Strong Economies And Demographic Trends Will Boost Bank's Future Prospects

Key Takeaways

• Strong local economies and demographic trends drive FB Financial's positive growth outlook in loans and deposits, enhancing revenue.
  
• Strategic expansion and capital leverage aim to boost earnings, with potential benefits from future interest rate decreases.
  
• The company faces challenges with investment portfolio management, credit risks from commercial loans, and credit quality issues due to economic fluctuations, impacting overall earnings.

Catalysts

Operates as a bank holding company for FirstBank that provides a suite of commercial and consumer banking services to businesses, professionals, and individuals.

• FB Financial anticipates low double-digit growth in loans and deposits in 2025, driven by strong local economies benefitting from demographic trends and corporate investment. This is expected to positively impact revenue growth.
  
• The company is focused on optimizing its balance sheet and has taken steps to improve the yield on its securities portfolio, suggesting potential enhancement in net interest margins moving forward.
  
• Plans for organic growth are supported by the addition of senior revenue producers and expansion into new markets, which can drive future earnings and revenue increases.
  
• FB Financial maintains a strong capital position, and management plans to leverage this for organic growth and strategic acquisitions, which could improve earnings per share over time.
  
• The bank is well-positioned to benefit from future interest rate decreases, which could support margin maintenance or expansion, impacting overall earnings positively.

FB Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming FB Financial's revenue will grow by 14.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 24.6% today to 33.6% in 3 years time.
• Analysts expect earnings to reach $222.2 million (and earnings per share of $4.75) by about December 2027, up from $107.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.1x on those 2027 earnings, down from 23.8x today. This future PE is greater than the current PE for the US Banks industry at 12.9x.
• Analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

FB Financial Future Earnings Per Share Growth

Risks

• FB Financial experienced a $40 million pretax loss from selling securities, which might point to potential issues with investment portfolio management impacting net margins.
  
• Noninterest income, particularly in banking, was a concern with a reported negative $16.5 million, indicating volatility that could affect overall earnings.
  
• The bank's nonperforming loans to loans held for investment increased to 0.96% due to certain commercial loans, suggesting potential credit risks that could impact net revenues.
  
• Concerns in consumer loans, such as mortgage and manufactured housing loans, may arise from inflation and employment fluctuations, affecting overall credit quality and potentially leading to increased provisions.
  
• The commentary on past dues returning to pre-COVID levels indicates challenges in maintaining credit performance, which could impact net earnings if not managed effectively.

Valuation

• The analysts have a consensus price target of $57.5 for FB Financial based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $65.0, and the most bearish reporting a price target of just $51.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $661.4 million, earnings will come to $222.2 million, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 5.9%.
• Given the current share price of $54.74, the analyst's price target of $57.5 is 4.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.