million, up 23.2% from the second quarter of 2017
• Net interest margin (NIM)(tax-equivalent basis) rose to 4.61% in the third quarter of 2017, up from 4.19% in the second quarter of 2017; NIM was 4.33%, excluding accretion and collection of nonaccrual interest
• Consolidated efficiency ratio was 85.0% and core efficiency ratio was 64.4%
• Reverse loan loss provision of $0.8 million driven by net recoveries of $1.0 million

Financial Summary

During the third quarter of 2017 and 2016, as adjusted for in the preceding table, the Company recorded certain items impacting comparability between periods, as follows:

• $15.7 million pre-tax merger-related charges associated with the merger with the Clayton Banks in the third quarter of 2017 compared to $1.1 million pre-tax merger-related charges for the third quarter of 2016;
• $0.9 million net pre-tax charge related to the decrease in the fair value of mortgage servicing rights (MSRs), net of hedging gains, during the third quarter of 2017. MSR impairment resulted in a net pre-tax charge of $2.4 million for the third quarter of 2016; and
• $60 thousand net pre-tax losses on other real estate owned, other assets, and investments compared to a $2.1 million net pre-tax gains in the third quarter of 2016.

Holmes continued, “We are very pleased with our results for the quarter and year-to-date. We continue to execute our operating strategy which is geared toward relentlessly delivering solutions for our customers and focusing on creating shareholder value. We believe the combination with the Clayton Banks will enhance our ability to deliver strong financial performance.”

Key Highlights for Clayton Banks Merger

Customer-Focused Balance Sheet Growth Drives Interest Income and NIM

Excluding the Clayton Banks’ $1.06 billion in net loans held for investment as of the acquisition date, loans held for investment increased $260.7 million, or 14.5%, from September 30, 2016 and $83.1 million, or 16.7% annualized, from June 30, 2017. Yields on loans held for investment were 5.90% for the third quarter of 2017 compared to 5.19% on a linked-quarter basis. Accretion and collection of nonaccrual interest contributed a total of 39 basis points to this quarter’s loan yield.

Excluding the Clayton Banks’ $854.8 million in customer deposits as of the acquisition date from the Clayton Banks, customer deposits increased $120.9 million from September 30, 2016 and $33.3 million, or 4.8% annualized, from June 30, 2017. Noninterest-bearing deposit balances were 24.9% of total deposits at September 30, 2017, compared to 27.5% at September 30, 2016, and 26.2% at June 30, 2017. Cost of total deposits was 0.46% for the third quarter of 2017, compared to 0.34% for the second quarter of 2017 and 0.30% for the third quarter of 2016, reflecting the merger and rising interest rates.

Loans held for sale, generated by our mortgage operations, was $466.4 million at September 30, 2017, compared to $427.4 million at June 30, 2017, and $486.6 million at September 30, 2016. Our total loan-to-deposit ratio was 96.3% at September 30, 2017, compared to 86.4% at September 30, 2016.

Our NIM was 4.61% for the third quarter of 2017, compared to 4.19% and 4.05% for the second quarter of 2017 and third quarter of 2016, respectively, reflecting additional accretion, collection of nonaccrual interest, higher loan fees and the impact of the merger. Excluding accretion related to acquired loans and nonaccrual interest collections, our NIM was 4.33% compared to 4.03% and 3.88% for the second quarter of 2017 and third quarter of 2016, respectively. Net interest income was $43.6 million for the third quarter of 2017, compared to $30.4 million for the second quarter of 2017 and $27.6 million for the third quarter of 2016.

“We are pleased with our organic loan growth, together with our strong customer deposit base, which continues to drive our customer-focused balance sheet. Our banking teams delivered excellent results this quarter, and have demonstrated again their ability to consistently perform at a high level. The Clayton Banks merger has further strengthened an already strong NIM, adding to our solid foundation and enabling consistent future profitability,” Holmes said.

Noninterest Income Continues Strength and Stability

Noninterest income was $37.8 million for the third quarter of 2017, compared to $35.7 million for the second quarter of 2017 and $44.0 million for the third quarter of 2016.

