FB Financial Corp - Quarter Report: 2022 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, 2022

☐ 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

___________________________________________________________

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

Title of each class

Trading Symbol(s)

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

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 November 3, 2022 was 46,929,958.

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 September 30, 2022 (Unaudited) and December 31, 2021	4
	Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2022 and 2021	5
	Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended S ept ember 30, 2022 and 2021	6
	Consolidated Statements of Changes in Shareholders' Equity (Unaudited) for the three and nine months ended September 30, 2022 and 2021	7
	Consolidated Statements of Cash Flows (Unaudited) for the nine months ended Sep tember 30, 2022 and 2021	9
	Notes to Consolidated Financial Statements (Unaudited)	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operation	49
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	88
Item 4.	Controls and Procedures	89
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	90
Item 1A.	Risk Factors	90
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	90
Item 6.	Exhibits	91
SIGNATURES		92

GLOSSARY OF ABBREVIATIONS AND ACRONYMS

As used in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 (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 the 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

IRLC

Interest rate lock commitment

ASC

Accounting Standard Codification

LIBOR

London Interbank Offered Rate

ASU

Accounting Standard Update

MSR

Mortgage servicing rights

CARES

Coronavirus Aid, Relief, and Economic Security Act

NIM

Net interest margin

CECL

Current expected credit losses

OREO

Other real estate owned

CEO

Chief Executive Officer

PPP

Paycheck Protection Program

CET1

Common Equity Tier 1

PSU

Performance-based restricted stock units

COVID-19

Coronavirus pandemic

ROAA

Return on average total assets

CPR

Conditional prepayment rate

ROAE

Return on average shareholders' equity

EPS

Earnings per share

ROATCE

Return on average tangible common equity

ESPP

Employee Stock Purchase Plan

ROU

Right-of-use

EVE

Economic value of equity

RSU

Restricted stock units

FASB

Financial Accounting Standards Board

SBA

Small Business Administration

FDIC

Federal Deposit Insurance Corporation

SEC

U.S. Securities and Exchange Commission

Federal Reserve

Board of Governors of the Federal Reserve
System

SOFR

Secured overnight financing rate

FHLB

Federal Home Loan Bank

TDFI

Tennessee Department of Financial Institutions

FHLMC

Federal Home Loan Mortgage Corporation

TDR

Troubled debt restructuring

FNMA

Federal National Mortgage Association

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,
	2022 (Unaudited)		2021
ASSETS
Cash and due from banks	$	193,301	$	91,333
Federal funds sold and reverse repurchase agreements	115,140		128,087
Interest-bearing deposits in financial institutions	309,849		1,578,320
Cash and cash equivalents	618,290		1,797,740
Investments:
Available-for-sale debt securities, at fair value	1,482,171		1,678,525
Equity securities, at fair value	2,962		3,367
Federal Home Loan Bank stock, at cost	58,587		32,217
Loans held for sale, at fair value	130,733		752,223
Loans	9,105,016		7,604,662
Less: allowance for credit losses	134,476		125,559
Net loans	8,970,540		7,479,103
Premises and equipment, net	143,277		143,739
Other real estate owned, net	5,919		9,777
Operating lease right-of-use assets	61,444		41,686
Interest receivable	39,034		38,528
Mortgage servicing rights, at fair value	171,427		115,512
Goodwill	242,561		242,561
Core deposit and other intangibles, net	13,407		16,953
Bank-owned life insurance	74,976		73,519
Other assets	242,754		172,236
Total assets	$	12,258,082	$	12,597,686
LIABILITIES
Deposits
Noninterest-bearing	$	2,966,514	$	2,740,214
Interest-bearing checking	2,648,161		3,418,666
Money market and savings	3,228,337		3,546,936
Customer time deposits	1,160,726		1,103,594
Brokered and internet time deposits	2,344		27,487
Total deposits	10,006,082		10,836,897
Borrowings	722,940		171,778
Operating lease liabilities	70,610		46,367
Accrued expenses and other liabilities	177,196		109,949
Total liabilities	10,976,828		11,164,991

SHAREHOLDERS' EQUITY
Common stock, $1 par value per share; 75,000,000 shares authorized; 46,926,377 and 47,549,241 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	46,926		47,549
Additional paid-in capital	867,139		892,529
Retained earnings	554,536		486,666
Accumulated other comprehensive (loss) income, net	(187,440)		5,858
Total FB Financial Corporation common shareholders' equity	1,281,161		1,432,602
Noncontrolling interest	93		93
Total equity	1,281,254		1,432,695
Total liabilities and shareholders' equity	$	12,258,082	$	12,597,686

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,
	2022		2021		2022		2021
Interest income:
Interest and fees on loans	$	116,664	$	89,993	$	303,183	$	269,266
Interest on securities
Taxable	6,843		3,989		18,762		10,652
Tax-exempt	1,818		1,883		5,526		5,772
Other	3,158		800		6,353		2,089
Total interest income	128,483		96,665		333,824		287,779

Interest expense:
Deposits	13,133		6,596		25,186		24,341
Borrowings	3,966		1,593		6,901		5,823
Total interest expense	17,099		8,189		32,087		30,164
Net interest income	111,384		88,476		301,737		257,615
Provision for credit losses	8,189		(2,832)		10,241		(27,349)
Provision for credit losses on unfunded commitments	3,178		301		9,197		(2,875)
Net interest income after provisions for credit losses	100,017		91,007		282,299		287,839

Noninterest income:
Mortgage banking income	12,384		45,384		64,474		136,215
Service charges on deposit accounts	3,208		2,612		9,030		7,217
ATM and interchange fees	2,614		4,868		13,054		14,590
Investment services and trust income	2,227		2,511		6,634		7,518
(Loss) gain from securities, net	(140)		51		(401)		278
Gain (loss) on sales or write-downs of other real estate owned	435		2,005		(89)		2,478
(Loss) gain from other assets	(6)		177		76		162
Other income	1,870		1,398		4,420		6,578
Total noninterest income	22,592		59,006		97,198		175,036

Noninterest expenses:
Salaries, commissions and employee benefits	51,028		62,818		165,652		189,756
Occupancy and equipment expense	6,011		5,979		17,267		17,184
Legal and professional fees	4,448		2,177		10,171		6,701
Data processing	2,334		2,595		7,219		7,456

Amortization of core deposit and other intangibles	1,108		1,344		3,546		4,178





Advertising	2,050		4,200		8,114		10,012
Mortgage restructuring expense	—		—		12,458		—
Other expense	14,868		15,894		43,689		47,378
Total noninterest expense	81,847		95,007		268,116		282,665
Income before income taxes	40,762		55,006		111,381		180,210
Income tax expense	8,931		9,716		24,961		38,744
Net income applicable to FB Financial Corporation and noncontrolling interest	31,831		45,290		86,420		141,466
Net income applicable to noncontrolling interest	—		—		8		8
Net income applicable to FB Financial Corporation	$	31,831	$	45,290	$	86,412	$	141,458

Earnings per common share
Basic	$	0.68	$	0.96	$	1.83	$	2.99
Diluted	0.68		0.94		$	1.83	$	2.95

See the accompanying notes to the consolidated financial statements.

FB Financial Corporation and subsidiaries

Consolidated statements of comprehensive (loss) income

(Unaudited)

(Amounts are in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	31,831	$	45,290	$	86,420	$	141,466
Other comprehensive loss, net of tax:
Net change in unrealized loss in available-for-sale securities, net of tax benefits of $(23,750), $(2,054), $(68,576) and $(4,708)	(67,353)		(5,818)		(194,761)		(15,380)
Reclassification adjustment for gain on sale of securities included in net income, net of tax expenses of $0, $19, $1 and $23	(1)		(56)		(3)		(67)
Net change in unrealized gain in hedging activities, net of tax expenses of $145, $38, $517 and $173	409		106		1,466		489

Total other comprehensive loss, net of tax	(66,945)		(5,768)		(193,298)		(14,958)
Comprehensive (loss) income applicable to FB Financial Corporation and noncontrolling interest	(35,114)		39,522		(106,878)		126,508
Comprehensive income applicable to noncontrolling interest	—		—		8		8
Comprehensive (loss) income applicable to FB Financial Corporation	$	(35,114)	$	39,522	$	(106,886)	$	126,500

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 loss, net		Total common shareholders' equity		Noncontrolling interest		Total shareholders' equity
Balance at June 30, 2022	$	46,882	$	864,614	$	528,851	$	(120,495)	$	1,319,852	$	93	$	1,319,945

Net income attributable to FB Financial Corporation and noncontrolling interest	—		—		31,831		—		31,831		—		31,831
Other comprehensive income, net of taxes	—		—		—		(66,945)		(66,945)		—		(66,945)



Stock based compensation expense	1		2,532		—		—		2,533		—		2,533
Restricted stock units vested and distributed, net of shares withheld	31		(520)		—		—		(489)		—		(489)
Shares issued under employee stock purchase program	12		513		—		—		525		—		525
Dividends declared ($0.13 per share)	—		—		(6,146)		—		(6,146)		—		(6,146)

Balance at September 30, 2022	$	46,926	$	867,139	$	554,536	$	(187,440)	$	1,281,161	$	93	$	1,281,254

Balance at December 31, 2021	$	47,549	$	892,529	$	486,666	$	5,858	$	1,432,602	$	93	$	1,432,695


Net income attributable to FB Financial Corporation and noncontrolling interest	—		—		86,412		—		86,412		8		86,420
Other comprehensive income, net of taxes	—		—		—		(193,298)		(193,298)		—		(193,298)


Repurchase of common stock	(795)		(31,948)		—		—		(32,743)		—		(32,743)
Stock based compensation expense	3		8,150		—		—		8,153		—		8,153
Restricted stock units vested and distributed, net of shares withheld	142		(2,777)		—		—		(2,635)		—		(2,635)
Shares issued under employee stock purchase program	27		1,185		—		—		1,212		—		1,212
Dividends declared ($0.39 per share)	—		—		(18,542)		—		(18,542)		—		(18,542)
Noncontrolling interest distribution	—		—		—		—		—		(8)		(8)
Balance at September 30, 2022	$	46,926	$	867,139	$	554,536	$	(187,440)	$	1,281,161	$	93	$	1,281,254

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 interest		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 loss, 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)

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 loss, 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 cash flows

(Unaudited)

(Amounts are in thousands)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income applicable to FB Financial Corporation and noncontrolling interest	$	86,420	$	141,466
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of fixed assets and software	6,105		6,288
Amortization of core deposit and other intangibles	3,546		4,178
Capitalization of mortgage servicing rights	(19,523)		(31,382)
Net change in fair value of mortgage servicing rights	(36,392)		788
Stock-based compensation expense	8,153		8,065
Provision for credit losses	10,241		(27,349)
Provision for credit losses on unfunded commitments	9,197		(2,875)
Provision for mortgage loan repurchases	(1,989)		(266)
Amortization of premiums and accretion of discounts on acquired loans, net	1,339		127
Amortization of premiums and accretion of discounts on securities, net	5,178		6,521
Loss (gain) from securities, net	401		(278)
Originations of loans held for sale	(2,129,129)		(4,926,390)
Repurchases of loans held for sale	(194)		(384)
Proceeds from sale of loans held for sale	2,796,313		4,939,323
Gain on sale and change in fair value of loans held for sale	(43,648)		(126,983)

Net loss (gain) or write-downs of other real estate owned	89		(2,478)
Gain on other assets	(76)		(162)

Provision for deferred income taxes	15,879		20,904
Earnings on bank-owned life insurance	(1,099)		(1,156)
Changes in:
Operating leases	4,485		(781)
Other assets and interest receivable	(23,220)		(1,352)
Accrued expenses and other liabilities	51,583		(46,867)
Net cash provided by (used in) operating activities	743,659		(41,043)
Cash flows from investing activities:
Activity in available-for-sale securities:
Sales	1,218		8,855
Maturities, prepayments and calls	170,701		216,032
Purchases	(242,639)		(645,658)
Net change in loans	(1,523,815)		(177,953)
Net change in commercial loans held for sale	43,006		116,158
Sales of FHLB stock	—		4,294
Purchases of FHLB stock	(26,370)		(663)

