FB Financial Corp - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2021

☐ 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

______________________________


Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

_____________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, Par Value $1.00 Per Share

FBK

New York Stock Exchange

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 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.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Small reporting company

☐

Emerging growth company

☒

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 ☒

The number of shares of registrant’s Common Stock outstanding as of October 29, 2021 was 47,711,799.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
	Glossary Of Abbreviations And Acronyms	3
Item 1.	Consolidated Financial Statements	4
	Consolidated Balance Sheets as of Septem ber 30, 2021 (Unaudited) and December 31, 2020	4
	Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2021 and 2020	5
	Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2021 and 2020	6
	Consolidated Statements of Changes in Shareholders' Equity (Unaudited) for the three and nine months ended September 30, 2021 and 2020	7
	Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2021 and 2020	9
	Notes to Consolidated Financial Statements (Unaudited)	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operation	54
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	101
Item 4.	Controls and Procedures	102
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	103
Item 1A.	Risk Factors	103
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	103
Item 6.	Exhibits	104
SIGNATURES		105

GLOSSARY OF ABBREVIATIONS AND ACRONYMS

As used in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (this "Report"), references to “we,” “our,” “us,” “FB Financial,” or “the Company” refer to FB Financial Corporation, a Tennessee corporation, and our wholly owned banking subsidiary, FirstBank, a Tennessee state-chartered bank, unless otherwise indicated or the context otherwise requires. References to “Bank” or “FirstBank” refer to FirstBank, our wholly owned banking subsidiary.

The acronyms and abbreviations identified below are used in the Notes to Consolidated Financial Statements (Unaudited) as well as in the Management’s Discussion and Analysis of Financial Condition and Results of Operations. You may find it helpful to refer to this page as you read this Report.

ACL

Allowance For Credit Losses

GAAP

U.S. generally accepted accounting principles

AFS

Available-for-Sale

GNMA

Government National Mortgage Association

ALCO

Asset Liability Management Committee

IPO

Initial Public Offering

ASC

Accounting Standard Codification

IRC

Internal Revenue Code

ASU

Accounting Standard Update

MSR

Mortgage Servicing Rights

CAA

Consolidated Appropriations Act

JOBS Act

Jumpstart Our Business Startups Act

CARES

Coronavirus Aid, Relief, and Economic Security Act

LIBOR

London Interbank Offered Rate

CECL

Current Expected Credit Losses

LTIP

Long-Term Incentive Plan

CEO

Chief Executive Officer

MSA

Metropolitan Statistical Areas

CET1

Common Equity Tier 1

MSR

Mortgage Servicing Rights

CMA

Cash Management Advances

NIM

Net Interest Margin

CPR

Conditional Prepayment Rate

OCC

Office of the Comptroller of the Currency

CRE

Commercial Real Estate

OREO

Other Real Estate Owned

EPS

Earnings per Share

PCD

Purchased Credit Deteriorated

ESPP

Employee Stock Purchase Plan

PPP

Paycheck Protection Program

EVE

Economic Value of Equity

PSU

Performance-based Restricted Stock Units

FASB

Financial Accounting Standards Board

REIT

Real Estate Investment Trust

FBIN

FirstBank Investments of Nevada, Inc.

ROAA

Return on Average Total Assets

FBIT

FirstBank Investments of Tennessee, Inc.

ROAE

Return on Average Shareholders' Equity

FBPC

FirstBank Preferred Capital, Inc.

ROATCE

Return on Average Tangible Common Equity

FBRM

FirstBank Risk Management

ROU

Right-of-use

FDIC

Federal Deposit Insurance Corporation

RSU

Restricted Stock Units

FHLB

Federal Home Loan Bank

SBA

Small Business Administration

FHLMC

Federal Home Loan Mortgage Corporation

SEC

U.S. Securities and Exchange Commission

FNB

Farmers National

TDFI

Tennessee Department of Financial Institutions

FNMA

Federal National Mortgage Association

TDR

Troubled Debt Restructuring

FTE

Full Time Equivalent

PART I - FINANCIAL INFORMATION

ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS

FB Financial Corporation and subsidiaries

Consolidated balance sheets

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


	September 30,		December 31,
	2021 (Unaudited)		2020
ASSETS
Cash and due from banks	$	100,568	$	110,991
Federal funds sold and reverse repurchase agreements	145,333		121,153
Interest-bearing deposits in financial institutions	1,078,663		1,085,754
Cash and cash equivalents	1,324,564		1,317,898
Investments:
Available-for-sale debt securities, at fair value	1,572,558		1,172,400
Equity securities, at fair value	4,779		4,591
Federal Home Loan Bank stock, at cost	27,601		31,232
Loans held for sale, at fair value	855,706		899,173
Loans	7,294,674		7,082,959
Less: allowance for credit losses	139,446		170,389
Net loans	7,155,228		6,912,570
Premises and equipment, net	144,737		145,115
Other real estate owned, net	10,015		12,111
Operating lease right-of-use assets	44,006		49,537
Interest receivable	41,393		43,603
Mortgage servicing rights, at fair value	110,591		79,997
Goodwill	242,561		242,561
Core deposit and other intangibles, net	18,248		22,426
Other assets	258,303		274,116
Total assets	$	11,810,290	$	11,207,330
LIABILITIES
Deposits
Noninterest-bearing	$	2,609,569	$	2,274,103
Interest-bearing checking	2,850,795		2,491,765
Money market and savings	3,424,065		3,254,915
Customer time deposits	1,159,472		1,375,695
Brokered and internet time deposits	28,017		61,559
Total deposits	10,071,918		9,458,037
Borrowings	172,710		238,324
Operating lease liabilities	48,875		55,187
Accrued expenses and other liabilities	115,781		164,400
Total liabilities	10,409,284		9,915,948
Commitments and contingencies (Note 9)
SHAREHOLDERS' EQUITY
Common stock, $1 par value per share; 75,000,000 shares authorized; 47,707,634 and 47,220,743 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	47,708		47,222
Additional paid-in capital	897,428		898,847
Retained earnings	443,140		317,625
Accumulated other comprehensive income, net	12,637		27,595
Total FB Financial Corporation common shareholders' equity	1,400,913		1,291,289
Noncontrolling interest	93		93
Total equity	1,401,006		1,291,382
Total liabilities and shareholders' equity	$	11,810,290	$	11,207,330

See the accompanying notes to the consolidated financial statements.

FB Financial Corporation and subsidiaries

Consolidated statements of income

(Unaudited)

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Interest income:
Interest and fees on loans	$	89,993	$	76,504	$	269,266	$	201,350
Interest on securities
Taxable	3,989		2,286		10,652		7,961
Tax-exempt	1,883		1,933		5,772		4,956
Other	800		404		2,089		2,141
Total interest income	96,665		81,127		287,779		216,408

Interest expense:
Deposits	6,596		10,573		24,341		32,050
Borrowings	1,593		1,726		5,823		3,944
Total interest expense	8,189		12,299		30,164		35,994
Net interest income	88,476		68,828		257,615		180,414
Provision for credit losses	(2,832)		45,834		(27,349)		97,837
Provision for credit losses on unfunded commitments	301		9,567		(2,875)		13,050
Net interest income after provisions for credit losses	91,007		13,427		287,839		69,527

Noninterest income:
Mortgage banking income	45,384		84,686		136,215		189,599
Service charges on deposit accounts	2,612		2,162		7,217		6,583
ATM and interchange fees	4,868		3,913		14,590		10,653
Investment services and trust income	2,511		1,828		7,518		4,893
Gain from securities, net	51		583		278		618
Gain (loss) on sales or write-downs of other real estate owned	2,005		(1,505)		2,478		(1,368)
Gain (loss) from other assets	177		226		162		(156)
Other income	1,398		5,133		6,578		10,395
Total noninterest income	59,006		97,026		175,036		221,217

Noninterest expenses:
Salaries, commissions and employee benefits	62,818		67,676		189,756		166,556
Occupancy and equipment expense	5,979		4,892		17,184		13,166
Legal and professional fees	2,177		1,917		6,701		5,427
Data processing	2,595		2,994		7,456		8,229
Merger costs	—		20,730		—		25,366
Amortization of core deposit and other intangibles	1,344		1,417		4,178		3,825





Advertising	4,200		2,256		10,012		7,236
Other expense	15,894		16,210		47,378		37,425
Total noninterest expense	95,007		118,092		282,665		267,230

Income (loss) before income taxes	55,006		(7,639)		180,210		23,514
Income tax expense (benefit)	9,716		(2,040)		38,744		5,495
Net income (loss) applicable to FB Financial Corporation and noncontrolling interest	45,290		(5,599)		141,466		18,019
Net income applicable to noncontrolling interest	—		—		8		—
Net income (loss) applicable to FB Financial Corporation	$	45,290	$	(5,599)	$	141,458	$	18,019

Earnings (loss) per common share
Basic	$	0.96	$	(0.14)	$	2.99	$	0.52
Diluted	0.94		(0.14)		2.95		0.52

See the accompanying notes to the consolidated financial statements.

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,
	2021		2020		2021		2020
Net income (loss)	$	45,290	$	(5,599)	$	141,466	$	18,019
Other comprehensive income (loss), net of tax:
Net change in unrealized gain in available-for-sale securities, net of tax (benefits) expenses of $(2,054), $521, $(4,708) and $5,225	(5,818)		1,788		(15,380)		15,091
Reclassification adjustment for gain on sale of securities included in net income, net of tax expenses of $19, $137, $23 and $137	(56)		(387)		(67)		(387)
Net change in unrealized loss in hedging activities, net of tax expenses (benefits) of $38, $40, $173 and $(403)	106		112		489		(1,145)
Reclassification adjustment for gain on hedging activities, net of tax expenses of $0, $41, $0 and $145	—		(115)		—		(410)
Total other comprehensive (loss) income, net of tax	(5,768)		1,398		(14,958)		13,149
Comprehensive income (loss)	39,522		(4,201)		126,508		31,168
Comprehensive income applicable to noncontrolling interests	—		—		8		—
Comprehensive income (loss) applicable to FB Financial Corporation	$	39,522	$	(4,201)	$	126,500	$	31,168

See the accompanying notes to the consolidated financial statements.

FB Financial Corporation and subsidiaries

Consolidated statements of changes in shareholders’ equity

(Unaudited)

(Amounts are in thousands except per share amounts)


	Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income, net		Total common shareholders' equity		Noncontrolling interests		Total shareholders' equity
Balance at June 30, 2021	$	47,361	$	902,782	$	403,173	$	18,405	$	1,371,721	$	93	$	1,371,814

Net income attributable to FB Financial Corporation and noncontrolling interest	—		—		45,290		—		45,290		—		45,290
Other comprehensive income, net of taxes	—		—		—		(5,768)		(5,768)		—		(5,768)


Repurchase of common stock	(11)		(425)		—		—		(436)		—		(436)
Stock based compensation expense	1		2,883		—		—		2,884		—		2,884
Restricted stock units vested and distributed, net of shares withheld	342		(8,444)		—		—		(8,102)		—		(8,102)
Shares issued under employee stock purchase program	15		632		—		—		647		—		647
Dividends declared ($0.11 per share)	—		—		(5,323)		—		(5,323)		—		(5,323)
Noncontrolling interest distribution	—		—		—		—		—		—		—
Balance at September 30, 2021	$	47,708	$	897,428	$	443,140	$	12,637	$	1,400,913	$	93	$	1,401,006


Balance at December 31, 2020	$	47,222	$	898,847	$	317,625	$	27,595	$	1,291,289	$	93	$	1,291,382


Net income attributable to FB Financial Corporation and noncontrolling interest	—		—		141,458		—		141,458		8		141,466
Other comprehensive income, net of taxes	—		—		—		(14,958)		(14,958)		—		(14,958)


Repurchase of common stock	(11)		(425)		—		—		(436)		—		(436)
Stock based compensation expense	6		8,059		—		—		8,065		—		8,065
Restricted stock units vested and distributed, net of shares withheld	454		(10,496)		—		—		(10,042)		—		(10,042)
Shares issued under employee stock purchase program	37		1,443		—		—		1,480		—		1,480
Dividends declared ($0.33 per share)	—		—		(15,943)		—		(15,943)		—		(15,943)
Noncontrolling interest distribution	—		—		—		—		—		(8)		(8)
Balance at September 30, 2021	$	47,708	$	897,428	$	443,140	$	12,637	$	1,400,913	$	93	$	1,401,006

FB Financial Corporation and subsidiaries

Consolidated statements of changes in shareholders’ equity

(Unaudited)

(Amounts are in thousands except per share amounts)


	Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income, net		Total common shareholders' equity		Noncontrolling interests		Total shareholders' equity
Balance at June 30, 2020	$	32,101	$	462,930	$	286,296	$	23,889	$	805,216	$	—	$	805,216

Net (loss) income	—		—		(5,599)		—		(5,599)		—		(5,599)
Other comprehensive income, net of taxes	—		—		—		1,398		1,398		—		1,398
Common stock issued in connection with acquisition of Franklin Financial Network, Inc.,net of registration costs (See Note 2)	15,058		429,815		—		—		444,873		93		444,966
Stock based compensation expense	6		3,014		—		—		3,020		—		3,020
Restricted stock units vested and distributed, net of shares withheld	9		(115)		—		—		(106)		—		(106)
Shares issued under employee stock purchase program	18		514		—		—		532		—		532


Dividends declared ($0.09 per share)	—		—		(4,336)		—		(4,336)		—		(4,336)
Balance at September 30, 2020	$	47,192	$	896,158	$	276,361	$	25,287	$	1,244,998	$	93	$	1,245,091

Balance at December 31, 2019	$	31,034	$	425,633	$	293,524	$	12,138	$	762,329	$	—	$	762,329
Cumulative effect of change in accounting principle	—		—		(25,018)		—		(25,018)		—		(25,018)
Balance at January 1, 2020	31,034		425,633		268,506		12,138		737,311		—		737,311
Net income	—		—		18,019		—		18,019		—		18,019
Other comprehensive income, net of taxes	—		—		—		13,149		13,149		—		13,149
Common stock issued in connection with acquisition of the FNB Financial Corp., net of registration costs (See Note 2)	955		33,892		—		—		34,847		—		34,847
Common stock issued in connection with acquisition of Franklin Financial Network, Inc.,net of registration costs (See Note 2)	15,058		429,815		—		—		444,873		93		444,966
Stock based compensation expense	17		7,236		—		—		7,253		—		7,253
Restricted stock units vested and distributed, net of shares withheld	98		(1,366)		—		—		(1,268)		—		(1,268)
Shares issued under employee stock purchase program	30		948		—		—		978		—		978
Dividends declared ($0.27 per share)	—		—		(10,164)		—		(10,164)		—		(10,164)
Balance at September 30, 2020	$	47,192	$	896,158	$	276,361	$	25,287	$	1,244,998	$	93	$	1,245,091

See the accompanying notes to the consolidated financial statements.

FB Financial Corporation and subsidiaries

Consolidated statements of cash flows

(Unaudited)

(Amounts are in thousands)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income applicable to FB Financial Corporation and noncontrolling interest	$	141,466	$	18,019
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of fixed assets	6,288		4,924
Amortization of core deposit and other intangibles	4,178		3,825
Capitalization of mortgage servicing rights	(31,382)		(33,415)
Net change in fair value of mortgage servicing rights	788		42,251
Stock-based compensation expense	8,065		7,253
Provision for credit losses	(27,349)		97,837
Provision for credit losses on unfunded commitments	(2,875)		13,050
Provision for mortgage loan repurchases	(266)		2,128
Amortization (accretion) of premiums and discounts on acquired loans, net	127		(3,080)
Accretion of discounts and amortization of premiums on securities, net	6,521		4,431
Gain from securities, net	(278)		(618)
Originations of loans held for sale	(4,926,390)		(4,739,497)
Repurchases of loans held for sale	(384)		—
Proceeds from sale of loans held for sale	4,939,323		4,690,135
Gain on sale and change in fair value of loans held for sale	(126,983)		(202,336)

Net (gain) loss or write-downs of other real estate owned	(2,478)		1,368
(Gain) loss on other assets	(162)		156

Provision for deferred income taxes	20,904		(31,543)
Changes in:

Operating leases	(781)		1,309
Other assets and interest receivable	(2,508)		(77,566)
Accrued expenses and other liabilities	(46,867)		59,420
Net cash used in operating activities	(41,043)		(141,949)
Cash flows from investing activities:
Activity in available-for-sale securities:
Sales	8,855		28,257
Maturities, prepayments and calls	216,032		140,246
Purchases	(645,658)		(214,285)
Net change in loans	(61,795)		(133,893)
Sales of FHLB stock	4,294		—

Purchases of FHLB stock	(663)		(515)
Purchases of premises and equipment	(5,193)		(2,652)

Proceeds from the sale of other real estate owned	8,834		5,561

Net cash acquired in business combinations	—		248,439
Net cash used in investing activities	(475,294)		71,158
Cash flows from financing activities:
Net increase in demand deposits	863,646		1,043,928
Net decrease in time deposits	(249,765)		(201,659)
Net increase in securities sold under agreements to repurchase	9,531		5,532
Payments on FHLB advances	—		(50,000)

Issuance of subordinated debt, net of issuance costs	—		98,190
Payments on subordinated debt	(60,000)		—

Accretion of subordinated debt fair value premium and amortization of issuance costs, net	(79)		(175)
(Payments on) proceeds from other borrowings	(15,000)		15,000
Share based compensation withholding payments	(10,042)		(1,268)
Net proceeds from sale of common stock under employee stock purchase program	1,480		978
Repurchase of common stock	(436)		—
Dividends paid	(16,324)		(10,025)
Noncontrolling interest distribution	(8)		—
Net cash provided by financing activities	523,003		900,501
Net change in cash and cash equivalents	6,666		829,710
Cash and cash equivalents at beginning of the period	1,317,898		232,681
Cash and cash equivalents at end of the period	$	1,324,564	$	1,062,391
Supplemental cash flow information:
Interest paid	$	34,542	$	36,498
Taxes paid	55,609		16,449
Supplemental noncash disclosures:
Transfers from loans to other real estate owned	$	4,945	$	1,579

Transfers from other real estate owned to premises and equipment	—		841

Loans provided for sales of other real estate owned	685		—
Transfers from loans to loans held for sale	10,408		9,304
Transfers from loans held for sale to loans	52,151		49,508


Stock consideration paid in business combination	—		480,867

Trade date payable - securities	5,996		1,214

Dividends declared not paid on restricted stock units	340		139

Decrease to retained earnings for adoption of new accounting standard	—		25,018
Right-of-use assets obtained in exchange for operating lease liabilities	839		806

See the accompanying notes to the consolidated financial statements.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar 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 financial holding company headquartered in Nashville, Tennessee. The Company operates through its wholly owned subsidiary, FirstBank (the "Bank"). As of September 30, 2021, the Bank had 82 full-service branches throughout Tennessee, Alabama, southern Kentucky and north Georgia, and a national mortgage business with office locations across the Southeast, which primarily originates loans to be sold in the secondary market.

The unaudited consolidated financial statements, including the notes thereto, have been prepared in accordance with United States generally accepted accounting principles interim reporting requirements and general banking industry guidelines, 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.

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.

As of September 30, 2021, the Company continues to qualify as an emerging growth company as defined by the "Jumpstart Our Business Startups Act," however beginning on December 31, 2021, the Company will cease to qualify.

Risks and uncertainties

The COVID-19 health pandemic that arose in 2020 created a crisis resulting in volatility in financial markets, sudden, unprecedented job losses, and disruption in consumer and commercial behavior, resulting in governments in the United States and globally to intervene with varying levels of direct monetary support and fiscal stimulus packages. All industries, municipalities and consumers have been impacted by the health crisis to some degree, including the markets that we serve. In attempts to “flatten the curve,” businesses not deemed essential were closed or constrained to capacity limitations, individuals were asked to restrict their movements, observe social distancing and shelter in place. These actions resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses, leading to a loss of revenues and a rapid increase in unemployment, widening of credit spreads, dislocation of bond markets, disruption of global supply chains and changes in consumer spending behavior. Although most restrictions were lifted and vaccines became widely available during early 2021, during the nine months ended September 30, 2021, concern began building regarding the potential impact the new Delta variant of the virus may have on the global economy and the efficacy of available vaccines and booster vaccines to protect against widespread infection. Additionally, there continues to be concern regarding the potential downstream effects of vaccine mandates and supply chain disruptions and labor shortages continue to persist. As such, there continues to be uncertainty regarding the long term effects on the global economy, which could have a material adverse impact on the Company's business operations, asset valuations, financial condition, and results of operations.

Earnings per share

Basic EPS excludes dilution and is computed by dividing earnings available 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 available to common shareholders by the weighted average number of common shares outstanding for the period, 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

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

EPS. Companies that have such participating securities 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,
		2021		2020		2021		2020
Basic earnings (loss) per common share calculation:
Net income (loss) applicable to FB Financial Corporation		$	45,290	$	(5,599)	$	141,458	$	18,019
Dividends paid on and undistributed earnings allocated to participating securities		—		—		—		—
Earnings (loss) available to common shareholders		$	45,290	$	(5,599)	$	141,458	$	18,019
Weighted average basic shares outstanding		47,412,214		40,154,841		47,345,984		34,404,064
Basic earnings (loss) per common share		$	0.96	$	(0.14)	$	2.99	$	0.52
Diluted earnings per common share:
Earnings (loss) available to common shareholders		$	45,290	$	(5,599)	$	141,458	$	18,019
Weighted average basic shares outstanding		47,412,214		40,154,841		47,345,984		34,404,064
Weighted average diluted shares contingently issuable(1)		594,933		482,904		637,510		436,228
Weighted average diluted shares outstanding		48,007,147		40,637,745		47,983,494		34,840,292
Diluted earnings (loss) per common share		$	0.94	$	(0.14)	$	2.95	$	0.52

(1)Excludes 15,974 and 20,448 restricted stock units outstanding considered to be antidilutive for the three and nine months ended September 30, 2021, respectively and 332,347 and 536,908 for three and nine months ended September 30, 2020.

Recently adopted accounting policies:

The Company did not modify or adopt any new accounting policies during the three and nine months ended September 30, 2021 that were not disclosed in the Company's 2020 audited consolidated financial statements included on Form 10-K, other than as described below.

As previously disclosed, during the three months ended March 31, 2021, the Company reevaluated its business segments to align all retail mortgage activities with the Mortgage segment. Previously, the Company assigned retail mortgage activities within the Banking geographical footprint to the Banking segment. See Note 12, "Segment reporting" for additional information on this change.

Recently adopted accounting standards:

Except as set forth below, the Company did not adopt any new accounting standards that were not disclosed in the Company's 2020 audited consolidated financial statements included on Form 10-K.

In January 2021, Financial Accounting Standards Board issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope". This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. The Company early adopted ASU 2021-01 upon issuance effective January 7, 2021. No contract modifications have been made under the new guidance, therefore the adoption of this update did not impact the Company's financial statements or disclosures.

Newly issued not yet effective accounting standards:

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 is intended to provide relief for companies preparing for discontinuation of interest rates based on LIBOR. The ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or other reference rates expected to be discontinued. ASU 2020-04 also provides for a onetime sale and/or transfer to AFS or trading to be made for HTM debt securities that both reference an eligible reference rate and were classified as HTM before January 1, 2020. ASU 2020-04 was effective for all entities as of March 12, 2020 and through December 31, 2022. Companies can apply the ASU as of the beginning of the interim period that includes March 12, 2020 or any date

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

thereafter. The guidance requires companies to apply the guidance prospectively to contract modifications and hedging relationships while the one-time election to sell and/or transfer debt securities classified as HTM may be made any time after March 12, 2020. We have established a working group to transition from LIBOR and have begun efforts to transition to alternative rates consistent with industry timelines. We have identified products that utilize LIBOR and are implementing enhanced fallback language to facilitate the transition to alternative reference rates. ASU 2020-04 is not expected to have a material impact on our consolidated financial statements.

Note (2)—Mergers and acquisitions:

The following mergers and acquisitions were accounted for pursuant to Accounting Standards Codification 805, "Business Combinations". Accordingly, the purchase price of each acquisition was allocated to the acquired assets and liabilities assumed based on estimated fair values as of the respective acquisition dates. The excess of the purchase price over the net assets acquired was recorded as goodwill.

Franklin Financial Network, Inc. merger

Effective August 15, 2020, the Company completed its previously announced merger with Franklin Financial Network, Inc. and its wholly owned subsidiaries (collectively, "Franklin"), with FB Financial Corporation continuing as the surviving entity. After consolidating duplicative locations the merger added 10 branches and expanded the Company's footprint in middle Tennessee and the Nashville metropolitan statistical area. Under the terms of the agreement, the Company acquired total assets of $3.63 billion, loans of $2.79 billion and assumed total deposits of $3.12 billion. Total loans acquired includes a non-strategic institutional portfolio with a fair value of $326,206 the Company classified as held for sale. Franklin common shareholders received 15,058,181 shares of the Company's common stock, net of the equivalent value of 44,311 shares withheld on certain Franklin employee equity awards that vested upon change in control, as consideration in connection with the merger, in addition to $31,330 in cash consideration. Also included in the purchase price, the Company issued replacement restricted stock units for awards initially granted by Franklin during 2020 that did not vest upon change in control, with a total fair value of $674 attributed to pre-combination service. Based on the closing price of the Company's common stock on the New York Stock Exchange of $29.52 on August 15, 2020, the merger consideration represented approximately $477,830 in aggregate consideration.

Goodwill of $67,191 recorded in connection with the transaction resulted from the ongoing business contribution, reputation, operating model and expertise of Franklin. The goodwill is not deductible for income tax purposes. Goodwill is included in the Banking segment as substantially all of the operations resulting from the acquisition of Franklin are in alignment with the Company's banking business.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The following table presents an allocation of the consideration to net assets acquired:


Purchase Price:
Equity consideration
Franklin shares outstanding(1)	15,588,337
Franklin options converted to net shares	62,906
	15,651,243
Exchange ratio to FB Financial shares	0.965
FB Financial shares to be issued as merger consideration(2)	15,102,492
Issuance price as of August 15, 2020	$	29.52
Value of FB Financial stock to be issued as merger consideration	$	445,826
Less: tax withholding on vested restricted stock awards, units and options(3)	(1,308)
Value of FB Financial stock issued	$	444,518
FB Financial shares issued	15,058,181

Franklin restricted stock units that do not vest on change in control	114,915
Replacement awards issued to Franklin employees	118,776
Fair value of replacement awards	$	3,506
Fair value of replacement awards attributable to pre-combination service	$	674

Cash consideration
Total Franklin shares and net shares outstanding	15,651,243
Cash consideration per share	$	2.00
Total cash to be paid to Franklin(4)	$	31,330
Total purchase price			$	477,830
Fair value of net assets acquired			410,639
Goodwill resulting from merger			$	67,191

(1)Franklin shares outstanding includes restricted stock awards and restricted stock units that vested upon change in control.

(2)Only factors in whole share issuance. Cash was paid in lieu of fractional shares.

(3)Represents the equivalent value of approximately 44,311 shares of FB Financial Corporation stock on August 15, 2020.

(4)Includes $28 of cash paid in lieu of fractional shares.

FNB Financial Corp. merger

Effective February 14, 2020, the Company completed its previously announced acquisition of FNB Financial Corp. and its wholly owned subsidiary, Farmers National Bank of Scottsville (collectively, "Farmers National"). Following the acquisition, Farmers National was merged into the Company with FB Financial Corporation continuing as the surviving entity. The transaction added four branches and expanded the Company's footprint into Kentucky. Under the terms of the agreement, the Company acquired total assets of $258,218, loans of $182,171 and assumed total deposits of $209,535. Farmers National shareholders received 954,797 shares of the Company's common stock as consideration in connection with the merger, in addition to $15,001 in cash consideration. Based on the closing price of the Company's common stock on the New York Stock Exchange of $36.70 on February 14, 2020, the merger consideration represented approximately $50,042 in aggregate consideration.

Goodwill of $6,319 recorded in connection with the transaction resulted from the ongoing business contribution of Farmers National and anticipated synergies arising from the combination of certain operational areas of the Company. Goodwill resulting from this transaction is not deductible for income tax purposes. Goodwill is included in the Banking segment as substantially all of the operations resulting from the acquisition of Farmers National are in alignment with the Company's core banking business.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The following table presents the total purchase price, fair value of net assets acquired, and the goodwill as of the acquisition date.


Consideration:
Net shares issued	954,797
Purchase price per share on February 14, 2020	$	36.70
Value of stock consideration			$	35,041
Cash consideration paid			15,001
Total purchase price			$	50,042
Fair value of net assets acquired			43,723
Goodwill resulting from merger			$	6,319

Net assets acquired

The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the respective acquisition dates:


	As of August 15, 2020		As of February 14, 2020
	Franklin Financial Network, Inc.		FNB Financial Corp.
ASSETS
Cash and cash equivalents	$	284,004	$	10,774
Investments	373,462		50,594
Mortgage loans held for sale, at fair value	38,740		—
Commercial loans held for sale, at fair value	326,206		—
Loans held for investment, net of fair value adjustments	2,427,527		182,171
Allowance for credit losses on purchased credit deteriorated loans	(24,831)		(669)
Premises and equipment	45,471		8,049
Operating lease right-of-use assets	23,958		14
Mortgage servicing rights	5,111		—
Core deposit intangible	7,670		2,490
Other assets	124,571		4,795
Total assets	$	3,631,889	$	258,218
LIABILITIES
Deposits:
Noninterest-bearing	$	505,374	$	63,531
Interest-bearing checking	1,783,379		26,451
Money market and savings	342,093		37,002
Customer time deposits	383,433		82,551
Brokered and internet time deposits	107,452		—
Total deposits	3,121,731		209,535

Borrowings	62,435		3,192
Operating lease liabilities	24,330		14
Accrued expenses and other liabilities	12,661		1,754
Total liabilities assumed	3,221,157		214,495
Noncontrolling interests acquired	93		—
Net assets acquired	$	410,639	$	43,723

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Purchased credit-deteriorated loans

Under the CECL methodology, the Company is required to determine whether purchased loans held for investment have experienced more-than-insignificant deterioration in credit quality since origination. Loans that have experienced this level of deterioration in credit quality are subject to special accounting at initial recognition and measurement. The Company initially measures the amortized cost of a PCD loan by adding the acquisition date estimate of expected credit losses to the loan's purchase price (i.e. the "gross up" approach). There is no provision for credit loss recognized upon acquisition of a PCD loan because the initial allowance is established through gross-up of the loans' amortized cost.

The Company determined that 27.9% of the Franklin loan portfolio had more-than-insignificant deterioration in credit quality since origination as of the acquisition date. This included deterioration in credit metrics, such as delinquency, nonaccrual status or risk ratings as well as certain loans within designated industries of concern that have been negatively impacted by COVID-19. It was determined that 10.1% of the Farmers National loan portfolio had more-than-insignificant deterioration in credit quality since origination as of the February acquisition date. These were primarily delinquent loans or loans that Farmers National had classified as nonaccrual or troubled debt restructuring prior to the Company's acquisition.


	As of August 15, 2020		As of February 14, 2020
	Franklin Financial Network, Inc.		FNB Financial Corp.
Purchased credit-deteriorated loans
Principal balance	$	693,999	$	18,964
Allowance for credit losses at acquisition	(24,831)		(669)
Net premium attributable to other factors	8,810		63
Loans purchased credit-deteriorated fair value	$	677,978	$	18,358

Loans recognized through acquisition that have not experienced more-than-insignificant credit deterioration since origination are initially recognized at the purchase price. Expected credit losses are measured under CECL through the provision for credit losses. The Company recorded provisions for credit losses in the amounts of $52,822 and $2,885 as of August 15, 2020 and February 14, 2020, respectively, in the income statement related to estimated credit losses on non-PCD loans from Franklin and Farmers National, respectively. Additionally, the Company estimates expected credit losses on off-balance sheet loan commitments that are not accounted for as derivatives. The Company recorded an increase in provision for credit losses from unfunded commitments of $10,499 as of August 15, 2020 related to the Franklin acquisition.

Pro forma financial information (unaudited)

The results of operations of the acquisitions have been included in the Company's consolidated financial statements prospectively beginning on the date of each acquisition. The acquisitions have been fully integrated with the Company's existing operations. Accordingly, post-acquisition net interest income, total revenues, and net income are not discernible. The following unaudited pro forma condensed consolidated financial information presents the results of operations for the three and nine months ended September 30, 2020, as though the Franklin and Farmers National acquisitions had been completed as of January 1, 2019. The unaudited estimated pro forma information combines the historical results of the mergers with the Company’s historical consolidated results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the periods presented. Merger expenses are reflected in the period they were incurred. The pro forma information is not indicative of what would have occurred had the transactions taken place on January 1, 2019 and does not include the effect of cost-saving or revenue-enhancing strategies.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020		2020
Net interest income	$	83,641	$	252,849
Total revenues	$	178,384	$	488,493
Net (loss) income applicable to FB Financial Corporation	$	(12,428)	$	19,526

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Note (3)—Investment securities:

The following tables summarize the amortized cost, allowance for credit losses and fair value of the available-for-sale debt securities and the corresponding amounts of unrealized gains and losses recognized in accumulated other comprehensive income at September 30, 2021 and December 31, 2020:


	September 30, 2021
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Allowance for credit losses for investments		Fair Value
Investment Securities
Available-for-sale debt securities
U.S. government agency securities	$	10,598	$	5	$	(32)	$	—	$	10,571
Mortgage-backed securities - residential	1,211,042		9,111		(9,650)		—		1,210,503
Mortgage-backed securities - commercial	15,374		368		(30)		—		15,712
Municipal securities	312,672		14,881		(314)		—		327,239
U.S. Treasury securities	5,998		8		—		—		6,006
Corporate securities	2,500		35		(8)		—		2,527
Total	$	1,558,184	$	24,408	$	(10,034)	$	—	$	1,572,558


	December 31, 2020
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Allowance for credit losses for investments		Fair Value
Investment Securities
Available-for-sale debt securities
U.S. government agency securities	$	2,000	$	3	$	—	$	—	$	2,003
Mortgage-backed securities - residential	760,099		14,040		(803)		—		773,336
Mortgage-backed securities - commercial	20,226		1,362		—		—		21,588
Municipal securities	336,543		19,806		(20)		—		356,329
U.S. Treasury securities	16,480		148		—		—		16,628
Corporate securities	2,500		17		(1)		—		2,516
Total	$	1,137,848	$	35,376	$	(824)	$	—	$	1,172,400

The components of amortized cost for debt securities on the consolidated balance sheets excludes accrued interest receivable since the Company elected to present accrued interest receivable separately on the consolidated balance sheets. As of September 30, 2021 and December 31, 2020, total accrued interest receivable on debt securities was $4,744 and $4,540, respectively.

