fbk-10q_20180930.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Small reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-37875

FB FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Tennessee	62-1216058
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

211 Commerce Street, Suite 300 Nashville, Tennessee	37201
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (615) 564-1212

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 5, 2018, the registrant had 30,717,008 shares of common stock, $1.00 par value per share, outstanding. The registrant has no other classes of common stock outstanding as of such date.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements	2
	Consolidated Balance Sheets as of September 30, 2018 (Unaudited) and December 31, 2017	2
	Consolidated Statements of Income (Loss)(Unaudited) for the three and nine months ended September 30, 2018 and 2017	3
	Consolidated Statements of Comprehensive Income (Loss)(Unaudited) for the three and nine months ended September 30, 2018 and 2017	4
	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the nine months ended September 30, 2018 and 2017	5
	Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2018 and 2017	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	84
Item 4.	Controls and Procedures	86
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	87
Item 1A.	Risk Factors	87
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	87
Item 6.	Exhibits	88
Signatures		89

PART I—FINANCIAL INFORMATION

ITEM 1—CONSOLIDATED FINANCIAL STATEMENTS

FB Financial Corporation and subsidiaries

Consolidated balance sheets

(Amounts are in thousands except share amounts)

	September 30,			December 31,
	2018 (Unaudited)			2017
ASSETS
Cash and due from banks	$	81,366		$	29,831
Federal funds sold		801			66,127
Interest bearing deposits in financial institutions		99,463			23,793
Cash and cash equivalents		181,630			119,751
Investments:
Available-for-sale debt securities, at fair value		606,501			536,270
Equity securities, at fair value		3,067			7,722
Federal Home Loan Bank stock, at cost		13,432			11,412
Loans held for sale, at fair value		323,486			526,185
Loans		3,538,531			3,166,911
Less: allowance for loan losses		27,608			24,041
Net loans		3,510,923			3,142,870
Premises and equipment, net		86,445			81,577
Other real estate owned, net		13,587			16,442
Interest receivable		14,943			13,069
Mortgage servicing rights, at fair value		79,890			76,107
Goodwill		137,190			137,190
Core deposit and other intangibles, net		12,403			14,902
Other assets		74,670			44,216
Total assets	$	5,058,167		$	4,727,713
LIABILITIES
Deposits
Noninterest-bearing	$	962,948		$	888,200
Interest-bearing checking		876,991			895,140
Money market and savings		1,236,851			1,192,726
Customer time deposits		940,601			602,628
Brokered and internet time deposits		112,082			85,701
Total deposits		4,129,473			3,664,395
Borrowings		210,968			347,595
Accrued expenses and other liabilities		68,995			118,994
Total liabilities		4,409,436			4,130,984
SHAREHOLDERS' EQUITY
Common stock, $1 par value per share; 75,000,000 shares authorized; 30,715,792 and 30,535,517 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively		30,716			30,536
Additional paid-in capital		422,302			418,596
Retained earnings		206,718			147,449
Accumulated other comprehensive (loss) income, net		(11,005	)		148
Total shareholders' equity		648,731			596,729
Total liabilities and shareholders' equity	$	5,058,167		$	4,727,713

See accompanying notes to consolidated financial statements (unaudited).

FB Financial Corporation and subsidiaries

Consolidated statements of income

(Unaudited)

(Amounts are in thousands except share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Interest income:
Interest and fees on loans	$	57,904		$	44,367		$	163,126		$	102,723
Interest on securities
Taxable		3,151			2,399			9,137			7,555
Tax-exempt		1,031			988			2,937			3,096
Other		526			661			1,303			1,208
Total interest income		62,612			48,415			176,503			114,582

Interest expense:
Deposits		7,864			3,954			18,833			8,375
Borrowings		1,993			851			4,969			1,919
Total interest expense		9,857			4,805			23,802			10,294
Net interest income		52,755			43,610			152,701			104,288
Provision for loan losses		1,818			(784	)		3,198			(1,906	)
Net interest income after provision for loan losses		50,937			44,394			149,503			106,194