Purchases of premises and equipment	(6,060)		(5,193)
Proceeds from the sale of premises and equipment	875		—
Proceeds from the sale of other real estate owned	4,753		8,834
Proceeds from the sale of other assets	4		—


Net cash used in investing activities	(1,578,327)		(475,294)
Cash flows from financing activities:
Net (decrease) increase in demand deposits	(852,629)		863,646
Net increase (decrease) in time deposits	31,989		(249,765)
Net (decrease) increase in securities sold under agreements to repurchase	(11,708)		9,531

Net increase in short-term FHLB advances	540,000		—

Payments on subordinated debt	—		(60,000)

Amortization of issuance costs and (accretion) of subordinated debt fair value premium, net	291		(79)
Payments on other borrowings	—		(15,000)
Share based compensation withholding payments	(2,635)		(10,042)
Net proceeds from sale of common stock under employee stock purchase program	1,212		1,480
Repurchase of common stock	(32,743)		(436)
Dividends paid on common stock	(18,401)		(15,617)
Dividend equivalent payments made upon vesting of equity compensation	(150)		(707)
Noncontrolling interest distribution	(8)		(8)
Net cash (used in) provided by financing activities	(344,782)		523,003
Net change in cash and cash equivalents	(1,179,450)		6,666
Cash and cash equivalents at beginning of the period	1,797,740		1,317,898
Cash and cash equivalents at end of the period	$	618,290	$	1,324,564
Supplemental cash flow information:
Interest paid	$	31,322	$	34,542
Taxes paid	808		55,609
Supplemental noncash disclosures:
Transfers from loans to other real estate owned	$	984	$	4,945



Loans provided for sales of other real estate owned	—		685
Transfers from loans to loans held for sale	42,997		10,408
Transfers from loans held for sale to loans	23,183		52,151
Rebooked GNMA loans under optional repurchase program	26,485		—




Trade date payable - securities	—		5,996

Dividends declared not paid on restricted stock units	173		340


Right-of-use assets obtained in exchange for operating lease liabilities	24,605		839

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 subsidiaries, FirstBank (the "Bank") and FirstBank Risk Management, Inc. As of September 30, 2022, 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 U.S. GAAP 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 financial statements and the reported results of operations for the reporting periods and the related disclosures. Although management's estimates contemplate current conditions and how they are expected to change in the future, it is reasonably possible that actual conditions could vary from those anticipated, which could affect the Company's financial condition and results of operations. 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.

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 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.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

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,
		2022		2021		2022		2021
Basic earnings per common share calculation:
Net income applicable to FB Financial Corporation		$	31,831	$	45,290	$	86,412	$	141,458
Dividends paid on and undistributed earnings allocated to participating securities		—		—		—		—
Earnings available to common shareholders		$	31,831	$	45,290	$	86,412	$	141,458
Weighted average basic shares outstanding		46,908,520		47,412,214		47,181,853		47,345,984
Basic earnings per common share		$	0.68	$	0.96	$	1.83	$	2.99
Diluted earnings per common share:
Earnings available to common shareholders		$	31,831	$	45,290	$	86,412	$	141,458
Weighted average basic shares outstanding		46,908,520		47,412,214		47,181,853		47,345,984
Weighted average diluted shares contingently issuable(1)		116,091		594,933		133,247		637,510
Weighted average diluted shares outstanding		47,024,611		48,007,147		47,315,100		47,983,494
Diluted earnings per common share		$	0.68	$	0.94	$	1.83	$	2.95

(1)Excludes 15,408 and 11,888 restricted stock units outstanding considered to be antidilutive for the three and nine months ended September 30, 2022 and 15,974 and 20,448 restricted stock units outstanding considered to be antidilutive for three and nine months ended September 30, 2021.

Recently modified accounting policies:

The Company did not modify or adopt any new accounting policies during the three and nine months ended September 30, 2022 that were not disclosed in the Company's 2021 audited consolidated financial statements included on Form 10-K, other than as described below.

During the three months ended March 31, 2022, the Company appended the following language to the below referenced existing accounting policy related to derivative financial instruments and hedging activities described in Note 1 of the Company's 2021 Annual Report on Form 10-K as a result of entering into designated fair value hedges during the period.

(A) Derivative financial instruments and hedging activities:

The Company enters into fair value hedge relationships to mitigate the effect of changing interest rates on the fair values of fixed rate securities and loans. The gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item.

During the three months ended September 30, 2022, the Company modified the below referenced existing accounting policy.

(B) Loans held for sale:

Mortgage loans held for sale

Mortgage loans originated and intended for sale in the secondary market are carried at fair value as permitted under the guidance in ASC 825, “Financial Instruments” (“ASC 825”). The change in fair value of both mortgage loans held for sale and the related derivative instruments used to hedge exposure to market related risks are recorded in “Mortgage banking income” in the Consolidated Statements of Income. Gains and losses on sale are recognized at the time the loan is closed. Pass through origination costs and related loan fees are also included in “Mortgage banking income”.

Periodically, the Company transfers mortgage loans originated for sale in the secondary markets into the loan HFI portfolio based on current market conditions, overall secondary marketability and status of the loan. The loans are transferred into the portfolio at fair value at the date of transfer. Additionally, occasionally the Company will transfer loans from the held for investment portfolio into loans held for sale. At the time of the transfer, loans are marked to fair value through the allowance for credit losses and reclassified to loans held for sale.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

The Company sells mortgage loans originated for sale on the secondary market to GNMA and retains servicing rights after sale. Under the GNMA optional repurchase program, financial institutions are permitted to buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing. 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 recorded on the balance sheet, regardless of whether the Company intends to exercise the buy-back option if the buyback options provides the transferor a more-than-trivial benefit. Prior to September 30, 2022, the Company deemed there was not a more than trivial benefit associated with repurchasing these loans based on quarterly analyses and as such, these were not rebooked to the balance sheet. During the quarter ended September 30, 2022, the Company revised its accounting estimate by applying the removal of accounts provision regardless of whether the transferor is provided a more-than-trivial benefit to align with developing industry best practice and regulatory expectations. Upon application of the change, as of September 30, 2022 the Company recorded $26,485 of optional rights to repurchase delinquent GNMA loans. The fair value option election does not apply to the GNMA optional repurchase loans which do not meet the requirements under FASB ASC Topic 825. These loans are reported at current unpaid principal balance in LHFS on the consolidated balance sheets with the offsetting liability being reported in borrowings. These are considered nonperforming assets as the Company does not earn any interest on the unexercised option to repurchase these loans. This change in accounting estimate was applied prospectively without modification to prior periods.

Recently adopted accounting standards:

The Company did not adopt any new accounting standards that were not disclosed in the Company's 2021 audited consolidated financial statements included on Form 10-K.

Newly issued not yet effective accounting standards:

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The FASB is issuing this update to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, to amend a related illustrative example, and to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The ASU becomes effective January 1, 2024 and the Company is evaluating the potential impact of this standard on its consolidated financial statements and related disclosures.

In March 2022, the FASB issued ASU 2022-01, "Derivatives and Hedging (Topic 815): Fair Value Hedging-Portfolio Layer Method", to expand the current single-layer method of electing hedge accounting to allow multiple hedged layers of a single closed portfolio under the method. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted on any date on or after the issuance of ASU No. 2022-01 for any entity that has adopted the amendments in ASU No.2017-12 for the corresponding period. Adoption of this update will not have an impact on the Company's consolidated financial statements or related disclosures.

Additionally, in March 2022, the FASB issued ASU 2022-02, "'Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures" related to troubled debt restructurings and vintage disclosures for financing receivables. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan modifications and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the effect that ASU 2022-02 will have on its consolidated financial statements and related disclosures.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

In March 2022, the SEC released SAB 121 to add interpretive guidance for entities to consider when they have obligations to safeguard crypto-assets held for clients. The new guidance requires reporting entities who allow clients to transact in crypto-assets and act as a custodian to record a liability with a corresponding asset regardless of whether they control the crypto-asset. The crypto-asset will need to be marked at fair value for each reporting period. The new guidance requires disclosures in the footnotes to address the amount of crypto-assets reported, and the safeguarding and recordkeeping of the assets. The guidance in this update requires that reporting companies implement SAB 121 no later than the financial statements covering the first interim or annual period ending after June 15, 2022, with retrospective application back to the beginning of the fiscal year. During the three months ended March 31, 2022, the Company became a founding member of the USDF Consortium (the "Consortium"), which plans to utilize blockchain and technology to streamline peer-to-peer financial transactions. The USDF Consortium is a membership-based association of insured depository institutions with a mission to build a network of banks to further the adoption and interoperability of a bank-minted tokenized deposit. While the Company does not currently hold or facilitate transactions with crypto-assets, the Company is evaluating the potential future financial statement and disclosure impact from adopting this guidance when it becomes applicable based on the Company's crypto-asset activities.

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 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.

Our LIBOR Transition Committee was established to transition from LIBOR to alternative rates and has continued its efforts consistent with industry timelines. As part of these efforts, during the fourth quarter of 2021, we ceased utilization of LIBOR as an index in newly originated loans or loans that are refinanced. Additionally, we identified existing products that utilize LIBOR and are reviewing contractual language to facilitate the transition to alternative reference rates. ASU 2020-04 and ASU 2021-01 are not expected to have a material impact on our consolidated financial statements.

Subsequent events

The Company has evaluated, for consideration of recognition or disclosure, subsequent events that occurred through the date of issuance of these financial statements. The Company has determined that there were no subsequent events that occurred after September 30, 2022, but prior to the issuance of these financial statements that would have a material impact on the Company’s 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 (2)—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, 2022 and December 31, 2021:


	September 30, 2022
	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	$	45,161	$	—	$	(5,330)	$	—	$	39,831
Mortgage-backed securities - residential	1,257,521		—		(199,758)		—		1,057,763
Mortgage-backed securities - commercial	19,453		—		(1,606)		—		17,847
Municipal securities	297,451		100		(45,408)		—		252,143
U.S. Treasury securities	113,198		—		(5,901)		—		107,297
Corporate securities	8,001		—		(711)		—		7,290
Total	$	1,740,785	$	100	$	(258,714)	$	—	$	1,482,171


	December 31, 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	$	34,023	$	18	$	(171)	$	—	$	33,870
Mortgage-backed securities - residential	1,281,285		6,072		(17,985)		—		1,269,372
Mortgage-backed securities - commercial	15,024		272		(46)		—		15,250
Municipal securities	322,052		16,718		(160)		—		338,610
U.S. Treasury securities	14,914		—		(6)		—		14,908
Corporate securities	6,500		40		(25)		—		6,515
Total	$	1,673,798	$	23,120	$	(18,393)	$	—	$	1,678,525

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, 2022 and December 31, 2021, total accrued interest receivable on debt securities was $5,535 and $5,051, respectively.

As of September 30, 2022 and December 31, 2021, the Company had $2,962 and $3,367, in marketable equity securities recorded at fair value, respectively.

Securities pledged at September 30, 2022 and December 31, 2021 had carrying amounts of $1,213,747 and $1,226,646, 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.

Investment securities transactions are recorded as of the trade date. At September 30, 2022 and December 31, 2021, there were no trade date receivables nor payables that related to sales or 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, 2022 and December 31, 2021 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 summary.