As of September 30, 2021 and December 31, 2020, the Company had $4,779 and $4,591, in marketable equity securities recorded at fair value, respectively.

Securities pledged at September 30, 2021 and December 31, 2020 had carrying amounts of $1,154,797 and $804,821, respectively, and were pledged to secure a Federal Reserve Bank line of credit, public deposits and repurchase agreements.

There were no holdings of securities of any one issuer, other than U.S. Government sponsored enterprises, in an amount greater than 10% of shareholders' equity during any period presented.

At September 30, 2021 and December 31, 2020, there were no trade date receivables that related to sales settled after period end. At September 30, 2021 and December 31, 2020, there were $5,996 and $0 respectively, in trade date payables that related to purchases settled after period end.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The amortized cost and fair value of debt securities by contractual maturity at September 30, 2021 and December 31, 2020 are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgage underlying the security may be called or repaid without any penalties. Therefore, mortgage-backed securities are not included in the maturity categories in the following maturity summary.


	September 30,				December 31,
	2021				2020
	Available-for-sale				Available-for-sale
	Amortized cost		Fair value		Amortized cost		Fair value
Due in one year or less	$	16,713	$	16,773	$	35,486	$	35,662
Due in one to five years	20,242		20,637		24,278		24,684
Due in five to ten years	40,757		42,211		40,038		41,332
Due in over ten years	254,056		266,722		257,721		275,798
	331,768		346,343		357,523		377,476
Mortgage-backed securities - residential	1,211,042		1,210,503		760,099		773,336
Mortgage-backed securities - commercial	15,374		15,712		20,226		21,588
Total debt securities	$	1,558,184	$	1,572,558	$	1,137,848	$	1,172,400

Sales and other dispositions of available-for-sale securities were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Proceeds from sales	$	8,855	$	28,257	$	8,855	$	28,257
Proceeds from maturities, prepayments and calls	68,126		67,886		216,032		140,246
Gross realized gains	76		563		91		563
Gross realized losses	1		39		1		39

Additionally, the change in the fair value of equity securities resulted in a net unrealized loss of $24 and a net unrealized gain of $188 during the three and nine months ended September 30, 2021, respectively, net unrealized gains on equity securities of $59 and $94 were recognized in the three and nine months ended September 30, 2020, respectively.

The following tables show gross unrealized losses for which an allowance for credit losses has not been recorded at September 30, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:


	September 30, 2021
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. government agency securities	$	7,639	$	(32)	$	—	$	—	$	7,639	$	(32)
Mortgage-backed securities - residential	711,775		(9,377)		24,341		(273)		736,116		(9,650)
Mortgage-backed securities - commercial	1,949		(30)		—		—		1,949		(30)
Municipal securities	30,371		(314)		—		—		30,371		(314)

Corporate securities	492		(8)		—		—		492		(8)
Total	$	752,226	$	(9,761)	$	24,341	$	(273)	$	776,567	$	(10,034)


	December 31, 2020
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized loss

Mortgage-backed securities - residential	$	182,012	$	(803)	$	—	$	—	$	182,012	$	(803)
Municipal securities	3,184		(20)		—		—		3,184		(20)
Corporate Securities	499		(1)						499		(1)

Total	$	185,695	$	(824)	$	—	$	—	$	185,695	$	(824)

As of September 30, 2021 and December 31, 2020, the Company’s securities portfolio consisted of 513 and 514 securities, 61 and 16 of which were in an unrealized loss position, respectively.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

As of September 30, 2021 and 2020, the Company evaluated available-for-sale debt securities with unrealized losses for expected credit loss and recorded no allowance for credit loss as the majority of the investment portfolio was either government guaranteed or an issuance of a government sponsored entity, was highly rated by major credit rating agencies and have a long history of zero losses. As such, no provision for credit losses was recorded during the three and nine months ended September 30, 2021 and 2020.

Note (4)—Loans and allowance for credit losses:

Loans outstanding at September 30, 2021 and December 31, 2020, by class of financing receivable are as follows:


	September 30,		December 31,
	2021		2020
Commercial and industrial (1)	$	1,252,425	$	1,346,122
Construction	1,190,623		1,222,220
Residential real estate:
1-to-4 family mortgage	1,175,155		1,089,270
Residential line of credit	392,440		408,211
Multi-family mortgage	324,662		175,676
Commercial real estate:
Owner occupied	938,241		924,841
Non-owner occupied	1,695,573		1,598,979
Consumer and other	325,555		317,640
Gross loans	7,294,674		7,082,959
Less: Allowance for credit losses	(139,446)		(170,389)
Net loans	$	7,155,228	$	6,912,570

(1)Includes $9,415 and $212,645 of loans originated as part of the Paycheck Protection Program as of September 30, 2021 and December 31, 2020, respectively. PPP loans are federally guaranteed as part of the CARES Act, provided PPP loan recipients receive loan forgiveness under the SBA regulations. As such, there is minimal credit risk associated with these loans.

As of September 30, 2021 and December 31, 2020, $1,220,451 and $1,248,857, respectively, of qualifying residential mortgage loans (including loans held for sale) and $1,571,007 and $1,532,749, respectively, of qualifying commercial mortgage loans were pledged to the Federal Home Loan Bank of Cincinnati securing advances against the Bank’s line of credit. Additionally, as of September 30, 2021 and December 31, 2020, $2,345,431 and $2,463,281, respectively, of qualifying loans were pledged to the Federal Reserve Bank under the Borrower-in-Custody program.

The components of amortized cost for loans on the consolidated balance sheet excludes accrued interest receivable as the Company elected to present accrued interest receivable separately on the balance sheet. As of September 30, 2021 and December 31, 2020, total accrued interest receivable on loans held for investment was $34,915 and $38,316, respectively.

Allowance for Credit Losses

The Company estimated the allowance for credit losses under a current expected credit loss model as of September 30, 2021 and December 31, 2020. The Company utilizes probability-weighted forecasts, which consider multiple macroeconomic variables from a third-party vendor that are applicable to the type of loan. Each of the Company's loss rate models incorporate forward-looking macroeconomic projections throughout the reasonable and supportable forecast period and the subsequent historical reversion at the macroeconomic variable input level. In order to estimate the life of a loan, the contractual term of the loan is adjusted for estimated prepayments based on market information and the Company’s prepayment history.

The Company's loss rate models estimate the lifetime loss rate for pools of loans by combining the calculated loss rate based on each variable within the model (including the macroeconomic variables). The lifetime loss rate for the pool is then multiplied by the loan balances to determine the expected credit losses on the pool.

The Company considers the need to qualitatively adjust its modeled quantitative expected credit loss estimate for information not already captured in the model loss estimation process. These qualitative factor adjustments may increase or decrease the Company’s estimate of expected credit losses. The Company reviews the qualitative adjustments so as to validate that information that has already been considered and included in the modeled quantitative loss estimation process is not also included in the qualitative adjustment. The Company considers the qualitative factors that are relevant to the institution as of the reporting date, which may include, but are not limited to: levels of and trends in delinquencies

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

and performance of loans; levels of and trends in write-offs and recoveries collected; trends in volume and terms of loans; effects of any changes in reasonable and supportable economic forecasts; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and expertise; available relevant information sources that contradict the Company’s own forecast; effects of changes in prepayment expectations or other factors affecting assessments of loan contractual terms; industry conditions; and effects of changes in credit concentrations.

The quantitative models require loan data and macroeconomic variables based on the inherent credit risks in each portfolio to more accurately measure the credit risks associated with each. Each of the quantitative models pools loans with similar risk characteristics and collectively assesses the lifetime loss rate for each pool to estimate its expected credit loss.

When a loan no longer shares similar risk characteristics with other loans in any given pool, the loan is individually assessed. The Company has determined the following circumstances in which a loan may require an individual evaluation: collateral dependent loans; loans for which foreclosure is probable; TDRs and reasonably expected TDRs. A loan is deemed collateral dependent when 1) the borrower is experiencing financial difficulty and 2) the repayment is expected to be primarily through sale or operation of the collateral. The allowance for credit losses for collateral dependent loans as well as loans where foreclosure is probable is calculated as the amount for which the loan’s amortized cost basis exceeds fair value. Fair value is determined based on appraisals performed by qualified appraisers and reviewed by qualified personnel. In cases where repayment is to be provided substantially through the sale of collateral, the Company reduces the fair value by the estimated costs to sell. Loans experiencing financial difficulty for which a concession has not yet been provided may be identified as reasonably expected TDRs.

Reasonably expected TDRs use the same methodology as TDRs. In cases where the expected credit loss can only be captured through a discounted cash flow analysis (such as an interest rate modification for a TDR loan), the allowance is measured by the amount which the loan’s amortized cost exceeds the discounted cash flow analysis. The allowance for credit losses on a TDR or a reasonably expected TDR is calculated individually using a discounted cash flow methodology, unless the loan is deemed to be collateral dependent or foreclosure is probable.

The Company performed qualitative evaluations within the Company's established qualitative framework, weighting the impact of the current economic outlook, status of federal government stimulus programs, and other considerations, in order to identify specific industries or borrowers seeing credit improvement or deterioration specific to the COVID-19 pandemic. The decrease in estimated required reserve during the three and nine months ended September 30, 2021 was a result of improving macroeconomic variables incorporated into the Company's reasonable and supportable forecasts when compared to both September 30, 2021 and December 31, 2020.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The following provide the changes in the allowance for credit losses by class of financing receivable for the three and nine months ended September 30, 2021 and 2020:


	Commercial and industrial		Construction		1-to-4 family residential mortgage		Residential line of credit		Multi-family residential mortgage		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Consumer and other		Total
Three months ended September 30, 2021
Beginning balance - June 30, 2021	$	13,791	$	32,838	$	19,672	$	6,716	$	13,475	$	4,707	$	42,856	$	10,608	$	144,663
Provision for credit losses	3,203		(3,080)		(2,677)		(952)		(1,462)		7,665		(6,450)		921		(2,832)
Recoveries of loans previously charged-off	19		3		33		1		—		4		—		169		229
Loans charged off	(2,175)		(1)		—		—		—		—		—		(438)		(2,614)


Ending balance - September 30, 2021	$	14,838	$	29,760	$	17,028	$	5,765	$	12,013	$	12,376	$	36,406	$	11,260	$	139,446
Nine Months Ended September 30, 2021
Beginning balance - December 31, 2020	$	14,748	$	58,477	$	19,220	$	10,534	$	7,174	$	4,849	$	44,147	$	11,240	$	170,389


Provision for credit losses	2,667		(28,690)		(2,141)		(4,767)		4,839		7,384		(7,741)		1,100		(27,349)
Recoveries of loans previously charged-off	235		3		98		16		—		143		—		554		1,049
Loans charged off	(2,812)		(30)		(149)		(18)		—		—		—		(1,634)		(4,643)


Ending balance - September 30, 2021	$	14,838	$	29,760	$	17,028	$	5,765	$	12,013	$	12,376	$	36,406	$	11,260	$	139,446


	Commercial and industrial		Construction		1-to-4 family residential mortgage		Residential line of credit		Multi-family residential mortgage		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Consumer and other		Total
Three months ended September 30, 2020
Beginning balance - June 30, 2020	$	8,878	$	35,599	$	12,463	$	6,811	$	4,499	$	7,420	$	30,444	$	7,015	$	113,129
Provision for loan losses	(1,520)		22,383		4,194		4,053		1,908		(1,276)		12,364		3,728		45,834
Recoveries of loans previously charged-off	757		51		116		22		—		51		—		175		1,172
Loans charged off	(249)		—		(8)		—		—		(95)		(166)		(475)		(993)
Initial allowance on loans purchased with deteriorated credit quality	$	743	$	5,596	$	1,533	$	569	$	784	$	605	$	14,998	$	3	$	24,831
Ending balance - September 30, 2020	$	8,609	$	63,629	$	18,298	$	11,455	$	7,191	$	6,705	$	57,640	$	10,446	$	183,973
Nine Months Ended September 30, 2020
Beginning balance - December 31, 2019	$	4,805	$	10,194	$	3,112	$	752	$	544	$	4,109	$	4,621	$	3,002	$	31,139
Impact of adopting ASC 326 on non-purchased credit deteriorated loans	5,300		1,533		7,920		3,461		340		1,879		6,822		3,633		30,888
Impact of adopted ASC 326 on purchased credit deteriorated loans	82		150		421		(3)		—		162		184		(438)		558
Provision for loan losses	(2,354)		45,962		5,412		6,633		5,523		132		31,282		5,247		97,837
Recoveries of loans previously charged-off	1,652		202		166		61		—		68		—		471		2,620
Loans charged off	(1,630)		(18)		(373)		(21)		—		(304)		(711)		(1,512)		(4,569)
Initial allowance on loans purchased with deteriorated credit quality	754		5,606		1,640		572		784		659		15,442		43		25,500

Ending balance - September 30, 2020	$	8,609	$	63,629	$	18,298	$	11,455	$	7,191	$	6,705	$	57,640	$	10,446	$	183,973

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The following tables provide the amount of the allowance for credit losses by class of financing receivable disaggregated by measurement methodology as of September 30, 2021 and December 31, 2020:


	September 30, 2021
	Commercial and industrial		Construction		1-to-4 family residential mortgage		Residential line of credit		Multi-family residential mortgage		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Consumer and other		Total
Amount of allowance allocated to:
Individually evaluated for credit loss	$	123	$	112	$	—	$	7	$	—	$	167	$	624	$	2	$	1,035
Collectively evaluated for credit loss	14,148		28,244		16,056		5,597		11,561		11,244		26,676		10,657		124,183
Purchased credit deteriorated	567		1,404		972		161		452		965		9,106		601		14,228
Ending balance - September 30, 2021	$	14,838	$	29,760	$	17,028	$	5,765	$	12,013	$	12,376	$	36,406	$	11,260	$	139,446


	December 31, 2020
	Commercial and industrial		Construction		1-to-4 family residential mortgage		Residential line of credit		Multi-family residential mortgage		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Consumer and other		Total
Amount of allowance allocated to:
Individually evaluated for credit loss	$	373	$	95	$	—	$	9	$	—	$	30	$	1,531	$	1	$	2,039
Collectively evaluated for credit loss	13,493		54,065		17,206		10,031		6,326		4,062		33,706		10,516		149,405
Purchased credit deteriorated	882		4,317		2,014		494		848		757		8,910		723		18,945
Ending balance - December 31, 2020	$	14,748	$	58,477	$	19,220	$	10,534	$	7,174	$	4,849	$	44,147	$	11,240	$	170,389

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The following tables provide the amount of loans by class of financing receivable disaggregated by measurement methodology as of September 30, 2021, and December 31, 2020:


	September 30, 2021
	Commercial and industrial		Construction		1-to-4 family residential mortgage		Residential line of credit		Multi-family residential mortgage		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Consumer and other		Total
Loans, net of unearned income
Individually evaluated for credit loss	$	2,802	$	4,597	$	375	$	1,123	$	—	$	7,808	$	11,430	$	26	$	28,161
Collectively evaluated for credit loss	1,206,783		1,148,604		1,112,578		380,272		315,140		857,865		1,419,981		313,079		6,754,302
Purchased credit deteriorated	42,840		37,422		62,202		11,045		9,522		72,568		264,162		12,450		512,211
Ending balance - September 30, 2021	$	1,252,425	$	1,190,623	$	1,175,155	$	392,440	$	324,662	$	938,241	$	1,695,573	$	325,555	$	7,294,674


	December 31, 2020
	Commercial and industrial		Construction		1-to-4 family residential mortgage		Residential line of credit		Multi-family residential mortgage		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Consumer and other		Total
Loans, net of unearned income
Individually evaluated for credit loss	$	15,578	$	4,851	$	848	$	412	$	—	$	7,846	$	8,631	$	39	$	38,205
Collectively evaluated for credit loss	1,270,058		1,140,634		987,142		387,250		156,447		813,151		1,272,203		302,983		6,329,868
Purchased credit deteriorated	60,486		76,735		101,280		20,549		19,229		103,844		318,145		14,618		714,886
Ending balance - December 31, 2020	$	1,346,122	$	1,222,220	$	1,089,270	$	408,211	$	175,676	$	924,841	$	1,598,979	$	317,640	$	7,082,959

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Credit Quality

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans that share similar risk characteristics collectively. Loans that do not share similar risk characteristics are evaluated individually.

The Company uses the following definitions for risk ratings:


			Pass.			Loans rated Pass include those that are adequately collateralized performing loans which management believes do not have conditions that have occurred or may occur that would result in the loan being downgraded into an inferior category. The Pass category also includes loans rated as Watch, which include those that management believes have conditions that have occurred, or may occur, which could result in the loan being downgraded to an inferior category.




			Special Mention.			Loans rated Special Mention are those that have potential weakness that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Management does not believe there will be a loss of principal or interest. These loans require intensive servicing and may possess more than normal credit risk.




			Classified.			Loans included in the Classified category include loans rated as Substandard and Doubtful. Loans rated as Substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Also included in this category are loans classified as Doubtful, which have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weakness or weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and values, highly questionable and improbable. The total amortized cost of loans rated as Doubtful were insignificant for all periods presented.

Risk ratings are updated on an ongoing basis and are subject to change by continuous loan monitoring processes.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The following tables present the credit quality of our loan portfolio by year of origination as of September 30, 2021 and December 31, 2020. Revolving loans are presented separately. Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal constitutes a current period origination. Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for the purposes of the tables below.


As of September 30, 2021
	Term Loans
	Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial
Pass	$	194,285	$	105,301	$	151,572	$	60,459	$	44,334	$	61,502	$	591,465	$	1,208,918
Special Mention	68		246		414		19		5		2,051		12,987		15,790
Classified	893		2,601		2,678		3,527		3,618		6,711		7,689		27,717

Total	195,246		108,148		154,664		64,005		47,957		70,264		612,141		1,252,425

Construction
Pass	455,443		337,263		145,945		47,026		19,507		67,697		106,294		1,179,175
Special Mention	—		—		—		—		1,209		1,441		—		2,650
Classified	—		—		3,035		2,879		4		2,698		182		8,798

Total	455,443		337,263		148,980		49,905		20,720		71,836		106,476		1,190,623

Residential real estate:
1-to-4 family mortgage
Pass	360,638		217,308		128,286		115,183		116,907		211,215		—		1,149,537
Special Mention	201		1,346		525		389		99		1,648		—		4,208
Classified	901		2,884		1,962		3,086		4,549		8,028		—		21,410

Total	361,740		221,538		130,773		118,658		121,555		220,891		—		1,175,155

Residential line of credit
Pass	—		—		—		—		—		—		387,472		387,472
Special Mention	—		—		—		—		—		—		407		407
Classified	—		—		—		—		—		—		4,561		4,561

Total	—		—		—		—		—		—		392,440		392,440

Multi-family mortgage
Pass	144,982		32,463		68,421		7,050		20,528		39,546		10,408		323,398
Special Mention	—		—		—		—		—		—		—		—
Classified	—		—		—		—		—		1,264		—		1,264

Total	144,982		32,463		68,421		7,050		20,528		40,810		10,408		324,662


Commercial real estate:
Owner occupied
Pass	117,740		140,281		177,960		86,488		83,352		247,941		52,732		906,494
Special Mention	—		—		1,328		3,595		112		2,948		220		8,203
Classified	—		—		3,118		779		4,122		13,770		1,755		23,544

Total	117,740		140,281		182,406		90,862		87,586		264,659		54,707		938,241

Non-owner occupied
Pass	304,279		163,471		180,893		282,221		203,813		460,088		46,599		1,641,364
Special Mention	—		—		3,812		3,452		—		8,041		—		15,305
Classified	—		—		2,082		24,173		1,524		11,125		—		38,904

Total	304,279		163,471		186,787		309,846		205,337		479,254		46,599		1,695,573

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)


As of September 30, 2021
	Term Loans
	Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
Consumer and other loans
Pass	72,706		59,182		40,851		34,539		22,783		74,776		14,827		319,664
Special Mention	75		—		10		—		1		383		—		469
Classified	43		129		341		1,015		897		2,561		436		5,422

Total	72,824		59,311		41,202		35,554		23,681		77,720		15,263		325,555

Total Loans
Pass	1,650,073		1,055,269		893,928		632,966		511,224		1,162,765		1,209,797		7,116,022
Special Mention	344		1,592		6,089		7,455		1,426		16,512		13,614		47,032
Classified	1,837		5,614		13,216		35,459		14,714		46,157		14,623		131,620

Total	$	1,652,254	$	1,062,475	$	913,233	$	675,880	$	527,364	$	1,225,434	$	1,238,034	$	7,294,674

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)


As of December 31, 2020
	Term Loans
	Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial
Pass	$	339,074	$	185,636	$	70,549	$	59,917	$	37,573	$	42,685	$	540,960	$	1,276,394
Special Mention	231		824		561		445		915		2,580		24,826		30,382
Classified	2,501		2,688		11,227		4,425		6,582		1,277		10,646		39,346

Total	341,806		189,148		82,337		64,787		45,070		46,542		576,432		1,346,122

Construction
Pass	461,715		390,443		86,490		52,942		40,907		62,890		112,004		1,207,391
Special Mention	469		1,485		2,197		1,221		729		13		—		6,114
Classified	573		1,755		3,178		141		—		3,068		—		8,715

Total	462,757		393,683		91,865		54,304		41,636		65,971		112,004		1,222,220

Residential real estate:
1-to-4 family mortgage
Pass	283,107		176,711		164,499		157,731		111,194		162,051		—		1,055,293
Special Mention	1,423		1,829		1,209		753		721		3,865		—		9,800
Classified	448		1,428		3,806		5,473		3,622		9,400		—		24,177

Total	284,978		179,968		169,514		163,957		115,537		175,316		—		1,089,270

Residential line of credit
Pass	—		—		—		—		—		—		400,206		400,206
Special Mention	—		—		—		—		—		—		2,653		2,653
Classified	—		—		—		—		—		—		5,352		5,352

Total	—		—		—		—		—		—		408,211		408,211

Multi-family mortgage
Pass	29,006		13,446		11,843		46,561		28,330		35,339		11,094		175,619
Special Mention	—		—		—		—		—		—		—		—
Classified	—		—		—		—		—		57		—		57

Total	29,006		13,446		11,843		46,561		28,330		35,396		11,094		175,676


Commercial real estate:
Owner occupied
Pass	140,904		179,500		97,577		94,659		76,539		224,108		53,451		866,738
Special Mention	967		1,356		4,251		16,173		6,101		2,466		230		31,544
Classified	44		1,785		2,423		6,074		274		11,226		4,733		26,559

Total	141,915		182,641		104,251		116,906		82,914		237,800		58,414		924,841

Non-owner occupied
Pass	166,962		229,442		342,640		221,149		290,163		272,184		38,820		1,561,360
Special Mention	—		1,500		6,672		—		207		8,445		—		16,824
Classified	—		2,210		1,502		—		—		17,083		—		20,795

Total	166,962		233,152		350,814		221,149		290,370		297,712		38,820		1,598,979

Consumer and other loans
Pass	89,625		52,839		39,725		27,201		43,503		37,673		14,817		305,383
Special Mention	281		797		1,588		468		526		1,364		11		5,035
Classified	151		565		1,434		1,161		935		2,308		668		7,222

Total	90,057		54,201		42,747		28,830		44,964		41,345		15,496		317,640

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)


As of December 31, 2020
	Term Loans
	Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
Total Loans
Pass	1,510,393		1,228,017		813,323		660,160		628,209		836,930		1,171,352		6,848,384
Special Mention	3,371		7,791		16,478		19,060		9,199		18,733		27,720		102,352
Classified	3,717		10,431		23,570		17,274		11,413		44,419		21,399		132,223

Total	$	1,517,481	$	1,246,239	$	853,371	$	696,494	$	648,821	$	900,082	$	1,220,471	$	7,082,959

Nonaccrual and Past Due Loans

Nonperforming loans include loans that are no longer accruing interest (nonaccrual loans) and loans past due ninety or more days and still accruing interest.

The following tables represent an analysis of the aging by class of financing receivable as of September 30, 2021 and December 31, 2020:


September 30, 2021	30-89 days past due		90 days or more and accruing interest		Non-accrual loans		Loans current on payments and accruing interest		Total
Commercial and industrial	$	1,400	$	126	$	2,896	$	1,248,003	$	1,252,425
Construction	2,078		1,057		3,851		1,183,637		1,190,623
Residential real estate:
1-to-4 family mortgage	5,233		6,989		4,936		1,157,997		1,175,155
Residential line of credit	1,132		—		1,269		390,039		392,440
Multi-family mortgage	—		—		50		324,612		324,662
Commercial real estate:
Owner occupied	565		—		6,239		931,437		938,241
Non-owner occupied	452		—		11,666		1,683,455		1,695,573
Consumer and other	4,542		729		3,219		317,065		325,555
Total	$	15,402	$	8,901	$	34,126	$	7,236,245	$	7,294,674


December 31, 2020	30-89 days past due		90 days or more and accruing interest		Non-accrual loans		Loans current on payments and accruing interest		Total
Commercial and industrial	$	3,297	$	330	$	16,005	$	1,326,490	$	1,346,122
Construction	7,607		573		4,053		1,209,987		1,222,220
Residential real estate:
1-to-4 family mortgage	7,058		10,470		5,923		1,065,819		1,089,270
Residential line of credit	3,551		239		1,757		402,664		408,211
Multi-family mortgage	—		57		—		175,619		175,676
Commercial real estate:
Owner occupied	98		—		7,948		916,795		924,841
Non-owner occupied	915		—		12,471		1,585,593		1,598,979
Consumer and other	4,469		2,027		2,603		308,541		317,640
Total	$	26,995	$	13,696	$	50,760	$	6,991,508	$	7,082,959

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The following tables provide the amortized cost basis of loans on non-accrual status, as well as any related allowance as of September 30, 2021 and December 31, 2020 by class of financing receivable.



September 30, 2021	Non-accrual with no related allowance		Non-accrual with related allowance		Related allowance
Commercial and industrial	$	1,777	$	1,119	$	135
Construction	2,879		972		121
Residential real estate:
1-to-4 family mortgage	772		4,164		66
Residential line of credit	804		465		9
Multi-family mortgage	—		50		8
Commercial real estate:
Owner occupied	5,408		831		171
Non-owner occupied	6,279		5,387		641
Consumer and other	—		3,219		163
Total	$	17,919	$	16,207	$	1,314



December 31, 2020	Non-accrual with no related allowance		Non-accrual with related allowance		Related allowance

Commercial and industrial	$	13,960	$	2,045	$	383
Construction	3,061		992		131
Residential real estate:
1-to-4 family mortgage	3,048		2,875		84
Residential line of credit	854		903		31
Multi-family mortgage	—		—		—
Commercial real estate:
Owner occupied	7,172		776		63
Non-owner occupied	4,566		7,905		1,711
Consumer and other	—		2,603		147
Total	$	32,661	$	18,099	$	2,550

The following presents interest income recognized on nonaccrual loans during the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Commercial and industrial	$	190	$	287	$	523	$	304
Construction	75		42		105		48
Residential real estate:
1-to-4 family mortgage	114		15		199		21
Residential line of credit	197		72		242		72
Multi-family mortgage	—		—		2		—
Commercial real estate:
Owner occupied	187		32		419		75
Non-owner occupied	123		76		353		185
Consumer and other	75		—		130		24
Total	$	961	$	524	$	1,973	$	729

Accrued interest receivable written off as an adjustment to interest income amounted to $63 and $177 for the three months ended September 30, 2021 and 2020, respectively, and $660 and $459 for the nine months ended September 30, 2021 and 2020, respectively.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Troubled debt restructurings

As of September 30, 2021 and December 31, 2020, the Company had a recorded investment in TDRs of $29,645 and $15,988, respectively. The modifications included extensions of the maturity date and/or a stated rate of interest to one lower than the current market rate to borrowers experiencing financial difficulty. Of these loans, $10,628 and $8,279 were classified as non-accrual loans as of September 30, 2021 and December 31, 2020, respectively. The Company has calculated $1,007 and $310 in allowances for credit losses on TDRs as of September 30, 2021 and December 31, 2020, respectively. Unfunded loan commitments related to these loans totaled $422 as of September 30, 2021. There were no commitments to extend any additional funds on troubled debt restructurings as of December 31, 2020.

The following tables present the financial effect of TDRs recorded during the periods indicated.


Three Months Ended September 30, 2021	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves





Residential real estate:
1-to-4 family mortgage	1	$	134	$	134	$	—


Total	1	$	134	$	134	$	—


Nine Months Ended September 30, 2021	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial and industrial	5	$	13,162	$	13,162	$	—

Commercial real estate:
Owner occupied	4	3,550		3,550		—
Non-owner occupied	1	11,997		11,997		—
Residential real estate:
1-to-4 family mortgage	3	945		945		—
Residential line of credit	1	11		11		—

Total	14	$	29,665	$	29,665	$	—


Three Months Ended September 30, 2020	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial and industrial	2	$	420	$	420	$	—








Total	2	$	420	$	420	$	—


Nine Months Ended September 30, 2020	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial and industrial	3	$	1,573	$	1,573	$	—

Commercial real estate:
Owner occupied	1	788		788
Non-owner occupied	2	3,752		3,752		—
Residential real estate:
1-4 family mortgage	2	77		77		—

Total	8	$	6,190	$	6,190	$	—

Troubled debt restructurings for which there was a payment default within twelve months following the modification totaled $305 during the three and nine months ended September 30, 2021. There were no such defaults during the three and nine months ended September 30, 2020. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy. The terms of certain other loans were modified during the three and nine months ended September 30, 2021 and 2020 that did not meet the definition of a TDR. The

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

modification of these loans usually involve either a modification of the terms of a loan to borrowers who are not experiencing financial difficulties or an insignificant delay in payments.

Collateral Dependent Loans

For loans for which the repayment (based on the Company's assessment) is expected to be provided substantially through the operation or sale of collateral and the borrower is experiencing financial difficulty, the following table presents the loans and the corresponding individually assessed allowance for credit losses by class of financing receivable. Significant changes in individually assessed reserves are due to changes in the valuation of the underlying collateral in addition to changes in accrual and past due status.


	September 30, 2021
	Type of Collateral
	Real Estate		Financial Assets and Equipment		Individually assessed allowance for credit loss
Commercial and industrial	$	635	$	2,166	$	123
Construction	4,597		—		112
Residential real estate:
1-to-4 family mortgage	375		—		—
Residential line of credit	1,123		—		7

Commercial real estate:
Owner occupied	7,808		—		167
Non-owner occupied	11,430		—		624
Consumer and other	26		—		2
Total	$	25,994	$	2,166	$	1,035


	December 31, 2020
	Type of Collateral
	Real Estate		Financial Assets and Equipment		Individually assessed allowance for credit loss
Commercial and industrial	$	—	$	1,728	$	117
Construction	3,877		—		—
Residential real estate:
1-to-4 family mortgage	226		—		—
Residential line of credit	1,174		—		9

Commercial real estate:
Owner occupied	3,391		—		30
Non-owner occupied	8,164		—		1,531

Total	$	16,832	$	1,728	$	1,687

Deferrals Program included in COVID-19 Relief

The following table outlines the Company's recorded investment and percentage of loans held for investment by class of financing receivable for executed deferrals remaining on deferral status as of September 30, 2021 or December 31, 2020, in connection with Company's COVID-19 relief programs. These deferrals typically ranged from sixty to ninety days per deferral and the majority were not considered TDRs under the interagency regulatory guidance or CARES Act, issued in March 2020. Section 541 of the Consolidated Appropriations Act extended this relief to the earlier of January 1, 2022 or 60 days after the national emergency termination date. As of September 30, 2021 and December 31, 2020, the Company had a recorded investment in loans totaling $1,331,538 and $1,399,088 previously deferred that were no longer in deferral status.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)


	September 30, 2021				December 31, 2020
				% of Loans					% of Loans
Commercial and industrial		$	—		—	%	$	7,118		0.5	%
Construction		—			—	%	1,918			0.2	%
Residential real estate:
1-to-4 family mortgage		—			—	%	19,201			1.8	%
Residential line of credit		—			—	%	204			—	%
Multi-family mortgage		—			—	%	3,305			1.9	%
Commercial real estate:
Owner occupied		—			—	%	19,815			2.1	%
Non-owner occupied		17,953			1.1	%	139,590			8.7	%
Consumer and other		—			—	%	11,366			3.6	%
Total		$	17,953		0.2	%	$	202,517		2.9	%

Note (5)—Other real estate owned

The amount reported as other real estate owned includes property acquired through foreclosure in addition to excess facilities held for sale and is carried at fair value less estimated cost to sell the property. The following table summarizes the other real estate owned for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Balance at beginning of period	$	11,986	$	15,091	$	12,111	$	18,939
Transfers from loans	349		573		4,945		1,579
Transfers to premises and equipment	—		—		—		(841)

Proceeds from sale of other real estate owned	(4,173)		(1,411)		(8,834)		(5,561)
Gain on sale of other real estate owned	2,090		119		3,190		464
Loans provided for sales of other real estate owned	(152)		—		(685)		—
Write-downs and partial liquidations	(85)		(1,624)		(712)		(1,832)
Balance at end of period	$	10,015	$	12,748	$	10,015	$	12,748

Foreclosed residential real estate properties totaled $676 and $1,890 as of September 30, 2021 and December 31, 2020, respectively. The recorded investment in residential mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process totaled $129 and $167 at September 30, 2021 and December 31, 2020, respectively.