Mortgage banking revenues were $31.3 million for the third quarter of 2017 and $30.2 million for the second quarter of 2017, compared to $36.9 million for the third quarter of 2016. Net gains from mortgage sales were $29.6 million for the third quarter of 2017, compared to $25.5 million for the same period in 2016. Mortgage loan sales totaled $1.64 billion and $1.17 billion for the third quarter of 2017 and third quarter of 2016, respectively. Mortgage interest rate lock commitment (IRLC) volume rose 10.0% to $2.00 billion during the third quarter, compared to $1.82 billion in the same period in 2016. Our mortgage loan IRLC pipeline decreased from $546.5 million at June 30, 2017, to $540.7 million at September 30, 2017. Mortgage servicing revenue was $3.5 million for the third quarter of 2017, compared to $3.7 million for the same period in 2016 and $2.7 million for the second quarter of 2017.

Holmes commented, “Our mortgage team has been outstanding, continuing to deliver strong results in 2017 despite a challenging market environment and rising interest rates. They have executed their plan and have successfully scaled our correspondent channel, delivering stable year-over-year contribution for the Company.”

Noninterest Expenses Remain In-Line: Merger Increases Operating Leverage

Noninterest expense was $69.2 million for the third quarter of 2017, compared to $49.1 million for the second quarter of 2017 and $55.5 million for the third quarter of 2016. Excluding the merger-related charges and other items discussed above, core noninterest expense was $53.5 million for the third quarter of 2017, compared to $48.1 million for the second quarter of 2017 and $48.8 million for the third quarter of 2016. The primary driver of the increase in core noninterest expense was the impact of the merger.

Our efficiency ratio was 85.0% for the third quarter of 2017, compared to 77.6% for the third quarter of 2016. Our core efficiency ratio, which excludes the merger-related charges and other items previously discussed above, was 64.4% for the third quarter of 2017, compared to 69.7% for the third quarter of 2016. Our Banking Segment core efficiency ratio was 56.2% for the third quarter of 2017, compared to 65.2% for the third quarter of 2016, while our Mortgage Segment core efficiency ratio was 79.9% and 76.3%, respectively, for the same periods. See “GAAP Reconciliation and Use of Non-GAAP Financial Measures.”

“The merger with the Clayton Banks accelerated our ability to drive operating leverage for the Company as the realization of additional synergies continues. Heading into 2018, we believe our Consolidated and Banking segment efficiency will continue to improve as we realize the full benefit of the Clayton Banks synergies by early 2018,” commented James R. Gordon, Chief Financial Officer.

Strong Asset Quality

The allowance for loan losses equaled 0.75% of loans HFI at September 30, 2017 (or 1.12%, excluding acquired loans of $1.01 billion as of September 30, 2017), compared to 1.18% at June 30, 2017, and 1.30% at September 30, 2016. Net recoveries were $1.0 million, or 0.15% of average loans HFI for the quarter and total $3.64 million, or 0.25% of average loans HFI year-to-date.

The provision for loan losses was a reversal of $0.8 million for the third quarter of 2017 compared to reversal of $0.9 million and provision of $0.1 million for the second quarter of 2017 and the third quarter of 2016, respectively, driven by net recoveries realized through the first nine months of 2017.

Nonperforming assets increased to $40.3 million, or 0.88% of total assets, at September 30, 2017, from $21.6 million, or 0.68%, at September 30, 2016, driven by the merger, including $3.6 million of acquired facilities held for sale, as well as $13.6 million GNMA related guaranteed loans that we have the ability, not intent, to repurchase.

Capital Strength for Future Growth

The Company ended the quarter with a shareholders’ equity to assets ratio and a tangible common equity to tangible assets ratio of 12.50% and 9.50%, respectively, and a book value per common share and tangible book value per common share of $18.76 and $13.79, respectively. This compares to 10.33% and 8.84% and $13.73 and $11.56, respectively, at September 30, 2016. Our common equity tier one ratio was to 10.83% at September 30, 2017, from 11.16% at September 30, 2016. See “GAAP Reconciliation and Use of Non-GAAP Financial Measures.”

“Our capital ratios remain strong and provide a solid base from which we can continue our strategic growth. The Clayton Banks merger resulted in tangible book value accretion from our previous estimation for slight dilution,” commented Gordon.