	September 30,				December 31,
	2022				2021
	Available-for-sale				Available-for-sale
	Amortized cost		Fair value		Amortized cost		Fair value
Due in one year or less	$	4,011	$	3,962	$	21,851	$	21,884
Due in one to five years	155,637		146,428		54,847		55,307
Due in five to ten years	62,157		56,759		45,714		46,975
Due in over ten years	242,006		199,412		255,077		269,737
	463,811		406,561		377,489		393,903
Mortgage-backed securities - residential	1,257,521		1,057,763		1,281,285		1,269,372
Mortgage-backed securities - commercial	19,453		17,847		15,024		15,250
Total debt securities	$	1,740,785	$	1,482,171	$	1,673,798	$	1,678,525

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Proceeds from sales	$	—	$	8,855	$	1,218	$	8,855
Proceeds from maturities, prepayments and calls	44,352		68,126		170,701		216,032
Gross realized gains	1		76		4		91
Gross realized losses	—		1		—		1

Additionally, changes in fair value and the sale of equity securities with readily determinable fair values resulted in a net loss of $141 and of $24 for the three months ended September 30, 2022 and 2021, respectively, and in a net loss of $405 and gain of $188 for the nine months ended September 30, 2022 and 2021, respectively.

The following tables show gross unrealized losses for which an allowance for credit losses has not been recorded at September 30, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:


	September 30, 2022
	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	$	33,269	$	(4,207)	$	6,562	$	(1,123)	$	39,831	$	(5,330)
Mortgage-backed securities - residential	570,554		(84,615)		487,209		(115,143)		1,057,763		(199,758)
Mortgage-backed securities - commercial	16,709		(1,354)		1,138		(252)		17,847		(1,606)
Municipal securities	238,067		(42,452)		8,533		(2,956)		246,600		(45,408)
U.S. Treasury securities	107,297		(5,901)		—		—		107,297		(5,901)
Corporate securities	7,290		(711)		—		—		7,290		(711)
Total	$	973,186	$	(139,240)	$	503,442	$	(119,474)	$	1,476,628	$	(258,714)

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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


	December 31, 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	$	18,360	$	(171)	$	—	$	—	$	18,360	$	(171)
Mortgage-backed securities - residential	$	871,368	$	(14,295)	$	102,799	$	(3,690)	$	974,167	$	(17,985)
Mortgage-backed securities - commercial	7,946		(46)		—		—		7,946		(46)
Municipal securities	11,414		(160)		—		—		11,414		(160)
U.S. Treasury securities	14,908		(6)		—		—		14,908		(6)
Corporate securities	4,119		(25)		—		—		4,119		(25)
Total	$	928,115	$	(14,703)	$	102,799	$	(3,690)	$	1,030,914	$	(18,393)

As of September 30, 2022 and December 31, 2021, the Company’s securities portfolio consisted of 504 and 511 securities, 487 and 80 of which were in an unrealized loss position, respectively.

During the three months ended September 30, 2022, the Company's available-for-sale debt securities portfolio unrealized value declined $91,104 to an unrealized loss position of $258,614 as of September 30, 2022 from an unrealized loss position of $167,510 as of June 30, 2022. During the nine months ended September 30, 2022, the Company's available-for-sale debt securities portfolio unrealized value declined $263,341 from an unrealized gain position of $4,727 as of December 31, 2021.

During the three months ended September 30, 2021, the Company's available-for-sale debt securities portfolio unrealized value decreased $7,947 to an unrealized gain position of $14,374 as of September 30, 2021 from an unrealized gain position of $22,321 as of June 30, 2021. During the nine months ended September 30, 2021, the Company's available-for-sale debt securities portfolio unrealized value declined $20,178 from an unrealized gain position of $34,552 as of December 31, 2020.

The majority of the investment portfolio was either government guaranteed or an issuance of a government sponsored entity or highly rated by major credit rating agencies and the Company has historically not recorded any losses associated with these investments. As such, as of September 30, 2022 and December 31, 2021, it was 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, 2022 or 2021.

Note (3)—Loans and allowance for credit losses:

Loans outstanding as of September 30, 2022 and December 31, 2021, by class of financing receivable are as follows:


	September 30,		December 31,
	2022		2021
Commercial and industrial (1)	$	1,534,159	$	1,290,565
Construction	1,679,497		1,327,659
Residential real estate:
1-to-4 family mortgage	1,545,252		1,270,467
Residential line of credit	460,774		383,039
Multi-family mortgage	394,366		326,551
Commercial real estate:
Owner-occupied	1,158,343		951,582
Non-owner occupied	1,954,219		1,730,165
Consumer and other	378,406		324,634
Gross loans	9,105,016		7,604,662
Less: Allowance for credit losses	(134,476)		(125,559)
Net loans	$	8,970,540	$	7,479,103

(1)Includes $851 and $3,990 of loans originated as part of the Paycheck Protection Program as of September 30, 2022 and December 31, 2021, 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.

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, 2022 and December 31, 2021, $865,616 and $1,136,294, respectively, of qualifying residential mortgage loans (including loans held for sale) and $1,665,345 and $1,581,673, 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, 2022 and December 31, 2021, qualifying loans of $3,012,814 and $2,440,097, respectively, were pledged to the Federal Reserve Bank under the Borrower-in-Custody program.

The components of amortized cost for loans on the consolidated balance sheets exclude accrued interest receivable as the Company presents accrued interest receivable separately on the balance sheet. As of September 30, 2022 and December 31, 2021, accrued interest receivable on loans held for investment was $32,247 and $31,676, respectively.

Allowance for Credit Losses

The Company calculates its expected credit loss using a lifetime loss rate methodology. 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 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; and loans with other unique risk characteristics. 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 and TDRs use the same methodology. 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.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

The Company performed qualitative evaluations within the Company's established qualitative framework, assessing the impact of the current economic outlook (including uncertainty due to inflation, negative economic forecasts, predicted Federal Reserve rate increases, status of federal government stimulus programs, and other considerations). The increase in estimated required reserve during the three and nine months ended September 30, 2022 was a result of increased loan growth and a tightening monetary policy environment both of which were incorporated into the Company's reasonable and supportable forecasts. Qualitative adjustments increased the reserve on loans with commercial exposure to address elevated risk in these assets not covered by the model. Loss rates on residential backed loans were qualitatively adjusted downwards, addressing the relative strength of asset values in the Company's predominant markets. Qualitative factors also included weighted projections that the economy may be nearing a recession.

The following tables provide the changes in the allowance for credit losses by class of financing receivable for the three and nine months ended September 30, 2022 and 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
Three months ended September 30, 2022
Beginning balance - June 30, 2022	$	10,191	$	38,383	$	21,398	$	6,875	$	6,503	$	7,329	$	22,536	$	13,057	$	126,272
Provision for credit losses	5		3,044		3,975		77		(629)		688		247		782		8,189
Recoveries of loans previously charged-off	342		—		13		—		—		51		—		70		476
Loans charged off	—		—		(20)		—		—		—		—		(441)		(461)


Ending balance - September 30, 2022	$	10,538	$	41,427	$	25,366	$	6,952	$	5,874	$	8,068	$	22,783	$	13,468	$	134,476
Nine Months Ended September 30, 2022
Beginning balance - December 31, 2021	$	15,751	$	28,576	$	19,104	$	5,903	$	6,976	$	12,593	$	25,768	$	10,888	$	125,559


Provision for credit losses	(4,784)		12,840		6,266		1,032		(1,102)		(4,601)		(2,985)		3,575		10,241
Recoveries of loans previously charged-off	1,326		11		39		17		—		76		—		635		2,104
Loans charged off	(1,755)		—		(43)		—		—		—		—		(1,630)		(3,428)


Ending balance - September 30, 2022	$	10,538	$	41,427	$	25,366	$	6,952	$	5,874	$	8,068	$	22,783	$	13,468	$	134,476


	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 loan 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

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

Credit Quality - Commercial Loans

The Company categorizes commercial loan types 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 commercial 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.

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)

During the nine months ended September 30, 2022, the Company revised the presentation of the below credit quality vintage tables without change to accounting or credit policies. The updated presentation disaggregates between commercial and consumer loan types with consumer loans reported as either performing or nonperforming based on their delinquency and accrual status. As such, the tables presented below as of December 31, 2021 have been revised to align with current period presentation.

The following tables present the credit quality of our commercial loan portfolio by year of origination as of September 30, 2022 and December 31, 2021. 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, 2022
	Commercial Term Loans
	Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial
Pass	$	284,399	$	220,172	$	83,831	$	96,337	$	40,939	$	63,998	$	718,260	$	1,507,936
Special Mention	26		355		—		375		151		—		2,732		3,639
Classified	65		1,220		2,106		1,593		451		9,015		8,134		22,584

Total	284,490		221,747		85,937		98,305		41,541		73,013		729,126		1,534,159


Construction
Pass	570,166		569,425		215,636		71,706		18,027		46,794		183,738		1,675,492
Special Mention	428		—		18		—		7		2,530		—		2,983
Classified	—		822		—		—		—		—		200		1,022

Total	570,594		570,247		215,654		71,706		18,034		49,324		183,938		1,679,497


Residential real estate:

Multi-family mortgage
Pass	117,654		163,283		33,326		30,470		4,201		35,279		8,966		393,179
Special Mention	—		—		—		—		—		—		—		—
Classified	—		—		—		—		—		1,187		—		1,187

Total	117,654		163,283		33,326		30,470		4,201		36,466		8,966		394,366



Commercial real estate:
Owner occupied
Pass	215,250		231,038		117,751		159,546		78,881		266,021		66,718		1,135,205
Special Mention	103		1,293		—		1,470		2,294		390		—		5,550
Classified	—		—		241		5,992		1,282		9,418		655		17,588

Total	215,353		232,331		117,992		167,008		82,457		275,829		67,373		1,158,343


Non-owner occupied
Pass	411,612		428,087		138,590		171,747		225,519		505,370		56,718		1,937,643
Special Mention	—		1,015		—		—		82		—		—		1,097
Classified	—		—		—		150		3,329		12,000		—		15,479

Total	411,612		429,102		138,590		171,897		228,930		517,370		56,718		1,954,219





Total commercial loans
Pass	1,599,081		1,612,005		589,134		529,806		367,567		917,462		1,034,400		6,649,455
Special Mention	557		2,663		18		1,845		2,534		2,920		2,732		13,269
Classified	65		2,042		2,347		7,735		5,062		31,620		8,989		57,860

Total commercial loans	$	1,599,703	$	1,616,710	$	591,499	$	539,386	$	375,163	$	952,002	$	1,046,121	$	6,720,584

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, 2021
	Commercial Term Loans
	Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial
Pass	$	273,232	$	95,279	$	140,938	$	52,162	$	33,997	$	57,020	$	596,667	$	1,249,295
Special Mention	79		9		949		632		3		1,519		12,367		15,558
Classified	918		2,391		2,376		3,089		3,370		6,425		7,143		25,712

Total	274,229		97,679		144,263		55,883		37,370		64,964		616,177		1,290,565


Construction
Pass	677,258		280,828		135,768		23,916		15,313		67,818		117,176		1,318,077
Special Mention	62		184		—		—		1,208		1,384		—		2,838
Classified	—		—		2,922		2,882		3		737		200		6,744

Total	677,320		281,012		138,690		26,798		16,524		69,939		117,376		1,327,659


Residential real estate:

Multi-family mortgage
Pass	166,576		32,242		64,345		7,124		5,602		38,526		10,891		325,306
Special Mention	—		—		—		—		—		—		—		—
Classified	—		—		—		—		—		1,245		—		1,245

Total	166,576		32,242		64,345		7,124		5,602		39,771		10,891		326,551



Commercial real estate:
Owner occupied
Pass	170,773		131,471		174,257		83,698		69,939		236,998		57,123		924,259
Special Mention	—		—		1,502		3,541		885		2,555		213		8,696
Classified	—		—		3,102		768		3,295		9,616		1,846		18,627

Total	170,773		131,471		178,861		88,007		74,119		249,169		59,182		951,582


Non-owner occupied
Pass	462,478		154,048		165,917		264,855		170,602		414,859		46,541		1,679,300
Special Mention	—		—		3,747		3,388		—		969		—		8,104
Classified	—		—		1,898		23,849		1,506		15,508		—		42,761

Total	462,478		154,048		171,562		292,092		172,108		431,336		46,541		1,730,165


Total commercial loans
Pass	1,750,317		693,868		681,225		431,755		295,453		815,221		828,398		5,496,237
Special Mention	141		193		6,198		7,561		2,096		6,427		12,580		35,196
Classified	918		2,391		10,298		30,588		8,174		33,531		9,189		95,089
Total commercial loans	$	1,751,376	$	696,452	$	697,721	$	469,904	$	305,723	$	855,179	$	850,167	$	5,626,522

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

Credit Quality - Consumer Loans

For consumer and residential loan classes, the company primarily evaluates credit quality based on delinquency and accrual status of the loan, credit documentation and by payment activity. The performing or nonperforming status is updated on an on-going basis dependent upon improvement and deterioration in credit quality.