Excess land and facilities held for sale resulting from branch consolidations totaled $3,501 and $5,703 as of September 30, 2021 and December 31, 2020, respectively.

Note (6)—Leases:

As of September 30, 2021, the Company was the lessee in 55 operating leases and 1 finance lease of certain branch, mortgage and operations locations, of which 44 operating leases and 1 finance lease currently have remaining terms varying from greater than one year to 34 years. Leases with initial terms of less than one year are not recorded on the consolidated balance sheets. The Company also does not include equipment leases and leases in which the Company is the lessor on the consolidated balance sheets as these are insignificant.

Many leases include one or more options to renew, with renewal terms that can extend the lease up to an additional 20 years or more. Certain lease agreements contain provisions to periodically adjust rental payments for inflation. Renewal options that management is reasonably certain to renew and fixed rent escalations are included in the right-of-use asset and lease liability.

During the year ended December 31, 2020, the Company entered into a lease for a new corporate headquarters building located in downtown Nashville. The building is currently under construction and anticipated to be completed in late 2022.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Upon commencement, the Company estimates recording a ROU asset and operating lease liability of approximately $29,000 and $30,000, respectively, in connection with this lease.

Information related to the Company's leases is presented below as of September 30, 2021 and December 31, 2020:


		September 30,			December 31,
	Classification	2021			2020
Right-of-use assets:
Operating leases	Operating lease right-of-use assets	$	44,006		$	49,537
Finance leases	Premises and equipment, net	1,505			1,588
Total right-of-use assets		$	45,511		$	51,125
Lease liabilities:
Operating leases	Operating lease liabilities	$	48,875		$	55,187
Finance leases	Borrowings	1,532			1,598
Total lease liabilities		$	50,407		$	56,785
Weighted average remaining lease term (in years) - operating		12.4			12.2
Weighted average remaining lease term (in years) - finance		13.6			14.4
Weighted average discount rate - operating		2.72		%	2.65		%
Weighted average discount rate - finance		1.76		%	1.76		%

The components of total lease expense included in the consolidated statements of income were as follows:


		Three Months Ended				Nine Months Ended
		September 30,				September 30,
	Classification	2021		2020			2021		2020
Operating lease costs:
Amortization of right-of-use asset	Occupancy and equipment	$	1,838	$	1,663		$	5,948	$	4,341
Short-term lease cost	Occupancy and equipment	107		95			296		261
Variable lease cost	Occupancy and equipment	284		78			760		376

Gain on lease modifications and terminations	Occupancy and equipment	(14)		—			(801)		—
Finance lease costs:
Interest on lease liabilities	Interest expense on borrowings	7		—			21		—
Amortization of right-of-use asset	Occupancy and equipment	28		—			83		—
Total lease cost		$	2,250	$	1,836		$	6,307	$	4,978

During the three and nine months ended September 30, 2021, the Company recorded $14 and $801 in gains on lease modifications and terminations on certain vacated locations that were consolidated as a result of previous acquisitions. There was no such activity during the three and nine months ended September 30, 2021 and 2020.

The Company does not separate lease and non-lease components and instead elects to account for them as a single lease component. Variable lease cost primarily represents variable payments such as common area maintenance, utilities, and property taxes.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

A maturity analysis of operating and finance lease liabilities and a reconciliation of undiscounted cash flows to the total lease liability as of September 30, 2021 is as follows:


	Operating		Finance
	Leases		Lease
Lease payments due:
September 30, 2022	$	7,434	$	116
September 30, 2023	6,110		117
September 30, 2024	5,180		119
September 30, 2025	4,765		121
September 30, 2026	4,637		123
Thereafter	29,784		1,133
Total undiscounted future minimum lease payments	57,910		1,729
Less: imputed interest	(9,035)		(197)
Lease liability	$	48,875	$	1,532

Note (7)—Mortgage servicing rights:

Changes in the Company’s mortgage servicing rights were as follows for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020


Carrying value at beginning of period	$	101,615	$	60,508	$	79,997	$	75,521
Capitalization	9,215		18,202		31,382		33,415

Mortgage servicing rights acquired from Franklin, at fair value	—		4,850		—		4,850



Change in fair value:
Due to pay-offs/pay-downs	(7,302)		(7,756)		(24,488)		(19,676)
Due to change in valuation inputs or assumptions	7,063		581		23,700		(22,575)
Carrying value at end of period	$	110,591	$	71,535	$	110,591	$	71,535

The following table summarizes servicing income and expense, which are included in 'Mortgage banking income' and 'Other noninterest expense', respectively, within the Mortgage segment operating results for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Servicing income:
Servicing income	$	7,539	$	5,536	$	21,258	$	15,667
Change in fair value of mortgage servicing rights	(239)		(7,175)		(788)		(42,251)
Change in fair value of derivative hedging instruments	(2,128)		(265)		(9,987)		15,705
Servicing income (loss)	5,172		(1,904)		10,483		(10,879)
Servicing expenses	2,156		1,999		7,381		5,392
Net servicing income (loss)(1)	$	3,016	$	(3,903)	$	3,102	$	(16,271)

(1) Excludes benefit of custodial servicing related noninterest-bearing deposits held by the Bank.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Data and key economic assumptions related to the Company’s mortgage servicing rights as of September 30, 2021 and December 31, 2020 are as follows:


	September 30,			December 31,
	2021			2020
Unpaid principal balance	$	10,633,805		$	9,787,657
Weighted-average prepayment speed (CPR)	9.46		%	14.07		%
Estimated impact on fair value of a 10% increase	$	(4,737)		$	(4,493)
Estimated impact on fair value of a 20% increase	$	(9,107)		$	(8,599)
Discount rate	11.56		%	11.49		%
Estimated impact on fair value of a 100 bp increase	$	(4,454)		$	(2,942)
Estimated impact on fair value of a 200 bp increase	$	(8,571)		$	(5,674)
Weighted-average coupon interest rate	3.29		%	3.58		%
Weighted-average servicing fee (basis points)	27			28
Weighted-average remaining maturity (in months)	330			328

The Company hedges the mortgage servicing rights portfolio with various derivative instruments to offset changes in the fair value of the related mortgage servicing rights. See Note 10, "Derivatives" for additional information on these hedging instruments.

As of September 30, 2021 and December 31, 2020, mortgage escrow deposits totaled to $190,631 and $147,957, respectively.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Note (8)—Income taxes:

An allocation of federal and state income taxes between current and deferred portions is presented below:


	Three Months Ended September 30,
	2021		2020
Current	$	2,350	$	13,123
Deferred	7,366		(15,163)
Total	$	9,716	$	(2,040)

	Nine Months Ended September 30,
	2021		2020
Current	$	17,840	$	37,038
Deferred	20,904		(31,543)
Total	$	38,744	$	5,495

The following table presents a reconciliation of federal income taxes at the statutory federal rate of 21% to the Company's effective tax rates for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,
	2021				2020
Federal taxes calculated at statutory rate	$	11,551	21.0	%	$	(1,604)	21.0	%
Increase (decrease) resulting from:
State taxes, net of federal benefit	3,279		6.0	%	100		(1.3)	%


(Benefit) expense from equity based compensation	(1,784)		(3.2)	%	(7)		0.1	%
Municipal interest income, net of interest disallowance	(416)		(0.8)	%	(422)		5.5	%
Bank owned life insurance	(74)		(0.1)	%	(55)		0.7	%
NOL Carryback provision under CARES Act	(3,424)		(6.2)	%
Merger and offering costs	—		—	%	126		(1.6)	%
Section 162(m) limitation	1,065		1.9	%	—		—	%
Other	(481)		(0.9)	%	(178)		2.3	%
Income tax expense, as reported	$	9,716	17.7	%	$	(2,040)	26.7	%

	Nine Months Ended September 30,
	2021				2020
Federal taxes calculated at statutory rate	$	37,844	21.0	%	$	4,938	21.0	%
Increase (decrease) resulting from:
State taxes, net of federal benefit	6,908		3.8	%	1,266		5.4	%
(Benefit) expense from equity based compensation	(2,129)		(1.2)	%	154		0.7	%
Municipal interest income, net of interest disallowance	(1,259)		(0.7)	%	(996)		(4.2)	%
Bank owned life insurance	(240)		(0.1)	%	(90)		(0.4)	%
NOL Carryback provision under CARES Act	(3,424)		(1.9)	%
Merger and offering costs	127		0.1	%	289		1.2	%
Section 162(m) limitation	1,313		0.7	%			—	%
Other	(396)		(0.2)	%	(66)		(0.3)	%
Income tax expense, as reported	$	38,744	21.5	%	$	5,495	23.4	%

The Company is subject to Internal Revenue Code Section 162(m), which limits the deductibility of compensation paid to certain individuals. The restricted stock unit plans that existed prior to the corporation being public vested after the reliance period as defined in the underlying Treasury Regulations. It is the Company’s policy to apply the Section 162(m) limitations to stock-based compensation first and then followed by cash compensation. As a result of the vesting of these units and cash compensation paid to date, the Company has disallowed a portion of its compensation paid to the applicable individuals.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The components of the net deferred tax assets at September 30, 2021 and December 31, 2020, are as follows:


	September 30,		December 31
	2021		2020
Deferred tax assets:
Allowance for credit losses	$	38,751	$	48,409
Operating lease liabilities	13,134		14,496
Federal net operating loss	1,541		1,753

Deferred compensation	6,798		8,872


Unrealized loss on cash flow hedges	326		499
Other	13,886		19,101
Subtotal	74,436		93,130
Deferred tax liabilities:
FHLB stock dividends	$	(484)	$	(561)
Operating leases - right of use assets	(11,726)		(13,197)
Depreciation	(7,276)		(7,491)
Amortization of core deposit intangibles	(200)		(684)
Unrealized gain on equity securities	(3,879)		(17)

Unrealized gain on debt securities	(3,913)		(13,027)
Mortgage servicing rights	(28,774)		(20,803)
Goodwill	(13,133)		(11,301)
Other	(4,407)		(9,653)
Subtotal	(73,792)		(76,734)
Net deferred tax assets	$	644	$	16,396

The Company has net operating loss carryforward acquired from Franklin of $7,338 as of September 30, 2021. The net operating loss carryforward can be used to offset taxable income in future periods and reduce income tax liabilities in those future periods. While net operating losses are subject to certain annual utilization limits under Section 382, the Company believes the net operating loss carryforward will be realized based on the projected annual limitation and the length of the net operating loss carryover period. The Company's determination of the realization of the net deferred tax asset is based on its assessment of all available positive and negative evidence. The net operating loss carryforward expires on December 31, 2029.

Note (9)—Commitments and contingencies:

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates.

Commitments may expire without being used. Off-balance sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.


	September 30,		December 31,
	2021		2020
Commitments to extend credit, excluding interest rate lock commitments	$	2,826,186	$	2,719,996
Letters of credit	63,698		67,598
Balance at end of period	$	2,889,884	$	2,787,594

As of September 30, 2021 and December 31, 2020, loan commitments included above with floating interest rates totaled $2.03 billion and $1.65 billion, respectively.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The table below presents activity within the allowance for credit losses on unfunded commitments included in accrued expenses and other liabilities on the Company's consolidated balance sheets for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Balance at beginning of period	$	13,202	$	6,500	$	16,378	$	—
Impact of CECL adoption on provision for credit losses on unfunded commitments	—		—		—		2,947
Increase in provision for credit losses from unfunded commitments acquired in business combination	—		10,429		—		10,499
Provision for credit losses on unfunded commitments	301		(862)		(2,875)		2,621
Balance at end of period	$	13,503	$	16,067	$	13,503	$	16,067

In connection with the sale of mortgage loans to third party investors, the Company makes usual and customary representations and warranties as to the propriety of its origination activities. Occasionally, the investors require the Company to repurchase loans sold to them under the terms of the warranties. When this happens, the loans are recorded at fair value with a corresponding charge to a valuation reserve. The total principal amount of loans repurchased (or indemnified for) was $2,917 and $4,386 for the three and nine months ended September 30, 2021, respectively and $1,329 and $5,696 for the three and nine months ended September 30, 2020, respectively. The Company has established a reserve associated with loan repurchases.

The following table summarizes the activity in the repurchase reserve included in accrued expenses and other liabilities on the Company's consolidated balance sheets:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Balance at beginning of period	$	5,489	$	4,601	$	5,928	$	3,529
Provision for loan repurchases or indemnifications	—		901		(266)		2,128

Losses on loans repurchased or indemnified	(120)		(44)		(293)		(199)
Balance at end of period	$	5,369	$	5,458	$	5,369	$	5,458

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Note (10)—Derivatives:

The Company utilizes derivative financial instruments as part of its ongoing efforts to manage its interest rate risk exposure as well as the exposure for its customers. Derivative financial instruments are included in the consolidated balance sheets line item “Other assets” or “Other liabilities” at fair value in accordance with ASC 815, “Derivatives and Hedging.”

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate-lock commitments). Under such commitments, interest rates for mortgage loans are typically locked in for between 45 to 90 days with the customer. These interest rate lock commitments are recorded at fair value in the Company’s consolidated balance sheets. The Company also enters into best effort or mandatory delivery forward commitments to sell residential mortgage loans to secondary market investors. Gains and losses arising from changes in the valuation of the rate-lock commitments and forward commitments are recognized currently in earnings and are reflected under the line item “Mortgage banking income” on the consolidated statements of income.

The Company enters into forward commitments, futures and options contracts that are not designated as hedging instruments as economic hedges to offset the changes in fair value of Mortgage servicing rights. Gains and losses associated with these instruments are included in earnings and are reflected under the line item “Mortgage banking income” on the consolidated statements of income.

Additionally, the Company enters into derivative instruments that are not designated as hedging instruments to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with customer contracts, the Company enters into an offsetting derivative contract. The Company manages its credit risk, or potential risk of default by its commercial customers through credit limit approval and monitoring procedures.

The Company also maintains two interest rate swap agreements with notional amounts totaling $30,000 used to hedge interest rate exposure on outstanding subordinated debentures included in long-term debt totaling $30,930. Under these agreements, the Company receives a variable rate of interest equal to 3-month LIBOR and pays a weighted average fixed rate of interest of 2.08%. The interest rate swap contracts, which mature in June of 2024, are designated as cash flow hedges with the objective of reducing the variability in cash flows resulting from changes in interest rates. As of September 30, 2021 and December 31, 2020, the fair value of these contracts resulted in liability balances of $1,247 and $1,909, respectively.

In July 2017, the Company entered into three interest rate swap contracts to hedge the variability of cash flows associated with the Company’s FHLB borrowings. These swaps were canceled during the year ended December 31, 2018, locking in a tax-adjusted gain of $1,564 in other comprehensive income to be accreted over the terms of the underlying contracts. The advances associated with the legacy cash flow hedge matured during the year ended December 31, 2020, and the Company elected not to renew them. As such, during the fourth quarter of 2020, the remaining unamortized gain was reclassified from accumulated other comprehensive income to earnings.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The following tables provide details on the Company’s derivative financial instruments as of the dates presented:


	September 30, 2021
	Notional Amount		Asset		Liability
Not designated as hedging:
Interest rate contracts	$	611,188	$	22,456	$	22,301
Forward commitments	1,404,819		6,526		—
Interest rate-lock commitments	738,201		9,804		—
Futures contracts	491,800		—		4,758

Total	$	3,246,008	$	38,786	$	27,059


	December 31, 2020
	Notional Amount		Asset		Liability
Not designated as hedging:
Interest rate contracts	$	606,878	$	34,547	$	34,317
Forward commitments	1,358,328		—		11,633
Interest rate-lock commitments	1,191,621		34,391		—
Futures contracts	375,400		—		383

Total	$	3,532,227	$	68,938	$	46,333


	September 30, 2021
	Notional Amount		Asset		Liability
Designated as hedging:
Interest rate swaps	$	30,000	$	—	$	1,247


	December 31, 2020
	Notional Amount		Asset		Liability
Designated as hedging:
Interest rate swaps	$	30,000	$	—	$	1,909

Gains (losses) included in the consolidated statements of income related to the Company’s derivative financial instruments were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Not designated as hedging instruments (included in mortgage banking income):
Interest rate lock commitments	$	(3,316)	$	5,994	$	(24,587)	$	35,997
Forward commitments	(806)		(16,548)		23,252		(56,998)
Futures contracts	(2,152)		(587)		(9,380)		10,955

Total	$	(6,274)	$	(11,141)	$	(10,715)	$	(10,046)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Designated as hedging:
Amount of gain reclassified from other comprehensive income and recognized in interest expense on borrowings, net of taxes of $0, $41, $0, and $145	$	—	$	115	$	—	$	410
Loss included in interest expense on borrowings	(148)		(137)		(428)		(211)
Total	$	(148)	$	(22)	$	(428)	$	199

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The following discloses the amount included in other comprehensive income, net of tax, for derivative instruments designated as cash flow hedges for the periods presented:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Designated as hedging:
Amount of gain (loss) recognized in other comprehensive income, net of tax $38, $40, $173, and $(403)	$	106	$	112	$	489	$	(1,145)

Certain financial instruments, including derivatives, may be eligible for offset in the consolidated balance sheets when the “right of offset” exists or when the instruments are subject to an enforceable master netting agreement, which includes the right of the non-defaulting party or non-affected party to offset recognized amounts, including collateral posted with the counterparty, to determine a net receivable or net payable upon early termination of the agreement. Certain of the Company’s derivative instruments are subject to master netting agreements, however the Company has not elected to offset such financial instruments in the consolidated balance sheets. The following table presents the Company's gross derivative positions as recognized in the consolidated balance sheets as well as the net derivative positions, including collateral pledged to the extent the application of such collateral did not reduce the net derivative liability position below zero, had the Company elected to offset those instruments subject to an enforceable master netting agreement:


	Offsetting Derivative Assets				Offsetting Derivative Liabilities
	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Gross amounts recognized	$	4,813	$	3,863	$	19,467	$	34,051
Gross amounts offset in the consolidated balance sheets	—		—		—		—
Net amounts presented in the consolidated balance sheets	4,813		3,863		19,467		34,051

Gross amounts not offset in the consolidated balance sheets
Less: financial instruments	3,816		857		3,816		857
Less: financial collateral pledged	—		—		15,651		33,194
Net amounts	$	997	$	3,006	$	—	$	—

Most derivative contracts with clients are secured by collateral. Additionally, in accordance with the interest rate agreements with derivatives dealers, the Company may be required to post margin to these counterparties. At September 30, 2021 and December 31, 2020, the Company had minimum collateral posting thresholds with certain derivative counterparties and had collateral posted of $68,910 and $57,985, respectively, against its obligations under these agreements. Cash collateral related to derivative contracts is recorded in other assets in the consolidated balance sheets.

Note (11)—Fair value of financial instruments:

FASB ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a framework for measuring the fair value of assets and liabilities according to a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that are derived from assumptions based on management’s estimate of assumptions that market participants would use in pricing the asset or liability based on the best information available under the circumstances.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The hierarchy is broken down into the following three levels, based on the reliability of inputs:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs for assets or liabilities that are derived from assumptions based on management’s estimate of assumptions that market participants would use in pricing the assets or liabilities.

The Company records the fair values of financial assets and liabilities on a recurring and non-recurring basis using the following methods and assumptions:


Investment Securities						Investment securities are recorded at fair value on a recurring basis. Fair values for securities are based on quoted market prices, where available. If quoted prices are not available, fair values are based on quoted market prices of similar instruments or are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the pricing relationship or correlation among other benchmark quoted securities. Investment securities valued using quoted market prices of similar instruments or that are valued using matrix pricing are classified as Level 2. When significant inputs to the valuation are unobservable, the available-for-sale securities are classified within Level 3 of the fair value hierarchy. Where no active market exists for a security or other benchmark securities, fair value is estimated by the Company with reference to discount margins for other high-risk securities.

Loans held for sale						Loans held for sale are carried at fair value. Fair value is determined using current secondary market prices for loans with similar characteristics for the mortgage portfolio, that is, using Level 2 inputs. Commercial loans held for sale's fair value is determined using an income approach with various assumptions including expected cash flows, market discount rates, credit metrics and collateral value when appropriate. As such, these are considered Level 3.

Derivatives						The fair value of the Company's interest rate swaps are based upon fair values provided from entities that engage in interest rate swap activity and is based upon projected future cash flows and interest rates. Fair value of commitments is based on fees currently charged to enter into similar agreements, and for fixed-rate commitments, the difference between current levels of interest rates and the committed rates is also considered. These financial instruments are classified as Level 2.

OREO						OREO is comprised of commercial and residential real estate obtained in partial or total satisfaction of loan obligations and excess land and facilities held for sale. OREO acquired in settlement of indebtedness is recorded at the lower of the carrying amount of the loan or the fair value of the real estate less costs to sell. Fair value is determined on a nonrecurring basis based on appraisals by qualified licensed appraisers and is adjusted for management’s estimates of costs to sell and holding period discounts. The valuations are classified as Level 3.

Mortgage servicing rights						MSRs are carried at fair value. Fair value is determined using an income approach with various assumptions including expected cash flows, market discount rates, prepayment speeds, servicing costs, and other factors. As such, MSRs are considered Level 3.

Collateral dependent loans						Collateral dependent loans are loans for which, based on current information and events, the Company has determined foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral and it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collateral dependent loans are classified as Level 3.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The following table contains the estimated fair values and the related carrying values of the Company's financial instruments. Items which are not financial instruments are not included.


	Fair Value
September 30, 2021	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	1,324,564	$	1,324,564	$	—	$	—	$	1,324,564
Investment securities	1,577,337		—		1,577,337		—		1,577,337

Loans, net	7,155,228		—		—		7,255,887		7,255,887
Loans held for sale	855,706		—		755,210		100,496		855,706
Interest receivable	41,393		30		6,448		34,915		41,393
Mortgage servicing rights	110,591		—		—		110,591		110,591
Derivatives	38,786		—		38,786		—		38,786
Financial liabilities:
Deposits:
Without stated maturities	$	8,884,429	$	8,884,429	$	—	$	—	$	8,884,429
With stated maturities	1,187,489		—		1,196,141		—		1,196,141
Securities sold under agreement to repurchase and federal funds sold	41,730		41,730		—		—		41,730

Subordinated debt	129,448		—		—		134,668		134,668
Other borrowings	1,532		—		1,532		—		1,532
Interest payable	2,394		138		1,873		383		2,394
Derivatives	28,306		—		28,306		—		28,306


	Fair Value
December 31, 2020	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	1,317,898	$	1,317,898	$	—	$	—	$	1,317,898
Investment securities	1,176,991		—		1,176,991		—		1,176,991

Loans, net	6,912,570		—		—		7,058,693		7,058,693
Loans held for sale	899,173		—		683,770		215,403		899,173
Interest receivable	43,603		33		5,254		38,316		43,603
Mortgage servicing rights	79,997		—		—		79,997		79,997
Derivatives	68,938		—		68,938		—		68,938
Financial liabilities:
Deposits:
Without stated maturities	$	8,020,783	$	8,020,783	$	—	$	—	$	8,020,783
With stated maturities	1,437,254		—		1,446,605		—		1,446,605
Securities sold under agreement to repurchase and federal funds sold	32,199		32,199		—		—		32,199

Subordinated debt	189,527		—		—		192,149		192,149
Other borrowings	16,598		—		16,598		—		16,598
Interest payable	6,772		327		4,210		2,235		6,772
Derivatives	48,242		—		48,242		—		48,242

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The balances and levels of the assets measured at fair value on a recurring basis at September 30, 2021 are presented in the following table:


At September 30, 2021	Quoted prices in active markets for identical assets (liabilities) (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)		Total
Recurring valuations:
Financial assets:
Available-for-sale securities:
U.S. government agency securities	$	—	$	10,571	$	—	$	10,571
Mortgage-backed securities - residential	—		1,210,503		—		1,210,503
Mortgage-backed securities - commercial	—		15,712		—		15,712
Municipal securities	—		327,239		—		327,239
Treasury securities	—		6,006		—		6,006
Corporate securities	—		2,527		—		2,527
Equity securities	—		4,779		—		4,779
Total securities	$	—	$	1,577,337	$	—	$	1,577,337
Loans held for sale	—		755,210		100,496		855,706
Mortgage servicing rights	—		—		110,591		110,591
Derivatives	—		38,786		—		38,786
Financial Liabilities:
Derivatives	—		28,306		—		28,306

The balances and levels of the assets measured at fair value on a non-recurring basis at September 30, 2021 are presented in the following table:


At September 30, 2021	Quoted prices in active markets for identical assets (liabilities (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)		Total
Non-recurring valuations:
Financial assets:
Other real estate owned	$	—	$	—	$	6,192	$	6,192
Collateral dependent loans:
Commercial and industrial	$	—	$	—	$	101	$	101
Construction	—		—		606		606
Residential real estate:

Residential line of credit	—		—		311		311

Commercial real estate:
Owner occupied	—		—		315		315
Non-owner occupied	—		—		4,527		4,527
Consumer and other	—		—		24		24
Total collateral dependent loans	$	—	$	—	$	5,884	$	5,884

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The balances and levels of the assets measured at fair value on a recurring basis at December 31, 2020 are presented in the following table:


At December 31, 2020	Quoted prices in active markets for identical assets (liabilities) (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)		Total
Recurring valuations:
Financial assets:
Available-for-sale securities:
U.S. government agency securities	$	—	$	2,003	$	—	$	2,003
Mortgage-backed securities - residential	—		773,336		—		773,336
Mortgage-backed securities - commercial	—		21,588		—		21,588
Municipals, tax-exempt	—		356,329		—		356,329
Treasury securities	—		16,628		—		16,628
Corporate securities	—		2,516		—		2,516
Equity securities	—		4,591		—		4,591
Total securities	$	—	$	1,176,991	$	—	$	1,176,991
Loans held for sale	$	—	$	683,770	$	215,403	$	899,173
Mortgage servicing rights	—		—		79,997		79,997
Derivatives	—		68,938		—		68,938
Financial Liabilities:
Derivatives	—		48,242		—		48,242

The balances and levels of the assets measured at fair value on a non-recurring basis at December 31, 2020 are presented in the following table:


At December 31, 2020	Quoted prices in active markets for identical assets (liabilities) (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)		Total
Non-recurring valuations:
Financial assets:
Other real estate owned	$	—	$	—	$	6,662	$	6,662
Collateral dependent loans:
Commercial and industrial	$	—	$	—	$	684	$	684

Residential real estate:

Residential line of credit	—		—		311		311
Commercial real estate:
Owner occupied	—		—		136		136
Non-owner occupied	—		—		5,022		5,022

Total collateral dependent loans	$	—	$	—	$	6,153	$	6,153

The following tables present information as of September 30, 2021 and December 31, 2020 about significant unobservable inputs (Level 3) used in the valuation of assets measured at fair value on a nonrecurring basis:

As of September 30, 2021

Financial instrument

Fair Value

Valuation technique

Significant
unobservable inputs

Range of
inputs

Collateral dependent loans

5,884

Valuation of collateral

Discount for comparable sales

0%-30%

Other real estate owned

6,192

Appraised value of property less costs to sell

Discount for costs to sell

0%-15%

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

As of December 31, 2020

Financial instrument

Fair Value

Valuation technique

Significant
unobservable inputs

Range of
inputs

Collateral dependent loans

6,153

Valuation of collateral

Discount for comparable sales

0%-30%

Other real estate owned

6,662

Appraised value of property less costs to sell

Discount for costs to sell

0%-15%

For collateral dependent loans, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. Fair value of the loan's collateral is determined by third-party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on changes in market conditions from the time of valuation and management's knowledge of the client and client's business. As of September 30, 2021 and December 31, 2020, total amortized cost of collateral dependent loans measured on a non-recurring basis amounted to $6,918 and $7,839, respectively.

Other real estate owned acquired in settlement of indebtedness is recorded at fair value of the real estate less estimated costs to sell. Subsequently, it may be necessary to record nonrecurring fair value adjustments for declines in fair value. Any write-downs based on the asset's fair value at the date of foreclosure are charged to the allowance for credit losses. Appraisals for both collateral dependent loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the lending administrative department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry wide statistics. Collateral dependent loans that are dependent on recovery through sale of equipment, such as farm equipment, automobiles and aircrafts are generally valued based on public source pricing or subscription services while more complex assets are valued through leveraging brokers who have expertise in the collateral involved.

Fair value option

The following table summarizes the Company's loans held for sale, at fair value, as of the dates presented:


	September 30,		December 31,
	2021		2020
Commercial and industrial	$	100,496	$	215,403
Residential real estate:
1-4 family mortgage	755,210		683,770
Total loans held for sale	$	855,706	$	899,173

Mortgage loans held for sale

The Company measures mortgage loans originated for sale at fair value under the fair value option as permitted under ASC 825, "Financial Instruments" ("ASC 825"). Electing to measure these assets at fair value reduces certain timing differences and more accurately matches the changes in fair value of the loans with changes in the fair value of derivative instruments used to economically hedge them.

Net losses of $3,908 and $14,894 resulting from fair value changes of mortgage loans were recorded in income during the three and nine months ended September 30, 2021, respectively, compared to net gains of $20,378 and $6,512 during the three and nine months ended September 30, 2020, respectively. The amount does not reflect changes in fair values of related derivative instruments used to hedge exposure to market-related risks associated with these mortgage loans. The change in fair value of both loans held for sale and the related derivative instruments are recorded in Mortgage Banking Income in the consolidated statements of income. Election of the fair value option allows the Company to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at the lower of cost or fair value and the derivatives at fair value.

Government National Mortgage Association optional repurchase programs allow financial institutions to buy back

individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing and was the original transferor. At the servicer’s option and without GNMA’s prior authorization, the servicer may repurchase such a delinquent loan for an amount equal to 100 percent of the remaining principal balance of the loan. Under FASB ASC Topic 860, “Transfers and Servicing,” this buy-back option is considered a conditional option

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

until the delinquency criteria are met, at which time the option becomes unconditional. When the Company is deemed to have regained effective control over these loans under the unconditional buy-back option, the loans can no longer be reported as sold and must be brought back onto the balance sheet, regardless of whether the Company intends to exercise the buy-back option if the buyback option provides the transferor a more-than-trivial benefit. As of September 30, 2021, and December 31, 2020, there were $105,094 and $151,184, respectively, of delinquent GNMA loans previously sold that the Company did not record on its consolidated balance sheets as the Company determined there not to be a more-than-trivial benefit based on an analysis of interest rates and an assessment of potential reputational risk associated with these loans.

The Company’s valuation of mortgage loans held for sale incorporates an assumption for credit risk; however, given the short-term period that the Company holds these mortgage loans held for sale, valuation adjustments attributable to instrument-specific credit risk is nominal.

Commercial loans held for sale

The Company also has a portfolio of shared national credits and institutional healthcare loans that were acquired during 2020 in the acquisition of Franklin. These commercial loans are also being measured under the fair value option. As such, these loans are excluded from the allowance for credit losses. The following table sets forth the changes in fair value associated with this portfolio.


	Three Months Ended September 30, 2021
	Principal Balance		Fair Value Discount		Fair Value
Carrying value at beginning of period	$	135,972	$	(11,850)	$	124,122
Change in fair value:
Pay-downs and pay-offs	(24,366)		—		(24,366)

Changes in valuation included in other noninterest income	—		740		740
Carrying value at end of period	$	111,606	$	(11,110)	$	100,496

	Nine Months Ended September 30, 2021
	Principal Balance		Fair Value Discount		Fair Value
Carrying value at beginning of period	$	239,063	$	(23,660)	$	215,403
Change in fair value:
Pay-downs and pay-offs	(116,158)		—		(116,158)
Write-offs to discount	(11,299)		11,299		—
Changes in valuation included in other noninterest income	—		1,251		1,251
Carrying value at end of period	$	111,606	$	(11,110)	$	100,496

	Three Months Ended September 30, 2020
	Principal balance		Fair Value discount		Fair Value
Carrying value at beginning of period	$	—	$	—	$	—
Commercial loans held for sale acquired from Franklin	350,269		(24,063)		326,206
Change in fair value:
Pay-downs and pay-offs	(86,808)		—		(86,808)

Changes in valuation included in other noninterest income			1,858		1,858
Carrying value at end of period	$	263,461	$	(22,205)	$	241,256


	Nine Months ended September 30, 2020
	Principal balance		Fair Value discount		Fair Value
Carrying value at beginning of period	$	—	$	—	$	—
Commercial loans held for sale acquired from Franklin	350,269		(24,063)		326,206
Change in fair value:
Pay-downs and pay-offs	(86,808)		—		(86,808)

Changes in valuation included in other noninterest income	—		1,858		1,858
Carrying value at end of period	$	263,461	$	(22,205)	$	241,256

Interest income on loans held for sale measured at fair value is accrued as it is earned based on contractual rates and is reflected in loan interest income in the consolidated statements of income.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The following table summarizes the differences between the fair value and the principal balance for loans held for sale and nonaccrual loans measured at fair value as of September 30, 2021 and December 31, 2020:


September 30, 2021	Aggregate fair value		Aggregate Unpaid Principal Balance		Difference
Mortgage loans held for sale measured at fair value	$	755,210	$	738,221	$	16,989
Commercial loans held for sale measured at fair value	94,871		100,914		(6,043)

Nonaccrual loans	5,625		10,692		(5,067)

December 31, 2020
Mortgage loans held for sale measured at fair value	$	683,770	$	651,887	$	31,883
Commercial loans held for sale measured at fair value	208,914		226,867		(17,953)
Past due loans of 90 days or more	83		163		(80)
Nonaccrual loans	6,406		12,033		(5,627)

Note (12)—Segment reporting:

The Company and the Bank are engaged in the business of banking and provide a full range of financial services. The Company determines reportable segments based on the significance of the segment’s operating results to the overall Company, the products and services offered, customer characteristics, processes and service delivery of the segments and the regular financial performance review and allocation of resources by the Chief Executive Officer, the Company’s chief operating decision maker. The Company has identified two distinct reportable segments—Banking and Mortgage. The Company’s primary segment is Banking, which provides a full range of deposit and lending products and services to corporate, commercial and consumer customers. The Company offers full-service conforming residential mortgage products, including conforming residential loans and services through two distinct delivery channels: retail and ConsumerDirect. Additionally, the Mortgage segment includes the servicing of residential mortgage loans and the packaging and securitization of loans to governmental agencies. The Company’s mortgage division represents a distinct reportable segment which differs from the Company’s primary business of commercial and retail banking.