Summary

“Again, we are pleased with our results, but more importantly we are excited about our future as we continue to grow organically and through strategic acquisitions, as well as delivering on revenue and expense synergies from our recently completed merger,” Holmes concluded.

WEBCAST AND CONFERENCE CALL INFORMATION

The live broadcast of FB Financial Corporation’s conference call will begin at 8:00 a.m. CDT on Tuesday, October 24, 2017, and the earnings conference call will be broadcast live over the Internet at http://services.choruscall.com/links/fbk170725AWsp51Nq.html. An online replay will be available for twelve months approximately an hour following the conclusion of the live broadcast.

ABOUT FB FINANCIAL CORPORATION

FB Financial Corporation (NYSE: FBK) is a bank holding company headquartered in Nashville, Tennessee. FB Financial operates through its wholly owned banking subsidiary, FirstBank, the third largest Tennessee-headquartered community bank, with 63 full-service bank branches across Tennessee, North Alabama and North Georgia, and a national mortgage business with offices across the Southeast. FirstBank serves five of the largest metropolitan markets in Tennessee and has approximately $4.6 billion in total assets.

SUPPLEMENTARY FINANCIAL INFORMATION AND EARNINGS PRESENTATION

Investors are encouraged to review this Earnings Release in conjunction with the Supplementary Financial Data and Earnings Presentation posted on the Company’s website, which can be found at https://investors.firstbankonline.com. This Earnings Release and the Supplementary Financial Data and 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 October 23, 2017.

BUSINESS SEGMENT RESULTS

The Company has included its business segment financial tables as part of this release. A detailed discussion of the business segment results is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, and investors are encouraged to review that discussion in conjunction with this Earnings Release.

FORWARD-LOOKING STATEMENTS

This news release contains “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. You can identify these forward-looking statements through the Company’s use of words such as “believes,” “anticipates,” “expects,” “may,” “will,” “assumes,” “should,” “predicts,” “could,” “would,” “intends,” “targets,” “estimates,” “projects,” “plans,” “potential” and other similar words and expressions of the future or otherwise regarding the outlook for the Company’s future business and financial performance and/or the performance of the banking and mortgage industry and economy in general and the Company’s acquisition of the Clayton Banks and the benefits, cost, and financial impact thereof. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve known and unknown risks and uncertainties which may cause the actual results, performance or achievements of the Company to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements.

Forward-looking statements are based on the information known to, and current beliefs and expectations of, the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by such forward-looking statements. A number of factors could cause actual results to differ materially from those contemplated by the forward-looking statements in this Earnings Release including, without limitation, the risks and other factors set forth in the Company’s December 31, 2016 Form 10-K, filed with the SEC on March 31, 2017 under the captions “Cautionary note regarding forward-looking statements” and “Risk factors.” Many of these factors are beyond the Company’s ability to control or predict. The Company believes the forward-looking statements contained herein are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations and speak only as of the date that they are made. The Company does not assume any obligation to update any forward-looking statements as a result of new information, future developments or otherwise, except as otherwise may be required by law.

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, pro forma core net income, pro forma core income tax expense, pro forma core diluted earnings per share, 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), pro forma core return on average assets and equity and pro forma core total revenue. Each of these non-GAAP metrics excludes certain income and expense items that the Company’s management considers to be non‐core in nature. The Company refers to these non‐GAAP measures as core measures. This Earnings Release also presents tangible assets, tangible common equity, tangible book value per common share, tangible common equity to tangible assets, return on average tangible common equity, pro forma return on average tangible common equity and pro forma core 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 demonstrating 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 our 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 we calculate the non-GAAP financial measures discussed herein may differ from that of other companies reporting measures with similar names. You should understand how such other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial measures we have discussed herein when comparing such non-GAAP financial measures. The following tables provide a reconciliation of these measures to the most directly comparable GAAP financial measures.

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FB Financial Corporation
Media Contact:
Jeanie M. Rittenberry, 615-313-8328
jrittenberry@firstbankonline.com
www.firstbankonline.com
or
Financial Contact:
James R. Gordon, 615-564-1212
jgordon@firstbankonline.com
investorrelations@firstbankonline.com

Source: FB Financial Corporation