The following tables present the credit quality by classification (performing or nonperforming) of our consumer loan portfolio by year of origination as of September 30, 2022 and December 31, 2021. 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, 2022
	Consumer Term Loans
	Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total





Residential real estate:
1-to-4 family mortgage
Performing	507,621		454,839		166,905		96,216		72,019		228,305		—		1,525,905
Nonperforming	1,039		4,379		3,940		2,020		1,731		6,238		—		19,347
Total	508,660		459,218		170,845		98,236		73,750		234,543		—		1,545,252

Residential line of credit
Performing	—		—		—		—		—		—		458,894		458,894
Nonperforming	—		—		—		—		—		—		1,880		1,880
Total	—		—		—		—		—		—		460,774		460,774

Consumer and other
Performing	107,264		61,291		44,898		32,694		28,416		86,524		9,564		370,651
Nonperforming	81		1,061		1,365		936		1,591		2,720		1		7,755
Total	107,345		62,352		46,263		33,630		30,007		89,244		9,565		378,406

Total consumer loans
Performing	614,885		516,130		211,803		128,910		100,435		314,829		468,458		2,355,450
Nonperforming	1,120		5,440		5,305		2,956		3,322		8,958		1,881		28,982
Total consumer loans	$	616,005	$	521,570	$	217,108	$	131,866	$	103,757	$	323,787	$	470,339	$	2,384,432

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, 2021
	Consumer Term Loans
	Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total





Residential real estate:
1-to-4 family mortgage
Performing	521,533		204,690		121,775		100,164		109,087		199,262		—		1,256,511
Nonperforming	1,232		3,734		977		2,429		1,765		3,819		—		13,956
Total	522,765		208,424		122,752		102,593		110,852		203,081		—		1,270,467

Residential line of credit
Performing	—		—		—		—		—		—		381,303		381,303
Nonperforming	—		—		—		—		—		—		1,736		1,736
Total	—		—		—		—		—		—		383,039		383,039

Consumer and other
Performing	82,910		55,123		38,281		32,893		21,856		74,248		14,478		319,789
Nonperforming	199		345		545		1,352		861		1,496		47		4,845
Total	83,109		55,468		38,826		34,245		22,717		75,744		14,525		324,634

Total consumer loans
Performing	604,443		259,813		160,056		133,057		130,943		273,510		395,781		1,957,603
Nonperforming	1,431		4,079		1,522		3,781		2,626		5,315		1,783		20,537
Total consumer loans	$	605,874	$	263,892	$	161,578	$	136,838	$	133,569	$	278,825	$	397,564	$	1,978,140

Non-accrual and Past Due Loans

Nonperforming loans include loans that are no longer accruing interest (non-accrual 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, 2022 and December 31, 2021:


September 30, 2022	30-89 days past due and accruing interest		90 days or more and accruing interest		Non-accrual loans		Loans current on payments and accruing interest		Total
Commercial and industrial	$	1,812	$	38	$	1,730	$	1,530,579	$	1,534,159
Construction	1,916		—		—		1,677,581		1,679,497
Residential real estate:
1-to-4 family mortgage	16,994		13,767		5,580		1,508,911		1,545,252
Residential line of credit	542		209		1,671		458,352		460,774
Multi-family mortgage	—		—		44		394,322		394,366
Commercial real estate:
Owner occupied	982		—		4,873		1,152,488		1,158,343
Non-owner occupied	293		—		6,960		1,946,966		1,954,219
Consumer and other	8,057		1,988		5,767		362,594		378,406
Total	$	30,596	$	16,002	$	26,625	$	9,031,793	$	9,105,016

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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


December 31, 2021	30-89 days past due and accruing interest		90 days or more and accruing interest		Non-accrual loans		Loans current on payments and accruing interest		Total
Commercial and industrial	$	1,030	$	63	$	1,520	$	1,287,952	$	1,290,565
Construction	4,852		718		3,622		1,318,467		1,327,659
Residential real estate:
1-to-4 family mortgage	11,007		9,363		4,593		1,245,504		1,270,467
Residential line of credit	319		—		1,736		380,984		383,039
Multi-family mortgage	—		—		49		326,502		326,551
Commercial real estate:
Owner occupied	1,417		—		6,710		943,455		951,582
Non-owner occupied	427		—		14,084		1,715,654		1,730,165
Consumer and other	7,398		1,591		3,254		312,391		324,634
Total	$	26,450	$	11,735	$	35,568	$	7,530,909	$	7,604,662

The following tables provide the amortized cost basis of loans on non-accrual status, as well as any related allowance as of September 30, 2022 and December 31, 2021 by class of financing receivable.



September 30, 2022	Non-accrual with no related allowance		Non-accrual with related allowance		Related allowance
Commercial and industrial	$	1,228	$	502	$	3

Residential real estate:
1-to-4 family mortgage	1,537		4,043		73
Residential line of credit	1,070		601		9
Multi-family mortgage	—		44		1
Commercial real estate:
Owner occupied	4,710		163		1
Non-owner occupied	6,751		209		4
Consumer and other	—		5,767		291
Total	$	15,296	$	11,329	$	382


December 31, 2021	Non-accrual with no related allowance		Non-accrual with related allowance		Related allowance

Commercial and industrial	$	1,085	$	435	$	6
Construction	2,882		740		99
Residential real estate:
1-to-4 family mortgage	378		4,215		60
Residential line of credit	797		939		11
Multi-family mortgage	—		49		2
Commercial real estate:
Owner occupied	5,346		1,364		206
Non-owner occupied	13,898		186		7
Consumer and other	—		3,254		164
Total	$	24,386	$	11,182	$	555

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

The following presents interest income recognized on non-accrual loans for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Commercial and industrial	$	26	$	190	$	163	$	523
Construction	5		75		31		105
Residential real estate:
1-to-4 family mortgage	78		114		185		199
Residential line of credit	37		197		98		242
Multi-family mortgage	—		—		2		2
Commercial real estate:
Owner occupied	61		187		149		419
Non-owner occupied	89		123		235		353
Consumer and other	113		75		182		130
Total	$	409	$	961	$	1,045	$	1,973

Accrued interest receivable written off as an adjustment to interest income amounted to $151 and $63 for the three months ended September 30, 2022 and 2021, respectively, and $458 and $660 for the nine months ended September 30, 2022 and 2021, respectively.

Troubled debt restructurings

As of September 30, 2022 and December 31, 2021, the Company had a recorded investment in TDRs of $14,959 and $32,435, 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, $7,592 and $11,084 were classified as non-accrual loans as of September 30, 2022 and December 31, 2021, respectively. The Company has calculated $258 and $1,245 in allowances for credit losses on TDRs as of September 30, 2022 and December 31, 2021, respectively. There were no significant unfunded loan commitments to extend additional funds on troubled debt restructurings as of September 30, 2022 or December 31, 2021.

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


Three Months Ended September 30, 2022	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial and industrial	1	$	207	$	117	$	—




Residential real estate:
1-to-4 family mortgage	1	$	252	$	568	$	—



Total	2	$	459	$	685	$	—


Nine Months Ended September 30, 2022	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial and industrial	2	$	262	$	172	$	—




Residential real estate:
1-to-4 family mortgage	2	332		648		—
Residential line of credit	1	49		49		—

Consumer and other	1	22		22		—
Total	6	$	665	$	891	$	—


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	$	—

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	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:
1-4 family mortgage	3	945		945		—
Residential line of credit	1	11		11		—
Total	14	$	29,665	$	29,665	$	—

Troubled debt restructurings for which there was a payment default within twelve months following the modification totaled $304 during the nine months ended September 30, 2022. Troubled debt restructurings for which there was a payment default within twelve months following the modification totaled $304 during the three and nine months ended September 30, 2022. 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. 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, 2022 and 2021 that did not meet the definition of a TDR. The 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 tables present 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, 2022
	Type of Collateral
	Real Estate		Financial Assets and Equipment		Total		Individually assessed allowance for credit loss
Commercial and industrial	$	1,228	$	787	$	2,015	$	—

Residential real estate:
1-to-4 family mortgage	1,192		—		1,192		205
Residential line of credit	1,069		—		1,069		—

Commercial real estate:
Owner occupied	5,823		—		5,823		—
Non-owner occupied	6,751		—		6,751		—
Consumer and other	139		—		139		—
Total	$	16,202	$	787	$	16,989	$	205

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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


	December 31, 2021
	Type of Collateral
	Real Estate		Financial Assets and Equipment		Total		Individually assessed allowance for credit loss
Commercial and industrial	$	799	$	1,090	$	1,889	$	—
Construction	3,580		—		3,580		92
Residential real estate:
1-to-4 family mortgage	338		—		338		—
Residential line of credit	1,400		—		1,400		10

Commercial real estate:
Owner occupied	8,117		71		8,188		200
Non-owner occupied	13,899		—		13,899		—
Consumer and other	25		—		25		1
Total	$	28,158	$	1,161	$	29,319	$	303

Note (4)—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, 2022 and 2021:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Balance at beginning of period	$	9,398	$	11,986	$	9,777	$	12,111
Transfers from loans	421		349		984		4,945


Proceeds from sale of other real estate owned	(4,335)		(4,173)		(4,753)		(8,834)
Gain (loss) on sale of other real estate owned	483		2,090		353		3,190
Loans provided for sales of other real estate owned	—		(152)		—		(685)
Write-downs and partial liquidations	(48)		(85)		(442)		(712)

Balance at end of period	$	5,919	$	10,015	$	5,919	$	10,015

Foreclosed residential real estate properties totaled $614 and $775 as of September 30, 2022 and December 31, 2021, respectively. The recorded investment in residential mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process totaled $755 at September 30, 2022. As of December 31, 2021, there were no such residential foreclosure proceedings in process.

Excess land and facilities held for sale resulting from branch consolidations totaled $2,467 and $3,348 as of September 30, 2022 and December 31, 2021, respectively.

Note (5)—Leases:

As of September 30, 2022, the Company was the lessee in 59 operating leases and 1 finance lease of certain branch, mortgage and operations locations, of which 45 operating leases and 1 finance lease currently have remaining terms varying from greater than one year to 33 years. Leases with initial terms of less than one year and equipment leases are not included 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.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

As previously disclosed, during the year ended December 31, 2020, the Company entered into an operating lease for a new corporate headquarters building located in downtown Nashville. During the three months ended September 30, 2022, construction of the exterior of the building was completed and the Company took possession of the leased space and began the build-out of the interior space. On August 1, 2022, the Company recorded an ROU asset and operating lease liability of $22,082 and $26,100, respectively, in connection with the initial term of this lease.