As previously reported, on March 31, 2021, the Company re-evaluated its business segments and revised to align all mortgage activities with the Mortgage segment. Previously, the Company had attributed retail mortgage activities originating from geographical locations within the footprint of the Company's branches to the Banking segment. Results for the comparable prior period have been revised to reflect this realignment. The impact of this change on previously reported segment results was the reclassification of mortgage retail footprint total net contribution of $9,508 and $18,382 from the Banking segment to the Mortgage segment for the three and nine months ended September 30, 2020, respectively.

The financial performance of the Mortgage segment is assessed based on results of operations reflecting direct revenues and expenses and allocated expenses. This approach gives management a better indication of the operating performance of the segment. When assessing the Banking segment’s financial performance, the CEO utilizes reports with indirect revenues and expenses including but not limited to the investment portfolio, electronic delivery channels and areas that primarily support the banking segment operations. Therefore, these are included in the results of the Banking segment. Other indirect revenue and expenses related to general administrative areas are also included in the internal financial results reports of the Banking segment utilized by the CEO for analysis and are thus included for Banking segment reporting. The Mortgage segment utilizes funding sources from the Banking segment in order to fund mortgage loans that are ultimately sold on the secondary market. The Mortgage segment uses the proceeds from loan sales to repay obligations due to the Banking segment.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The following tables provide segment financial information for three and nine months ended September 30, 2021 and 2020 as follows:


Three Months Ended September 30, 2021	Banking		Mortgage		Consolidated
Net interest income	$	88,576	$	(100)	$	88,476
Provisions for credit losses(1)	(2,531)		—		(2,531)
Mortgage banking income(2)	—		47,751		47,751
Change in fair value of mortgage servicing rights, net of hedging(2)	—		(2,367)		(2,367)
Other noninterest income	13,823		(201)		13,622
Depreciation and amortization	1,791		349		2,140
Amortization of intangibles	1,344		—		1,344

Other noninterest expense	55,642		35,881		91,523
Income before income taxes	$	46,153	$	8,853	$	55,006
Income tax expense					9,716
Net income applicable to FB Financial Corporation and noncontrolling interest					45,290
Net income applicable to noncontrolling interest(3)					—
Net income applicable to FB Financial Corporation					$	45,290
Total assets	$	10,712,281	$	1,098,009	$	11,810,290
Goodwill	242,561		—		242,561

(1)Included $301 in provision for credit losses on unfunded commitments.

(2)Change in fair value of mortgage servicing rights, net of hedging is included in mortgage banking income in the Company's consolidated statements of income.

(3)Banking segment includes noncontrolling interest.


Three Months Ended September 30, 2020	Banking		Mortgage		Consolidated
Net interest income	$	68,791	$	37	$	68,828
Provisions for credit losses(1)	55,401		—		55,401
Mortgage banking income(2)	—		92,126		92,126
Change in fair value of mortgage servicing rights, net of hedging(2)	—		(7,440)		(7,440)
Other noninterest income	12,340		—		12,340
Depreciation and amortization	1,550		273		1,823
Amortization of intangibles	1,417		—		1,417

Other noninterest expense(3)	69,568		45,284		114,852
(Loss) income before income taxes	$	(46,805)	$	39,166	$	(7,639)
Income tax benefit					(2,040)
Net loss applicable to FB Financial Corporation and noncontrolling interest					(5,599)
Net income applicable to noncontrolling interest(4)					—
Net loss applicable to FB Financial Corporation					$	(5,599)
Total assets	$	10,143,956	$	866,482	$	11,010,438
Goodwill	236,086		—		236,086

(1)Included $9,567 in provision for credit losses on unfunded commitments.

(2)Change in fair value of mortgage servicing rights, net of hedging is included in mortgage banking income in the Company's consolidated statements of income.

(3)Included $20,400 of merger costs in the Banking Segment primarily related to the acquisition and integration of Franklin and $330 of merger costs in the Mortgage segment related to the Franklin merger.

(4)Banking segment includes noncontrolling interest.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)


Nine Months Ended September 30, 2021	Banking		Mortgage		Consolidated
Net interest income	$	257,726	$	(111)	$	257,615
Provisions for credit losses(1)	(30,224)		—		(30,224)
Mortgage banking income(2)	—		146,990		146,990
Change in fair value of mortgage servicing rights, net of hedging(2)	—		(10,775)		(10,775)
Other noninterest income	39,223		(402)		38,821
Depreciation and amortization	5,267		1,021		6,288
Amortization of intangibles	4,178		—		4,178

Other noninterest expense	163,261		108,938		272,199
Income before income taxes	$	154,467	$	25,743	$	180,210
Income tax expense					38,744
Net income applicable to FB Financial Corporation and noncontrolling interest					141,466
Net income applicable to noncontrolling interest(3)					8
Net income applicable to FB Financial Corporation					$	141,458
Total assets	$	10,712,281	$	1,098,009	$	11,810,290
Goodwill	242,561		—		242,561

(1)Included $(2,875) in provision for credit losses on unfunded commitments.

(2)Change in fair value of mortgage servicing rights, net of hedging is included in mortgage banking income in the Company's consolidated statements of income.

(3)Banking segment includes noncontrolling interest.


Nine Months Ended September 30, 2020	Banking		Mortgage		Consolidated
Net interest income	$	180,374	$	40	$	180,414
Provisions for credit losses(1)	110,887		—		110,887
Mortgage banking income(2)	—		216,145		216,145
Change in fair value of mortgage servicing rights, net of hedging(2)	—		(26,546)		(26,546)
Other noninterest income	31,618		—		31,618
Depreciation and amortization	4,545		770		5,315
Amortization of intangibles	3,825		—		3,825

Other noninterest expense(3)	150,022		108,068		258,090
(Loss) income before income taxes	$	(57,287)	$	80,801	$	23,514
Income tax expense					5,495


Net income applicable to FB Financial Corporation and noncontrolling interest					18,019
Net income applicable to noncontrolling interest(4)					—
Net income applicable to FB Financial Corporation					$	18,019
Total assets	$	10,143,956	$	866,482	$	11,010,438
Goodwill	236,086		—		236,086

(1)Includes $13,050 in provision for credit losses on unfunded commitments.

(2)Change in fair value of mortgage servicing rights, net of hedging is included in mortgage banking income in the Company's consolidated statements of income.

(3)Includes $25,036 of merger costs in the Banking segment related to the Farmers National acquisition and the Franklin merger and $330 of merger costs in the Mortgage segment related to the Franklin merger.

(4)Banking segment includes noncontrolling interest.

Our Banking segment provides our Mortgage segment with a warehouse line of credit that is used to fund mortgage loans held for sale. The warehouse line of credit, which is eliminated in consolidation, is limited based on interest income earned by the Mortgage segment. The amount of interest paid by our Mortgage segment to our Banking segment under this warehouse line of credit is recorded as interest income to our Banking segment and as interest expense to our Mortgage segment, both of which are included in the calculation of net interest income for each segment. The amount of interest paid by our Mortgage segment to our Banking segment under this warehouse line of credit was $6,075 and $3,940 for the three months ended September 30, 2021 and 2020, respectively, and $17,585 and $9,650 for the nine months ended September 30, 2021 and 2020, respectively.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Note (13)—Minimum capital requirements:

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

Under regulatory guidance for non-advanced approaches institutions, the Bank and Company are required to maintain minimum capital ratios as outlined in the table below. Additionally, under U.S. Basel III Capital Rules, the decision was made to opt out of including accumulated other comprehensive income in regulatory capital. As of September 30, 2021 and December 31, 2020, the Bank and Company met all capital adequacy requirements to which they are subject.

In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC announced a final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company adopted the capital transition relief over the permissible five-year period.

Actual and required capital amounts and ratios are included below as of the dates indicated.


	Actual				Minimum Capital adequacy with capital buffer			To be well capitalized under prompt corrective action provisions
	Amount		Ratio			Amount		Ratio		Amount		Ratio
September 30, 2021
Total Capital (to risk-weighted assets)
FB Financial Corporation	$	1,400,521	14.6	%		$	1,005,220	10.5	%	N/A		N/A
FirstBank	1,352,956		14.2	%		1,003,252		10.5	%	$	955,478	10.0	%
Tier 1 Capital (to risk-weighted assets)
FB Financial Corporation	$	1,213,432	12.7	%		$	813,750	8.5	%	N/A		N/A
FirstBank	1,165,867		12.2	%		812,156		8.5	%	$	764,382	8.0	%
Tier 1 Capital (to average assets)
FB Financial Corporation	$	1,213,432	10.4	%		$	467,369	4.0	%	N/A		N/A
FirstBank	1,165,867		10.0	%		465,817		4.0	%	$	582,271	5.0	%
Common Equity Tier 1 Capital (to risk-weighted assets)
FB Financial Corporation	$	1,183,432	12.4	%		$	670,147	7.0	%	N/A		N/A
FirstBank	1,165,867		12.2	%		668,835		7.0	%	$	621,061	6.5	%


	Actual				Minimum Capital adequacy with capital buffer			To be well capitalized under prompt corrective action provisions
	Amount		Ratio			Amount		Ratio		Amount		Ratio
December 31, 2020
Total Capital (to risk-weighted assets)
FB Financial Corporation	$	1,358,897	15.0	%		$	952,736	10.5	%	N/A		N/A
FirstBank	1,353,279		14.9	%		951,327		10.5	%	$	906,026	10.0	%
Tier 1 Capital (to risk-weighted assets)
FB Financial Corporation	$	1,090,364	12.0	%		$	771,262	8.5	%	N/A		N/A
FirstBank	1,142,548		12.6	%		770,122		8.5	%	$	724,820	8.0	%
Tier 1 Capital (to average assets)
FB Financial Corporation	$	1,090,364	10.0	%		$	435,064	4.0	%	N/A		N/A
FirstBank	1,142,548		10.5	%		435,279		4.0	%	$	544,098	5.0	%
Common Equity Tier 1 Capital (to risk-weighted assets)
FB Financial Corporation	$	1,060,364	11.7	%		$	635,157	7.0	%	N/A		N/A
FirstBank	1,142,548		12.6	%		634,218		7.0	%	$	588,917	6.5	%

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Note (14)—Stock-Based Compensation

Restricted Stock Units

The Company grants restricted stock units under compensation arrangements for the benefit of employees, executive officers, and directors. Restricted stock unit grants are subject to time-based vesting. The total number of restricted stock units granted represents the maximum number of restricted stock units eligible to vest based upon the service conditions set forth in the grant agreements.

The following table summarizes information about the changes in restricted stock units as of the dates indicated:


	Nine Months Ended September 30,
	2021			2020
	Restricted Stock Units Outstanding	Weighted Average Grant Date Fair Value		Restricted Stock Units Outstanding	Weighted Average Grant Date Fair Value
Balance at beginning of period	1,047,071	$	26.06	826,263	$	23.76
Granted(1)	194,388	43.06		353,891	31.12
Vested	(699,156)	22.80		(145,157)	31.67
Forfeited	(34,298)	28.06		(19,269)	33.19
Balance at end of period	508,005	$	36.01	1,015,728	$	25.83

(1) 2020 includes 118,776 restricted stock units issued in replacement of those initially granted by Franklin. See Note 2 for additional information.

The total fair value of restricted stock units vested and released was $10,749 and $15,941 for the three and nine months ended September 30, 2021, respectively, and $3,549 and $4,597 for the three and nine months ended September 30, 2020, respectively.

The compensation cost related to stock grants and vesting of restricted stock units was $2,365 and $7,024 for the three and nine months ended September 30, 2021, respectively, and $4,651 and $6,666 for the three and nine months ended September 30, 2020, respectively. This included $168 and $467 paid to Company directors during the three and nine months ended September 30, 2021, respectively, and $237 and $615 during the three and nine months ended September 30, 2020, related to director grants and compensation elected to be settled in stock.

As of September 30, 2021 and December 31, 2020, there was $13,616 and $13,436 of total unrecognized compensation cost related to unvested restricted stock units which is expected to be recognized over a weighted-average period of 2.7 years and 2.5 years, respectively. As of September 30, 2021 and December 31, 2020, there were 1,822,506 and 2,240,434 shares available for issuance under the 2016-LTIP plan, respectively. At September 30, 2021 and December 31, 2020, there was $232 and $613, respectively, accrued in other liabilities related to dividends declared to be paid upon vesting and distribution of the underlying restricted stock units.

Performance Based Restricted Stock Units

The following table summarizes information about the changes in performance stock units as of and for the nine months ended September 30, 2021 and 2020.




	Nine Months Ended September 30,
	2021			2020
	Performance Stock Units Outstanding	Weighted Average Grant Date Fair Value		Performance Stock Units Outstanding	Weighted Average Grant Date Fair Value
Balance at beginning of period (unvested)	53,147	$	36.21	—	$	—
Granted	65,304	43.20		53,147	36.21
Vested	—	—		—	—
Forfeited or expired	(2,319)	36.73		—	—
Balance at end of period (unvested)	116,132	$	40.13	53,147	$	36.21

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The Company awards performance-based restricted stock units to executives and other officers and employees. Under the terms of the award, the number of units that will vest and convert to shares of common stock will be based on the Company's performance relative to a predefined peer group over a fixed three-year performance period. The number of shares issued upon vesting will range from 0% to 200% of the PSUs granted. The PSUs vest at the end of a three-year period based on average adjusted return on tangible equity as reported, adjusted for unusual gains/losses, merger expenses, and other items as approved by the compensation committee of the Company's board of directors. Compensation expense for the PSUs will be estimated each period based on the fair value of the stock at the grant date and the most probable outcome of the performance condition, adjusted for the passage of time within the vesting period of the awards.

The Company recorded compensation cost of $551 and $1,041 during the three and nine months ended September 30, 2021 respectively, and $171 and $587 for the three and nine months ended September 30, 2020, respectively. As of September 30, 2021, the Company determined the probability of meeting the performance criteria for each grant, and recorded compensation cost associated with a 150.0% (related to shares granted in 2020) and 100.0% (related to shares granted in 2021) vesting, when factoring in the conversion of PSUs to shares of common stock. As of September 30, 2021, maximum unrecognized compensation cost at 200% payout related to the unvested PSUs was $7,279, and the remaining performance period over which the cost could be recognized was 2.1 years.

Employee Stock Purchase Plan:

The Company maintains an employee stock purchase plan under which employees, through payroll deductions, are able to purchase shares of Company common stock. The purchase price is 95% of the lower of the market price on the first or last day of the offering period. The maximum number of shares issuable during any offering period is 200,000 shares and a participant may not purchase more than 725 shares during any offering period (and, in any event, no more than $25 worth of common stock in any calendar year). There were 15,744 and 37,310 shares issued under ESPP during the three and nine months ended September 30, 2021, respectively, and 18,034 and 30,179 shares of common stock issued under the ESPP during the three and nine months ended September 30, 2020, respectively. As of September 30, 2021 and December 31, 2020, there were 2,341,696 and 2,379,006 shares available for issuance under the ESPP, respectively.

Note (15)—Related party transactions:

(A) Loans:

The Bank has made and expects to continue to make loans to the directors, certain management and executive officers of the Company and their affiliates in the ordinary course of business, in compliance with regulatory requirements.

An analysis of loans to executive officers, certain management, and directors of the Bank and their affiliates is presented below:


Loans outstanding at January 1, 2021	$	24,675
New loans and advances	12,116
Change in related party status	(108)
Repayments	(5,939)
Loans outstanding at September 30, 2021	$	30,744

Unfunded commitments to certain executive officers, certain management and directors and their associates totaled $13,678 and $23,059 at September 30, 2021 and December 31, 2020, respectively.

(B) Deposits:

The Bank held deposits from related parties totaling $320,207 and $245,084 as of September 30, 2021 and December 31, 2020, respectively.

The Bank leases various office spaces from entities owned by certain directors of the Company under varying terms. The Company had $13 and $53 in unamortized leasehold improvements related to these leases at September 30, 2021 and December 31, 2020, respectively. These improvements are being amortized over a term not to exceed the length of the lease. Lease expense for these properties totaled $128 and $388 for the three and nine months ended September 30, 2021, respectively, and $125 and $381 for the three and nine months ended September 30, 2020.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

(D) Aviation time sharing agreement:

The Company is a participant to an aviation time sharing agreement with an entity owned by a certain director of the Company. During the three and nine months ended September 30, 2021, the Company made payments of $0 and $32, respectively, and $17 and $108 during the three and nine months ended September 30, 2020, respectively, under this agreement.

(E) Registration rights agreement:

The Company is party to a registration rights agreement with its former majority shareholder entered into in connection with the 2016 IPO, under which the Company is responsible for payment of expenses (other than underwriting discounts and commissions) relating to sales to the public by the shareholder of shares of the Company’s common stock beneficially owned by him. Such expenses include registration fees, legal and accounting fees, and printing costs payable by the Company and expensed when incurred. During the three and nine months ended September 30, 2021, the Company paid $0 and $605, respectively, under this agreement related to the secondary offering completed during the second quarter of 2021. No such expenses were incurred during the three and nine months ended September 30, 2020.

ITEM 2 – Management’s discussion and analysis of financial condition and results of operations

The following is a discussion of our financial condition at September 30, 2021 and December 31, 2020, and our results of operations for the three and nine months ended September 30, 2021 and 2020, and should be read in conjunction with our audited consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2020, that was filed with the SEC on March 12, 2021, and with the accompanying unaudited notes to the consolidated financial statements set forth in this Report.

Forward-looking statements

Certain statements contained in this Report that are not historical in nature may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding the ongoing impact of the COVID-19 global pandemic and new virus variants on the Company’s business operations, assets, valuations, financial conditions and results of operations, and the Company’s future plans, results, strategies, and expectations. These statements can generally be identified by the use of the words and phrases “may,” “will,” “should,” “could,” “would,” “goal,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target,” “aim,” “predict,” “continue,” “seek,” “project,” and other variations of such words and phrases and similar expressions. These forward-looking statements are not historical facts, and are based upon management's current expectations, estimates, and projections, many of which, by their nature, are inherently uncertain and beyond the Company’s control. The inclusion of these forward-looking statements should not be regarded as a representation by the Company or any other person that such expectations, estimates, and projections will be achieved. Accordingly, the Company cautions shareholders and investors that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, and uncertainties that are difficult to predict. Actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. A number of factors could cause actual results to differ materially from those contemplated by the forward-looking statements including, without limitation, (1) current and future economic conditions, including the effects of inflation, interest rate fluctuations, changes in the economy or global supply chain, supply-demand imbalances affecting local real estate prices, and high unemployment rates in the local or regional economies in which the Company operates and/or the US economy generally, (2) the ongoing effects of the COVID-19 pandemic, including the magnitude and duration of the pandemic and the emergence of new variants, and its impact on general economic and financial market conditions and on the Company’s business and the Company’s customers' business, results of operations, asset quality and financial condition, (3) ongoing public response to the vaccines that were developed against the virus as well as the decisions of governmental agencies with respect to vaccines, including recommendations related to booster shots and requirements that seek to mandate that individuals receive or employers require that their employees receive the vaccine, (4) those vaccines' efficacy against the virus, including new variants, (5) changes in government interest rate policies and its impact on the Company’s business, NIM, and mortgage operations, (6) the Company’s ability to effectively manage problem credits, (7) the Company’s ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions, (8) difficulties and delays in integrating acquired businesses or fully realizing costs savings, revenue synergies and other benefits from future and prior acquisitions, (9) the Company’s ability to successfully execute its various business strategies, (10) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, including legislative developments, (11) the potential impact of the proposed phase-out of LIBOR or other changes involving LIBOR, (12) the effectiveness of the Company’s cybersecurity controls and procedures to prevent and mitigate attempted intrusions, (13) the Company's dependence on information technology systems of third party service providers and the risk of systems failures, interruptions, or breaches of security, and (14) general competitive, economic, political, and market conditions. Further information regarding the Company and factors which could affect the forward-looking statements contained herein can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and in any of the Company’s subsequent filings with the SEC. Many of these factors are beyond the Company’s ability to control or predict. If one or more events related to these or other risks or uncertainties materialize, or if the underlying assumptions prove to be incorrect, actual results may differ materially from the forward-looking statements. Accordingly, shareholders and investors should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date of this Report, and the Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to time, and it is not possible for the Company to predict their occurrence or how they will affect the company.

The Company qualifies all forward-looking statements by these cautionary statements.

Critical accounting policies

Our financial statements are prepared in accordance with U.S. GAAP and general practices within the banking industry. Within our financial statements, certain financial information contains approximate measurements of financial effects of transactions and impacts at the consolidated balance sheet dates and our results of operations for the reporting periods. We monitor the status of proposed and newly issued accounting standards to evaluate the impact on our financial condition and results of operations. Our accounting policies, including the impact of any newly issued accounting standards if applicable, are discussed in further detail in Note 1, "Basis of presentation," in the notes to our consolidated financial statements in this Report.

Selected historical consolidated financial data

The following table presents certain selected historical consolidated financial data as of the dates or for the periods indicated:


	As of or for the three months ended				As of or for the nine months ended				As of or for the year ended

	September 30,				September 30,				December 31,
(dollars in thousands, except per share data and %)	2021		2020		2021		2020		2020
Statement of Income Data
Total interest income	$	96,665	$	81,127	$	287,779	$	216,408	$	314,644
Total interest expense	8,189		12,299		30,164		35,994		48,986
Net interest income	88,476		68,828		257,615		180,414		265,658
Provisions for credit losses	(2,531)		55,401		(30,224)		110,887		107,967
Total noninterest income	59,006		97,026		175,036		221,217		301,855
Total noninterest expense	95,007		118,092		282,665		267,230		377,085
Income (loss) before income taxes	55,006		(7,639)		180,210		23,514		82,461
Income tax expense (benefit)	9,716		(2,040)		38,744		5,495		18,832
Net income (loss) applicable to FB Financial Corporation and noncontrolling interest	45,290		(5,599)		141,466		18,019		63,629
Net income applicable to noncontrolling interest	—		—		8		—		8
Net income (loss) applicable to FB Financial Corporation	$	45,290	$	(5,599)	$	141,458	$	18,019	$	63,621
Net interest income (tax-equivalent basis)	$	89,230	$	69,625	$	259,919	$	182,386	$	268,497
Per Common Share
Basic net income (loss)	$	0.96	$	(0.14)	$	2.99	$	0.52	$	1.69
Diluted net income (loss)	0.94		(0.14)		2.95		0.52		1.67
Book value (1)	29.36		26.38		29.36		26.38		27.35
Tangible book value (4)	23.90		20.87		23.90		20.87		21.73
Cash dividends declared	0.11		0.09		0.33		0.27		0.36






Selected Balance Sheet Data
Cash and cash equivalents	$	1,324,564	$	1,062,391	$	1,324,564	$	1,062,391	$	1,317,898
Loans held for investment	7,294,674		7,213,538		7,294,674		7,213,538		7,082,959
Allowance for credit losses (5)	(139,446)		(183,973)		(139,446)		(183,973)		(170,389)
Loans held for sale, at fair value	855,706		851,951		855,706		851,951		899,173
Investment securities, at fair value	1,577,337		1,164,910		1,577,337		1,164,910		1,176,991
Other real estate owned, net	10,015		12,748		10,015		12,748		12,111
Total assets	11,810,290		11,010,438		11,810,290		11,010,438		11,207,330
Customer deposits	10,043,901		9,001,673		10,043,901		9,001,673		9,396,478
Brokered and internet time deposits	28,017		92,074		28,017		92,074		61,559
Total deposits	10,071,918		9,093,747		10,071,918		9,093,747		9,458,037


Borrowings	172,710		438,838		172,710		438,838		238,324
Total common shareholders' equity	1,400,913		1,244,998		1,400,913		1,244,998		1,291,289


	As of or for the three months ended				As of or for the nine months ended				As of or for the year ended

	September 30,				September 30,				December 31,
(dollars in thousands, except per share data and %)	2021		2020		2021		2020		2020
Selected Ratios
Return on average:
Assets (2)	1.51	%	(0.24)	%	1.61	%	0.32	%	0.75	%
Common shareholders' equity (2)	12.9	%	(2.13)	%	14.1	%	2.61	%	6.58	%
Tangible common equity (4)	15.9	%	(2.72)	%	17.5	%	3.34	%	8.54	%
Average shareholders' equity to average assets	11.7	%	11.4	%	11.4	%	12.1	%	11.5	%
Net interest margin (tax-equivalent basis)	3.20	%	3.28	%	3.19	%	3.53	%	3.46	%
Efficiency ratio	64.4	%	71.2	%	65.3	%	66.5	%	66.4	%
Adjusted efficiency ratio (tax-equivalent basis) (4)	64.7	%	57.4	%	65.4	%	59.5	%	59.2	%
Loans held for investment to deposit ratio	72.4	%	79.3	%	72.4	%	79.3	%	74.9	%
Yield on interest-earning assets	3.49	%	3.86	%	3.56	%	4.22	%	4.09	%
Cost of interest-bearing liabilities	0.42	%	0.83	%	0.52	%	0.99	%	0.94	%
Cost of total deposits	0.26	%	0.56	%	0.32	%	0.69	%	0.62	%




Credit Quality Ratios
Allowance for credit losses to loans, net of unearned income (5)	1.91	%	2.55	%	1.91	%	2.55	%	2.41	%
Allowance for credit losses to nonperforming loans (5)	324.1	%	421.5	%	324.1	%	421.5	%	264.3	%
Nonperforming loans HFI to loans HFI, net of unearned income	0.59	%	0.61	%	0.59	%	0.61	%	0.91	%
Capital Ratios (Company)
Total common shareholders' equity to assets	11.9	%	11.3	%	11.9	%	11.3	%	11.5	%
Tier 1 capital (to average assets)	10.4	%	11.8	%	10.4	%	11.8	%	10.0	%
Tier 1 capital (to risk-weighted assets (3)	12.7	%	12.1	%	12.7	%	12.1	%	12.0	%
Total capital (to risk-weighted assets) (3)	14.6	%	15.3	%	14.6	%	15.3	%	15.0	%
Tangible common equity to tangible assets (4)	9.87	%	9.16	%	9.87	%	9.16	%	9.38	%
Common Equity Tier 1 (to risk-weighted assets) (CET1) (3)	12.4	%	11.8	%	12.4	%	11.8	%	11.7	%
Capital Ratios (Bank)
Total common Shareholders' equity to assets	11.7	%	12.1	%	11.7	%	12.1	%	12.3	%
Tier 1 capital (to average assets)	10.0	%	12.4	%	10.0	%	12.4	%	10.5	%
Tier 1 capital (to risk-weighted assets) (3)	12.2	%	12.7	%	12.2	%	12.7	%	12.6	%
Total capital to (risk-weighted assets) (3)	14.2	%	15.0	%	14.2	%	15.0	%	14.9	%
Common Equity Tier 1 (to risk-weighted assets) (CET1) (3)	12.2	%	12.7	%	12.2	%	12.7	%	12.6	%

(1)Book value per share equals our total common shareholders’ equity as of the date presented divided by the number of shares of our common stock outstanding as of the date presented. The number of shares of our common stock outstanding was 47,707,634; 47,191,677 and 47,220,743 as of September 30, 2021, September 30, 2020 and December 31, 2020, respectively.

(2)We have calculated our return on average assets and return on average common equity for a period by dividing annualized net income or loss for that period by our average assets and average equity, as the case may be, for that period. We calculate our average assets and average common equity for a period by dividing the sum of our total asset balance or total common shareholders' equity balance, as the case may be, as of the close of business on each day in the relevant period and dividing by the number of days in the period.

(3)We calculate our risk-weighted assets using the standardized method of the Basel III Framework.

(4)These measures are not measures recognized under generally accepted accounting principles (United States), and are therefore considered to be non-GAAP financial measures. See “GAAP reconciliation and management explanation of non-GAAP financial measures” in this Report for a reconciliation of these measures to their most comparable GAAP measures.

(5)Excludes reserve for credit losses on unfunded commitments.

GAAP reconciliation and management explanation of non-GAAP financial measures

We identify certain financial measures discussed in this Report as being "non-GAAP financial measures." The non-GAAP financial measures presented in this Report are adjusted efficiency ratio (tax equivalent basis), tangible book value per common share, tangible common equity, tangible common equity to tangible assets and return on average tangible common equity.

In accordance with the SEC's rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows.

The non-GAAP financial measures that we discuss in this Report 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 that we discuss in our selected historical consolidated financial data 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 in our selected historical consolidated financial data when comparing such non-GAAP financial measures. The following reconciliation tables provide a more detailed analysis of, and reconciliations for, each of these non-GAAP financial measures.

Adjusted Efficiency ratio (tax-equivalent basis)

The adjusted efficiency ratio (tax-equivalent basis) is a non-GAAP measure that excludes certain gains (losses), merger and conversion, offering, and mortgage restructuring expenses and other selected items. Our management uses this measure in its analysis of our performance. Our management believes this measure provides a greater understanding of ongoing operations and enhances comparability of results with prior periods, as well as demonstrates the effects of significant gains or losses and changes. The most directly comparable financial measure calculated in accordance with GAAP is the efficiency ratio.

The following table presents, as of the dates set forth below, a reconciliation of our adjusted efficiency ratio (tax-equivalent basis) to our efficiency ratio:


(In Thousands, Except Share Data and %)	Three Months Ended September 30,						Nine Months Ended September 30,						Year Ended December 31,
	2021			2020			2021			2020			2020
Adjusted efficiency ratio (tax-equivalent basis)
Total noninterest expense	$	95,007		$	118,092		$	282,665		$	267,230		$	377,085


Less merger, conversion and offering expenses	—			20,730			605			25,366			34,879
Less gain on lease terminations	—			—			(787)			—			—
Less FHLB prepayment penalties	—			2,305			—			2,305			6,838


Adjusted noninterest expense	$	95,007		$	95,057		$	282,847		$	239,559		$	335,368
Net interest income (tax-equivalent basis)	$	89,230		$	69,625		$	259,919		$	182,386		$	268,497
Total noninterest income	59,006			97,026			175,036			221,217			301,855
Less gain on change in fair value on commercial loans held for sale	740			1,858			1,251			1,858			3,228
Less loss on swap cancellation	(1,510)			—			(1,510)			—			—
Less cash life insurance benefit	—			—			—			—			715


Less gain (loss) on sales or write-downs of other real estate owned and other assets	2,005			(1,505)			2,478			(1,368)			(1,491)
Less gain (loss) on other assets	177			226			162			(156)			(90)
Less gain from securities, net	51			583			278			618			1,631
Adjusted noninterest income	$	57,543		$	95,864		$	172,377		$	220,265		$	297,862
Adjusted operating revenue	$	146,773		$	165,489		$	432,296		$	402,651		$	566,359
Efficiency ratio (GAAP)	64.4		%	71.2		%	65.3		%	66.5		%	66.4		%
Adjusted efficiency ratio (tax-equivalent basis)	64.7		%	57.4		%	65.4		%	59.5		%	59.2		%

Tangible book value per common share and tangible common equity to tangible assets

Tangible book value per common share and tangible common equity to tangible assets are non-GAAP measures that exclude the impact of goodwill and other intangibles used by the Company's management to evaluate capital adequacy. Because intangible assets such as goodwill and other intangibles vary extensively from company to company, we believe that the presentation of this information allows investors to more easily compare the Company's capital position to other companies. The most directly comparable financial measure calculated in accordance with GAAP is book value per common share and our total shareholders' equity to total assets.