Noninterest income:
Mortgage banking income		26,649			31,334			81,664			86,653
Service charges on deposit accounts		2,208			2,044			6,216			5,606
ATM and interchange fees		2,411			2,222			7,353			6,354
Investment services and trust income		1,411			1,078			3,797			2,795
(Loss) gain from securities, net		(27	)		254			(116	)		284
Gain (loss) on sales or write-downs of other real estate owned		120			75			(43	)		846
Gain (loss) from other assets		326			(389	)		239			(350	)
Other income		1,257			1,202			4,283			2,376
Total noninterest income		34,355			37,820			103,393			104,564

Noninterest expenses:
Salaries, commissions and employee benefits		35,213			34,795			103,606			94,584
Occupancy and equipment expense		3,514			3,539			10,483			9,955
Legal and professional fees		1,917			1,512			5,925			3,973
Data processing		2,562			1,761			6,735			4,722
Merger and conversion		—			15,711			1,193			16,965
Amortization of core deposit and other intangibles		777			558			2,432			1,073
Loss on sale of mortgage servicing rights		—			—			—			249
Regulatory fees and deposit insurance assessments		738			549			2,030			1,478
Software license and maintenance fees		622			523			1,882			1,344
Advertising		3,810			3,493			10,500			9,768
Other expense		8,060			6,783			24,936			20,666
Total noninterest expense		57,213			69,224			169,722			164,777

Income before income taxes		28,079			12,990			83,174			45,981
Income tax expense (Note 7)		6,702			4,602			19,978			16,601
Net income	$	21,377		$	8,388		$	63,196		$	29,380
Earnings per common share:
Basic	$	0.69		$	0.28		$	2.05		$	1.10
Fully diluted		0.68			0.27			2.01			1.08
Dividends declared per common share		0.06			—			0.12			—

See accompanying notes to consolidated financial statements (unaudited).

FB Financial Corporation and subsidiaries

Consolidated statements of comprehensive income

(Unaudited)

(Amounts are in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net income	$	21,377		$	8,388		$	63,196		$	29,380
Other comprehensive (loss) income, net of tax:
Net change in unrealized (loss) gain in available-for-sale securities, net of taxes of ($1,348), $170, ($4,667) and $1,577		(3,749	)		265			(12,845	)		2,446
Reclassification adjustment for (gain) loss on securities included in net income, net of taxes of $0, $100, ($2) and $111		—			(154	)		7			(173	)
Net change in unrealized gain in hedging activities, net of taxes of $60, $52, $577 and $52		169			81			1,638			81
Reclassification adjustment for (gain) loss on hedging activities, net of taxes of $23, $59, $22 and $59		(69	)		91			(62	)		91
Total other comprehensive (loss) income, net of tax		(3,649	)		283			(11,262	)		2,445
Comprehensive income	$	17,728		$	8,671		$	51,934		$	31,285

See accompanying notes to consolidated financial statements (unaudited).

FB Financial Corporation and subsidiaries

Consolidated statements of changes in shareholders’ equity

(Unaudited)

(Amounts are in thousands except share amounts)

	Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive income (loss), net			Total shareholders' equity
Balance at December 31, 2016	$	24,108	$	213,480		$	93,784		$	(874	)	$	330,498
Initial fair value election on mortgage servicing rights, net of taxes of $396		—		—			615			—			615
Net income		—		—			29,380			—			29,380
Other comprehensive income, net of taxes		—		—			—			2,445			2,445
Common stock issued, net of offering costs		4,807		147,914			—			—			152,721
Common stock issued in conjunction with acquisition of the Clayton Banks, net of issuance costs (See Note 2)		1,521		50,763			—			—			52,284
Stock-based compensation expense		9		4,799			—			—			4,808
Restricted stock units vested and distributed, net of shares withheld for taxes		63		(921	)		—			—			(858	)
Shares issued under employee stock purchase program		19		616			—			—			635
Balance at September 30, 2017	$	30,527	$	416,651		$	123,779		$	1,571		$	572,528

Balance at December 31, 2017	$	30,536	$	418,596		$	147,449		$	148		$	596,729
Initial adoption of ASU 2016-01 (See Note 1)		—		—			(109	)		109			—
Net income		—		—			63,196			—			63,196
Other comprehensive income (loss), net of taxes		—		—			—			(11,262	)		(11,262	)
Stock-based compensation expense		9		5,318			—			—			5,327
Restricted stock units vested and distributed, net of shares withheld for taxes		142		(2,779	)		—			—			(2,637	)
Shares issued under employee stock purchase program		29		1,167			—			—			1,196
Dividends declared ($0.12 per share)		—		—			(3,818	)		—			(3,818	)
Balance at September 30, 2018	$	30,716	$	422,302		$	206,718		$	(11,005	)	$	648,731

See accompanying notes to consolidated financial statements (unaudited).