Information related to the Company's leases is presented below as of September 30, 2022 and December 31, 2021:


		September 30,			December 31,
	Classification	2022			2021
Right-of-use assets:
Operating leases	Operating lease right-of-use assets	$	61,444		$	41,686
Finance leases	Premises and equipment, net	1,394			1,487
Total right-of-use assets		$	62,838		$	43,173
Lease liabilities:
Operating leases	Operating lease liabilities	$	70,610		$	46,367
Finance leases	Borrowings	1,443			1,518
Total lease liabilities		$	72,053		$	47,885
Weighted average remaining lease term (in years) - operating		12.2			12.4
Weighted average remaining lease term (in years) - finance		12.6			13.4
Weighted average discount rate - operating		3.05		%	2.73		%
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	2022		2021		2022		2021
Operating lease costs:
Amortization of right-of-use asset	Occupancy and equipment	$	2,269	$	1,838	$	5,830	$	5,948
Short-term lease cost	Occupancy and equipment	132		107		387		296
Variable lease cost	Occupancy and equipment	215		284		764		760
Lease impairment	Mortgage restructuring expense	—		—		364		—
Gain on lease modifications and terminations	Occupancy and equipment	—		(14)		(18)		(801)
Finance lease costs:
Interest on lease liabilities	Interest expense on borrowings	7		7		22		21
Amortization of right-of-use asset	Occupancy and equipment	27		28		92		83

Total lease cost		$	2,650	$	2,250	$	7,441	$	6,307

During the nine months ended September 30, 2022, the Company recorded $364 of lease impairment related to vacating two locations associated with the Mortgage restructuring and recorded gains of $18 related to early lease terminations and modifications on other vacated locations. During the three and nine months ended September 30, 2021, the Company recorded $14 and $801, respectively, in gains on lease modifications and terminations on certain vacated locations that were consolidated as a result of previous acquisitions.

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, 2022 is as follows:


	Operating		Finance
	Leases		Lease
Lease payments due:
September 30, 2023	$	7,508	$	29
September 30, 2024	8,257		118
September 30, 2025	7,797		120
September 30, 2026	7,650		121
September 30, 2027	7,449		123
Thereafter	48,089		1,102
Total undiscounted future minimum lease payments	86,750		1,613
Less: imputed interest	(16,140)		(170)
Lease liability	$	70,610	$	1,443

Note (6)—Mortgage servicing rights:

Changes in the Company’s mortgage servicing rights were as follows for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021


Carrying value at beginning of period	$	158,678	$	101,615	$	115,512	$	79,997
Capitalization	4,453		9,215		19,523		31,382





Change in fair value:
Due to pay-offs/pay-downs	(3,670)		(7,302)		(13,165)		(24,488)
Due to change in valuation inputs or assumptions	11,966		7,063		49,557		23,700
Carrying value at end of period	$	171,427	$	110,591	$	171,427	$	110,591

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, 2022 and 2021:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Servicing income:
Servicing income	$	8,104	$	7,539	$	23,499	$	21,258
Change in fair value of mortgage servicing rights	8,296		(239)		36,392		(788)
Change in fair value of derivative hedging instruments	(12,641)		(2,128)		(41,636)		(9,987)
Servicing income	3,759		5,172		18,255		10,483
Servicing expenses	1,923		2,156		7,848		7,381
Net servicing income(1)	$	1,836	$	3,016	$	10,407	$	3,102

(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, 2022 and December 31, 2021 are as follows:


	September 30,			December 31,
	2022			2021
Unpaid principal balance	$	11,233,249		$	10,759,286
Weighted-average prepayment speed (CPR)	5.40		%	9.31		%
Estimated impact on fair value of a 10% increase	$	(4,751)		$	(4,905)
Estimated impact on fair value of a 20% increase	$	(9,191)		$	(9,429)
Discount rate	9.6		%	9.81		%
Estimated impact on fair value of a 100 bp increase	$	(8,164)		$	(4,785)
Estimated impact on fair value of a 200 bp increase	$	(15,623)		$	(9,198)
Weighted-average coupon interest rate	3.29		%	3.23		%
Weighted-average servicing fee (basis points)	27			27
Weighted-average remaining maturity (in months)	331			330

The Company economically 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 9, "Derivatives" for additional information on these hedging instruments.

As of September 30, 2022 and December 31, 2021, mortgage escrow deposits totaled to $140,768 and $127,617, respectively.

Note (7)—Income taxes:

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Current	$	5,513	$	2,350	$	9,082	$	17,840
Deferred	3,418		7,366		15,879		20,904
Total	$	8,931	$	9,716	$	24,961	$	38,744

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, 2022 and 2021:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2022				2021				2022				2021
Federal taxes calculated at statutory rate	$	8,560	21.0	%	$	11,551	21.0	%	$	23,390	21.0	%	$	37,844	21.0	%
Increase (decrease) resulting from:
State taxes, net of federal benefit	1,018		2.5	%	3,279		6.0	%	3,551		3.2	%	6,908		3.8	%


Benefit from equity based compensation	(82)		(0.2)	%	(1,784)		(3.2)	%	(388)		(0.3)	%	(2,129)		(1.2)	%
Municipal interest income, net of interest disallowance	(443)		(1.1)	%	(416)		(0.8)	%	(1,331)		(1.2)	%	(1,259)		(0.7)	%
Bank-owned life insurance	(78)		(0.2)	%	(74)		(0.1)	%	(231)		(0.2)	%	(240)		(0.1)	%
NOL Carryback provision under CARES Act	—		—	%	(3,424)		(6.2)	%	—		—	%	(3,424)		(1.9)	%
Offering costs	—		—	%	—		—	%	—		—	%	127		0.1	%
Section 162(m) limitation	39		0.1	%	1,065		1.9	%	201		0.2	%	1,313		0.7	%
Other	(83)		(0.2)	%	(481)		(0.9)	%	(231)		(0.3)	%	(396)		(0.2)	%
Income tax expense, as reported	$	8,931	21.9	%	$	9,716	17.7	%	$	24,961	22.4	%	$	38,744	21.5	%

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

The Company is subject to Internal Revenue Code Section 162(m), which limits the deductibility of compensation paid to certain individuals. 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.

The components of the net deferred tax assets (liabilities) at September 30, 2022 and December 31, 2021, are as follows:


	September 30,		December 31,
	2022		2021
Deferred tax assets:
Allowance for credit losses	$	39,064	$	35,233
Operating lease liabilities	18,774		12,478
Net operating loss	1,158		1,370
Amortization of core deposit intangibles	403		—
Deferred compensation	4,390		5,484
Unrealized loss on debt securities	67,253		—

Unrealized loss on cash flow hedges	—		205
Other assets	4,891		8,301
Subtotal	135,933		63,071
Deferred tax liabilities:
FHLB stock dividends	$	(484)	$	(484)
Operating leases - right of use assets	(17,386)		(11,287)
Depreciation	(7,335)		(7,938)
Amortization of core deposit intangibles	—		(116)
Unrealized gain on equity securities	(2,297)		(2,407)
Unrealized gain on cash flow hedges	(313)		—
Unrealized gain on debt securities	—		(1,324)
Mortgage servicing rights	(44,667)		(30,098)
Goodwill	(15,338)		(13,743)
Other liabilities	(2,753)		(2,494)
Subtotal	(90,573)		(69,891)
Net deferred tax assets (liabilities)	$	45,360	$	(6,820)

The Company had a net operating loss carryforward generated as a result of a previous acquisition amounting to $5,515 and $6,523 as of September 30, 2022 and December 31, 2021, respectively. 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 carryforwards 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 will begin to expire in 2029.

Note (8)—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,
	2022		2021
Commitments to extend credit, excluding interest rate lock commitments	$	3,686,559	$	3,106,594
Letters of credit	64,692		77,427
Balance at end of period	$	3,751,251	$	3,184,021

As of September 30, 2022 and December 31, 2021, loan commitments included above with floating interest rates totaled $2.97 billion and $2.26 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 Company estimates expected credit losses on off-balance sheet loan commitments that are not accounted for as derivatives under the CECL methodology. When applying this methodology, 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.

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, 2022 and 2021:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Balance at beginning of period	$	20,399	$	13,202	$	14,380	$	16,378


Provision for credit losses on unfunded commitments	3,178		301		9,197		(2,875)
Balance at end of period	$	23,577	$	13,503	$	23,577	$	13,503

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 $4,442 and $5,988 for the three and nine months ended September 30, 2022, respectively, and $2,917 and $4,386 for the three and nine months ended September 30, 2021, 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,
	2022		2021		2022		2021
Balance at beginning of period	$	3,445	$	5,489	$	4,802	$	5,928
Provision for loan repurchases or indemnifications	(800)		—		(1,989)		(266)

Losses on loans repurchased or indemnified	16		(120)		(152)		(293)
Balance at end of period	$	2,661	$	5,369	$	2,661	$	5,369

Note (9)—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 items “Other assets” or “Other liabilities” at fair value in accordance with ASC 815, “Derivatives and Hedging.”

Derivatives not designated as hedging instruments

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 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 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.

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 non-designated derivative financial instruments as of the dates presented:


	September 30, 2022
	Notional Amount		Asset		Liability

Interest rate contracts	$	529,801	$	45,775	$	45,762
Forward commitments	294,000		7,017		—
Interest rate-lock commitments	188,430		—		222
Futures contracts	484,700		—		3,542

Total	$	1,496,931	$	52,792	$	49,526


	December 31, 2021
	Notional Amount		Asset		Liability

Interest rate contracts	$	600,048	$	19,265	$	19,138
Forward commitments	1,180,000		—		1,077
Interest rate-lock commitments	487,396		7,197		—
Futures contracts	429,000		922		—

Total	$	2,696,444	$	27,384	$	20,215

(Losses) gains included in the consolidated statements of income related to the Company’s non-designated derivative financial instruments were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Included in mortgage banking income:
Interest rate lock commitments	$	(3,980)	$	(3,316)	$	(7,419)	$	(24,587)
Forward commitments	4,795		(806)		57,130		23,252
Futures contracts	(10,105)		(2,152)		(35,805)		(9,380)
Option contracts	—		—		36		—
Total	$	(9,290)	$	(6,274)	$	13,942	$	(10,715)

Derivatives designated as cash flow hedges

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%. Upon the cessation of LIBOR in June 2023, the rate will convert to SOFR plus an adjustment in accordance with market standards. 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.

The following presents a summary of the Company's designated cash flow hedges as of the dates presented:

September 30, 2022

December 31, 2021

Notional Amount

Estimated fair value

Balance sheet location

Estimated fair value

Balance sheet location

Interest rate swap agreements-
subordinated debt

30,000

1,198

Other assets

(785)

Accrued expenses and other liabilities

The Company's consolidated statements of income included a gain of $26 and loss of $214 for the three and nine months ended September 30, 2022, respectively, and losses of $148 and $428 for the three and nine months ended September 30, 2021, respectively, in interest expense on borrowings related to these cash flow hedges. The cash flow hedges were effective during the periods presented and as a result qualified for hedge accounting treatment. As such, no amounts were reclassified from accumulated other comprehensive (loss) income into earnings during either period presented.

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 loss, 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,
	2022		2021		2022		2021

Amount of gain recognized in other comprehensive loss, net of tax expense of $145, $38, $517 and $173	$	409	$	106	$	1,466	$	489

Derivatives designated as fair value hedges

During the first quarter of 2022, the Company entered into three designated fair value hedges to mitigate the effect of changing rates on the fair value of various fixed rate liabilities, including certain money market deposits and subordinated debt. The hedging strategy converts the fixed interest rates of the hedged items to the daily compounded SOFR in arrears paid monthly. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. As of September 30, 2022, the fair value hedges were deemed effective.