The following table presents, as of the dates set forth below, tangible common equity compared with total common shareholders' equity, tangible book value per common share compared with our book value per common share and common equity to tangible assets compared to total common shareholders' equity to total assets:


	As of September 30,						As of December 31,
(In Thousands, Except Share Data and %)	2021			2020			2020
Tangible Assets
Total assets	$	11,810,290		$	11,010,438		$	11,207,330
Adjustments:
Goodwill	(242,561)			(236,086)			(242,561)
Core deposit and other intangibles	(18,248)			(23,924)			(22,426)
Tangible assets	$	11,549,481		$	10,750,428		$	10,942,343
Tangible Common Equity
Total common shareholders' equity	$	1,400,913		$	1,244,998		$	1,291,289
Adjustments:
Goodwill	(242,561)			(236,086)			(242,561)
Core deposit and other intangibles	(18,248)			(23,924)			(22,426)
Tangible common equity	$	1,140,104		$	984,988		$	1,026,302
Common shares outstanding	47,707,634			47,191,677			47,220,743
Book value per common share	$	29.36		$	26.38		$	27.35
Tangible book value per common share	$	23.90		$	20.87		$	21.73
Total common shareholders' equity to total assets	11.9		%	11.3		%	11.5		%
Tangible common equity to tangible assets	9.87		%	9.16		%	9.38		%

Return on average tangible common equity

Return on average tangible common equity is a non-GAAP measure that uses average shareholders' equity and excludes the impact of goodwill and other intangibles. This measurement is also used by the Company's management to evaluate capital adequacy. The following table presents, as of the dates set forth below, reconciliations of total average tangible common equity to average shareholders' equity and return on average tangible common equity to return on average shareholders' equity:


	Three Months Ended September 30,						Nine Months Ended September 30,						Year Ended December 31,
(In Thousands, Except %)	2021			2020			2021			2020			2020
Return on average tangible common equity
Total average common shareholders' equity	$	1,389,201		$	1,044,913		$	1,344,613		$	923,456		$	966,336
Adjustments:
Average goodwill	(242,561)			(205,473)			(242,561)			(184,548)			(199,104)
Average intangibles, net	(18,950)			(20,973)			(22,289)			(19,146)			(22,659)
Average tangible common equity	$	1,127,690		$	818,467		$	1,079,763		$	719,762		$	744,573
Net income (loss) applicable to FB Financial Corporation	$	45,290		$	(5,599)		$	141,458		$	18,019		$	63,621
Return on average common shareholders' equity	12.9		%	(2.13)		%	14.1		%	2.61		%	6.58		%
Return on average tangible common equity	15.9		%	(2.72)		%	17.5		%	3.34		%	8.54		%

Overview

We are a financial holding company headquartered in Nashville, Tennessee. We operate primarily through our wholly owned bank subsidiary, FirstBank, the third largest bank headquartered in Tennessee, based on total assets. FirstBank provides a comprehensive suite of commercial and consumer banking services to clients in select markets in Tennessee, Kentucky, Alabama and North Georgia, and mortgage offices across the Southeast. As of September 30, 2021, our footprint included 82 full-service branches serving the following Tennessee Metropolitan Statistical Areas: Nashville, Chattanooga (including North Georgia), Knoxville, Memphis, and Jackson in addition to Bowling Green, Kentucky and Birmingham, Florence and Huntsville, Alabama. We also provide banking services to 16 community markets throughout Tennessee and North Georgia. FirstBank also provides mortgage banking services utilizing its bank branch network and mortgage banking offices strategically located throughout the southeastern United States in addition to a national internet delivery channel.

We operate through two segments, Banking and Mortgage. We generate most of our revenue in our Banking segment from interest on loans and investments, loan-related fees, trust and investment services and deposit-related fees. Our primary source of funding for our loans is customer deposits, and, to a lesser extent, unsecured credit lines, brokered and internet deposits, and other borrowings. We generate most of our revenue in our Mortgage segment from origination fees and gains on sales in the secondary market of mortgage loans that we originate through our retail and online ConsumerDirect channels, as well as from mortgage servicing revenues.

Pandemic Update

During 2020, the COVID-19 health pandemic created a crisis resulting in volatility in financial markets, sudden, unprecedented job losses, and disruption in consumer and commercial behavior, resulting in governments in the United States and globally intervene with varying levels of direct monetary support and fiscal stimulus packages. All industries, municipalities and consumers have been impacted by the health crisis to some degree, including the markets that we serve. In attempts to “flatten the curve”, businesses not deemed essential were closed or constrained to capacity limitations, individuals were asked to restrict their movements, observe social distancing and shelter in place. These actions resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses, leading to a loss of revenues and a rapid increase in unemployment, widening of credit spreads, dislocation of bond markets, disruption of global supply chains and changes in consumer spending behavior. As certain restrictions began lifting and more businesses were allowed to open their doors in late 2020, we began to experience a slow improvement in commerce through much of our footprint, which continued into the first half of 2021 with further easing of restrictions and increasing availability of vaccinations. Despite the pickup in economic activity, commercial and consumer activity has not returned to pre-pandemic levels. Although most restrictions were lifted and vaccines became widely available during the first half of 2021, concern remains regarding the potential impact that resurgences and new virus variants may have on the global economy and the efficacy of available vaccines and boosters to protect against widespread infection. As such, there continues to be uncertainty regarding the long term effects on the global economy, which could have a material adverse impact on the Company's business operations, asset valuations, financial condition, and results of operations.

We have taken several actions to offer various forms of support to our customers and communities impacted by the virus, including through offering loan payment deferrals and through our participation in the Paycheck Protection Program. In addition, the Company continues to take deliberate actions to ensure the continued health and strength of its balance sheet, including increases in liquidity and managing assets and liabilities in order to maintain a strong capital position.

Mergers and acquisitions

Franklin Financial Network, Inc.

On August 15, 2020, the Company completed its previously announced merger with Franklin Financial Network, Inc, and its wholly owned subsidiaries, with FB Financial Corporation continuing as the surviving entity. Under the terms of the agreement, the Company acquired total assets of $3.63 billion, loans of $2.79 billion and assumed total deposits of $3.12 billion. Total loans acquired included a non-strategic institutional portfolio with a fair value of $326.2 million the Company classified as held for sale. Franklin common shareholders received 15,058,181 shares of the Company's common stock, net of the equivalent value of 44,311 shares withheld on certain Franklin employee equity awards that vested upon change in control, as consideration in connection with the merger, in addition to $31.3 million in cash consideration. The Company also issued replacement restricted stock units to replace those initially granted by Franklin in 2020 that did not vest upon change in control, with a total fair value of $0.7 million attributed to pre-combination service. Based on the

closing price of the Company's common stock on the New York Stock Exchange of $29.52 on August 15, 2020, the merger consideration represented approximately $477.8 million in aggregate consideration.

The merger resulted in goodwill of $67.2 million being recorded based on the fair value of total assets acquired and liabilities assumed in the transaction.

The transaction added a new subsidiary to the Company, FirstBank Risk Management, which provides risk management services to the Company in the form of enhanced insurance coverages. It also added a new subsidiary to the Bank, FirstBank Investments of Tennessee, Inc., which provides investment services to the Bank. FBIT has a wholly owned subsidiary, FirstBank Investments of Nevada, Inc. to provide investment services to FBIT. FBIN has a controlling interest in a subsidiary, FirstBank Preferred Capital, Inc., which serves as a real estate investment trust, to allow the Bank to sell real estate loans to the REIT to obtain a tax benefit.

FNB Financial Corp. merger

On February 14, 2020, the Company completed its previously announced acquisition of FNB Financial Corp. and its wholly owned subsidiary, Farmers National Bank of Scottsville (collectively, "Farmers National"). Following the acquisition, Farmers National was merged into the Company with FB Financial Corporation continuing as the surviving entity. The Company acquired total assets of $258.2 million, loans of $182.2 million and deposits of $209.5 million. The consideration is valued at approximately $50.0 million based on 954,797 shares of the Company's common stock (utilizing the Company's market price of $36.70 on February 14, 2020) and $15.0 million in cash consideration. The acquisition resulted in $6.3 million of goodwill.

Overview of recent financial performance

Results of operations

Three months ended September 30, 2021 compared to the three months ended September 30, 2020

Our net income increased during the three months ended September 30, 2021 to $45.3 million, up from a net loss of $5.6 million for the three months ended September 30, 2020. Diluted earnings per common share represented earnings of $0.94 and a loss of $0.14 for the three months ended September 30, 2021 and 2020, respectively. Our net income (loss) represented a return on average assets, or ROAA, of 1.51% and (0.24)% for the three months ended September 30, 2021 and 2020, respectively and a return on average shareholders’ equity, or ROAE, of 12.9% and (2.13)% for the same periods. Our ratio of return on average tangible common equity, or ROATCE for the three months ended September 30, 2021 and 2020 was 15.9% and (2.72)%, respectively. See “GAAP reconciliation and management explanation of non-GAAP financial measures” in this Report for a discussion of tangible common equity and return on tangible common equity.

During the three months ended September 30, 2021, net interest income before the provision for credit losses increased to $88.5 million compared with $68.8 million for the three months ended September 30, 2020. Our net interest margin, on a tax-equivalent basis, decreased to 3.20% for the three months ended September 30, 2021, compared with 3.28% for the three months ended September 30, 2020. The decrease was the combined result of sustained lower interest rates on newly issued loans and pay-offs on higher yielding loans during the three months ended September 30, 2021 and a change in balance sheet composition. The contractual yield on our loan portfolio for three months ended September 30, 2021 was 4.23% down from 4.36% for the three months ended September 30, 2020. The change in our balance sheet composition was illustrated by an increase in excess liquidity, which we estimate to be interest-bearing deposits with other financial institutions in excess of 5% of average tangible assets. Excess liquidity is estimated to have negatively impacted our NIM by approximately 28 basis points for the three months ended September 30, 2021. This compares to excess liquidity representing 15 basis points of negative impact to NIM during the three months ended September 30, 2020.

We incurred a decrease in noninterest income of $38.0 million to $59.0 million for the three months ended September 30, 2021, compared with $97.0 million for the same period in the prior year. The decrease of $39.3 million in mortgage banking income was the primary driver for the downward movement in noninterest income, which was a result of a 16.8% decrease in interest rate lock volume during the three months ended September 30, 2021 when compared with the three months ended September 30, 2020. This decrease was partially offset by an increase of $3.5 million in net gains on sale or write-downs of OREO to $2.0 million during the three months ended September 30, 2021 compared to a $1.5 million net loss on sale or write-downs of OREO during the three months ended September 30, 2020.

Noninterest expense decreased to $95.0 million for the three months ended September 30, 2021, compared with $118.1 million for the three months ended September 30, 2020. The decrease in noninterest expense is reflective of a decrease in merger costs associated with our merger with Franklin during three months ended September 30, 2020. During the three months ended September 30, 2020, we incurred $20.7 million in merger costs associated with this transaction. There were no such expenses during the three months ended September 30, 2021.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020

Our net income increased during the nine months ended September 30, 2021 to $141.5 million from $18.0 million for the nine months ended September 30, 2020. Diluted earnings per common share was $2.95 and $0.52 for the nine months ended September 30, 2021 and 2020, respectively. Our net income represented a return on average assets of 1.61% and 0.32% for the nine months ended September 30, 2021 and 2020, respectively, and a return on average equity of 14.1% and 2.61% for the same periods. Our ratio of return on average tangible common equity for the nine months ended September 30, 2021 and 2020 was 17.5% and 3.34%, respectively. See “GAAP reconciliation and management explanation of non-GAAP financial measures” in this Report for a discussion of tangible common equity and return on tangible common equity.

These results were significantly impacted by the improvement in economic forecasts incorporated in our current expected credit losses loss rate model, leading to a reversal in our provisions for credit losses and unfunded commitments amounting to $30.2 million for the nine months ended September 30, 2021 compared with provision expenses of $110.9 million for the nine months ended September 30, 2020, reflecting both the onset of the COVID-19 pandemic and the impact of our acquisitions during the period. Our results were also impacted by our acquisitions during the nine months ended September 30, 2020, resulting in merger expenses of $25.4 million for the period. There were no such business combinations during the nine months ended September 30, 2021.

During the nine months ended September 30, 2021, net interest income before provisions for credit losses increased to $257.6 million compared with $180.4 million in the nine months ended September 30, 2020. The increase was primarily driven by an increase in our average loans held for investment portfolio by 39.1% to $7.11 billion for the nine months ended September 30, 2021, as compared to $5.11 billion for the nine months ended September 30, 2020. Our net interest margin, on a tax-equivalent basis, decreased to 3.19% for the nine months ended September 30, 2021 as compared to 3.53% for the nine months ended September 30, 2020, influenced by a sustained in a low interest rate environment.

Our NIM was also influenced by a change in balance sheet composition which was illustrated by an increase in excess liquidity, which negatively impacted our NIM by approximately 32 basis points for the nine months ended September 30, 2021 compared to 9 basis points for the nine months ended September 30, 2020. In addition, the yield on our interest-earning assets decreased to 3.56% for the nine months ended September 30, 2021 compared to 4.22% for the nine months ended September 30, 2020.

Noninterest income for the nine months ended September 30, 2021 decreased by $46.2 million to $175.0 million, down from $221.2 million for prior year period. The decrease in noninterest income was primarily driven by a decrease in mortgage banking income of $53.4 million to $136.2 million. The decrease in mortgage banking income was partially offset by increases in ATM and interchange fee income and investment services and trust income, reflecting the increase of commerce in our footprint driven by improved economic conditions during the period and the contribution from the Franklin merger. In addition, the decrease in mortgage banking income was offset by a $2.5 million gain on sale of OREO during the nine months ended September 30, 2021 compared to a $1.4 million loss on sale of OREO during the nine months ended September 30, 2020.

Noninterest expense increased to $282.7 million for the nine months ended September 30, 2021, compared with $267.2 million for the nine months ended September 30, 2020. The increase in noninterest expense is reflective of the increases in salaries, commissions and personnel-related costs from the incremental head count increase associated with our growth and volume of transactions, including the impact of our business combination with Franklin during the nine months ended September 30, 2020. As detailed above, the increase in our noninterest expense was partially offset by a decrease in merger expenses of $25.4 million for the nine months ended September 30, 2021 compared with the nine months ended September 30, 2020 as there were no business combinations during the nine months ended September 30, 2021.

Financial condition

Our total assets increased by 5.38% to $11.81 billion as of September 30, 2021, as compared to $11.21 billion as of December 31, 2020. This increase is largely due to an increase of available-for-sale debt securities of $400.2 million to $1.57 billion as of September 30, 2021 from $1.17 billion as of December 31, 2020 as we invested additional excess liquidity.

Business segment highlights

We operate our business in two business segments: Banking and Mortgage. As previously reported, on March 31, 2021, the Company re-evaluated its business segments and revised to align all mortgage activities with the Mortgage segment. Previously, the Company had attributed retail mortgage activities originating from geographical locations within the footprint of the Company's branches to the Banking segment. Previously disclosed results for the three and nine months ended September 30, 2020 have been revised to reflect this realignment. See Note 12, “Segment reporting” in the notes to our consolidated financial statements for a description of these business segments.

Banking

Income before taxes from the Banking segment increased for the three months ended September 30, 2021 to $46.2 million, compared to a loss of $46.8 million for the three months ended September 30, 2020. These results were primarily driven by a net reversal in provisions for credit losses of $2.5 million (including a provision for credit losses on unfunded commitments of $0.3 million) for the three months ended September 30, 2021 compared to provisions for credit losses expense of $55.4 million (including a provision for credit losses on unfunded commitments of $9.6 million) for the three months ended September 30, 2020, reflecting the impact of our acquisitions completed in 2020 and improvement in economic outlook experienced in 2021. Noninterest income increased to $13.8 million in the three months ended September 30, 2021 as compared to $12.3 million in the three months ended September 30, 2020. Noninterest expense decreased $13.8 million to $58.8 million for three months ended September 30, 2021, primarily due a $20.4 million decrease in merger expenses that were incurred during the three months ended September 30, 2020. There were no merger expenses during the three months ended September 30, 2021. The decrease in merger costs were partially offset by increases in salaries, commissions and personnel-related costs from the incremental head count increase associated with our growth, including the impact of our business combination with Franklin on August 15, 2020.

Income before taxes from the Banking segment increased for the nine months ended September 30, 2021 to $154.5 million, compared to a loss of $57.3 million for the nine months ended September 30, 2020. Net interest income increased by $77.4 million to $257.7 million during the nine months ended September 30, 2021 compared to $180.4 million during the nine months ended September 30, 2020. Our net provisions for credit losses on loans held for investment and unfunded loan commitments resulted in a reversal of $30.2 million of provision during the nine months ended September 30, 2021 compared to expense of $110.9 million in the same period in the previous year. Noninterest income increased to $39.2 million in the nine months ended September 30, 2021 as compared to $31.6 million in the nine months ended September 30, 2020. Noninterest expense increased $14.3 million to $172.7 million for nine months ended September 30, 2021 due to increases in salaries, commissions and employee benefits associated with our growth, including the impact of additional headcount resulting from our acquisition of Franklin and investment in additional revenue producers in our markets.

Mortgage

Income before taxes from the Mortgage segment decreased to $8.9 million for the three months ended September 30, 2021, compared with $39.2 million for the three months ended September 30, 2020; the result of lower interest rate lock volumes and refinancing activity coupled with compressing sales margins. In addition, the housing market continues to face supply shortages which affected overall purchasing volume. Noninterest income decreased $39.5 million to $45.2 million for the three months ended September 30, 2021, compared with $84.7 million the three months ended September 30, 2020. Noninterest expense for the three months ended September 30, 2021 and 2020 was $36.2 million and $45.6 million, respectively. Lower noninterest expenses were mainly attributable to decreased mortgage commissions and other costs associated with the lower volume during the three months ended September 30, 2021 compared with the three months ended September 30, 2020.

Income before taxes from the Mortgage segment decreased to $25.7 million for the nine months ended September 30, 2021 as compared to $80.8 million for the nine months ended September 30, 2020. There was a decrease in mortgage banking income of $53.4 million to $136.2 million during the nine months ended September 30, 2021 compared to $189.6 million for the nine months ended September 30, 2020. This decrease was driven by a loss of $20.8 million related to the change in fair value of loans held for sale and derivatives for the nine months ended September 30, 2021, compared to a gain of $48.1 million for the nine months ended September 30, 2020. In addition, mortgage banking income for the nine months ended September 30, 2021 was affected by a 15.9% decrease in interest rate lock volume during the nine months ended September 30, 2021 compared with the same period in the prior year. Generally, mortgage volume increases in lower interest rate environments and robust housing markets and decreases in rising interest rate environments and slower housing markets. This slowdown in interest rate lock volume during the nine months ended September 30, 2021 reflects the slow down experienced across the industry compared with the same period in the prior year, which benefited from historically low interest rates pre-empted by the COVID-19 Pandemic. Noninterest expense for the nine months ended September 30, 2021 and 2020 was $110.0 million and $108.8 million, respectively, reflecting the scalability of our mortgage business.

Further discussion on the components of mortgage banking income is included under the subheading 'Noninterest income' included within this management's discussion and analysis.

Results of operations

Throughout the following discussion of our operating results, we present our net interest income, net interest margin and efficiency ratio on a fully tax-equivalent basis. The fully tax-equivalent basis adjusts for the tax-favored status of net interest income from certain loans and investments. We believe this measure to be the preferred industry measurement of net interest income, which enhances comparability of net interest income arising from taxable and tax-exempt sources.

The adjustment to convert certain income to a tax-equivalent basis consists of dividing tax exempt income by one minus the combined federal and blended state statutory income tax rate of 26.06% for the three and nine months ended September 30, 2021 and 2020.

Net interest income

Net interest income is the most significant component of our earnings, generally comprising over 50% of our total revenues in a given period. Net interest income and margin are shaped by many factors, primarily the volume, term structure and mix of earning assets, funding mechanisms, and interest rate fluctuations. Other factors include accretion income on purchased loans, prepayment risk on mortgage and investment–related assets, and the composition and maturity of earning assets and interest-bearing liabilities. Loans typically generate more interest income than investment securities with similar maturities. Funding from client deposits generally costs less than wholesale funding sources. Factors such as general economic activity, Federal Reserve monetary policy, and price volatility of competing alternative investments, can also exert significant influence on our ability to optimize the mix of assets and funding, net interest income, and margin.

In response to economic uncertainty related to the COVID-19 pandemic, short term interest rates have been at historic lows. The Federal Funds Target Rate range was 0% - 0.25% as of September 30, 2020 and maintained this rate as of September 30, 2021. According to the Chair of the Board of Governors of the Federal Reserve, the Federal Funds Target Rate is not likely to drop below this range. However, the Federal Reserve does have other tools available that it can employ and has expressed an intention to do so in order to maintain a targeted level of liquidity. At its most recent meeting, the Federal Reserve decided to keep the target range for the federal funds rate at 0% to 0.25% and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time. Additionally, the Federal Reserve maintained their commitment to open-ended purchases of Treasury securities and agency mortgage-backed securities, but noted that as the economy makes progress towards its maximum employment and price stability goals, the decision could be made to adjust the pace of purchases in coming meetings. During the nine months ended September 30, 2021, the US Treasury yield curve steepened as long-term rates rose and short-term rates remained constant. This compares to the nine months ended September 30, 2020, as the US Treasury curve flattened as long-term and short-term decreased significantly.

Three months ended September 30, 2021 compared to three months ended September 30, 2020

Net interest income increased 28.6% to $88.5 million for the three months ended September 30, 2021 compared to $68.8 million in the three months ended September 30, 2020. On a tax-equivalent basis, net interest income increased by $19.6 million to $89.2 million for the three months ended September 30, 2021 as compared to $69.6 million for the three months ended September 30, 2020. The increase in tax-equivalent net interest income for the three months ended September 30, 2021 was primarily driven by an increase in the volume in loans held for investment which accounted for $13.7 million of the increase combined with a decrease in our cost of funding, specifically our borrowing rate on customer time deposits, which decreased to 0.61% for the three months ended September 30, 2021 compared to 1.44% for the three months ended September 30, 2020. The decrease in the average rate on our customer deposits attributed to a $2.8 million decrease in our interest expense for the three months ended September 30, 2021 compared to three months ended September 30, 2020.

Interest income, on a tax-equivalent basis, was $97.4 million for the three months ended September 30, 2021, compared to $81.9 million for the three months ended September 30, 2020, an increase of $15.5 million. Interest income on loans held for investment, on a tax-equivalent basis, increased $12.4 million to $84.1 million for the three months ended September 30, 2021 from $71.7 million for the three months ended September 30, 2020 primarily due to an increase in average balances of loans held for investment of $1.18 billion. The increase in the average loan balances period over period reflects the full quarter impact of $2.43 billion loan portfolio acquired in the Franklin merger offset by a decrease of $278.0 million in average PPP loans during the three months ended September 30, 2021 from an average balance of $311.0 million for the three months ended September 30, 2020.

The tax-equivalent yield on loans held for investment was 4.61% for the three months ended September 30, 2021, down 9 basis points from the three months ended September 30, 2020. The decrease in yield was primarily due to sustained low contractual interest rates during the three months ended September 30, 2021 compared with the contractual rates of loans paid off or refinanced after September 30, 2020. Contractual loan interest rates yielded 4.23% in the three months ended September 30, 2021 compared with 4.36% in the three months ended September 30, 2020. Excluding PPP loans, which have a 1.00% contractual loan yield, our contractual loan yield would have been 18 basis points higher for three months ended September 30, 2020. PPP loans had a less than a 1 basis point impact on our contractual loan yield for the three months ended September 30, 2021.

Our NIM, on a tax-equivalent basis, decreased to 3.20% during the three months ended September 30, 2021 from 3.28% in the three months ended September 30, 2020, driven by loans issued in a declining interest rate environment and a change in balance sheet mix. The components of our loan yield, a key driver to our NIM for the three months ended September 30, 2021 and 2020, were as follows:


	Three Months Ended September 30,
	2021				2020
(dollars in thousands)	Interest income		Average yield		Interest income		Average yield
Loan yield components:
Contractual interest rate on loans held for investment(1)(2)	$	77,150	4.23	%	$	66,441	4.36	%
Origination and other loan fee income(2)	6,377		0.35	%	4,029		0.26	%
Accretion on purchased loans	157		0.01	%	526		0.04	%
Nonaccrual interest collections	431		0.02	%	664		0.04	%

Total loan yield	$	84,115	4.61	%	$	71,660	4.70	%

(1) Includes tax equivalent adjustment using combined marginal tax rate of 26.06%.

(2)Includes $0.1 million and $0.8 million of loan contractual interest and $0.4 million and $0.9 million of loan fees related to PPP loans for three months ended September 30, 2021 and 2020, respectively.

Accretion on purchased loans increased the NIM by 1 basis point and 2 basis points for the three months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, we anticipate recognizing an estimated $0.4 million in deferred origination fees, net of third party costs and deferred salaries, over the remaining life of the PPP loan portfolio.

Interest expense was $8.2 million for the three months ended September 30, 2021, a decrease of $4.1 million as compared to the three months ended September 30, 2020. The primary driver was a decrease in interest expense on customer time deposits of $3.0 million to $1.8 million for the three months ended September 30, 2021, compared to $4.8 million for the three months ended September 30, 2020 which was partially offset by an increase in interest expense on

subordinated debt of $0.3 for the same period. Further, the decrease in interest expense on customer time deposits was partially offset due to the Company having a full quarter impact from the liabilities assumed from Franklin merger for the three months ended September 30, 2021 compared to a half quarter impact for the three months ended September 30, 2020. The average rate on customer time deposits decreased 83 basis points from 1.44% for the three months ended September 30, 2020 to 0.61% for the three months ended September 30, 2021 as more costly deposits with higher interest rates matured or renewed and repriced at lower interest rates. The decrease in rates on customer deposits accounted for $2.8 million of the $3.0 million decrease in interest expense on customer deposits. Total cost of deposits was 0.26% for the three months ended September 30, 2021 compared to 0.56% for the three months ended September 30, 2020. Average subordinated debt outstanding increased to $129.4 million for the three months ended September 30, 2021 from $95.0 million for the three months ended September 30, 2020 as a result of our $100.0 million issuance in the last half of 2020.

Average balance sheet amounts, interest earned and yield analysis

The table below shows the average balances, income and expense and yield and rates of each of our interest-earning assets and interest-bearing liabilities on a tax equivalent basis, if applicable, for the periods indicated.


	Three Months Ended September 30,
	2021						2020
(dollars in thousands on tax-equivalent basis)	Average balances (1)		Interest income/ expense		Average yield/ rate		Average balances (1)		Interest income/ expense		Average yield/ rate
Interest-earning assets:
Loans(2)(4)	$	7,245,313	$	84,115	4.61	%	$	6,062,785	$	71,660	4.70	%
Loans held for sale- mortgage(8)	709,654		4,687		2.62	%	486,899		3,624		2.96	%
Loans held for sale-commercial	108,863		1,282		4.67	%	99,745		1,336		5.33	%
Securities:(8)
Taxable	1,117,647		3,989		1.42	%	604,557		2,286		1.50	%
Tax-exempt(4)	311,151		2,546		3.25	%	309,352		2,614		3.36	%
Total Securities(4)	1,428,798		6,535		1.81	%	913,909		4,900		2.13	%
Federal funds sold and reverse repurchase agreements’	145,315		135		0.37	%	88,626		19		0.09	%
Interest-bearing deposits with other financial institutions	1,404,772		508		0.14	%	763,251		309		0.16	%
FHLB stock	28,422		157		2.19	%	22,517		76		1.34	%
Total interest earning assets(4)	11,071,137		97,419		3.49	%	8,437,732		81,924		3.86	%
Noninterest Earning Assets:
Cash and due from banks	107,263						69,788
Allowance for credit losses	(144,652)						(144,991)
Other assets(3)	881,314						816,759
Total noninterest earning assets	843,925						741,556
Total assets	$	11,915,062					$	9,179,288
Interest-bearing liabilities:
Interest bearing deposits:
Interest-bearing checking	$	2,937,273	$	2,298	0.31	%	$	1,626,067	$	2,194	0.54	%
Money market(5)	2,997,595		2,322		0.31	%	2,179,128		3,589		0.66	%
Savings deposits	439,470		60		0.05	%	309,689		58		0.07	%
Customer time deposits(5)	1,200,760		1,840		0.61	%	1,334,829		4,817		1.44	%
Brokered and internet time deposits(5)	32,009		76		0.94	%	60,327		(85)		(0.56)	%
Time deposits	1,232,769		1,916		0.62	%	1,395,156		4,732		1.35	%
Total interest-bearing deposits	7,607,107		6,596		0.34	%	5,510,040		10,573		0.76	%
Other interest-bearing liabilities:
Securities sold under agreements to repurchase and federal funds purchased	40,437		20		0.20	%	37,309		51		0.54	%
Federal Home Loan Bank advances	—		—		—	%	249,457		406		0.65	%
Subordinated debt(6)	129,395		1,565		4.80	%	95,048		1,222		5.11	%
Other borrowings	1,547		8		2.05	%	15,015		47		1.25	%
Total other interest-bearing liabilities	171,379		1,593		3.69	%	396,829		1,726		1.73	%
Total Interest-bearing liabilities	7,778,486		8,189		0.42	%	5,906,869		12,299		0.83	%
Noninterest bearing liabilities:
Demand deposits	2,596,650						2,050,084
Other liabilities	150,632						177,329
Total noninterest-bearing liabilities	2,747,282						2,227,413
Total liabilities	10,525,768						8,134,282
FB Financial Corporation common shareholders' equity	1,389,201						1,044,913
Noncontrolling interest	93						93
Shareholders' equity	1,389,294						1,045,006
Total liabilities and shareholders' equity	$	11,915,062					$	9,179,288
Net interest income (tax-equivalent basis)			$	89,230					$	69,625
Interest rate spread (tax-equivalent basis)					3.07	%					3.03	%
Net interest margin (tax-equivalent basis)(7)					3.20	%					3.28	%
Cost of total deposits					0.26	%					0.56	%
Average interest-earning assets to average interesting-bearing liabilities					142.3	%					142.8	%

(1)Calculated using daily averages.

(2)Average balances of nonaccrual loans are included in average loan balances. Loan fees of $6.4 million and $4.0 million, net accretion of $0.2 million and $0.5 million, and nonaccrual interest collections of $0.4 million and $0.7 million are included in interest income in the three months ended September 30, 2021 and 2020, respectively.

(3)Includes investments in premises and equipment, other real estate owned, interest receivable, MSRs, core deposit and other intangibles, goodwill and other miscellaneous assets.

(4)Interest income includes the effects of taxable-equivalent adjustments using a U.S. federal income tax rate and, where applicable, state income tax to increase tax-exempt interest income to a tax-equivalent basis. The net taxable-equivalent adjustment amounts included were $0.8 million and $0.8 million for the three months ended September 30, 2021 and 2020, respectively.

(5)Includes $0.9 million of interest rate premium accretion on money market deposits, $0.4 million of interest rate premium accretion on customer time deposits and $0.1 million of interest rate premium accretion on brokered and internet deposits for the three months ended September 30, 2021. Amounts in the prior year comparable period are not significant.

(6)Includes $0 and $174 thousand of interest rate premium accretion on subordinated debt for the three months ended September 30, 2021 and 2020, respectively.

(7)The NIM is calculated by dividing annualized net interest income, on a tax-equivalent basis, by average total earning assets.

(8)Excludes the average balance for unrealized gains (losses) for mortgage loans held for sale and investments carried at fair value.

Nine months ended September 30, 2021 compared to nine months ended September 30, 2020

On a tax-equivalent basis, net interest income increased $77.5 million to $259.9 million for the nine months ended September 30, 2021 as compared to $182.4 million for the nine months ended September 30, 2020. The increase in tax-equivalent net interest income for the nine months ended September 30, 2021 was primarily driven by an increase in the volume of loans held for investment outstanding as a result of the Franklin merger, coupled with a decrease in overall cost of deposits, which declined to 0.32% for the nine months ended September 30, 2021, a 37 basis point reduction from the same period in 2020.

Interest income, on a tax-equivalent basis, was $290.1 million for the nine months ended September 30, 2021, compared to $218.4 million for the nine months ended September 30, 2020, an increase of $71.7 million. Interest income on loans held for investment, on a tax-equivalent basis, increased $58.8 million to $250.5 million for the nine months ended September 30, 2021 from $191.7 million for the nine months ended September 30, 2020 primarily due to increased loan volume driven by growth in average loan held for investment balances of $2.00 billion.

The tax-equivalent yield on loans held for investment was 4.71%, down 30 basis points from the nine months ended September 30, 2020. The decrease in yield was primarily due to the addition of new loans which were originated in a lower interest rate environment while higher yielding loans were paid off and refinanced at lower rates. Contractual loan interest rates yielded 4.31% in the nine months ended September 30, 2021 compared with 4.65% in the nine months ended September 30, 2020. Excluding PPP loans, which have a 1% contractual loan yield, our contractual loan yield would have been 5 basis points higher for the nine months ended September 30, 2021 compared to 13 points higher for the same period in the prior year. Our yield on interest-earning assets decreased to 3.56% for the nine months ended September 30, 2021 from 4.22% for the nine months nine months ended September 30, 2020.

Overall, our NIM, on a tax-equivalent basis, decreased to 3.19% for the nine months ended September 30, 2021 from 3.53% for the nine months ended September 30, 2020, driven by the sustained low interest rate environment and change in balance sheet mix, partially attributable to our acquisition of Franklin and impact of excess liquidity carried on our balance sheet. The components of our loan yield, a key driver to our net interest margin for the nine months ended September 30, 2021 and 2020 were as follows:


	Nine Months Ended September 30,
	2021				2020
(dollars in thousands)	Interest income		Average yield		Interest income		Average yield
Loan yield components:
Contractual interest rate on loans held for investment (1)(2)	$	229,105	4.31	%	$	178,056	4.65	%
Origination and other loan fee income (2)	19,945		0.37	%	9,441		0.25	%
(Amortization) accretion on purchased loans	(127)		—	%	3,080		0.08	%
Nonaccrual interest collections	1,623		0.03	%	1,101		0.03	%


Total loan yield	$	250,546	4.71	%	$	191,678	5.01	%

(1)Includes tax equivalent adjustment using combined marginal tax rate of 26.06%.

(2)Includes $0.8 million and $1.4 million of loan contractual interest and $3.1 million and $1.5 million of loan fees related to PPP loans for the nine months ended September 30, 2021 and 2020, respectively.