FB Financial Corporation and subsidiaries

Consolidated statements of cash flows

(Unaudited)

(Amounts are in thousands)

	Nine Months Ended September 30,
	2018			2017
Cash flows from operating activities:
Net income	$	63,196		$	29,380
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		3,251			3,090
Amortization of core deposits and other intangibles		2,432			1,073
Capitalization of mortgage servicing rights		(41,555	)		(45,624	)
Net change in fair value of mortgage servicing rights		(1,656	)		3,724
Stock-based compensation expense		5,327			4,808
Provision for loan losses		3,198			(1,906	)
Provision for mortgage loan repurchases		598			794
Accretion of discounts on purchased loans		(5,745	)		(3,545	)
Accretion of discounts and amortization of premiums on securities, net		2,108			1,948
Loss (gain) from securities, net		116			(284	)
Originations of loans held for sale		(4,777,814	)		(4,612,745	)
Repurchases of loans held for sale		(7,892	)		—
Proceeds from sale of loans held for sale		5,003,669			4,711,364
Gain on sale and change in fair value of loans held for sale		(71,883	)		(80,929	)
Gain on sale of mortgage servicing rights		—			(17	)
Net loss (gain) or write-downs of other real estate owned		43			(846	)
(Gain) loss from other assets		(239	)		350
Provision for deferred income taxes		4,416			8,226
Changes in:
Other assets and interest receivable		(28,473	)		4,912
Accrued expenses and other liabilities		(12,350	)		20,068
Net cash provided by operating activities		140,747			43,841
Cash flows from investing activities:
Activity in available-for-sale securities:
Sales		221			94,743
Maturities, prepayments and calls		54,576			63,167
Purchases		(137,891	)		(57,441	)
Net increase in loans		(352,776	)		(191,033	)
Purchases of FHLB stock		(2,020	)		—
Proceeds from sale of mortgage servicing rights		39,428			11,952
Purchases of premises and equipment		(8,608	)		(2,898	)
Proceeds from the sale of premises and equipment		341			39
Proceeds from the sale of other real estate owned		3,666			4,082
Proceeds from the sale of other assets		869			—
Net cash paid in business combination		—			(135,141	)
Net cash used in investing activities		(402,194	)		(212,530	)
Cash flows from financing activities:
Net increase in demand deposits		100,724			90,247
Net increase in time deposits		364,354			(22,789	)
Net decrease in borrowings		(136,627	)		(90,429	)
Share based compensation withholding obligation		(2,637	)		(858	)
Net proceeds from sale of common stock		1,196			153,356
Dividends paid		(3,684	)		—
Net cash provided by financing activities		323,326			129,527
Net change in cash and cash equivalents		61,879			(39,162	)
Cash and cash equivalents at beginning of the period		119,751			136,327
Cash and cash equivalents at end of the period	$	181,630		$	97,165

Supplemental cash flow information:
Interest paid	$	21,690		$	9,652
Taxes paid		19,137			21,130
Supplemental noncash disclosures:
Transfers from loans to other real estate owned	$	1,490		$	2,958
Transfers from other real estate owned to loans		636			201
Transfers from loans held for sale to loans		13,584			9,808
Rebooked GNMA delinquent loans under optional repurchase program		—			13,575
Derecognition of rebooked GNMA delinquent loans (See Note 1)		43,035			—
Stock consideration paid in business combination		—			52,284
Trade date payable - securities		7,253			—
Dividends declared not paid on restricted stock units		134			—
Adoption of ASU 2016-01 (See Note 1)		(109	)		—
Fair value election of mortgage servicing rights		—			1,011

See accompanying notes to consolidated financial statements (unaudited).