	September 30, 2022
	Notional Amount		Remaining Maturity (In Years)	Receive Fixed Rate	Pay Floating Rate	Estimated fair value
Derivatives included in other liabilities:
Interest rate swap agreement- subordinated debt	$	100,000	1.42	1.46%	SOFR	$	(3,831)
Interest rate swap agreement- fixed rate money market deposits	75,000		1.89	1.50%	SOFR	(3,816)
Interest rate swap agreement- fixed rate money market deposits	125,000		1.89	1.50%	SOFR	(6,359)
Total	$	300,000	1.73	1.48%		$	(14,006)

The following discloses the amount of (expense) income included in interest expense on borrowings and deposits, related to these fair value hedging instruments:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022			2022
Designated fair value hedge:
Interest expense on deposits	$	(331)		$	377
Interest expense on borrowings	(181)			167
Total	$	(512)		$	544

The following amounts were recorded on the balance sheet related to cumulative adjustments for fair value hedges as of September 30, 2022:


Line item on the balance sheet	Carrying Amount of the Hedged Item		Cumulative Decrease in Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Item

Borrowings	$	95,074		(1)	$	(3,831)
Money market and savings deposits	197,124			(2)	(10,175)

(1) The carrying value also includes unamortized subordinated debt issuance costs of $1,095.

(2) The carrying value also includes an unaccreted purchase accounting fair value premium of $7,299.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

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, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Gross amounts recognized	$	46,973	$	4,990	$	20,272	$	15,733
Gross amounts offset in the consolidated balance sheets	—		—		—		—
Net amounts presented in the consolidated balance sheets	46,973		4,990		20,272		15,733

Gross amounts not offset in the consolidated balance sheets
Less: financial instruments	14,100		4,297		14,100		4,297
Less: financial collateral pledged	—		—		6,172		11,436
Net amounts	$	32,873	$	693	$	—	$	—

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. As of September 30, 2022 and December 31, 2021, the Company had minimum collateral posting thresholds with certain derivative counterparties and had collateral posted of $19,169 and $57,868, respectively, against its obligations under these agreements. Cash pledged as collateral on derivative contracts is recorded in other assets on the consolidated balance sheets.

Note (10)—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.

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.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

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 swap agreements to facilitate customer transactions 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. The fair value of interest rate lock commitments associated with the mortgage pipeline 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. The fair values of the Company's designated cash flow and fair value hedges are determined by calculating the difference between the discounted fixed rate cash flows and the discounted variable rate cash flows. The fair values of both the Company's hedges, including designated cash flow hedges and designated fair value hedges are based on pricing models that utilize observable market inputs. 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, 2022	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	618,290	$	618,290	$	—	$	—	$	618,290
Investment securities	1,485,133		—		1,485,133		—		1,485,133

Loans, net	8,970,540		—		—		8,859,226		8,859,226
Loans held for sale	130,733		—		97,011		33,722		130,733
Interest receivable	39,034		107		6,546		32,381		39,034
Mortgage servicing rights	171,427		—		—		171,427		171,427
Derivatives	53,990		—		53,990		—		53,990
Financial liabilities:
Deposits:
Without stated maturities	$	8,843,012	$	8,843,012	$	—	$	—	$	8,843,012
With stated maturities	1,163,070		—		1,158,686		—		1,158,686
Securities sold under agreement to repurchase and federal funds sold	29,008		29,008		—		—		29,008
Federal Home Loan Bank advances	540,000		—		540,000		—		540,000
Subordinated debt	126,004		—		—		117,263		117,263

Interest payable	3,927		730		2,822		375		3,927
Derivatives	63,532		—		63,532		—		63,532


	Fair Value
December 31, 2021	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	1,797,740	$	1,797,740	$	—	$	—	$	1,797,740
Investment securities	1,681,892		—		1,681,892		—		1,681,892

Loans, net	7,479,103		—		—		7,566,717		7,566,717
Loans held for sale	752,223		—		672,924		79,299		752,223
Interest receivable	38,528		36		6,461		32,031		38,528
Mortgage servicing rights	115,512		—		—		115,512		115,512
Derivatives	27,384		—		27,384		—		27,384
Financial liabilities:
Deposits:
Without stated maturities	$	9,705,816	$	9,705,816	$	—	$	—	$	9,705,816
With stated maturities	1,131,081		—		1,137,647		—		1,137,647
Securities sold under agreement to repurchase and federal funds sold	40,716		40,716		—		—		40,716

Subordinated debt	129,544		—		—		133,021		133,021

Interest payable	3,162		140		1,510		1,512		3,162
Derivatives	21,000		—		21,000		—		21,000

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, 2022 are presented in the following table:


At September 30, 2022	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	$	—	$	39,831	$	—	$	39,831
Mortgage-backed securities - residential	—		1,057,763		—		1,057,763
Mortgage-backed securities - commercial	—		17,847		—		17,847
Municipal securities	—		252,143		—		252,143
Treasury securities	—		107,297		—		107,297
Corporate securities	—		7,290		—		7,290
Equity securities, at fair value	—		2,962		—		2,962
Total securities	$	—	$	1,485,133	$	—	$	1,485,133
Loans held for sale	$	—	$	97,011	$	33,722	$	130,733
Mortgage servicing rights	—		—		171,427		171,427
Derivatives	—		53,990		—		53,990
Financial Liabilities:
Derivatives	—		63,532		—		63,532

The balances and levels of the assets measured at fair value on a non-recurring basis at September 30, 2022 are presented in the following table:


At September 30, 2022	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	$	—	$	—	$	2,193	$	2,193
Collateral dependent loans:
Commercial and industrial	$	—	$	—	$	12	$	12

Residential real estate:
1-4 family mortgage	—		—		362		362






Total collateral dependent loans	$	—	$	—	$	374	$	374

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, 2021 are presented in the following table:


At December 31, 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	$	—	$	33,870	$	—	$	33,870
Mortgage-backed securities - residential	—		1,269,372		—		1,269,372
Mortgage-backed securities - commercial	—		15,250		—		15,250
Municipal securities	—		338,610		—		338,610
Treasury securities	—		14,908		—		14,908
Corporate securities	—		6,515		—		6,515
Equity securities, at fair value	—		3,367		—		3,367
Total securities	$	—	$	1,681,892	$	—	$	1,681,892
Loans held for sale	$	—	$	672,924	$	79,299	$	752,223
Mortgage servicing rights	—		—		115,512		115,512
Derivatives	—		27,384		—		27,384
Financial Liabilities:
Derivatives	—		21,000		—		21,000

The balances and levels of the assets measured at fair value on a non-recurring basis at December 31, 2021 are presented in the following table:


At December 31, 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	$	—	$	—	$	6,308	$	6,308
Collateral dependent loans:

Construction	—		—		606		606
Residential real estate:

Residential line of credit	—		—		592		592
Commercial real estate:
Owner occupied	—		—		729		729
Non-owner occupied	—		—		3,526		3,526
Consumer and other	—		—		24		24
Total collateral dependent loans	$	—	$	—	$	5,477	$	5,477

The following tables present information as of September 30, 2022 and December 31, 2021 about significant unobservable inputs (Level 3) used in the valuation of assets measured at fair value on a nonrecurring basis:

As of September 30, 2022

Financial instrument

Fair Value

Valuation technique

Significant
unobservable inputs

Range of
inputs

Collateral dependent loans

374

Valuation of collateral

Discount for comparable sales

10%-35%

Other real estate owned

2,193

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, 2021

Financial instrument

Fair Value

Valuation technique

Significant
unobservable inputs

Range of
inputs

Collateral dependent loans

5,477

Valuation of collateral

Discount for comparable sales

10%-35%

Other real estate owned

6,308

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 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 borrower and borrower's business. As of September 30, 2022 and December 31, 2021, total amortized cost of collateral dependent loans measured on a non-recurring basis amounted to $578 and $5,781, 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 as of the dates presented:


	September 30,		December 31,
	2022		2021
Commercial loans held for sale, at fair value	$	33,722	$	79,299
Mortgage loans held for sale:
Mortgage loans held for sale, at fair value	70,526		672,924
Mortgage loans held for sale - guaranteed GNMA repurchase option	26,485		—
Total loans held for sale	$	130,733	$	752,223

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 $4,276 and $16,479 resulting from fair value changes of mortgage loans were recorded in income during the three and nine months ended September 30, 2022, respectively, compared to net losses of $3,908 and $14,894 during the three and nine months ended September 30, 2021, 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.

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.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

During the three months ended September 30, 2022, the Company revised its accounting estimate with regard to GNMA loans previously sold that are contractually delinquent greater than 90 days and began recording this guaranteed repurchase option on the balance sheet on a prospective basis without impact to prior periods. See Note 1, "Basis of presentation" for additional information regarding the Company's change in accounting estimate. Rebooked GNMA optional repurchase loans do not meet the requirements under FASB ASC Topic 825 to be accounted for under the fair value option. As such, these loans are excluded from the below disclosures. As of December 31, 2021, there were $94,648 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.

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 tables sets forth the changes in fair value associated with this portfolio for the three and nine months ended September 30, 2022 and 2021.


	Three Months Ended September 30, 2022
	Principal Balance		Fair Value Discount		Fair Value
Carrying value at beginning of period	$	47,462	$	(9,647)	$	37,815
Change in fair value:
Pay-downs and pay-offs	(3,706)		—		(3,706)
Write-offs to discount	(8,729)		8,729		—
Changes in valuation included in other noninterest income	—		(387)		(387)
Carrying value at end of period	$	35,027	$	(1,305)	$	33,722

	Nine Months Ended September 30, 2022
	Principal Balance		Fair Value Discount		Fair Value
Carrying value at beginning of period	$	86,762	$	(7,463)	$	79,299
Change in fair value:
Pay-downs and pay-offs	(43,006)				(43,006)
Write-offs to discount	(8,729)		8,729		—
Changes in valuation included in other noninterest income	—		(2,571)		(2,571)
Carrying value at end of period	$	35,027	$	(1,305)	$	33,722


	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

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 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, 2022 and December 31, 2021:


September 30, 2022	Aggregate fair value		Aggregate Unpaid Principal Balance		Difference
Mortgage loans held for sale measured at fair value	$	70,526	$	72,098	$	(1,572)
Commercial loans held for sale measured at fair value	33,722		35,027		(1,305)

Nonaccrual commercial loans held for sale	—		—		—

December 31, 2021	Aggregate fair value		Aggregate Unpaid Principal Balance		Difference
Mortgage loans held for sale measured at fair value	$	672,924	$	658,017	$	14,907
Commercial loans held for sale measured at fair value	74,082		76,863		(2,781)

Nonaccrual commercial loans held for sale	5,217		9,899		(4,682)

Note (11)—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 also offers conforming residential mortgage loans through the Mortgage segment, which activities also include 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.

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. Additionally, the Banking segment includes the results of the Company's specialty lending group, which is concentrated in manufactured housing lending. The Mortgage segment utilizes funding sources from the Banking segment in order to fund mortgage loans that are ultimately sold on the secondary market and uses proceeds from loan sales to repay obligations due to the Banking segment.