Accretion on purchased loans lowered the NIM by less than 1 basis point and contributed 6 basis points to the NIM for the nine months ended September 30, 2021 and 2020, respectively. The decrease in accretion is due to the continued impact of purchase accounting resulting from our mergers, which can fluctuate based on volume of early pay-offs. Excluding PPP loans, our NIM would have been 5 and 6 basis points higher for the nine months ended September 30, 2021 and 2020, respectively.

Interest expense was $30.2 million for the nine months ended September 30, 2021, a decrease of $5.8 million as compared to the nine months ended September 30, 2020. The decrease was largely attributed to a reduction of interest rates on customer time deposits partially offset by an increase in volume on interest-bearing checking deposits and subordinated debt. Interest expense on customer time deposits decreased to $6.9 million for the nine months ended September 30, 2021 from $16.0 million for the nine months ended September 30, 2020. The primary driver of decrease was due to the average rate on customer time deposits, which decreased 99 basis points from 1.71% for the nine months ended September 30, 2020 to 0.72% for the nine months ended September 30, 2021. The decrease in interest expense from customer deposits was partially offset by an increase in interest expense on interest-bearing checking of $1.9 million

and subordinated debt of $3.8 million associated with the increase in volume from our $100.0 million subordinated note offering and additional subordinated notes acquired from Franklin.

Average balance sheet amounts, interest earned and yield analysis


	Nine Months Ended September 30,
	2021						2020
(dollars in thousands on tax-equivalent basis)	Average balances(1)		Interest income/ expense		Average yield/ rate		Average balances(1)		Interest income/ expense		Average yield/ rate
Interest-earning assets:
Loans (2)(4)	$	7,111,240	$	250,546	4.71	%	$	5,112,130	$	191,678	5.01	%
Loans held for sale-mortgage(8)	695,056		13,925		2.68	%	353,540		8,561		3.23	%
Loans held for sale-commercial	152,802		5,065		4.43	%	33,491		1,336		5.33	%
Securities:(8)
Taxable	975,886		10,652		1.46	%	537,427		7,961		1.98	%
Tax-exempt (4)	323,034		7,806		3.23	%	247,674		6,703		3.62	%
Total Securities (4)	1,298,920		18,458		1.90	%	785,101		14,664		2.49	%
Federal funds sold and reverse repurchase agreements	128,504		196		0.20	%	82,089		274		0.45	%
Interest-bearing deposits with other financial institutions	1,481,939		1,423		0.13	%	520,858		1,585		0.41	%
FHLB stock	30,527		470		2.06	%	18,547		282		2.03	%
Total interest earning assets (4)	10,898,988		290,083		3.56	%	6,905,756		218,380		4.22	%
Noninterest Earning Assets:
Cash and due from banks	137,934						64,150
Allowance for credit losses	(157,910)						(101,005)
Other assets (3)	896,042						738,866
Total noninterest earning assets	876,066						702,011
Total assets	$	11,775,054					$	7,607,767
Interest-bearing liabilities:
Interest bearing deposits:
Interest bearing checking	$	2,904,387	$	8,005	0.37	%	$	1,287,684	$	6,090	0.63	%
Money market deposits(7)	2,958,864		8,753		0.40	%	1,661,867		9,739		0.78	%
Savings deposits	407,183		170		0.06	%	261,058		178		0.09	%
Customer time deposits(7)	1,288,348		6,892		0.72	%	1,245,324		15,952		1.71	%
Brokered and internet time deposits(7)	37,347		521		1.87	%	32,610		91		0.37	%
Time deposits	1,325,695		7,413		0.75	%	1,277,934		16,043		1.68	%
Total interest bearing deposits	7,596,129		24,341		0.43	%	4,488,543		32,050		0.95	%
Other interest-bearing liabilities:
Securities sold under agreements to repurchase and federal funds purchased	34,807		77		0.30	%	32,215		158		0.66	%
Federal Home Loan Bank advances	—		—		—	%	249,818		1,525		0.82	%
Subordinated debt(6)	155,704		5,725		4.92	%	52,459		2,042		5.20	%
Other borrowings	2,997		21		0.94	%	12,671		219		2.31	%
Total other interest-bearing liabilities	193,508		5,823		4.02	%	347,163		3,944		1.52	%
Total interest-bearing liabilities	7,789,637		30,164		0.52	%	4,835,706		35,994		0.99	%
Noninterest bearing liabilities:
Demand deposits	2,477,454						1,698,618
Other liabilities	163,257						149,987
Total noninterest-bearing liabilities	2,640,711						1,848,605
Total liabilities	10,430,348						6,684,311
FB Financial Corporation common shareholders' equity	1,344,613						923,456
Noncontrolling interest	93						—
Shareholders' equity	1,344,706						923,456
Total liabilities and shareholders' equity	$	11,775,054					$	7,607,767
Net interest income (tax-equivalent basis)			$	259,919					$	182,386
Interest rate spread (tax-equivalent basis)					3.04	%					3.23	%
Net interest margin (tax-equivalent basis) (5)					3.19	%					3.53	%
Cost of total deposits					0.32	%					0.69	%
Average interest-earning assets to average interest-bearing liabilities					139.9	%					142.8	%

(1)Calculated using daily averages.

(2)Average balances of nonaccrual loans are included in average loan balances. Loan fees of $19.9 million and $9.4 million, net (amortization) accretion of $(0.1) million and $3.1 million, and nonaccrual interest collections of $1.6 million and $1.1 million are included in interest income for the nine months ended September 30, 2021 and 2020, respectively.

(3)Includes investments in premises and equipment, OREO,, interest receivable, mortgage servicing rights, core deposit and other intangibles, goodwill and other miscellaneous assets.

(4)Interest income includes the effects of taxable-equivalent adjustments using a U.S. federal income tax rate and, where applicable, state income tax to increase tax-exempt interest income to a tax-equivalent basis. The net taxable-equivalent adjustment amounts included were $2.3 million and $2.0 million for the nine months ended September 30, 2021 and 2020, respectively.

(5)The NIM is calculated by dividing annualized net interest income, on a tax-equivalent basis, by average total earning assets.

(6)Includes $0.4 million and $0.2 million of accretion on subordinated debt fair value mark for the nine months ended September 30, 2021 and 2020, respectively.

(7)Includes $2.8 million and $0 of interest rate premium accretion on money market deposits, $1.9 million and $0.9 million on customer time deposits and $0.4 million and $0.3 million on brokered and internet time deposits for the nine months ended September 30, 2021 and 2020, respectively.

(8)Excludes the average balance for unrealized gains (losses) for mortgage loans held for sale and investments carried at fair value.

Rate/volume analysis

The tables below present the components of the changes in net interest income for the three and nine months ended September 30, 2021 and 2020. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volumes and changes due to rates, with the changes in both volumes and rates allocated to these two categories based on the proportionate absolute changes in each category.

Three months ended September 30, 2021 compared to three months ended September 30, 2020


	Three months ended September 30, 2021 compared to three months ended September 30, 2020 due to changes in
(in thousands on a tax-equivalent basis)	Volume		Rate		Net increase (decrease)
Interest-earning assets:
Loans(1)(2)	$	13,729	$	(1,274)	$	12,455
Loans held for sale - residential	1,471		(408)		1,063
Loans held for sale - commercial	107		(161)		(54)
Securities available-for-sale and other securities:
Taxable	1,831		(128)		1,703
Tax Exempt(2)	15		(83)		(68)
Federal funds sold and reverse repurchase agreements	53		63		116
Time deposits in other financial institutions	232		(33)		199
FHLB stock	33		48		81
Total interest income(2)	17,471		(1,976)		15,495
Interest-bearing liabilities:
Interest-bearing checking	1,026		(922)		104
Money market(3)	634		(1,901)		(1,267)
Savings deposits	18		(16)		2
Customer time deposits(3)	(205)		(2,772)		(2,977)
Brokered and internet time deposits(3)	(67)		228		161
Securities sold under agreements to repurchase and federal funds purchased	2		(33)		(31)
Federal Home Loan Bank advances	(406)		—		(406)
Subordinated debt(4)	415		(72)		343
Other borrowings	(70)		31		(39)
Total interest expense	1,347		(5,457)		(4,110)
Change in net interest income(2)	$	16,124	$	3,481	$	19,605

(1)Average loans are gross, including nonaccrual loans and overdrafts (before deduction of allowance for credit losses). Loan fees of $6.4 million and $4.0 million, accretion of $0.2 million and $0.5 million and nonaccrual interest collections of $0.4 million and $0.7 million are included in interest income for the three months ended September 30, 2021 and 2020, respectively.

(2)Interest income includes the effects of the tax-equivalent adjustments to increase tax-exempt interest income to a tax-equivalent basis.

(3)Includes $0.9 million of interest rate premium accretion on money market deposits, $0.4 million of interest rate premium accretion on customer time deposits and $0.1 million of interest rate premium accretion on brokered and internet deposits for the three months ended September 30, 2021. Amounts in the prior year comparable period are not significant.

(4)Includes $0 and $0.2 million of interest rate premium accretion on subordinated debt for the three months ended September 30, 2021 and 2020, respectively.

Nine Months Ended September 30, 2021 compared to Nine Months Ended September 30, 2020


	Nine months ended September 30, 2021 compared to nine months ended September 30, 2020 due to changes in
(dollars in thousands on a tax-equivalent basis)	Volume		Rate		Net increase (decrease)
Interest-earning assets:
Loans(1)	$	70,433	$	(11,565)	$	58,868
Loans held for sale - residential	6,842		(1,478)		5,364
Loans held for sale - commercial	3,955		(226)		3,729
Securities available-for-sale and other securities:
Taxable	4,786		(2,095)		2,691
Tax Exempt(2)	1,821		(718)		1,103
Federal funds sold and reverse repurchase agreements	71		(149)		(78)
Time deposits in other financial institutions	923		(1,085)		(162)
FHLB stock	184		4		188
Total interest income(2)	89,015		(17,312)		71,703
Interest-bearing liabilities:
Interest bearing checking	4,456		(2,541)		1,915
Money market deposits(4)	3,837		(4,823)		(986)
Savings deposits	61		(69)		(8)
Customer time deposits(4)	230		(9,290)		(9,060)
Brokered and internet time deposits(4)	66		364		430
Securities sold under agreements to repurchase and federal funds purchased	6		(87)		(81)
Federal Home Loan Bank advances	(1,525)		—		(1,525)
Subordinated debt(3)	3,796		(113)		3,683
Other borrowings	(68)		(130)		(198)
Total interest expense	10,859		(16,689)		(5,830)
Change in net interest income(2)	$	78,156	$	(623)	$	77,533

(1) Average loans are gross, including nonaccrual loans and overdrafts (before deduction of allowance for loan losses). Loan fees of $19.9 million and $9.4 million, (amortization) accretion of $(0.1) million and $3.1 million, and nonaccrual interest collections of $1.6 million and $1.1 million, are included in interest income for the nine months ended September 30, 2021 and 2020, respectively.

(2) Interest income includes the effects of the tax-equivalent adjustments to increase tax-exempt interest income to a tax-equivalent basis.

(3) Includes $0.4 million and $0.2 million of accretion on subordinated debt fair value mark for the nine months ended September 30, 2021 and 2020, respectively.

(4) Includes $2.8 million and $0 of interest rate premium accretion on money market deposits, $1.9 million and $0.9 million on customer time deposits and $0.4 million and $0.3 million on brokered and internet time deposits for the nine months ended September 30, 2021 and 2020, respectively.

Provision for credit losses

The provision for credit losses charged to operating expense is an amount which, in the judgment of management, is necessary to maintain the allowance for credit losses at an appropriate level under the current expected credit loss model. The provision for credit losses recorded represents the amount needed to maintain the appropriate level of the allowance for credit losses based on management’s quarterly estimates.

Three months ended September 30, 2021 compared to three months ended September 30, 2020

We recognized a reversal of provision for credit losses on loans held for investment for the three months ended September 30, 2021 of $2.8 million as compared to an expense of $45.8 million for the three months ended September 30, 2020, which included $53.2 million of expense related to our acquisition of Franklin during the previous period partially offset by improved forecasts associated with our legacy loan HFI portfolio contributing to a $7.3 million reversal in required credit reserve. The current period reversal resulted from management’s best estimate of losses over the life of loans in our portfolio in accordance with the CECL approach, given an improvement in economic outlook and forecasts. Although the portfolio benefited from improving economic forecasts during the three months ended September 30, 2021, there is much uncertainty surrounding the impact of the COVID-19 pandemic and the Delta variant, which may continue to lead to increased volatility in forecasted macroeconomic variables, a key input to our calculated level of allowance for credit losses. These evaluations weighed the impact of the current economic outlook, status of federal government stimulus programs, and geographical and demographic considerations, among other factors. See further discussion under the subheading "Allowance for credit losses."

The Company estimates expected credit losses on off-balance sheet loan commitments that are not accounted for as derivatives. When applying the CECL methodology to estimate expected credit loss, the Company considers the likelihood that funding will occur, the contractual period of exposure to credit loss, the risk of loss, historical loss experience, and current conditions along with expectations of future economic conditions. As such, the Company recorded a provision for credit losses on unfunded commitments of $0.3 million for the three months ended September 30, 2021 compared to $9.6 million for the three months ended September 30, 2020.

Nine months ended September 30, 2021 compared to nine months ended September 30, 2020

We recognized a reversal of provision for credit losses on loans held for investment for the nine months ended September 30, 2021 of $27.3 million as compared to a expense of $97.8 million for the nine months ended September 30, 2020. The reversal in total provision for credit losses was primarily the result of improving economic forecasts allowing for a reduction of our reserves, as discussed above. The sharp decrease in the current period when compared with the nine months ended September 30, 2020 is primarily the result of our acquisition activity, namely Farmers National and Franklin, and the impact of applying CECL on the acquired loan portfolios on their respective acquisition dates.

Additionally, the Company recorded a release to the provision for credit losses on unfunded commitments of $2.9 million for the nine months ended September 30, 2021 compared to a provision of $13.1 million for the nine months ended September 30, 2020.

As of September 30, 2021 and 2020, we determined that all available-for-sale debt securities that experienced a decline in fair value below amortized cost basis were due to noncredit-related factors. Therefore, there was no provision for credit losses recognized on available-for-sale debt securities during the three and nine months ended September 30, 2021 and 2020.

Noninterest income

Our noninterest income includes gains on sales of mortgage loans, unrealized change in fair value of loans held for sale and derivatives, fees on mortgage loan originations, loan servicing fees, hedging results, fees generated from deposit services, investment services and trust income, gains and losses on securities, other real estate owned and other assets and other miscellaneous noninterest income.

The following table sets forth the components of noninterest income for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2021		2020		2021		2020
Mortgage banking income	$	45,384	$	84,686	$	136,215	$	189,599
Service charges on deposit accounts	2,612		2,162		7,217		6,583
ATM and interchange fees	4,868		3,913		14,590		10,653
Investment services and trust income	2,511		1,828		7,518		4,893
Gain from securities, net	51		583		278		618
Gain (loss) on sales or write-downs of other real estate owned	2,005		(1,505)		2,478		(1,368)
Gain (loss) from other assets	177		226		162		(156)
Other	1,398		5,133		6,578		10,395
Total noninterest income	$	59,006	$	97,026	$	175,036	$	221,217

Three months ended September 30, 2021 compared to three months ended September 30, 2020

Noninterest income amounted to $59.0 million for the three months ended September 30, 2021, a decrease of $38.0 million, or 39.2%, as compared to $97.0 million for the three months ended September 30, 2020. Changes in selected components of noninterest income in the above table are discussed below.

Mortgage banking income primarily includes origination fees and realized gains and losses on the sale of mortgage loans, unrealized change in fair value of mortgage loans and derivatives, and mortgage servicing fees, which includes net change in fair value of MSRs and related derivatives. Mortgage banking income is initially driven by the recognition of interest rate lock commitments (IRLCs) at fair value at inception of the IRLCs. This is subsequently adjusted for changes in the overall interest rate environment offset by derivative contracts entered into to mitigate the interest rate exposure. Upon sale of the loan, the net fair value gain is reclassified as a realized gain on sale. Mortgage banking income was $45.4 million and $84.7 million for the three months ended September 30, 2021 and 2020, respectively.

During the three months ended September 30, 2021, the Bank’s mortgage operations had sales of $1,535.9 million which generated a sales margin of 2.55%. This compares to $1,770.0 million and 4.32% for the three months ended September 30, 2020. The industry benefited greatly from declining interest rates during the three months ended September 30, 2020, causing an increase in interest rate lock commitment volume, which has slowed in the three months ended September 30, 2021 across the industry. Mortgage banking income from gains on sale and related fair value changes decreased to $40.2 million during the three months ended September 30, 2021 compared to $86.6 million for the three months ended September 30, 2020. Total interest rate lock volume decreased $406.8 million, or 16.8%, during the three months ended September 30, 2021 over the same period in the previous year.

Our mortgage banking business is directly impacted by the interest rate environment, increased regulations, consumer demand, economic conditions, and investor demand for mortgage production. Mortgage production, especially refinance activity, declines in rising interest rate environments. Our interest rate lock volume during three months ended September 30, 2021 was composed of 66.1% refinancing activity compared with 76.1% during the same period in the previous year. We continue to see margin compression and reduced volumes due to excess capacity in the industry, refinance fatigue and a shortage of housing in our markets. Our interest rate lock volume is expected to be materially and adversely impacted by rising interest rates and housing shortage, and we expect to see further declines in refinance activity within the mortgage industry when rates rise.

Income from mortgage servicing of $7.5 million and $5.5 million for three months ended September 30, 2021 and 2020, respectively, was partially offset by losses on changes in fair value of MSRs and related hedging activity of $2.4 million and $7.4 million in the three months ended September 30, 2021 and 2020, respectively.

The components of mortgage banking income for three months ended September 30, 2021 and 2020 were as follows:


	Three Months Ended September 30,
(in thousands)	2021			2020
Mortgage banking income:
Origination and sales of mortgage loans	$	39,210		$	76,506
Net change in fair value of loans held for sale and derivatives	1,002			10,084
Change in fair value on MSRs	(2,367)			(7,440)
Mortgage servicing income	7,539			5,536
Total mortgage banking income	$	45,384		$	84,686
Interest rate lock commitment volume by line of business:
Consumer direct	$	1,085,180		$	1,453,238

Retail	926,723			965,434

Total	$	2,011,903		$	2,418,672
Interest rate lock commitment volume by purpose (%):
Purchase	33.9		%	23.9		%
Refinance	66.1		%	76.1		%
Mortgage sales	$	1,535,897		$	1,770,043
Mortgage sale margin	2.55		%	4.32		%
Closing volume	$	1,617,508		$	1,932,450
Outstanding principal balance of mortgage loans serviced	$	10,633,805		$	9,101,007

Net gains from sales or write-downs of other real estate owned during the three months ended September 30, 2021 amounted to $2.0 million compared with a loss during the three months ended September 30, 2020 amounting to $1.5 million. This change was a result of specific sales and valuation transactions of other real estate. The gain in the current period was primarily the result of sale of one of our branch locations, which had been vacated as a result of consolidating locations following our acquisitions.

Other noninterest income for the three months ended September 30, 2021 decreased $3.7 million to $1.4 million compared with $5.1 million for the three months ended September 30, 2020. This includes gains and losses associated with our commercial loans held for sale portfolio of $0.7 million for the three months ended September 30, 2021 compared with $1.9 million for the three months ended September 30, 2020. Other noninterest income during the three months ended September 30, 2021 also included a $1.5 million loss on the cancellation of an interest rate swap associated with a loan HFI that was resolved during the period.

Nine months ended September 30, 2021 compared to nine months ended September 30, 2020

Noninterest income amounted to $175.0 million for the nine months ended September 30, 2021, a decrease of $46.2 million, or 20.9%, as compared to $221.2 million for the nine months ended September 30, 2020. Changes in selected components of noninterest income in the above table are discussed below.

Mortgage banking income was $136.2 million and $189.6 million for the nine months ended September 30, 2021 and 2020, respectively, representing a 28.2% decrease year-over-year.

During the nine months ended September 30, 2021, our mortgage operations had sales of $4,789.5 million which generated a gain on sales margin of 3.06%. This compares to $4,406.9 million and 3.46% for the nine months ended September 30, 2020. The decrease in gain on sales margin is a result of capacity in the industry and compressing margins. The industry benefited greatly from declining interest rates in 2020, causing a sharp increase in interest rate lock commitment volume. It is anticipated that sales will slow in the last quarter of 2021 with seasonal decline in activity as housing inventory remains low in many of our markets. Mortgage banking income from gains on sale and related fair value changes increased to $125.7 million during the nine months ended September 30, 2021 compared to $200.5 million for the nine months ended September 30, 2020. Total interest rate lock volume decreased $1,076.1 million, or 15.9%, during the nine months ended September 30, 2021 compared to the previous year. The volume mix of refinances and purchases also shifted during nine months ended September 30, 2021 to 63.7% refinance volume compared with 78.1% during the same period in the previous year.

Income from mortgage servicing of $21.3 million and $15.7 million for nine months ended September 30, 2021 and 2020, respectively, was offset by declines in fair value of MSRs and related hedging activity of $10.8 million and $26.5 million for the nine months ended September 30, 2021 and 2020, respectively.

The components of mortgage banking income for the nine months ended September 30, 2021 and 2020 were as follows:


	Nine Months Ended September 30,
(dollars in thousands)	2021			2020
Mortgage banking income
Origination and sales of mortgage loans	$	146,538		$	152,411
Net change in fair value of loans held for sale and derivatives	(20,806)			48,067
Change in fair value on MSRs	(10,775)			(26,546)
Mortgage servicing income	21,258			15,667
Total mortgage banking income	$	136,215		$	189,599
Interest rate lock commitment volume by line of business:
Consumer direct	$	2,948,530		$	4,248,741

Retail	2,726,956			2,502,817

Total	$	5,675,486		$	6,751,558
Interest rate lock commitment volume by purpose (%):
Purchase	36.3		%	21.9		%
Refinance	63.7		%	78.1		%
Mortgage sales	$	4,789,476		$	4,406,932
Mortgage sale margin	3.06		%	3.46		%
Closing volume	$	4,926,390		$	4,739,497
Outstanding principal balance of mortgage loans serviced	$	10,633,805		$	9,101,007

ATM and interchange fees increased $3.9 million to $14.6 million during the nine months ended September 30, 2021 as compared to $10.7 million for the nine months ended September 30, 2020. This increase is attributable to our growth in deposits and increased volume of transactions, which is partially attributed to our acquisitions completed in 2020. Though we have not yet experienced a decline, our interchange fee income is expected to decline beginning the second half of 2022 as a result of the Durbin amendment, which limits interchange fees banking institutions with asset sizes greater than $10 billion are permitted to charge.

Net gains from sales or write-downs of other real estate owned during the nine months ended September 30, 2021 amounted to $2.5 million compared with a loss during the nine months ended September 30, 2020 amounting to $1.4 million. This change was a result of specific sales and valuation transactions of other real estate during the respective periods. The gain in the current period was primarily the result of sale of one of our branch locations, which had been vacated as a result of consolidating locations following our acquisitions.

Other noninterest income for the nine months ended September 30, 2021 decreased $3.8 million to $6.6 million compared with $10.4 million for the nine months ended September 30, 2020. This includes gains associated with our commercial loans held for sale portfolio of $1.3 million for the nine months ended September 30, 2021 compared with $1.9 million for the million for the nine months ended September 30, 2020. Other noninterest income during the nine months ended September 30, 2021 also included a $1.5 million loss on the cancellation of an interest rate swap associated with a loan HFI that was resolved during the period.

Noninterest expense

Our noninterest expense includes primarily salaries and employee benefits expense, occupancy expense, legal and professional fees, data processing expense, regulatory fees and deposit insurance assessments, advertising and promotion and other real estate owned expense, among others. We monitor the ratio of noninterest expense to the sum of net interest income plus noninterest income, which is commonly known as the efficiency ratio.

The following table sets forth the components of noninterest expense for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2021		2020		2021		2020
Salaries, commissions and employee benefits	$	62,818	$	67,676	$	189,756	$	166,556
Occupancy and equipment expense	5,979		4,892		17,184		13,166
Legal and professional fees	2,177		1,917		6,701		5,427
Data processing	2,595		2,994		7,456		8,229
Merger costs	—		20,730		—		25,366
Amortization of core deposit and other intangibles	1,344		1,417		4,178		3,825





Advertising	4,200		2,256		10,012		7,236
Other expense	15,894		16,210		47,378		37,425
Total noninterest expense	$	95,007	$	118,092	$	282,665	$	267,230

Three months ended September 30, 2021 compared to three months ended September 30, 2020

Noninterest expense decreased by $23.1 million during the three months ended September 30, 2021 to $95.0 million as compared to $118.1 million in the three months ended September 30, 2020. Changes in selected components of noninterest expense in the above table are discussed below.

Salaries, commissions and employee benefits expense was the largest component of noninterest expenses representing 66.1% and 57.3% of total noninterest expense in the three months ended September 30, 2021 and 2020, respectively. During the three months ended September 30, 2021, salaries and employee benefits expense decreased $4.9 million, or 7.2%, to $62.8 million as compared to $67.7 million for the three months ended September 30, 2020. This decrease was mainly driven by a decrease of $16.9 million in salaries and commissions in the Mortgage segment during the three months ended September 30, 2021 from the same period in 2020, reflective of the slowdown in production during the current period. This decrease was partially offset by increases in salaries and employee benefits expenses in our Banking segment from the addition of Franklin half-way through the third quarter of 2020 in addition to investment in additional revenue producers in our markets during the three months ended September 30, 2021.

Costs resulting from our equity compensation grants during the three months ended September 30, 2021 and 2020 amounted $2.9 million and $3.0 million, respectively. These grants comprise one-time restricted stock unit grants that were granted in conjunction with our 2016 IPO in addition to annual performance grants and performance stock units. During the three months ended September 30, 2021, the one-time restricted stock units granted in conjunction with the IPO vested in full and we experienced an additional $0.5 million in employer tax expense associated with this vesting. Costs related to performance-based restricted stock units granted during 2021 and 2020 amounted to $0.6 million and $0.2 million during the three months ended September 30, 2021 and 2020, respectively.

There were no merger costs for the three months ended September 30, 2021 compared to $20.7 million in merger cost for the three months ended September 30, 2020. Merger costs during the three months ended September 30, 2020 include costs associated with our acquisition of Franklin, which was completed on August 15, 2020.

Nine months ended September 30, 2021 compared to nine months ended September 30, 2020

Noninterest expense increased by $15.4 million during the nine months ended September 30, 2021 to $282.7 million as compared to $267.2 million in the nine months ended September 30, 2020. Changes in selected components of noninterest expense in the above table are discussed below.

Salaries, commissions and employee benefits expense was the largest component of noninterest expenses representing 67.1% and 62.3% of total noninterest expense in the nine months ended September 30, 2021 and 2020, respectively. During the nine months ended September 30, 2021, salaries and employee benefits expense increased $23.2 million, or 13.9%, to $189.8 million as compared to $166.6 million for the nine months ended September 30, 2020. This increase was mainly due to an increase of $22.5 million employee salaries driven by our increase in headcount as a result of our mergers and investment in additional revenue producers in our markets. Our full-time equivalent employees increased to 1,962 as of September 30, 2021 from 1,831 as of September 30, 2020.

Costs resulting from our equity compensation grants during the nine months ended September 30, 2021 and 2020 amounted to $8.1 million and $7.3 million, respectively. Additionally, during 2020 we began granting performance-based

stock units, which resulted in $1.0 million and $0.6 million in expense during the nine months ended September 30, 2021 and 2020, respectively.

Occupancy and equipment expense increased $4.0 million to $17.2 million during the nine months ended September 30, 2021 as compared to $13.2 million in the nine months ended September 30, 2020. This increase is related to increased leased property and maintenance costs which increased as a result of our merger activity and additional locations.

Merger costs amounted to $25.4 million for the nine months ended September 30, 2020 related to our acquisition and conversion of Farmers National and acquisition of Franklin. There was no such merger activity during nine months ended September 30, 2021.

Other noninterest expense primarily includes mortgage servicing expenses, regulatory fees and deposit insurance assessments, software license and maintenance fees and various other miscellaneous expenses. Other noninterest expense increased $10.0 million during the nine months ended September 30, 2021 to $47.4 million compared to $37.4 million during the nine months ended September 30, 2020. The increase reflects a $6.0 million increase in software licenses and maintenance fees, a $2.0 million increase in mortgage servicing expenses and a $1.3 million increase in regulatory fees and other costs associated with our growth, including the impact of our 2020 acquisitions.

Efficiency ratio

The efficiency ratio is one measure of productivity in the banking industry. This ratio is calculated to measure the cost of generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. We calculate this ratio by dividing noninterest expense by the sum of net interest income and noninterest income. For an adjusted efficiency ratio, we exclude certain gains, losses and expenses we do not consider core to our business.

Our efficiency ratio was 64.4% and 65.3% for the three and nine months ended September 30, 2021, respectively, and 71.2% and 66.5% for the three and nine months ended September 30, 2020, respectively. Our adjusted efficiency ratio, on a tax-equivalent basis, was 64.7% and 65.4% for the three and nine months ended September 30, 2021, respectively, and 57.4% and 59.5% for the three and nine months ended September 30, 2020, respectively. See “GAAP reconciliation and management explanation of non-GAAP financial measures” in this Report for a discussion of the adjusted efficiency ratio.

Return on equity and assets

The following table sets forth our ROAA, ROAE, dividend payout ratio and average shareholders’ equity to average assets ratio for the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,				Year ended December 31,
	2021		2020		2021		2020		2020
Return on average total assets	1.51	%	(0.24)	%	1.61	%	0.32	%	0.75	%
Return on average shareholders' equity	12.9	%	(2.13)	%	14.1	%	2.61	%	6.58	%
Dividend payout ratio	11.8	%	(77.4)	%	11.3	%	56.4	%	22.8	%
Average shareholders’ equity to average assets	11.7	%	11.4	%	11.4	%	12.1	%	11.5	%

As previously discussed, during the three and nine months ended September 30, 2021, we recognized net reversals in our provisions for credit losses of $2.5 million and $30.2 million, respectively, which contributed to an improvement in return on average total assets of 1.51% and 1.61% for the three and nine months ended September 30, 2021, respectively. This compares to provisions for credit losses of $55.4 million and $110.9 million for the three and nine months ended September 30, 2020, which resulted in a return on average assets of (0.24)% and 0.32%, respectively. Our return on average shareholders’ equity was 12.9% and 14.1% for the three and nine months ended September 30, 2021, respectively, as compared to (2.13)% and 2.61% for the three and nine months ended September 30, 2020, respectively. The onset of the COVID-19 pandemic, our acquisition of Franklin and associated increases in provision expenses led to a net loss for the three months ended September 30, 2020, which drove an unusual dividend payout ratio for that period, which is not reflective of historical payout ratios or our intentions with respect to future dividends.

Income taxes

Income tax expense was $9.7 million for the three months ended September 30, 2021 compared with income tax benefit of $2.0 million for the three months ended September 30, 2020. Our income tax expense was $38.7 million and $5.5 million for the nine months ended September 30, 2021 and 2020, respectively. This represents effective tax rates of 17.7% and 26.7% for the three months ended September 30, 2021 and 2020, respectively, and 21.5% and 23.4% for the nine months ended September 30, 2021 and 2020, respectively. The primary differences from the enacted rates are applicable state income taxes and certain expenses that are not deductible reduced for non-taxable income and additional deductions for equity-based compensation upon vesting of restricted stock units. Additionally, during the three and nine months ended September 30, 2021, income tax expense was further reduced by a $1.7 million tax benefit related to a change in the value of the net operating loss tax asset that was acquired from Franklin.

The Company is subject to Section 162(m), which limits the deductibility of compensation paid to certain individuals. The restricted stock unit plans that existed prior to the corporation being public vested after the reliance period as defined in the underlying Treasury Regulations. It is the Company’s policy to apply the Section 162(m) limitations to stock-based compensation, including our restricted stock unit plan, first and then followed by cash compensation. As a result of the vesting of these units and cash compensation paid to date, the Company has disallowed a portion of its compensation paid to the applicable individuals.

Financial condition

The following discussion of our financial condition compares balances as of September 30, 2021 with December 31, 2020.

Total assets

Our total assets were $11.81 billion at September 30, 2021, compared to total assets of $11.21 billion as of December 31, 2020. This increase was driven by increases in our available-for-sale debt securities portfolio and loans HFI portfolio. Available-for-sale securities grew by $0.40 billion to $1.57 billion at September 30, 2021, as compared to $1.17 billion at December 31, 2020 while loans HFI increased by $0.21 billion to $7.29 billion as of September 30, 2021 from $7.08 billion, also as of December 31, 2020.

Loan portfolio

Our loan portfolio is our most significant earning asset, comprising 61.8% and 63.2% of our total assets as of September 30, 2021 and December 31, 2020, respectively. Our strategy is to grow our loan portfolio by originating quality commercial and consumer loans that comply with our credit policies and that produce revenues consistent with our financial objectives. Our overall lending approach is primarily focused on providing credit to our customers directly rather than purchasing loan syndications and loan participations from other banks (collectively, “participated loans”). At September 30, 2021 and December 31, 2020, loans held for investment included approximately $242.4 million and $206.8 million, respectively, related to purchased participation loans. We believe our loan portfolio is well-balanced, which provides us with the opportunity to grow while monitoring our loan concentrations.

