Release Date: July 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- FB Financial Corp (FBK, Financial) reported an EPS of $0.85 and adjusted EPS of $0.84 for the quarter.
- The company has grown its tangible book value per share at a compound annual growth rate of 13.4% since its IPO.
- Adjusted return on average assets was 1.28%, and adjusted PPNR return on average assets was 1.7%.
- Net interest income grew by 3% from the prior quarter, with a margin expansion of 15 basis points to 3.57%.
- FB Financial Corp (FBK) has strong capital ratios, with a tangible common equity to tangible assets ratio of 10.2%, CET 1 ratio of 12.7%, and a total risk-based capital ratio of 15.1%.
Negative Points
- Net loan and deposit growth were flat for the quarter, with expectations of only muted growth in the low to mid-single digits for the second half of the year.
- The company experienced a decline in construction and development (C&D) and commercial real estate (CRE) concentrations.
- FB Financial Corp (FBK) had to add a $5 million specific reserve for a C&I credit, indicating some credit quality concerns.
- The cost of interest-bearing deposits increased slightly, which may pressure margins if interest rates rise further.
- Public funds exposure remains a concern, with a significant portion of these funds being rate-sensitive and potentially volatile.
Q & A Highlights
Q: Can you discuss the net versus gross trends in deposits, particularly regarding the three depositor relationships mentioned in the press release?
A: The three relationships accounted for $225 million of $250 million. One company was acquired, but the other two remain relationships. There was no reclassification; some funds moved to interest checking from money market for better transactional basis. (Michael Mettee, CFO)
Q: What's your strategy for deposit costs and margin guidance for the second half of the year?
A: We are cautious about paying high rates for term deposits and prefer wholesale funding if necessary. We expect the margin to hold or slightly decrease as we aim for growth, even if it costs some margin. (Christopher Holmes, CEO; Michael Mettee, CFO)
Q: How do you plan to deploy excess capital, considering stock buybacks and potential M&A opportunities?
A: We have the approval for buybacks but are cautious about diluting tangible book value. We are prepared for opportunistic acquisitions, focusing on attractive balance sheets and cultural fits. (Christopher Holmes, CEO)
Q: Can you elaborate on the public funds and their impact on your deposit base?
A: Public funds are a significant part of our deposit base, with 97% of customers having checking accounts with us. We expect stability in this segment and continue to focus on growing core operating accounts. (Travis Edmondson, Chief Banking Officer; Michael Mettee, CFO)
Q: What is your outlook for the margin in the second half of the year, and does it assume any rate cuts?
A: We expect a 25 basis points rate cut, possibly in September. Our margin guidance includes this assumption, and we aim to maintain stability in net interest income. (Michael Mettee, CFO)
Q: Can you provide more details on the C&I credit that required a specific reserve?
A: The credit is in the service industry and faced unforeseen licensing changes and fraud, leading to bankruptcy. We are fully reserved on this credit, which is not collateralized by real estate. (Travis Edmondson, Chief Banking Officer; Michael Mettee, CFO)
Q: What is your strategy for loan growth in the second half of the year?
A: We target low to mid-single-digit growth in loans and deposits, focusing on multiple geographies and loan types. We aim for granular growth, avoiding syndicated deals and participations. (Christopher Holmes, CEO; Travis Edmondson, Chief Banking Officer)
Q: How do you plan to manage expenses with the addition of new revenue producers?
A: We expect to stay within our expense guidance but will not shy away from hiring top-tier talent if opportunities arise. We consider these hires as long-term investments. (Christopher Holmes, CEO; Travis Edmondson, Chief Banking Officer)
Q: What are your targeted asset sizes and desired geographies for potential acquisitions?
A: We target banks with assets between $1 billion and $5 billion, focusing on contiguous states like Alabama, Georgia, North and South Carolina, and parts of Virginia. (Christopher Holmes, CEO)
Q: How do you view the current credit environment and its impact on your portfolio?
A: We feel confident about our credit quality, with significant collateral and guarantees in place. We expect industry charge-offs to normalize but are prepared for any adverse scenarios. (Christopher Holmes, CEO; Michael Mettee, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