On May 10, 2022, the Company announced the restructuring of its Mortgage segment, including the exit from the direct-to-consumer delivery channel, which is one of two delivery channels in the Mortgage segment. As a result of exiting this channel, the Company incurred $12,458 of restructuring expenses during the second quarter of 2022. No such expenses were incurred during the first or third quarter of 2022. The repositioning of our Mortgage segment does not qualify to be reported as discontinued operations. The Company plans to continue originating and selling residential mortgage loans within its Mortgage segment through its traditional mortgage retail channel, retain mortgage servicing rights and continue holding residential 1-4 family mortgage loans in the loan portfolio.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

The Mortgage segment's interest rate lock commitment volume and sales volume by line of business for the three and nine months ended September 30, 2022 and 2021 is as follows:


	Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021
Interest rate lock commitment volume by line of business:
Direct-to-consumer	$	—		$	1,085,180		$	663,848		$	2,948,530
Retail	408,879			926,723			1,755,008			2,726,956
Total	$	408,879		$	2,011,903		$	2,418,856		$	5,675,486
Interest rate lock commitment volume % by line of business:
Direct-to-consumer	—		%	53.9		%	27.4		%	52.0		%
Retail	100.0		%	46.1		%	72.6		%	48.0		%
Mortgage sales by line of business:
Direct-to-consumer	$	48,490		$	809,887		$	1,024,838		$	2,562,681
Retail	521,165			726,010			1,698,987			2,226,795
Total	$	569,655		$	1,535,897		$	2,723,825		$	4,789,476
Mortgage sales % by line of business:
Direct-to-consumer	8.5		%	52.7		%	37.6		%	53.5		%
Retail	91.5		%	47.3		%	62.4		%	46.5		%

The following tables provide segment financial information for the periods indicated:


Three Months Ended September 30, 2022	Banking(4)		Mortgage		Consolidated
Net interest income	$	111,384	$	—	$	111,384
Provisions for credit losses(1)	11,367		—		11,367
Mortgage banking income(2)	—		16,729		16,729
Change in fair value of mortgage servicing rights, net of hedging(2)	—		(4,345)		(4,345)
Other noninterest income	10,293		(85)		10,208
Depreciation and amortization	1,867		190		2,057
Amortization of intangibles	1,108		—		1,108

Other noninterest expense	62,911		15,771		78,682
Income (loss) before income taxes	$	44,424	$	(3,662)	$	40,762
Income tax expense					8,931
Net income applicable to FB Financial Corporation and noncontrolling interest					31,831
Net income applicable to noncontrolling interest(3)					—
Net income applicable to FB Financial Corporation					$	31,831
Total assets	$	11,648,610	$	609,472	$	12,258,082
Goodwill	242,561		—		242,561

(1)Includes $3,178 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.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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


Three Months Ended September 30, 2021	Banking(3)		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) Includes $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.


Nine Months Ended September 30, 2022	Banking(4)		Mortgage		Consolidated
Net interest income	$	301,739	$	(2)	$	301,737
Provisions for credit losses(1)	19,438		—		19,438
Mortgage banking income(2)	—		69,718		69,718
Change in fair value of mortgage servicing rights, net of hedging(2)	—		(5,244)		(5,244)
Other noninterest income	32,975		(251)		32,724
Depreciation and amortization	5,308		797		6,105
Amortization of intangibles	3,546		—		3,546

Other noninterest expense(3)	175,936		82,529		258,465
Income (loss) before income taxes	$	130,486	$	(19,105)	$	111,381
Income tax expense					24,961
Net income applicable to FB Financial Corporation and noncontrolling interest					86,420
Net income applicable to noncontrolling interest(4)					8
Net income applicable to FB Financial Corporation					$	86,412
Total assets	$	11,648,610	$	609,472	$	12,258,082
Goodwill	242,561		—		242,561

(1) Includes $9,197 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 $12,458 in Mortgage restructuring expenses in the Mortgage segment related to the exit from the direct-to-consumer delivery channel.

(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(3)		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(3)	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)Includes $(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.

The Banking segment provides the 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 the Mortgage segment to the Banking segment under this warehouse line of credit is recorded as interest income to our Banking segment and as interest expense to the Mortgage segment, both of which are included in the calculation of net interest income for each segment. The amount of interest paid by the Mortgage segment to the Banking segment under this warehouse line of credit was $4,143 and $14,659 for the three and nine months ended September 30, 2022, respectively, and $6,075 and $17,585 for the three and nine months ended September 30, 2021, respectively.

Note (12)—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, 2022 and December 31, 2021, 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 maintained 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 and delayed the initial impact of CECL adoption plus 25% of the quarterly increases in ACL through December 31, 2021. As of January 1, 2022, the cumulative amount of the transition adjustments became fixed and are being phased out of regulatory capital calculations evenly over a three year period, with 75% of the transition provision’s impact being recognized in 2022, 50% recognized in 2023, and 25% recognized in 2024.

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

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


As oAs of September 30, 2022	Actual				Minimum Capital adequacy with capital buffer			To be well capitalized under prompt corrective action provisions
	Amount		Ratio			Amount		Ratio		Amount		Ratio

Total Capital (to risk-weighted assets)
FB Financial Corporation	$	1,501,110	13.0	%		$	1,210,236	10.5	%	N/A		N/A
FirstBank	1,472,955		12.8	%		1,208,502		10.5	%	$	1,150,954	10.0	%
Tier 1 Capital (to risk-weighted assets)
FB Financial Corporation	$	1,287,489	11.2	%		$	979,715	8.5	%	N/A		N/A
FirstBank	1,259,334		10.9	%		978,311		8.5	%	$	920,764	8.0	%
Tier 1 Capital (to average assets)
FB Financial Corporation	$	1,287,489	10.7	%		$	479,489	4.0	%	N/A		N/A
FirstBank	1,259,334		10.5	%		479,290		4.0	%	$	599,113	5.0	%
Common Equity Tier 1 Capital (to risk-weighted assets)
FB Financial Corporation	$	1,257,489	10.9	%		$	806,824	7.0	%	N/A		N/A
FirstBank	1,259,334		10.9	%		805,668		7.0	%	$	748,120	6.5	%


As of December 31, 2021	Actual				Minimum Capital adequacy with capital buffer			To be well capitalized under prompt corrective action provisions
	Amount		Ratio			Amount		Ratio		Amount		Ratio

Total Capital (to risk-weighted assets)
FB Financial Corporation	$	1,434,581	14.5	%		$	1,039,984	10.5	%	N/A		N/A
FirstBank	1,396,407		14.1	%		1,038,760		10.5	%	$	989,295	10.0	%
Tier 1 Capital (to risk-weighted assets)
FB Financial Corporation	$	1,251,874	12.6	%		$	841,892	8.5	%	N/A		N/A
FirstBank	1,213,700		12.3	%		840,901		8.5	%	$	791,436	8.0	%
Tier 1 Capital (to average assets)
FB Financial Corporation	$	1,251,874	10.5	%		$	474,831	4.0	%	N/A		N/A
FirstBank	1,213,700		10.2	%		474,044		4.0	%	$	592,555	5.0	%
Common Equity Tier 1 Capital (to risk-weighted assets)
FB Financial Corporation	$	1,221,874	12.3	%		$	693,322	7.0	%	N/A		N/A
FirstBank	1,213,700		12.3	%		692,507		7.0	%	$	643,042	6.5	%

Note (13)—Stock-Based Compensation:

Restricted Stock Units

The Company grants RSUs under compensation arrangements for the benefit of employees, executive officers, and directors. RSU 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 for the nine months ended September 30, 2022.




	Restricted Stock Units Outstanding	Weighted Average Grant Date Fair Value
Balance at beginning of period (unvested)	492,320	$	36.06
Granted	143,036	43.74
Vested	(202,652)	36.12
Forfeited	(46,496)	34.51
Balance at end of period (unvested)	386,208	$	38.99

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

The total fair value of restricted stock units vested and released was $1,474 and $7,320 for the three and nine months ended September 30, 2022, respectively, and $10,749 and $15,941 for the three and nine months ended September 30, 2021, respectively.

The compensation cost related to stock grants and vesting of restricted stock units was $1,701 and $5,753 for the three and nine months ended September 30, 2022, respectively, and $2,365 and $7,024 for the three and nine months ended September 30, 2021, respectively. This included amounts paid related to director grants and compensation elected to be settled in stock amounting to $171 and $485 during the three and nine months ended September 30, 2022, respectively, and $168 and $467 during the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022, there was $10,686 of total unrecognized compensation cost related to unvested restricted stock units which is expected to be recognized over a weighted-average period of 2.3 years. Additionally, as of September 30, 2022, there were 1,737,539 shares available for issuance under the Company's stock compensation plans. As of September 30, 2022 and December 31, 2021, there were $265 and $274, respectively, accrued in other liabilities related to dividend equivalent units 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 PSUs as of and for the nine months ended September 30, 2022.






	Performance Stock Units Outstanding	Weighted Average Grant Date Fair Value
Balance at beginning of period (unvested)	115,750	$	40.13
Granted	69,291	44.44
Vested	—	—
Forfeited or expired	(10,659)	42.76
Balance at end of period (unvested)	174,382	$	41.68

The Company awards performance-based restricted stock units to executives and other officers and employees. Under the terms of the awards, 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 Company's performance relative to the peer group will be measured based on calculated non-GAAP adjusted return on average tangible common equity, 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 PSUs is estimated each period based on the fair value of the Company's 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.

As of September 30, 2022, the Company determined the probability of meeting the performance criteria for each grant and recorded compensation cost associated when factoring in the conversion of PSUs to shares of common stock.


Grant Year	Vest Year	Shares Outstanding
2020	2023	49,964
2021	2024	59,496
2022	2025	64,922

The Company recorded compensation cost of $832 and $2,400 during the three and nine months ended September 30, 2022 respectively, and $551 and $1,041 for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, maximum unrecognized compensation cost at 200% payout related to the unvested PSUs was $9,753, and the remaining performance period over which the cost could be recognized was 2.0 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 employee 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

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

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

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). During the three and nine months ended September 30, 2022, there were 11,798 and 26,950 shares of common stock, respectively, issued under the ESPP with proceeds from employee payroll withholdings of $499 and $1,087. During the three and nine months ended September 30, 2021, there were 15,744 and 37,310 shares of common stock issued under the ESPP, respectively, with proceeds from employee payroll withholdings of $632 and $1,443, respectively. As of September 30, 2022, there were 2,314,746 shares available for issuance under the ESPP, respectively.

Note (14)—Related party transactions:

(A) Loans:

The Bank has made and expects to continue to make loans to the directors, certain management, significant shareholders, and executive officers of the Company and their related interests 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 related interests is presented below:


Loans outstanding at January 1, 2022	$	29,010
New loans and advances	55,428
Change in related party status	(9,939)
Repayments	(2,345)
Loans outstanding at September 30, 2022	$	72,154

Unfunded commitments to certain executive officers, certain management and directors and their related interests totaled $34,875 and $10,994 at September 30, 2022 and December 31, 2021, respectively.

(B) Deposits:

The Bank held deposits from related parties totaling $311,197 and $312,956 as of September 30, 2022 and December 31, 2021, respectively.

The Bank leases various office spaces from entities owned by certain directors of the Company under varying terms. The Company had $1 and $6 in unamortized leasehold improvements related to these leases at September 30, 2022 and December 31, 2021, respectively. These improvements are being amortized over a term not to exceed the length of the lease. Lease expense for these properties totaled $96 and $297 for the three and nine months ended September 30, 2022, respectively, and $128 and $388 for the three and nine months ended September 30, 2021.

(D) Aviation lease and time sharing agreement:

During the year ended December 31, 2021, the Bank formed a subsidiary, FBK Aviation, LLC and purchased an aircraft under this entity. FBK Aviation, LLC also maintains a non-exclusive aircraft lease agreement with an entity owned by one of the Company's directors. During the three and nine months ended September 30, 2022, the Company recognized income amounting to $17 and $36, respectively, under this agreement. No such income was recognized during the three and nine months ended September 30, 2021. Additionally, the Company is a participant to an aviation time sharing agreement for an aircraft owned by an entity that is owned by one of the Company's directors and one of the Company's former directors. During the nine months ended September 30, 2021, the Company made payments of $32 under this agreement. No such payments were made during the three months ended September 30, 2021 nor the three and nine months ended September 30, 2022.

(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 nine months ended September 30, 2021, the Company paid $605 under this agreement related to the secondary offering completed during the second quarter of 2021. No such expenses were incurred during the three months ended September 30, 2021 nor three and nine months ended September 30, 2022.