Loans by type

The following table sets forth the balance and associated percentage of each class of financing receivable in our loan portfolio as of the dates indicated:


	As of September 30,				As of December 31,
	2021				2020
(dollars in thousands)	Amount		% of total		Amount		% of total
Loan Type:
Commercial and industrial (1)	$	1,252,425	17	%	$	1,346,122	19	%
Construction	1,190,623		16	%	1,222,220		17	%
Residential real estate:
1-to-4 family	1,175,155		16	%	1,089,270		15	%
Line of credit	392,440		5	%	408,211		6	%
Multi-family	324,662		5	%	175,676		2	%
Commercial real estate:
Owner-Occupied	938,241		13	%	924,841		13	%
Non-Owner Occupied	1,695,573		23	%	1,598,979		23	%
Consumer and other	325,555		5	%	317,640		5	%
Total loans	$	7,294,674	100	%	$	7,082,959	100	%

(1)Includes $9.4 million and $212.6 million of loans originated as part of the PPP as of September 30, 2021 and December 31, 2020, respectively.

Loan concentrations are considered to exist when there are amounts loaned to a number of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At September 30, 2021 and December 31, 2020, there were no concentrations of loans exceeding 10% of total loans other than the categories of loans disclosed in the table above. We believe our loan portfolio is diversified relative to industry concentrations across the various loan portfolio categories. While most industries have been adversely impacted as a result of COVID–19, certain industries are more sensitive and for that reason present greater risk than other industries. The following presents industry loan categories considered to be “of concern” in relation to our total portfolio as of September 30, 2021 and December 31, 2020.


		Approximate % of total loans
Industry	Description of components	September 30, 2021		December 31, 2020
Retail lending	Includes non-owner occupied CRE, automobile, recreational vehicle and boat dealers, gas stations and convenience stores, pharmacies and drug stores, and sporting goods.	8.8	%	8.7	%
Healthcare	Includes assisted living, nursing and continuing care, medical practices, social assistance, mental health and substance abuse centers.	4.4	%	4.9	%
Hotel	Vast majority of hotel exposure is built around long-term successful hotel operators and strong flags located within our banking footprint.	4.6	%	4.9	%
Other leisure	Includes marinas, recreational vehicle parks and campgrounds, fitness and recreational sports centers, sports teams and clubs, historical sites, and theaters.	1.7	%	1.7	%
Transportation	Includes trucking exposure made up of truckload operators, equipment lessors to owner/operators, and local franchisees of major national trucking companies. Also includes air travel (no commercial airlines) and support and to a lesser extent, consumer charter and transportation and warehousing.	1.7	%	1.6	%
Restaurants	Majority made up of full service restaurants with no major concentration by operator or brand. Also includes limited service restaurants and bars.	2.2	%	2.0	%

Banking regulators have established thresholds of less than 100% of tier 1 capital plus allowance for credit losses in construction lending and less than 300% of tier 1 capital plus allowance for credit losses in commercial real estate lending that management monitors as part of the risk management process. The construction concentration ratio is a percentage of the outstanding construction and land development loans to total tier 1 capital plus allowance for credit losses. The commercial real estate concentration ratio is a percentage of the outstanding balance of non-owner occupied commercial real estate, multifamily, and construction and land development loans to tier 1 capital plus allowance for credit losses. Management strives to operate within the thresholds set forth above.

When a company's ratios are in excess of one or both of these guidelines, banking regulators generally require an increased level of monitoring in these lending areas by management.

The table below shows concentration ratios for the Bank and Company as of September 30, 2021 and December 31, 2020, which both were within the stated thresholds.


	As a percentage (%) of tier 1 capital plus allowance for credit losses
	FirstBank		FB Financial Corporation
September 30, 2021
Construction	91.2	%	88.0	%
Commercial real estate	247.6	%	238.9	%
December 31, 2020
Construction	93.1	%	96.9	%
Commercial real estate	228.3	%	237.7	%

Loan categories

The principal categories of our loans held for investment portfolio are discussed below:

Commercial and industrial loans. We provide a mix of variable and fixed rate commercial and industrial loans. Our commercial and industrial loans are typically made to small and medium-sized manufacturing, wholesale, retail and service businesses for working capital and operating needs and business expansions, including the purchase of capital equipment and loans made to farmers relating to their operations. This category also includes loans secured by manufactured housing receivables. Commercial and industrial loans generally include lines of credit and loans with maturities of five years or less. This category also includes the loans we originated as part of the PPP, established by the Coronavirus Aid, Relief and Economic Security Act. The PPP is administered by the SBA, and loans we originated as part of the PPP may be forgiven by the SBA under a set of defined rules. These federally guaranteed loans were intended to provide up to 24 weeks of payroll and other operating costs as a source of aid to small- and medium-sized businesses. Commercial and industrial loans are generally made with operating cash flows as the primary source of repayment, but may also include collateralization by inventory, accounts receivable, equipment and personal guarantees. We plan to continue to make commercial and industrial loans an area of emphasis in our lending operations in the future. Excluding PPP loans totaling $9.4 million and $212.6 million as of September 30, 2021 and December 31, 2020, respectively, our commercial and industrial loans comprised $1.24 billion, or 17%, and $1.13 billion, or 16%, respectively, of our loans held for investment.

Commercial real estate owner-occupied loans. Our commercial real estate owner-occupied loans include loans to finance commercial real estate owner occupied properties for various purposes including use as offices, warehouses, production facilities, health care facilities, retail centers, restaurants, churches and agricultural based facilities. Commercial real estate owner-occupied loans are typically repaid through the ongoing business operations of the borrower, and hence are dependent on the success of the underlying business for repayment and are more exposed to general economic conditions.

Commercial real estate non-owner occupied loans. Our commercial real estate non-owner occupied loans include loans to finance commercial real estate non-owner occupied investment properties for various purposes including use as offices, warehouses, health care facilities, hotels, mixed-use residential/commercial, manufactured housing communities, retail centers, multifamily properties, assisted living facilities and agricultural based facilities. Commercial real estate non-owner occupied loans are typically repaid with the funds received from the sale of the completed property or rental proceeds from such property, and are therefore more sensitive to adverse conditions in the real estate market, which can also be affected by general economic conditions.

Residential real estate 1-4 family mortgage loans. Our residential real estate 1-4 family mortgage loans are primarily made with respect to and secured by single family homes, including manufactured homes with real estate, which are both owner-occupied and investor owned. We intend to continue to make residential 1-4 family housing loans at a similar pace, so long as housing values in our markets do not deteriorate from current prevailing levels and we are able to make such loans consistent with our current credit and underwriting standards. First lien residential 1-4 family mortgages may be affected by unemployment or underemployment and deteriorating market values of real estate.

Residential line of credit loans. Our residential line of credit loans are primarily revolving, open-end lines of credit secured by 1-4 family residential properties. We intend to continue to make residential line of credit loans if housing values in our markets do not deteriorate from current prevailing levels and we are able to make such loans consistent with our current credit and underwriting standards. Residential line of credit loans may be affected by unemployment or underemployment and deteriorating market values of real estate.

Multi-family residential loans. Our multi-family residential loans are primarily secured by multi-family properties, such as apartments and condominium buildings. These loans may be affected by unemployment or underemployment and deteriorating market values of real estate.

Construction loans. Our construction loans include commercial construction, land acquisition and land development loans and single-family interim construction loans to small- and medium-sized businesses and individuals. These loans are generally secured by the land or the real property being built and are made based on our assessment of the value of the property on an as-completed basis. We expect to continue to make construction loans at a similar pace so long as demand continues and the market for and values of such properties remain stable or continue to improve in our markets. These loans can carry risk of repayment when projects incur cost overruns, have an increase in the price of building materials, encounter zoning and environmental issues, or encounter other factors that may affect the completion of a

project on time and on budget. Additionally, repayment risk may be negatively impacted when the market experiences a deterioration in the value of real estate.

Consumer and other loans. Consumer and other loans include consumer loans made to individuals for personal, family and household purposes, including car, boat, manufactured homes (without real estate) and other recreational vehicle loans and personal lines of credit. Consumer loans are generally secured by vehicles, manufactured homes and other household goods. The collateral securing consumer loans may depreciate over time. The company seeks to minimize these risks through its underwriting standards. Other loans also include loans to states and political subdivisions in the U.S. These loans are generally subject to the risk that the borrowing municipality or political subdivision may lose a significant portion of its tax base or that the project for which the loan was made may produce inadequate revenue. None of these categories of loans represents a significant portion of our loan portfolio.

Loan maturity and sensitivities

The following tables present the contractual maturities of our loan portfolio as of September 30, 2021 and December 31, 2020. Loans with scheduled maturities are reported in the maturity category in which the payment is due. Demand loans with no stated maturity and overdrafts are reported in the “due in 1 year or less” category. Loans that have adjustable rates are shown as amortizing to final maturity rather than when the interest rates are next subject to change. The tables do not include prepayment assumptions or scheduled repayments. As of September 30, 2021 and December 31, 2020, the Company had $21.8 million and $22.4 million, respectively, in fixed-rate loans in which the Company has entered into variable rate swap contracts.


Loan type (dollars in thousands)	Maturing in one year or less			Maturing in one to five years			Maturing after five years			Total
As of September 30, 2021
Commercial and industrial	$	522,908		$	526,038		$	203,479		$	1,252,425
Commercial real estate:
Owner occupied	103,522			455,111			379,608			938,241
Non-owner occupied	102,666			812,671			780,236			1,695,573
Residential real estate:
1-to-4 family	72,775			357,683			744,697			1,175,155
Line of credit	34,139			76,113			282,188			392,440
Multi-family	24,159			196,342			104,161			324,662
Construction	627,243			434,034			129,346			1,190,623
Consumer and other	35,181			78,403			211,971			325,555
Total ($)	$	1,522,593		$	2,936,395		$	2,835,686		$	7,294,674
Total (%)	20.9		%	40.2		%	38.9		%	100.0		%


Loan type (dollars in thousands)	Maturing in one year or less			Maturing in one to five years			Maturing after five years			Total
As of December 31, 2020
Commercial and industrial	$	225,384		$	955,847		$	164,891		$	1,346,122
Commercial real estate:
Owner occupied	114,993			453,426			356,422			924,841
Non-owner occupied	134,846			770,849			693,284			1,598,979
Residential real estate:
1-to-4 family	78,600			361,804			648,866			1,089,270
Line of credit	27,970			82,084			298,157			408,211
Multi-family	6,291			74,139			95,246			175,676
Construction	613,153			384,124			224,943			1,222,220
Consumer and other	29,051			77,398			211,191			317,640
Total ($)	$	1,230,288		$	3,159,671		$	2,693,000		$	7,082,959
Total (%)	17.4		%	44.6		%	38.0		%	100.0		%

For loans due after one year or more, the following tables present the sensitivities to changes in interest rates as of September 30, 2021 and December 31, 2020.


Loan type (dollars in thousands)	Fixed interest rate			Floating interest rate			Total
As of September 30, 2021
Commercial and industrial	$	356,146		$	373,371		$	729,517
Commercial real estate:
Owner occupied	564,664			270,055			834,719
Non-owner occupied	728,582			864,325			1,592,907
Residential real estate:
1-to-4 family	904,400			197,980			1,102,380
Line of credit	2,299			356,002			358,301
Multi-family	102,798			197,705			300,503
Construction	194,233			369,147			563,380
Consumer and other	275,737			14,637			290,374
Total ($)	$	3,128,859		$	2,643,222		$	5,772,081
Total (%)	54.2		%	45.8		%	100.0		%


Loan type (dollars in thousands)	Fixed interest rate			Floating interest rate			Total
As of December 31, 2020
Commercial and industrial	$	577,567		$	543,171		$	1,120,738
Commercial real estate:
Owner occupied	534,035			275,813			809,848
Non-owner occupied	609,100			855,033			1,464,133
Residential real estate:
1-to-4 family	809,012			201,658			1,010,670
Line of credit	4,647			375,594			380,241
Multi-family	86,232			83,153			169,385
Construction	182,761			426,306			609,067
Consumer and other	267,263			21,326			288,589
Total ($)	$	3,070,617		$	2,782,054		$	5,852,671
Total (%)	52.5		%	47.5		%	100.0		%

The following table presents the contractual maturities of our loan portfolio segregated into fixed and floating interest rate loans as of September 30, 2021 and December 31, 2020.


(dollars in thousands)	Fixed interest rate			Floating interest rate			Total
As of September 30, 2021
One year or less	$	553,233		$	969,360		$	1,522,593
One to five years	1,736,407			1,199,988			2,936,395
More than five years	1,392,452			1,443,234			2,835,686
Total ($)	$	3,682,092		$	3,612,582		$	7,294,674
Total (%)	50.5		%	49.5		%	100.0		%


(dollars in thousands)	Fixed interest rate			Floating interest rate			Total
As of December 31, 2020
One year or less	$	321,315		$	908,973		$	1,230,288
One to five years	1,906,319			1,253,352			3,159,671
More than five years	1,164,298			1,528,702			2,693,000
Total ($)	$	3,391,932		$	3,691,027		$	7,082,959
Total (%)	47.9		%	52.1		%	100.0		%

Of the loans shown above with floating interest rates, many have interest rate floors as follows:


Loans with interest rate floors (dollars in thousands)	Maturing in one year or less		Weighted average level of support (bps)	Maturing in one to five years		Weighted average level of support (bps)	Maturing after five years		Weighted average level of support (bps)	Total		Weighted average level of support (bps)
As of September 30, 2021
Loans with current rates above floors:

1-25 bps	$	60,970	24.90	$	243,672	12.24	$	141,287	16.76	$	445,929	15.41
26-50 bps	9,214		49.68	4,127		48.14	14,643		48.02	27,984		48.58
51-75 bps	810		74.99	4,233		74.46	14,041		73.00	19,084		73.41
76-100 bps	1,416		100.00	898		95.82	2,461		97.17	4,775		97.75
101-125 bps	665		122.29	188		125.00	1,843		121.71	2,696		122.08
126-150 bps	53		150.00	11,009		134.01	2,962		146.97	14,024		136.81
151-200 bps	6,893		174.98	5,036		192.41	5,048		177.11	16,977		180.78
201-250 bps	16		250.00	266		247.49	973		237.26	1,255		240.37
251 bps and above	817		319.88	603		283.38	2,629		298.85	4,049		300.78
Total loans with current rates above floors	$	80,854	46.24	$	270,032	23.29	$	185,887	37.16	$	536,773	31.55
Loans with current rates below floors:
1-25 bps	$	98,689	24.05	$	89,367	18.77	$	118,152	12.07	$	306,208	17.89
26-50 bps	86,981		46.46	105,486		40.76	114,198		48.16	306,665		45.13
51-75 bps	125,085		72.16	85,055		69.62	104,377		67.69	314,517		69.99
76-100 bps	51,210		97.58	86,158		90.13	93,239		88.67	230,607		91.20
101-125 bps	39,256		123.99	40,511		119.12	90,057		115.80	169,824		118.49
126-150 bps	24,874		142.64	41,050		139.98	77,936		139.80	143,860		140.34
151-200 bps	30,695		187.15	53,153		179.95	76,903		173.32	160,751		178.15
201-250 bps	20,783		232.25	24,367		224.69	37,844		223.36	82,994		225.98
251 bps and above	18,782		367.88	35,450		287.51	49,458		312.13	103,690		313.81
Total loans with current rates below floors	$	496,355	93.35	$	560,597	98.95	$	762,164	106.02	$	1,819,116	100.38

Asset quality

In order to operate with a sound risk profile, we focus on originating loans that we believe to be of high quality. We have established loan approval policies and procedures to assist us in maintaining the overall quality of our loan portfolio. When delinquencies in our loans exist, we rigorously monitor the levels of such delinquencies for any negative or adverse trends. From time to time, we may modify loans to extend the term or make other concessions, including extensions or interest rate modifications, to help a borrower with a deteriorating financial condition stay current on their loan and to avoid foreclosure. Furthermore, we are committed to collecting on all of our loans, which can result in us carrying higher nonperforming assets. We believe this practice leads to higher recoveries in the long-term.

Nonperforming assets

Our nonperforming assets consist of nonperforming loans, other real estate owned and other miscellaneous non-earning assets. Nonperforming loans are those on which the accrual of interest has stopped, as well as loans that are contractually 90 days past due on which interest continues to accrue. Generally, the accrual of interest is discontinued when the full collection of principal or interest is in doubt or when the payment of principal or interest has been contractually 90 days past due, unless the obligation is both well secured and in the process of collection. In our loan review process, we seek to identify and proactively address nonperforming loans. Accrued interest receivable written off as an adjustment to interest income amounted to $0.1 million and $0.2 million for the three months ended September 30, 2021 and 2020, respectively, and $0.7 million and $0.5 million for the nine months ended September 30, 2021 and 2020, respectively. Additionally, we had net interest recoveries on nonperforming assets previously charged off of $0.4 million and $0.7 million for the three months ended September 30, 2021 and 2020, respectively, and $1.6 million and $1.1 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021 and December 31, 2020, we had $59.0 million and $84.2 million, respectively, in nonperforming assets. In addition to loans held for investment, nonperforming assets included commercial loans held for sale that were past due 90 days or more or not accruing interest. These nonperforming commercial loans held for sale represent a pool of shared national credits and institutional healthcare loans that were acquired during 2020 in our acquisition of Franklin and amounted to $5.6 million and $6.5 million as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021 and December 31, 2020, other real estate owned included $3.5 million and $5.7 million, respectively, of excess land and facilities held for sale resulting from our acquisitions. Other nonperforming assets included other repossessed non-real estate amounting to $0.3 million and $1.2 million as of September 30, 2021 and December 31, 2020, respectively.

Government National Mortgage Association optional repurchase programs allow financial institutions to buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing and was the original transferor. At the servicer’s option and without GNMA’s prior authorization, the servicer may repurchase such a delinquent loan for an amount equal to 100 percent of the remaining principal balance of the loan. Under FASB ASC Topic 860, “Transfers and Servicing,” this buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. When the Company is deemed to have regained effective control over these loans under the unconditional buy-back option, the loans can no longer be reported as sold and must be brought back onto the balance sheet, regardless of whether the Company intends to exercise the buy-back option if the buyback option provides the transferor a more-than-trivial benefit. At September 30, 2021 and December 31, 2020, there were $105.1 million and $151.2 million of delinquent GNMA loans that had previously been sold; however, we determined there not to be a more-than-trivial benefit of rebooking based on an analysis of interest rates and an assessment of potential reputational risk associated with these loans. As such, these were not recorded on our balance sheets as of September 30, 2021 or December 31, 2020.

The following table provides details of our nonperforming assets, the ratio of such loans and other nonperforming assets to total assets, and certain other related information as of the dates presented:


	As of September 30,						As of December 31,
(dollars in thousands)	2021			2020			2020
Loan Type
Commercial and industrial	$	3,022		$	6,590		$	16,335
Construction	4,908			2,214			4,626
Residential real estate:
1-to-4 family mortgage	11,925			14,204			16,393
Residential line of credit	1,269			2,141			1,996
Multi-family mortgage	50			57			57
Commercial real estate:
Owner occupied	6,239			2,194			7,948
Non-owner occupied	11,666			12,358			12,471
Consumer and other	3,948			3,891			4,630
Total nonperforming loans held for investment	43,027			43,649			64,456
Loans held for sale	5,625			12,812			6,489
Other real estate owned	10,015			12,748			12,111
Other	347			1,184			1,170
Total nonperforming assets	$	59,014		$	70,393		$	84,226
Total nonperforming loans held for investment as a percentage of total loans held for investment	0.59		%	0.61		%	0.91		%
Total nonperforming assets as a percentage of total assets	0.50		%	0.64		%	0.75		%
Total accruing loans over 90 days delinquent as a percentage of total assets	0.08		%	0.08		%	0.12		%
Loans restructured as troubled debt restructurings	$	29,645		$	16,681		$	15,988
Troubled debt restructurings as a percentage of total loans held for investment	0.41		%	0.23		%	0.23		%

We have evaluated our nonperforming loans held for investment and believe all nonperforming loans have been adequately reserved for in the allowance for credit losses as of September 30, 2021. Management also continually monitors past due loans for potential credit quality deterioration. Loans not considered nonperforming include loans 30-89 days past due amounting to $15.4 million at September 30, 2021 as compared to $27.0 million at December 31, 2020.

Other real estate owned consists of properties acquired through foreclosure or acceptance of a deed in lieu of foreclosure in addition to excess facilities held for sale resulting from the consolidation of our facilities resulting from our mergers. These properties are carried at the lower of cost or fair value based on appraised value less estimated selling costs. Losses arising at the time of foreclosure of properties are charged against the allowance for credit losses. Reductions in the carrying value subsequent to foreclosure are charged to earnings and are included in “Gain (loss) on sales or write-downs of other real estate owned” in the accompanying consolidated statements of income. During the three and nine months ended September 30, 2021, other real estate owned included write-downs and partial liquidations of $0.1 million and $0.7 million, respectively, which combined with gains on sales of other real estate, resulted in a net gain of $2.0 million and $2.5 million, respectively. During the three and nine months ended September 30, 2020, other real estate owned included write-downs and partial liquidations of $1.6 million and $1.8 million, respectively, which combined with net gains on sales of other real estate owned, resulted in a net loss of $1.5 million and $1.4 million, respectively.

Loan Modifications due to COVID-19

On March 22, 2020, a statement was issued by our banking regulators and titled the “Interagency Statement on Loan

Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” (the “Interagency Statement”) that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further stipulated that a qualified loan modification was exempt by law from classification as a troubled debt restructuring, from the period beginning March 1, 2020 until the earlier of December 31, 2020, or the date that is 60 days after the date on which the national emergency concerning the COVID-19 pandemic is terminated. Section 541 of the CAA extended this relief to the earlier of January 1, 2022 or 60 days after the national emergency termination date. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations.

We have numerous customers that have experienced financial distress as a direct result of COVID-19, and in response we offered financial relief in the form of a payment deferral program to assist our customers through these unprecedented times. The majority of these modifications were consistent with the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus" and the CARES Act and did not qualify as TDRs. As of September 30, 2021 and December 31, 2020, the total amortized cost of loans deferred as part of this program that were no longer in deferral status amounted to $1.33 billion and $1.40 billion, respectively. As of September 30, 2021 and December 31, 2020, recorded balances in total loans remaining in deferral status under this program amounted to $18.0 million and $202.5 million, respectively. Additionally, we service mortgages on behalf of Fannie Mae, Freddie Mac and Ginnie Mae, and as of September 30, 2021 and December 31, 2020, approximately 2% and 6%, respectively, of customers serviced on behalf of the aforementioned companies were receiving forbearance assistance. The payment deferrals program differs from forbearance, in that all deferred payments are not normally due at the end of the deferral period. Instead, the payment due date is advanced to a future time period. Generally, interest continues to accrue on loans during the deferral period, unless the loan is on nonaccrual. Loans in deferral status are considered performing loans, and we anticipate collecting on these balances.

Classified loans

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. We analyze loans that share similar risk characteristics collectively and loans that do not share similar risk characteristics are evaluated individually. Loans rated Pass include those that are adequately collateralized performing loans which management believes do not have conditions that have occurred or may occur that would result in the loan being downgraded into an inferior category. The Pass category also includes loans rated as Watch, which include those that management believes have conditions that have occurred, or may occur, which could result in the loan being downgraded to an inferior category. A Special Mention loan has potential or exhibited weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Classified loans include those considered substandard and doubtful. See Note 4, “Loans and allowance for credit losses” in the notes to our consolidated financial statements for a further description of these risk categories.

The following tables set forth information related to the credit quality of our loan portfolio as of the dates presented.


Loan type (dollars in thousands)	Pass		Special Mention		Classified		Total
As of September 30, 2021
Commercial and industrial	$	1,208,918	$	15,790	$	27,717	$	1,252,425
Construction	1,179,175		2,650		8,798		1,190,623
Residential real estate:
1-to-4 family mortgage	1,149,537		4,208		21,410		1,175,155
Residential line of credit	387,472		407		4,561		392,440
Multi-family mortgage	323,398		—		1,264		324,662
Commercial real estate:
Owner occupied	906,494		8,203		23,544		938,241
Non-owner occupied	1,641,364		15,305		38,904		1,695,573
Consumer and other	319,664		469		5,422		325,555
Total loans	$	7,116,022	$	47,032	$	131,620	$	7,294,674


Loan type (dollars in thousands)	Pass		Special Mention		Classified		Total
As of December 31, 2020
Commercial and industrial	$	1,276,394	$	30,382	$	39,346	$	1,346,122
Construction	1,207,391		6,114		8,715		1,222,220
Residential real estate:
1-to-4 family mortgage	1,055,293		9,800		24,177		1,089,270
Residential line of credit	400,206		2,653		5,352		408,211
Multi-family mortgage	175,619		—		57		175,676
Commercial real estate:
Owner occupied	866,738		31,544		26,559		924,841
Non-owner occupied	1,561,360		16,824		20,795		1,598,979
Consumer and other	305,383		5,035		7,222		317,640
Total loans	$	6,848,384	$	102,352	$	132,223	$	7,082,959

Allowance for credit losses

The allowance for credit losses represents the portion of the loan's amortized cost basis that we do not expect to collect due to credit losses over the loan's life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions considering macroeconomic forecasts. Loan losses are charged against the allowance when we believe the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for credit losses is based on the loan's amortized cost basis, excluding accrued interest receivable, as we promptly charge off accrued interest receivable determined to be uncollectible. We determine the appropriateness of the allowance through periodic evaluation of the loan portfolio, lending-related commitments and other relevant factors, including macroeconomic forecasts and historical loss rates. In future quarters, we may update information and forecasts that may cause significant changes in the estimate in those future quarters.

The allowance for credit losses was $139.4 million and $170.4 million and represented 1.91% and 2.41% of loans held for investment as of September 30, 2021 and December 31, 2020, respectively. Excluding PPP loans with a recorded investment totaling $9.4 million and $212.6 million, our ACL as a percentage of total loans held for investment would have been 0 and 7 basis points higher as of September 30, 2021 and December 31, 2020, respectively. PPP loans are federally guaranteed as part of the CARES Act, provided the remaining PPP loan recipients receive loan forgiveness under the SBA regulations. As such, there is minimal credit risk associated with these loans.

In addition, we evaluated changes in reasonable and supportable forecasts of macroeconomic variables during the three and nine months ended September 30, 2021, primarily due to the impact of the COVID-19 pandemic, which resulted in projected decrease in lifetime losses and overall decrease in the ACL. Specifically, we performed additional qualitative evaluations for certain categories within our loan portfolio, in line with our established qualitative framework, weighting the impact of the current economic outlook, status of federal government stimulus programs, and other considerations, in order to identify specific industries or borrowers seeing credit improvement or deterioration specific to the COVID-19 pandemic.

We also maintain an allowance for credit losses on unfunded commitments, which decreased to $13.5 million as of September 30, 2021 from $16.4 million as of December 31, 2020, also as a result of the improving macroeconomic forecasts incorporated into our CECL loss rate model.

The following table presents the allocation of the allowance for credit losses by loan category as well as the ratio of loans by loan category compared to the total loan portfolio as of the dates indicated:


	As of September 30,				As of December 31,
	2021				2020
(dollars in thousands)	Amount		% of Loans		Amount		% of Loans

Loan Type:
Commercial and industrial	$	14,838	17	%	$	14,748	19	%
Construction	29,760		16	%	58,477		17	%
Residential real estate:
1-to-4 family mortgage	17,028		16	%	19,220		15	%
Residential line of credit	5,765		5	%	10,534		6	%
Multi-family mortgage	12,013		5	%	7,174		2	%
Commercial real estate:
Owner occupied	12,376		13	%	4,849		13	%
Non-owner occupied	36,406		23	%	44,147		23	%
Consumer and other	11,260		5	%	11,240		5	%
Total allowance	$	139,446	100	%	$	170,389	100	%

The following table summarizes activity in our allowance for credit losses during the periods indicated:


	Three Months Ended September 30,						Nine Months Ended September 30,						Year Ended December 31,
(dollars in thousands)	2021			2020			2021			2020			2020
Allowance for credit losses at beginning of period	$	144,663		$	113,129		$	170,389		$	31,139		$	31,139
Impact of adopting ASC 326 on non-purchased credit deteriorated loans	—			—			—			30,888			30,888
Impact of adopting ASC 326 on purchased credit deteriorated loans	—			—			—			558			558
Charge-offs:
Commercial and industrial	(2,175)			(249)			(2,812)			(1,630)			(11,735)
Construction	(1)			—			(30)			(18)			(18)
Residential real estate:
1-to-4 family mortgage	—			(8)			(149)			(373)			(403)
Residential line of credit	—			—			(18)			(21)			(22)
Multi-family mortgage	—			—			—			—			—
Commercial real estate:
Owner occupied	—			(95)			—			(304)			(304)
Non-owner occupied	—			(166)			—			(711)			(711)
Consumer and other	(438)			(475)			(1,634)			(1,512)			(2,112)
Total charge-offs	$	(2,614)		$	(993)		$	(4,643)		$	(4,569)		$	(15,305)
Recoveries:
Commercial and industrial	$	19		$	757		$	235		$	1,652		$	1,712
Construction	3			51			3			202			205
Residential real estate:
1-to-4 family mortgage	33			116			98			166			122
Residential line of credit	1			22			16			61			125
Multi-family mortgage	—			—			—			—			—
Commercial real estate:
Owner occupied	4			51			143			68			83
Non-owner occupied	—			—			—			—			—
Consumer and other	169			175			554			471			756
Total recoveries	$	229		$	1,172		$	1,049		$	2,620		$	3,003
Net (charge-offs) recoveries	(2,385)			179			(3,594)			(1,949)			(12,302)
Provision for credit losses	(2,832)			45,834			(27,349)			97,837			94,606
Initial allowance for credit losses on loans purchased with credit deterioration	—			24,831			—			25,500			25,500

Allowance for credit losses at the end of period	$	139,446		$	183,973		$	139,446		$	183,973		$	170,389
Ratio of net (charge-offs) recoveries during the period to average loans outstanding during the period	(0.13)		%	0.01		%	(0.07)		%	(0.05)		%	(0.22)		%
Allowance for credit losses as a percentage of loans at end of period(a)	1.91		%	2.55		%	1.91		%	2.55		%	2.41		%
Allowance for credit losses as a percentage of nonperforming loans at end of period(a)	324.1		%	421.5		%	324.1		%	421.5		%	264.3		%

(a) Excludes reserve for credit losses on unfunded commitments of $13.5 million, $16.1 million, and $16.4 million recorded in accrued expenses and other liabilities at September 30, 2021, September 30, 2020, and December 31, 2020, respectively.

Loans held for sale

Commercial loans held for sale

On August 15, 2020, the Company acquired a portfolio of commercial loans, including shared national credits and institutional healthcare loans, as part of the Franklin transaction that the Company has elected to account for as held for sale. The loans had a fair value of $100.5 million as of September 30, 2021 compared to $215.4 million as of December 31, 2020. The decrease is primarily attributable to loans within the portfolio being paid off through external refinancing and pay-downs. This decrease also includes gains on changes in fair value amounting to $0.7 and $1.3 million for the three and nine months ended September 30, 2021, respectively, which is included in 'other noninterest income' on the consolidated statement of income. This compares to gains on changes in fair value for the three and nine months ended September 30, 2020 of $1.9 million for valuation changes from the August 15, 2020 acquisition date through September 30, 2020.

Mortgage loans held for sale

Mortgage loans held for sale were $755.2 million at September 30, 2021 compared to $683.8 million at December 31, 2020. Interest rate lock volume for the three months ended September 30, 2021 and 2020, totaled $2.01 billion and $2.42 billion, respectively, and $5.68 billion and $6.75 billion for the nine months ended September 30, 2021 and 2020, respectively. Generally, mortgage volume increases in lower interest rate environments and robust housing markets and decreases in rising interest rate environments and slower housing markets. The decrease in interest rate lock volume during the three and nine months ended September 30, 2021 reflects the slow down experienced across the industry compared with the same periods in the prior year, which benefited from historically low interest rates pre-empted by the COVID-19 Pandemic. Interest rate lock commitments in the pipeline were $0.74 billion as of September 30, 2021 compared with $1.19 billion as of December 31, 2020.

Mortgage loans to be sold are sold either on a “best efforts” basis or under a mandatory delivery sales agreement. Under a “best efforts” sales agreement, residential real estate originations are locked in at a contractual rate with third party private investors or directly with government sponsored agencies, and we are obligated to sell the mortgages to such investors only if the mortgages are closed and funded. The risk we assume is conditioned upon loan underwriting and market conditions in the national mortgage market. Under a mandatory delivery sales agreement, we commit to deliver a certain principal amount of mortgage loans to an investor at a specified price and delivery date. Penalties are paid to the investor if we fail to satisfy the contract. Gains and losses are realized at the time consideration is received and all other criteria for sales treatment have been met. These loans are typically sold within fifteen to twenty-five days after the loan is funded, depending on the economic environment and competition in the market. Although loan fees and some interest income are derived from mortgage loans held for sale, the main source of income is gains from the sale of these loans in the secondary market.

Deposits

Deposits represent the Bank’s primary source of funds. We continue to focus on growing core customer deposits through our relationship driven banking philosophy, community-focused marketing programs, and initiatives such as the development of our treasury management services.

Total deposits were $10.07 billion and $9.46 billion as of September 30, 2021 and December 31, 2020, respectively. Noninterest-bearing deposits at September 30, 2021 and December 31, 2020 were $2.61 billion and $2.27 billion, respectively, while interest-bearing deposits were $7.46 billion and $7.18 billion at September 30, 2021 and December 31, 2020, respectively. This deposit growth includes increases of $359.0 million and $100.4 million in interest-bearing demand and savings deposits, respectively, in each case compared to December 31, 2020. This was offset by declines in customer time and brokered and internet time deposits of $216.2 million and $33.5 million, respectively, in each case as of September 30, 2021 compared to balances as of December 31, 2020. This change in deposit composition is a result of our balance sheet management and focus on replacing time deposits with less costly funding sources.