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Amounts are in thousands except share and per share amounts)

Note (1)—Basis of presentation:

Overview and presentation

FB Financial Corporation (the “Company”) is a bank holding company, headquartered in Nashville, Tennessee. The Company operates through its wholly owned bank subsidiary, FirstBank (the “Bank”), with 56 full-service bank branches across Tennessee, North Alabama and North Georgia, and a national mortgage business with office locations across the Southeast.

The unaudited consolidated financial statements, including the notes thereto of the Company, have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) interim reporting requirements, and therefore, do not include all information and notes included in the annual consolidated financial statements in conformity with GAAP. These interim consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K.

The unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.

The accompanying unaudited consolidated financial statements have been prepared in conformity with GAAP and general banking industry guidelines. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and the reported results of operations for the periods then ended. Actual results could differ significantly from those estimates.

Certain prior period amounts have been reclassified to conform to the current period presentation without any impact on the reported amounts of net income or shareholders’ equity.

Effective July 31, 2017, the Bank completed its previously announced acquisitions of Clayton Bank and Trust and American City Bank headquartered in Knoxville, Tennessee and Tullahoma, Tennessee, respectively. See Note 2, “Mergers and acquisitions” in these Notes to the consolidated unaudited financial statements for further details regarding acquisitions.

Prior to May 31, 2018, the Company was considered a “controlled company” and was controlled by the Company’s Executive Chairman and former majority shareholder, James W. Ayers. During the second quarter of 2018, the Company completed a secondary offering of 3,680,000 shares of common stock pursuant to the Company’s effective registration statement on Form S-3 whereby James W. Ayers was the seller. As a result of this transaction, the Company ceased to qualify as a “controlled company” as the selling shareholder’s ownership was reduced to approximately 44% of the voting power of the Company’s issued and outstanding shares of common stock. The Company continues to qualify as an emerging growth company as defined by the “Jumpstart Our Business Startups Art” (“JOBS Act”).

Subsequent events

The Company has evaluated, for consideration of recognition or disclosure, subsequent events that occurred through the date of issuance of these financial statements. The Company has determined that there were no other subsequent events other than described below that occurred after September 30, 2018, but prior to the issuance of these financial statements that would have a material impact on the Company’s consolidated financial statements.

On October 22, 2018, the Company declared a regular quarterly dividend of $0.08 per share to be paid on November 15, 2018 to shareholders of record as of November 1, 2018, totaling approximately $2,548. Additionally, the Company’s Board of Directors authorized a plan to allow the repurchase of up to $50 million of the Company’s outstanding common stock, which plan will remain in effect until the earlier of October 22, 2019 or the date at which the Company has repurchased $50 million in shares.

Earnings per share

Basic earnings per common share (“EPS”) excludes dilution and is computed by dividing earnings attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS includes the dilutive effect of additional potential common shares issuable under the restricted stock units granted but not yet vested and distributable. Diluted EPS is computed by dividing earnings attributable to common shareholders by the weighted

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Amounts are in thousands except share and per share amounts)

average number of common shares outstanding for the year, plus an incremental number of common-equivalent shares computed using the treasury stock method.

Unvested share-based payment awards, which include the right to receive non-forfeitable dividends or dividend equivalents, are considered to participate with common shareholders in undistributed earnings for purposes of computing EPS. Companies that have such participating securities, including the Company, are required to calculate basic and diluted EPS using the two-class method. Certain restricted stock awards granted by the Company include non-forfeitable dividend equivalents and are considered participating securities. Calculations of EPS under the two-class method (i) exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities and (ii) exclude from the denominator the dilutive impact of the participating securities.

The following is a summary of the basic and diluted earnings per common share calculation for each of the periods presented:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017
Basic earnings per share calculation:
Net income	$	21,377		$	8,388	$	63,196		$	29,380
Dividends paid on and undistributed earnings allocated to participating securities		(114	)		—		(337	)		—
Earnings attributable to common shareholders	$	21,263		$	8,388	$	62,859		$	29,380
Weighted-average basic shares outstanding		30,692,668			30,004,952		30,661,852			26,649,942
Basic earnings per share	$	0.69		$	0.28	$	2.05