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Press Release|Financial Institutions
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KBRA AFFIRMS RATINGS FOR FB FINANCIAL CORPORATION

16 Jun 2023   |   New York

Contacts

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt
rating of BBB-, and the short-term debt rating of K3 for Nashville,
Tennessee-based FB Financial Corporation. (NYSE: FBK or “the company”). In
addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+,
the subordinated debt rating of BBB, and the short-term deposit and debt ratings
of K2 for the company's principal subsidiary, FirstBank. The Outlook for all
long-term ratings is Positive.


KEY CREDIT CONSIDERATIONS

FBK’s ratings are supported by a reasonably conservative approach to capital
management since becoming a public company, with core capital measures such as
TCE and CET1 ratios that have trended well north of 9% and 11%, respectively, in
recent years. Additionally, supplementing FBK’s solid core capital position is
an LLR of 1.5% that remains one of the highest in KBRA’s rated universe and, as
such, we view the company as having a higher than peer level of total loss
absorbing capacity – one that is necessary considering the company's higher
proportionate exposure to perceived riskier areas of lending, namely C&D and
manufactured housing (a combined 24% of total loans), and should prove
beneficial to the company’s credit profile should an economic downturn
materialize. We would note that FBK's multi-year legacy asset quality measures,
including through the pandemic, have been quite favorable (recognizing a
conducive economic climate). Also supporting the company’s ratings is a sound
liquidity position, with the composition of the company’s balance sheet allowing
for a greater degree of financial flexibility, highlighted by a modestly lower
than peer loan-to-deposit ratio (84% at 1Q23) and the maintenance of strong
levels of cash (10% of total assets). Funding dynamics at FBK in the stressed
period of 1Q23 (more specifically, March 2023) were mostly in line with KBRA’s
expectations, with deposits rising $327 million (+3% sequentially), though, like
peers, the company’s deposit base saw a negative mix shift. Still, when
accounting for $6.8 billion of available contingent liquidity combined with
on-balance sheet sources, FBK’s coverage of its uninsured/uncollateralized
deposits (29% of total) is ~258%. The Positive Outlook is consistent with our
expectation that FBK’s capital and liquidity positions will remain largely in
line with those reflected today.

The Positive Outlook is also supported by the continued execution associated
with the company's franchise and strategy, which has seen franchise expansion
into high growth MSAs with solid market share positions, stemming from its
origins as a more rural, western Tennessee bank. Notably, FBK’s August 2020
acquisition of in-market competitor, Franklin Financial Network, Inc.,
meaningfully increased the scale of FBK’s operations and enhanced the company’s
presence in the growing Nashville market, and the company maintains solid market
share in key Tennessee MSAs while expanding deliberately into other attractive,
contiguous markets. Partly constraining FBK's ratings is its higher than peer
exposure to C&D lending (18% of loans), though we consider the portfolio
appropriately managed and recognize the company’s plans to reduce its exposure
to space. We also acknowledge the more challenging earnings outlook for FBK and
the U.S. banking sector more broadly, and a “higher for longer” interest rate
environment will continue to pressure FBK’s funding costs as well as its
mortgage banking business (which has historically been a proportionally large
contributor to the company’s earnings).


RATING SENSITIVITIES

The maintenance of capital and liquidity profiles largely consistent with those
reflected today, if in conjunction with earnings and asset quality performance
that is generally in line with that of peers, could result in a rating upgrade.
A further diversification of noninterest income sources would also be viewed
favorably. Alternatively, a greater than peer deterioration in FBK’s capital
position, funding profile, asset quality, or earnings capacity could reverse
positive rating momentum.

To access rating and relevant documents, click here.


ANALYTICAL CONTACTS

Steven Yates, CFA
Director
(Lead Analyst)
+1 646-731-1243
steven.yates@kbra.com
Ian Jaffe
Senior Managing Director
+1 646-731-3302
ian.jaffe@kbra.com
Joe Scott
Senior Managing Director
(Rating Committee Chair)
+1 646-731-2438
joe.scott@kbra.com


BUSINESS DEVELOPMENT CONTACT

Justin Fuller
Senior Director
+1 646-731-1250
justin.fuller@kbra.com

DISCLOSURES

A description of all substantially material sources that were used to prepare
the credit rating and information on the methodology(ies) (inclusive of any
material models and sensitivity analyses of the relevant key rating assumptions,
as applicable) used in determining the credit rating is available in the
Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the
Information Disclosure Form(s) referenced above. Additional information
regarding KBRA policies, methodologies, rating scales and disclosures are
available at www.kbra.com.

ABOUT KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency
registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll
Bond Rating Agency Europe Limited is registered as a CRA with the European
Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is
registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA
is designated as a designated rating organization by the Ontario Securities
Commission for issuers of asset-backed securities to file a short form
prospectus or shelf prospectus. KBRA is also recognized by the National
Association of Insurance Commissioners as a Credit Rating Provider.

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