Included in noninterest-bearing deposits are certain mortgage escrow and related customer deposits that our third-party servicing provider, Cenlar, transfers to the Bank which totaled $190.6 million and $148.0 million at September 30, 2021 and December 31, 2020, respectively. Additionally, our deposits from municipal and governmental entities (i.e. "public deposits") totaled $1.66 billion at September 30, 2021, compared to $1.68 billion at December 31, 2020.

Our deposit base also includes certain commercial and high net worth individuals that periodically place deposits with the Bank for short periods of time and can cause fluctuations from period to period in the overall level of customer deposits

outstanding. These fluctuations may include certain deposits from related parties as disclosed within Note 15, "Related party transactions" in the notes to our consolidated financial statements included in this Report. Management continues to focus on growing noninterest-bearing deposits while allowing more costly funding sources to mature.

Average deposit balances by type, together with the average rates per period are reflected in the average balance sheet amounts, interest paid and rate analysis tables included in this management's discussion and analysis under the subheading "Results of operations" discussion.

The following table sets forth the distribution by type of our deposit accounts as of the dates indicated:


	As of September 30,						As of December 31,
	2021						2020
(dollars in thousands)	Amount		% of total deposits		Average rate		Amount		% of total deposits		Average rate

Deposit Type
Noninterest-bearing demand	$	2,609,569	27	%	—	%	$	2,274,103	24	%	—	%
Interest-bearing demand	2,850,795		28	%	0.37	%	2,491,765		26	%	0.61	%
Money market	2,970,959		29	%	0.40	%	2,902,230		30	%	0.76	%
Savings deposits	453,106		4	%	0.06	%	352,685		4	%	0.08	%
Customer time deposits	1,159,472		12	%	0.72	%	1,375,695		15	%	1.52	%
Brokered and internet time deposits	28,017		—	%	1.87	%	61,559		1	%	0.90	%
Total deposits	$	10,071,918	100	%	0.32	%	$	9,458,037	100	%	0.62	%
Customer Time Deposits
0.00-0.50%	$	769,030	66	%			$	454,429	34	%
0.51-1.00%	132,056		11	%			253,883		18	%
1.01-1.50%	89,805		8	%			155,755		11	%
1.51-2.00%	50,794		4	%			169,414		12	%
2.01-2.50%	50,915		5	%			159,699		12	%
Above 2.50%	66,872		6	%			182,515		13	%
Total customer time deposits	$	1,159,472	100	%			$	1,375,695	100	%
Brokered and Internet Time Deposits
0.00-0.50%	$	99	—	%			$	—	—	%
0.51-1.00%	—		—	%			—		—	%
1.01-1.50%	595		2	%			5,660		9	%
1.51-2.00%	16,888		60	%			42,311		69	%
2.01-2.50%	4,464		17	%			5,312		9	%
Above 2.50%	5,971		21	%			8,276		13	%
Total brokered and internet time deposits	28,017		100	%			61,559		100	%
Total time deposits	$	1,187,489					$	1,437,254

The following table sets forth our time deposits segmented by months to maturity and deposit amount as of September 30, 2021 and December 31, 2020:


	As of September 30, 2021
(dollars in thousands)	Time deposits of $100 and greater		Time deposits of less than $100		Total
Months to maturity:
Three or less	$	165,543	$	82,446	$	247,989
Over Three to Six	145,562		89,956		235,518
Over Six to Twelve	211,529		116,172		327,701
Over Twelve	247,144		129,137		376,281
Total	$	769,778	$	417,711	$	1,187,489


	As of December 31, 2020
(dollars in thousands)	Time deposits of $100 and greater		Time deposits of less than $100		Total
Months to maturity:
Three or less	$	203,202	$	123,080	$	326,282
Over Three to Six	228,585		106,223		334,808
Over Six to Twelve	255,486		132,240		387,726
Over Twelve	254,672		133,766		388,438
Total	$	941,945	$	495,309	$	1,437,254

Investment portfolio

Our investment portfolio objectives include maximizing total return after other primary objectives are achieved such as, but not limited to, providing liquidity, capital preservation, and pledging collateral for various types of borrowings. The investment objectives guide the portfolio allocation among securities types, maturities, and other attributes.

The following table shows the carrying value of our total securities available-for-sale by investment type and the relative percentage of each investment type for the dates indicated:


	As of September 30,				As of December 31,
	2021				2020
(dollars in thousands)	Carrying value		% of total		Carrying value		% of total
U.S. government agency securities	$	10,571	1	%	$	2,003	—	%
Mortgage-backed securities - residential	1,210,503		77	%	773,336		67	%
Mortgage-backed securities - commercial	15,712		1	%	21,588		2	%
Municipal securities	327,239		21	%	356,329		30	%
U.S. Treasury securities	6,006		—	%	16,628		1	%
Corporate securities	2,527		—	%	2,516		—	%
Total securities available-for-sale	$	1,572,558	100	%	$	1,172,400	100	%

The fair value of our available-for-sale debt securities portfolio at September 30, 2021 was $1.57 billion compared to $1.17 billion at December 31, 2020. During the three months ended September 30, 2021 and 2020, we purchased $290.9 million and $154.3 million, respectively in investment securities and during the nine months ended September 30, 2021 and 2020, we purchased $645.7 million and $214.3 million in investment securities, respectively (excluding those acquired from Farmers National and merged from Franklin during the three and nine months ended September 30, 2020). The trade value of securities sold was $8.9 million during the three and nine months ended September 30, 2021 compared to $28.3 million during the three and nine months ended September 30, 2020.

During the three months ended September 30, 2021 and 2020, maturities and calls of securities totaled $68.1 million and $67.8 million, respectively, and during the nine months ended September 30, 2021 and 2020, maturities and calls of securities totaled $216.0 million and $140.2 million, respectively. As of September 30, 2021 and December 31, 2020, net unrealized gains of $14.4 million and $34.6 million, respectively, were included in the fair value of available-for-sale debt securities.

As of September 30, 2021 and December 31, 2020, the Company had $4.8 million and $4.6 million, respectively, in equity securities recorded at fair value that primarily consisted of mutual funds. The change in the fair value of equity securities resulted in a net loss of $24 thousand and a net gain of $59 thousand during the three months ended September 30, 2021 and 2020, respectively. During the nine months ended September 30, 2021 and 2020, the change in the fair value of equity securities resulted in a net gain of $188 thousand and $94 thousand, respectively.

The following table sets forth the fair value, scheduled maturities and weighted average yields for our investment portfolio as of the dates indicated below:


	As of September 30,						As of December 31,
	2021						2020
(dollars in thousands)	Fair value		% of total investment securities		Weighted average yield (1)		Fair value		% of total investment securities		Weighted average yield (1)

Treasury securities:
Maturing within one year	$	6,006	0.4	%	1.63	%	$	16,628	1.4	%	1.57	%
Maturing in one to five years	—		—	%	—	%	—		—	%	—	%
Maturing in five to ten years	—		—	%	—	%	—		—	%	—	%
Maturing after ten years	—		—	%	—	%	—		—	%	—	%
Total Treasury securities	6,006		0.4	%	1.63	%	16,628		1.4	%	1.57	%
Government agency securities:
Maturing within one year	—		—	%	—	%	—		—	%	—	%
Maturing in one to five years	1,247		0.1	%	1.00	%	—		—	%	—	%
Maturing in five to ten years	9,324		0.6	%	1.25	%	2,003		0.2	%	2.64	%
Maturing after ten years	—		—	%	—	%	—		—	%	—	%
Total government agency securities	10,571		0.7	%	1.10	%	2,003		0.2	%	2.64	%
Municipal securities
Maturing within one year	10,767		0.7	%	3.02	%	19,034		1.6	%	1.07	%
Maturing in one to five years	18,890		1.2	%	1.90	%	24,184		2.1	%	2.06	%
Maturing in five to ten years	30,860		2.0	%	3.36	%	37,313		3.2	%	2.76	%
Maturing after ten years	266,722		17.0	%	3.16	%	275,798		23.5	%	3.12	%
Total obligations of state and municipal subdivisions	327,239		20.9	%	3.06	%	356,329		30.4	%	3.07	%
Residential and commercial mortgage backed securities guaranteed by FNMA, GNMA and FHLMC:
Maturing within one year	—		—	%	—	%	—		—	%	—	%
Maturing in one to five years	4,170		0.3	%	2.50	%	2,975		0.3	%	3.12	%
Maturing in five to ten years	20,039		1.3	%	2.23	%	30,596		2.6	%	2.47	%
Maturing after ten years	1,202,006		76.3	%	1.51	%	761,353		64.9	%	1.45	%
Total residential and commercial mortgage backed securities guaranteed by FNMA, GNMA and FHLMC	1,226,215		77.9	%	1.53	%	794,924		67.8	%	1.50	%






Corporate securities:
Maturing within one year	—		—	%	—	%	—		—	%	—	%
Maturing in one to five years	500		—	%	5.00	%	500		—	%	5.00	%
Maturing in five to ten years	2,027		0.1	%	4.19	%	2,016		0.2	%	4.19	%
Maturing after ten years	—		—	%	—	%	—		—	%	—	%
Total Corporate securities	2,527		0.1	%	4.35	%	2,516		0.2	%	4.35	%
Total investment securities	$	1,572,558	100.0	%	1.85	%	$	1,172,400	100.0	%	2.29	%

(1)Yields on a tax-equivalent basis.

The following table summarizes the amortized cost of debt securities classified as available-for-sale and their approximate fair values as of the dates shown:


(dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Securities available-for-sale
As of September 30, 2021
U.S. government agency securities	$	10,598	$	5	$	(32)	$	10,571
Mortgage-backed securities - residential	1,211,042		9,111		(9,650)		1,210,503
Mortgage-backed securities - commercial	15,374		368		(30)		15,712
Municipal securities	312,672		14,881		(314)		327,239
U.S. Treasury securities	5,998		8		—		6,006
Corporate securities	2,500		35		(8)		2,527
	$	1,558,184	$	24,408	$	(10,034)	$	1,572,558
As of December 31, 2020
US Government agency securities	$	2,000	$	3	$	—	$	2,003
Mortgage-backed securities - residential	760,099		14,040		(803)		773,336
Mortgage-backed securities - commercial	20,226		1,362		—		21,588
Municipal securities	336,543		19,806		(20)		356,329
U.S. Treasury securities	16,480		148		—		16,628
Corporate securities	2,500		17		(1)		2,516
	$	1,137,848	$	35,376	$	(824)	$	1,172,400

Securities purchased under agreements to resell ("reverse repurchase agreements")

We enter into agreements with certain customers to purchase investment securities under agreements to resell the following day. This investment deploys some of our liquidity position into an instrument that improves the return on those funds in the current low rate environment. Additionally, we believe it positions us more favorably for a potential rising interest rate environment in the future. Securities purchased under agreements to resell totaled $74.0 million and $0 at September 30, 2021 and December 31, 2020, respectively.

Borrowed funds

Deposits and investment securities available-for-sale are the primary source of funds for our lending activities and general business purposes. However, we may also obtain advances from the FHLB, purchase federal funds and engage in overnight borrowing from the Federal Reserve, correspondent banks, or enter into client repurchase agreements. We also use these sources of funds as part of our asset liability management process to control our long-term interest rate risk exposure, even if it may increase our short-term cost of funds.

Our level of short-term borrowing can fluctuate on a daily basis depending on funding needs and the source of funds to satisfy those needs, in addition to the overall interest rate environment and cost of public funds. Borrowings can include securities sold under agreements to repurchase, lines of credit, advances from the FHLB, federal funds, and subordinated debt. The following table sets forth our total borrowings segmented by years to maturity as of September 30, 2021:


	September 30, 2021
(dollars in thousands)	Amount		% of total		Weighted average interest rate (%)
Maturing Within:
September 30, 2022	$	41,730	24	%	0.20	%
September 30, 2023	—		—	%	—	%
September 30, 2024	—		—	%	—	%
September 30, 2025	—		—	%	—	%
September 30, 2026	—		—	%	—	%
Thereafter	129,448		76	%	4.22	%
Total	$	171,178	100	%	3.24	%

Securities sold under agreements to repurchase

We enter into agreements with certain customers to sell certain securities under agreements to repurchase the security the following day. These agreements are made to provide customers with comprehensive treasury management programs a short-term return for their excess funds. Securities sold under agreements to repurchase totaled $41.7 million and $32.2 million at September 30, 2021 and December 31, 2020, respectively.

Subordinated debt

We have two wholly-owned subsidiaries that are statutory business trusts (“Trusts”). The Trusts were created for the sole purpose of issuing 30-year capital trust preferred securities to fund the purchase of junior subordinated debentures issued by the Company. As of September 30, 2021 and December 31, 2020, our $0.9 million investment in the Trusts was included in other assets in the accompanying consolidated balance sheets, and our $30.0 million obligation is reflected as junior subordinated debt, respectively. The junior subordinated debt bears interest at floating interest rates based on a spread over 3-month LIBOR plus 315 basis points (3.28% and 3.40% at September 30, 2021 and December 31, 2020, respectively) for the $21.7 million debenture and 3-month LIBOR plus 325 basis points (3.38% and 3.50% at September 30, 2021 and December 31, 2020, respectively) for the remaining $9.3 million. The $9.3 million debenture may be redeemed prior to the 2033 maturity date upon the occurrence of a special event, and the $21.7 million debenture may be redeemed prior to 2033 at our option.

Additionally, during 2020, we placed $100.0 million of ten year fixed-to-floating rate subordinated notes, maturing September 1, 2030. This subordinated note instrument pays interest semi-annually in arrears based on a 4.5% fixed annual interest rate for the first five years of the notes. For years six through ten, the interest rate resets on a quarterly basis, and will be based on the 3-month Secured Overnight Financing Rate plus a spread of 439 basis points. We are entitled to redeem the notes in whole or in part on any interest payment date on or after September 1, 2025. The Company has classified the issuance, net of unamortized issuance costs of $1.5 million and $1.8 million, as Tier 2 capital at September 30, 2021 and December 31, 2020, respectively.

We also assumed two issues of subordinated debt, totaling $60,000, as part of the Franklin merger. The notes, issued by Franklin in 2016, feature $40,000 of 6.875% fixed-to-floating rate subordinated notes due March 30, 2026 ("March 2026 Subordinated Notes"), and $20,000 of 7% fixed-to-floating rate subordinated notes due July 1, 2026 ("July 2026 Subordinated Notes"). During the nine months ended September 30, 2021, we redeemed the two issues of subordinated debt in full. Additionally, during the three and nine months ended September 30, 2021, we recorded accretion of a purchase accounting premium of $0.0 million and $0.4 million, respectively, as a reduction to interest expense on borrowings. There was $60.0 million related to these issuances included as Tier 2 capital as of December 31, 2020.

Other borrowings

During the first quarter of 2020, we entered into total borrowings against a credit line in the amount $15.0 million against the line to fund the cash consideration paid in connection with the Farmers National transaction. The line of credit matured on February 21, 2021 and was repaid in full. Other borrowings on our consolidated balance sheets also includes our finance lease liability totaling $1.5 million and $1.6 million as of September 30, 2021 and December 31, 2020, respectively. See Note 6, "Leases" within the Notes to our consolidated financial statements for additional information regarding our finance lease.

Liquidity and capital resources

Bank liquidity management

We are expected to maintain adequate liquidity at the Bank to meet the cash flow requirements of clients who may be either depositors wishing to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Our Liquidity and Interest Rate Risk Policy is intended to cause the Bank to maintain adequate liquidity and, therefore, enhance our ability to raise funds to support asset growth, meet deposit withdrawals and lending needs, maintain reserve requirements and otherwise sustain our operations. We accomplish this through management of the maturities of our interest-earning assets and interest-bearing liabilities. We believe that our present position is adequate to meet our current and future liquidity needs.

We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all of our short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of clients, while maintaining an appropriate balance between assets and liabilities to meet the return on investment

objectives of our shareholders. We also monitor our liquidity requirements in light of interest rate trends, changes in the economy and the scheduled maturity and interest rate sensitivity of the investment and loan portfolios and deposits.

Considering uncertainty surrounding the COVID-19 pandemic, we have taken steps to ensure adequate liquidity and access to funding sources. To date, we have not seen significant pressure on liquidity or sources of funding as a result of COVID-19 and have maintained higher than typical levels of liquidity in cash and cash equivalents to allow for flexibility.

As part of our liquidity management strategy, we also focus on minimizing our costs of liquidity and attempt to decrease these costs by growing our noninterest-bearing and other low-cost deposits, while replacing higher cost funding sources including time deposits and borrowed funds. While we do not control the types of deposit instruments our clients choose, we do influence those choices with the rates and the deposit specials we offer.

Our investment portfolio is another alternative for meeting liquidity needs. These assets generally have readily available markets that offer conversions to cash as needed. Securities within our investment portfolio are also used to secure certain deposit types and short-term borrowings. As of September 30, 2021 and December 31, 2020, securities with a carrying value of $1.15 billion and $0.80 billion, respectively, were pledged to secure government, public, trust and other deposits and as collateral for short-term borrowings, letters of credit and derivative instruments.

Additional sources of liquidity include federal funds purchased, reverse repurchase agreements, FHLB borrowings, and lines of credit. Interest is charged at the prevailing market rate on federal funds purchased, reverse repurchase agreements and FHLB advances. Funds and advances obtained from the FHLB are used primarily to meet day to day liquidity needs, particularly when the cost of such borrowing compares favorably to the rates that we would be required to pay to attract deposits. There were no outstanding overnight cash management advances or other advances with the FHLB as of September 30, 2021 or December 31, 2020. There was $1.28 billion and $1.18 billion as of September 30, 2021 and December 31, 2020, respectively available to borrow against.

We also maintain lines of credit with other commercial banks totaling $345.0 million and $335.0 million as of September 30, 2021 and December 31, 2020, respectively. These are unsecured, uncommitted lines of credit typically maturing at various times within the next twelve months. There were no borrowings against the lines as of September 30, 2021 or December 31, 2020.

Holding company liquidity management

The Company is a corporation separate and apart from the Bank and, therefore, it must provide for its own liquidity. The Company’s main source of funding is dividends declared and paid to it by the Bank. Statutory and regulatory limitations exist that affect the ability of the Bank to pay dividends to the Company. Management believes that these limitations will not impact the Company’s ability to meet its ongoing short-term cash obligations. For additional information regarding dividend restrictions, see the “Item 1. Business - Supervision and regulation,” "Item 1A. Risk Factors - Risks related to our business" and " Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Dividend Policy," each of which is set forth in our Annual Report.

Due to state banking laws, the Bank may not declare dividends in any calendar year in an amount exceeding the total of its net income for that year combined with its retained net income of the preceding two years, without the prior approval of the Tennessee Department of Financial Institutions. Based upon this regulation, as of September 30, 2021 and December 31, 2020, $127.7 million and $185.7 million of the Bank’s retained earnings were available for the payment of dividends without such prior approval. In addition, dividends paid by the Bank to the Company would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. During the three and nine months ended September 30, 2021, there were $6.3 million and $116.3 million, respectively, in cash dividends approved by the board for payment from the Bank to the holding company. During the three and nine months ended September 30, 2020, the board approved a quarterly dividend from the Bank to the holding company amounting to approximately $5.3 million. None of these required approval from the TDFI. Subsequent to September 30, 2021, the board approved a dividend from the Bank to the holding company for $6.3 million that also did not require approval from the TDFI.

During the three and nine months ended September 30, 2021, the Company declared and paid shareholder dividends of $0.11 per share, or $5.3 million and $0.33 per share, or $15.9 million, respectively. During the three and nine months ended September 30, 2020, the Company declared and paid dividends of $0.09 per share, or $4.3 million and $0.27 per share, or $10.2 million, respectively. Subsequent to September 30, 2021, the Company declared a quarterly dividend in the amount of $0.11 per share, payable on November 22, 2021, to stockholders of record as of November 8, 2021.

The Company is party to a registration rights agreement with its former majority shareholder entered into in connection with the 2016 initial public offering, under which the Company is responsible for payment of expenses (other than underwriting discounts and commissions) relating to sales to the public by the shareholder of shares of the Company's common stock beneficially owned by him. Such expenses include registration fees, legal and accounting fees, and printing costs payable by the Company and expensed when incurred. During the nine months ended September 30, 2021, the Company paid $0.6 million under this agreement related to the secondary offering completed during the second quarter of 2021. No such expenses were incurred during the three and nine months ended September 30, 2020.

Capital management and regulatory capital requirements

Our capital management consists of providing adequate equity to support our current and future operations. We are subject to various regulatory capital requirements administered by state and federal banking agencies, including the TDFI, Federal Reserve and the FDIC. Failure to meet minimum capital requirements may prompt certain actions by regulators that, if undertaken, could have a direct material adverse effect on our financial condition and results of operations.

The Federal Reserve and the FDIC have issued guidelines governing the levels of capital that banks must maintain. Those guidelines specify capital tiers, which include the classifications set forth in the following table. As of September 30, 2021 and December 31, 2020, we exceeded all capital ratio requirements under prompt corrective action and other regulatory requirements, as detailed in the table below:


	Actual				Required for capital adequacy purposes (1)				To be well capitalized under prompt corrective action provision
(dollars in thousands)	Amount		Ratio (%)		Amount		Ratio (%)		Amount		Ratio (%)
September 30, 2021
Total capital (to risk weighted assets)
FB Financial Corporation	$	1,400,521	14.6	%	$	1,005,220	10.5	%	N/A		N/A
FirstBank	$	1,352,956	14.2	%	$	1,003,252	10.5	%	$	955,478	10.0	%
Tier 1 capital (to risk weighted assets)
FB Financial Corporation	$	1,213,432	12.7	%	$	813,750	8.5	%	N/A		N/A
FirstBank	$	1,165,867	12.2	%	$	812,156	8.5	%	$	764,382	8.0	%
Tier 1 Capital (to average assets)
FB Financial Corporation	$	1,213,432	10.4	%	$	467,369	4.0	%	N/A		N/A
FirstBank	$	1,165,867	10.0	%	$	465,817	4.0	%	$	582,271	5.0	%
Common Equity Tier 1 (CET1)
FB Financial Corporation	$	1,183,432	12.4	%	$	670,147	7.0	%	N/A		N/A
FirstBank	$	1,165,867	12.2	%	$	668,835	7.0	%	$	621,061	6.5	%
December 31, 2020
Total capital (to risk weighted assets)
FB Financial Corporation	$	1,358,897	15.0	%	$	952,736	10.5	%	N/A		N/A
FirstBank	$	1,353,279	14.9	%	$	951,327	10.5	%	$	906,026	10.0	%
Tier 1 capital (to risk weighted assets)
FB Financial Corporation	$	1,090,364	12.0	%	$	771,262	8.5	%	N/A		N/A
FirstBank	$	1,142,548	12.6	%	$	770,122	8.5	%	$	724,820	8.0	%
Tier 1 Capital (to average assets)
FB Financial Corporation	$	1,090,364	10.0	%	$	435,064	4.0	%	N/A		N/A
FirstBank	$	1,142,548	10.5	%	$	435,279	4.0	%	$	544,098	5.0	%
Common Equity Tier 1 (CET1)
FB Financial Corporation	$	1,060,364	11.7	%	$	635,157	7.0	%	N/A		N/A
FirstBank	$	1,142,548	12.6	%	$	634,218	7.0	%	$	588,917	6.5	%

(1) Minimum ratios presented exclude the capital conservation buffer.

U.S. Basel III measures capital strength in three tiers and incorporates risk-adjusted assets to determine the risk-based capital ratios. Our common equity tier 1 capital primarily includes shareholders' equity less certain deductions for goodwill and other intangibles, net of taxes, net unrealized gains (losses) on AFS securities and derivative instruments, net of tax. Tier 1 capital is primarily comprised of common equity Tier 1 capital and included junior subordinated debentures with a carrying value of $30.0 million as of September 30, 2021 and December 31, 2020. Tier 2 capital components include a portion of the allowance for credit losses in excess of Tier 1 statutory limits and our remaining combined trust preferred security debt issuances.

In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC announced an interim final rule, which became final on September 30, 2020, to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company adopted the capital transition relief over the permissible five-year period.

Capital Expenditures

As of September 30, 2021, we do not have any planned material capital expenditures over the next twelve months.

Shareholders’ equity

Our total shareholders’ equity was $1.40 billion at September 30, 2021 and $1.29 billion at December 31, 2020. Book value per share was $29.36 at September 30, 2021 and $27.35 at December 31, 2020, respectively. The growth in shareholders’ equity during 2021 was primarily attributable to earnings retention, partially offset by changes in accumulated other comprehensive income, declared dividends and activity related to equity-based compensation.

Off-balance sheet arrangements

In the normal course of business, we enter into various transactions, which in accordance with GAAP, are not included as part of our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit, standby and commercial letters of credit, and commitments to purchase loans, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. For further information, see Note 9, "Commitments and contingencies" in the notes to the consolidated financial statements included elsewhere in this Report.

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ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate sensitivity

Our market risk arises primarily from interest rate risk inherent in the normal course of lending and deposit-taking activities. Management believes that our ability to successfully respond to changes in interest rates will have a significant impact on our financial results. To that end, management actively monitors and manages our interest rate risk exposure.

The Asset Liability Management Committee, which is authorized by our board of directors, monitors our interest rate sensitivity and makes decisions relating to that process. The ALCO’s goal is to structure our asset/liability composition to maximize net interest income while managing interest rate risk so as to minimize the adverse impact of changes in interest rates on net interest income and capital in either a rising or declining interest rate environment. Profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact our earnings because the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis.

We monitor the impact of changes in interest rates on our net interest income and economic value of equity using rate shock analysis. Net interest income simulations measure the short-term earnings exposure from changes in market rates of interest in a rigorous and explicit fashion. Our current financial position is combined with assumptions regarding future business to calculate net interest income under varying hypothetical rate scenarios. EVE measures our long-term earnings exposure from changes in market rates of interest. EVE is defined as the present value of assets minus the present value of liabilities at a point in time. A decrease in EVE due to a specified rate change indicates a decline in the long-term earnings capacity of the balance sheet assuming that the rate change remains in affect over the life of the current balance sheet. For purposes of calculating EVE, a zero percent floor is assumed on discount factors.

The following analysis depicts the estimated impact on net interest income and EVE of immediate changes in interest rates at the specified levels for the periods presented:


					Percentage change in:
Change in interest rates	Net interest income (1)
	Year 1				Year 2
	September 30,		December 31,		September 30,		December 31,
(in basis points)	2021		2020		2021		2020
+400	40.2	%	46.8	%	54.4	%	52.3	%
+300	29.7	%	34.8	%	40.5	%	39.1	%
+200	20.5	%	22.8	%	28.0	%	26.1	%
+100	10.4	%	10.7	%	14.5	%	12.9	%
-100	(6.23)	%	(3.80)	%	(9.29)	%	(6.80)	%
-200	(8.17)	%	(3.80)	%	(11.5)	%	(6.80)	%


	Percentage change in:
Change in interest rates	Economic value of equity (2)
	September 30,		December 31,
(in basis points)	2021		2020
+400	5.61	%	40.0	%
+300	5.68	%	32.8	%
+200	5.61	%	24.2	%
+100	3.81	%	13.2	%
-100	(8.16)	%	(6.40)	%
-200	(17.9)	%	(6.29)	%

(1)The percentage change represents the projected net interest income for 12 months and 24 months on a flat balance sheet in a stable interest rate environment versus the projected net income in the various rate scenarios.

(2)The percentage change in this column represents our EVE in a stable interest rate environment versus EVE in the various rate scenarios.

The results for the net interest income simulations as of September 30, 2021 and December 31, 2020 resulted in an asset sensitive position. The primary influence of our asset sensitivity is the floating rate structure in many of our loans held for investment as well as the composition of our liabilities which is primarily core deposits. Non-interest bearing deposits continue be a strong source of funding which also increases asset sensitivity. The COVID-19 pandemic resulted in unprecedented monetary stimulus from the Federal Reserve, which included, but was not limited to, a 150 basis point decrease in the federal funds target rate. While our variable rate loan portfolio is indexed to market rates, deposits

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typically adjust at a percentage of the overall movement in market rates, resulting in margin compression. Index floors in our variable rate loans and aggressive deposit pricing should continue to mitigate some of this pressure in the near term.

The preceding measures assume no change in the size or asset/liability compositions of the balance sheet. Thus, the measures do not reflect the actions the ALCO may undertake in response to such changes in interest rates. The scenarios assume instantaneous movements in interest rates in increments of 100, 200, 300 and 400 basis points. As interest rates are adjusted over a period of time, it is our strategy to proactively change the volume and mix of our balance sheet in order to mitigate our interest rate risk. The computation of the prospective effects of hypothetical interest rate changes requires numerous assumptions regarding characteristics of new business and the behavior of existing positions. These business assumptions are based upon our experience, business plans and published industry experience. Key assumptions employed in the model include asset prepayment speeds, competitive factors, the relative price sensitivity of certain assets and liabilities and the expected life of non-maturity deposits. Because these assumptions are inherently uncertain, actual results may differ from simulated results.

We may utilize derivative financial instruments as part of an ongoing effort to mitigate interest rate risk exposure to interest rate fluctuations and facilitate the needs of our customers.

The Company enters into derivative instruments that are not designated as hedging instruments to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with customer contracts, the Company enters into an offsetting derivative contract. The Company manages its credit risk, or potential risk of default by its commercial customers through credit limit approval and monitoring procedures.

The Company has entered into interest rate swap contracts to hedge interest rate exposure on short term liabilities, as well as interest rate swap contracts to hedge interest rate exposure on subordinated debentures. These interest rate swaps are all accounted for as cash flow hedges, with the Company receiving a variable rate of interest and paying a fixed rate of interest.

The Company enters into rate lock commitments and forward loan sales contracts as part of our ongoing efforts to mitigate our interest rate risk exposure inherent in our mortgage pipeline and held for sale portfolio. Under the interest rate lock commitments, interest rates for a mortgage loan are locked in with the client for a period of time, typically 30-90 days. Once an interest rate lock commitment is entered into with a client, we also enter into a forward commitment to sell the residential mortgage loan to secondary market investors. Forward loan sale contracts are contracts for delayed sale and delivery of mortgage loans to a counter party. We agree to deliver on a specified future date, a specified instrument, at a specified price or yield. The credit risk inherent to us arises from the potential inability of counterparties to meet the terms of their contracts. In the event of non-acceptance by the counterparty, we would be subject to the credit and inherent (or market) risk of the loans retained.

Additionally, the Company enters into forward commitments, options and futures contracts that are not designated as hedging instruments, which serve as economic hedges of the change in fair value of its MSRs.

For more information about our derivative financial instruments, see Note 10, “Derivatives” in the notes to our consolidated financial statements.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Report was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Report, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is: (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure; and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all errors and fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

PART II

ITEM 1—LEGAL PROCEEDINGS

Various legal proceedings to which we or our subsidiaries are party arise from time to time in the normal course of business. As of the date of this Report, there are no material pending legal proceedings to which we or any of our subsidiaries is a party or of which any of our or our subsidiaries’ properties are subject.

ITEM 1A—RISK FACTORS

There have been no material changes to the risk factors set forth in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2020, except as provided in the Company's Prospectus Supplement that was filed with the SEC on June 9, 2021.

ITEM 2—UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about repurchases of common stock by the Company during the quarter ended September 30, 2021:


Period	(a) Total number of shares purchased (1)	(b) Average price paid per share		(c) Total number of shares purchased as part of publicly announced plans or programs	(d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
July 1 - July 31, 2021	—	$	—	—	$	100,000,000
August 1 - August 31, 2021	10,954	39.79		10,954	99,563,842
September 1 - September 30, 2021	—	—		—	99,563,842
Total	10,954	$	39.79	10,954	99,563,842

(1) On February 18, 2021, the Company announced the board of directors’ authorization of a share repurchase program pursuant to which the Company may purchase up to $100 million in shares of the Company’s issued and outstanding common stock. The repurchase plan expires on March 31, 2022. The repurchase plan will be conducted pursuant to a written plan that is intended to comply with Rule 10b-18 promulgated under the Exchange Act.

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ITEM 6—EXHIBITS

The exhibits listed on the accompanying Exhibit Index are filed, furnished or incorporated by reference (as stated therein) as part of this Report.

EXHIBIT INDEX


Exhibit Number			Description

3.1			Amended and Restated Charter of FB Financial Corporation (incorporated by reference as Exhibit 3.1 to the Company’s Registration Statement on Form S-1/A (File No. 333-213210), filed on September 6, 2016)
3.2			Amended and Restated Bylaws of FB Financial Corporation (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (File No. 001-37875) Filed on November 14, 2016)
4.1			Registration Rights Agreement by and between FB Financial Corporation and James W. Ayers, dated September 15, 2016 (incorporated by reference as Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (File No. 001-37875) filed on November 14, 2016)






















10.1			Employment Agreement by and among FB Financial Corporation, FirstBank, and Christopher T. Holmes, dated July 31, 2021 (incorporated by reference as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 (File No. 001-37875) filed on August 6, 2021)
31.1			Rule 13a-14(a) Certification of Chief Executive Officer*
31.2			Rule 13a-14(a) Certification of Chief Financial Officer*
32.1			Section 1350 Certification of Chief Executive Officer and Chief Financial Officer**
101.INS			Inline XBRL Instance Document*
101.SCH			Inline XBRL Taxonomy Extension Schema Document*
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


*			Filed herewith.
**			Furnished herewith.

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Signatures

Pursuant to the requirements of the section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


						FB Financial Corporation

						/s/ Michael M. Mettee
November 8, 2021						Michael M. Mettee Chief Financial Officer (Principal Financial Officer)

						/s/ Keith Rainwater
November 8, 2021						Keith Rainwater Chief Accounting Officer (Principal Accounting Officer)

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