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, 2022 and December 31, 2021, and our results of operations for the three and nine months ended September 30, 2022 and 2021, 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, 2021, that was filed with the SEC on February 25, 2022, 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 Company’s business operations, assets, valuations, financial conditions, results of operations, future plans, strategies, and expectations, including expectations around interest rates, inflation, unemployment, mortgage markets, and changing economic markets generally . 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) changes in government interest rate policies and its impact on the Company’s business, NIM, and mortgage operations, (3) the Company’s ability to effectively manage problem credits, (4) the Company’s ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions, (5) difficulties and delays in integrating acquired businesses or fully realizing costs savings, revenue synergies and other benefits from future and prior acquisitions, (6) the Company’s ability to successfully execute its various business strategies, (7) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, including legislative developments, (8) the potential impact of the phase-out of LIBOR or other changes involving LIBOR, (9) the effectiveness of the Company’s cybersecurity controls and procedures to prevent and mitigate attempted intrusions, (10) the Company's dependence on information technology systems of third party service providers and the risk of systems failures, interruptions, or breaches of security, (11) the adverse effects of the ongoing global COVID-19 pandemic, including the effect of actions taken to mitigate its impact on individuals or the economy broadly, (12) natural disasters or acts of war or terrorism, (13) international or political instability, including the impacts related to or resulting from Russia’s military action in Ukraine and additional sanctions and export controls, as well as the broader impacts to financial markets and the global macroeconomic and geopolitical environments, 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, 2021, 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 our Annual Report. Further, any updates made to our accounting policies since our Annual report are detailed in Note 1, "Basis of presentation," within this Report herein.

Financial highlights

The following table presents certain selected historical consolidated income statement data and key performance indicators as of the dates or for the periods indicated. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period.


	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 %)	2022			2021			2022			2021			2021
Statement of Income Data


Net interest income	111,384			88,476			$	301,737		$	257,615		$	347,370
Provisions for credit losses	11,367			(2,531)			19,438			(30,224)			(40,993)
Total noninterest income	22,592			59,006			97,198			175,036			228,255
Total noninterest expense	81,847			95,007			268,116			282,665			373,567
Income before income taxes	40,762			55,006			111,381			180,210			243,051
Income tax expense	8,931			9,716			24,961			38,744			52,750
Net income applicable to noncontrolling interest	—			—			8			8			16
Net income applicable to FB Financial Corporation	$	31,831		$	45,290		$	86,412		$	141,458		$	190,285
Net income applicable to FB Financial Corporation and noncontrolling interest	31,831			45,290			86,420			141,466			190,301
Net interest income (tax-equivalent basis)	$	112,145		$	89,230		$	304,003		$	259,919		$	350,456
Per Common Share
Basic net income	$	0.68		$	0.96		$	1.83		$	2.99		$	4.01
Diluted net income	0.68			0.94			1.83			2.95			3.97
Book value(1)	27.30			29.36			27.30			29.36			30.13
Tangible book value(2)	21.85			23.90			21.85			23.90			24.67
Cash dividends declared	0.13			0.11			0.39			0.33			0.44





















Selected Ratios
Return on average:
Assets(3)	1.05		%	1.51		%	0.93		%	1.61		%	1.61		%
Common shareholders' equity(3)	9.45		%	12.9		%	8.45		%	14.1		%	14.0		%
Tangible common equity(2)	11.7		%	15.9		%	10.4		%	17.5		%	17.3		%
Average shareholders' equity to average assets	11.1		%	11.7		%	11.1		%	11.4		%	11.5		%
Net interest margin (tax-equivalent basis)	3.93		%	3.20		%	3.50		%	3.19		%	3.19		%
Efficiency ratio	61.1		%	64.4		%	67.2		%	65.3		%	64.9		%
Adjusted efficiency ratio (tax-equivalent basis)(2)	60.7		%	64.7		%	63.3		%	65.4		%	65.8		%
Loans held for investment to deposit ratio	91.0		%	72.4		%	91.0		%	72.4		%	70.2		%
Yield on interest-earning assets	4.53		%	3.49		%	3.86		%	3.56		%	3.53		%
Cost of interest-bearing liabilities	0.90		%	0.42		%	0.54		%	0.52		%	0.48		%
Cost of total deposits	0.52		%	0.26		%	0.32		%	0.32		%	0.30		%




Credit Quality Ratios
Allowance for credit losses to loans, net of unearned income(4)	1.48		%	1.91		%	1.48		%	1.91		%	1.65		%
Net recoveries (charge-offs) as a percentage of average loans HFI	—		%	(0.13)		%	(0.02)		%	(0.07)		%	(0.08)		%

Total nonperforming assets as a percentage of total assets(5)	0.62		%	0.50		%	0.62		%	0.50		%	0.50		%

Nonperforming loans HFI to loans HFI, net of unearned income	0.47		%	0.59		%	0.47		%	0.59		%	0.62		%


	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,
	2022		2021		2022		2021		2021
Capital Ratios (Company)
Total common shareholders' equity to assets	10.5	%	11.9	%	10.5	%	11.9	%	11.4	%
Tier 1 capital (to average assets)	10.7	%	10.4	%	10.7	%	10.4	%	10.5	%
Tier 1 capital (to risk-weighted assets(6)	11.2	%	12.7	%	11.2	%	12.7	%	12.6	%
Total capital (to risk-weighted assets)(6)	13.0	%	14.6	%	13.0	%	14.6	%	14.5	%
Tangible common equity to tangible assets(2)	8.54	%	9.87	%	8.54	%	9.87	%	9.51	%
Common Equity Tier 1 (to risk-weighted assets) (CET1) (6)	10.9	%	12.4	%	10.9	%	12.4	%	12.3	%
Capital Ratios (Bank)
Total common Shareholders' equity to assets	10.5	%	11.7	%	10.5	%	11.7	%	11.3	%
Tier 1 capital (to average assets)	10.5	%	10.0	%	10.5	%	10.0	%	10.2	%
Tier 1 capital (to risk-weighted assets)(6)	10.9	%	12.2	%	10.9	%	12.2	%	12.3	%
Total capital to (risk-weighted assets)(6)	12.8	%	14.2	%	12.8	%	14.2	%	14.1	%
Common Equity Tier 1 (to risk-weighted assets) (CET1) (6)	10.9	%	12.2	%	10.9	%	12.2	%	12.3	%

(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 46,926,377, 47,707,634 and 47,549,241 as of September 30, 2022, September 30, 2021 and December 31, 2021, respectively.

(2)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.

(3)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.

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

(5)Includes optional right to repurchase seriously delinquent GNMA loans previously sold recorded as of September 30, 2022. Additional information on the Company's change in accounting estimate can be found in Note 1, "Basis of Presentation" within the Notes to the Consolidated financial statements included within this Report and under the "Asset Quality" subheading within this MD&A herein.

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

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 financial highlights 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 financial highlights 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), Mortgage restructuring expenses, offering 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,
	2022			2021			2022			2021			2021
Adjusted efficiency ratio (tax-equivalent basis)
Total noninterest expense	$	81,847		$	95,007		$	268,116		$	282,665		$	373,567


Less mortgage restructuring expenses	—			—			12,458			—			—
Less offering expenses	—			—			—			605			605
Less gain on lease terminations	—			—			—			(787)			(787)


Less certain charitable contributions	—			—			—			—			1,422
Adjusted noninterest expense	$	81,847		$	95,007		$	255,658		$	282,847		$	372,327
Net interest income (tax-equivalent basis)	$	112,145		$	89,230		$	304,003		$	259,919		$	350,456
Total noninterest income	22,592			59,006			97,198			175,036			228,255
Less (loss) gain on change in fair value on commercial loans held for sale	(387)			740			(2,571)			1,251			11,172
Less loss on swap cancellation	—			(1,510)			—			(1,510)			(1,510)



Less gain (loss) on sales or write-downs of other real estate owned	435			2,005			(89)			2,478			2,504
Less (loss) gain on other assets	(6)			177			76			162			323
Less (loss) gain from securities, net	(140)			51			(401)			278			324
Adjusted noninterest income	$	22,690		$	57,543		$	100,183		$	172,377		$	215,442
Adjusted operating revenue	$	134,835		$	146,773		$	404,186		$	432,296		$	565,898
Efficiency ratio (GAAP)	61.1		%	64.4		%	67.2		%	65.3		%	64.9		%
Adjusted efficiency ratio (tax-equivalent basis)	60.7		%	64.7		%	63.3		%	65.4		%	65.8		%

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 our 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 common 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 %)	2022			2021			2021
Tangible Assets
Total assets	$	12,258,082		$	11,810,290		$	12,597,686
Adjustments:
Goodwill	(242,561)			(242,561)			(242,561)
Core deposit and other intangibles	(13,407)			(18,248)			(16,953)
Tangible assets	$	12,002,114		$	11,549,481		$	12,338,172
Tangible Common Equity
Total common shareholders' equity	$	1,281,161		$	1,400,913		$	1,432,602
Adjustments:
Goodwill	(242,561)			(242,561)			(242,561)
Core deposit and other intangibles	(13,407)			(18,248)			(16,953)
Tangible common equity	$	1,025,193		$	1,140,104		$	1,173,088
Common shares outstanding	46,926,377			47,707,634			47,549,241
Book value per common share	$	27.30		$	29.36		$	30.13
Tangible book value per common share	$	21.85		$	23.90		$	24.67
Total common shareholders' equity to total assets	10.5		%	11.9		%	11.4		%
Tangible common equity to tangible assets	8.54		%	9.87		%	9.51		%

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 our 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 %)	2022			2021			2022			2021			2021
Return on average tangible common equity
Total average common shareholders' equity	$	1,336,143		$	1,389,201		$	1,368,025		$	1,344,613		$	1,361,637
Adjustments:
Average goodwill	(242,561)			(242,561)			(242,561)			(242,561)			(242,561)
Average intangibles, net	(13,953)			(18,950)			(15,149)			(22,289)			(19,606)
Average tangible common equity	$	1,079,629		$	1,127,690		$	1,110,315		$	1,079,763		$	1,099,470
Net income applicable to FB Financial Corporation	$	31,831		$	45,290		$	86,412		$	141,458		$	190,285
Return on average common shareholders' equity	9.45		%	12.9		%	8.45		%	14.1		%	14.0		%
Return on average tangible common equity	11.7		%	15.9		%	10.4		%	17.5		%	17.3		%

Company 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, 2022, 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.

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, as well as from mortgage servicing revenues.

Recent developments

Mortgage restructuring

On May 10, 2022, we announced the restructuring of our Mortgage segment (referred to herein as "Mortgage restructuring"), including the exit from our direct-to-consumer channel, which is one of two delivery channels in the Mortgage segment. As a result of exiting this channel, we recorded restructuring expenses of $12.5 million during the nine months ended September 30, 2022. The repositioning of our Mortgage segment does not qualify to be reported as discontinued operations. We plan to continue originating and selling residential mortgage loans within our Mortgage segment through our traditional consumer-facing mortgage retail channel, retain mortgage servicing rights and continue holding residential 1-4 family mortgage loans in our HFI loan portfolio.

Overview of recent financial performance

Results of operations

Three months ended September 30, 2022 compared to the three months ended September 30, 2021

Our net income decreased during the three months ended September 30, 2022 to $31.8 million, down from $45.3 million for the three months ended September 30, 2021. Diluted earnings per common share were $0.68 and $0.94 for the three months ended September 30, 2022 and 2021, respectively. Our net income represented a return on average assets, or ROAA, of 1.05% and 1.51% for the three months ended September 30, 2022 and 2021, respectively and a return on average shareholders’ equity, or ROAE, of 9.45% and 12.9% for the same periods. Our ratio of return on average tangible common equity, or ROATCE for the three months ended September 30, 2022 and 2021 was 11.7% and 15.9%, 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 average tangible common equity.

During the three months ended September 30, 2022, our net interest income increased to $111.4 million compared with $88.5 million for the three months ended September 30, 2021. Our net interest margin, on a tax-equivalent basis, increased to 3.93% for the three months ended September 30, 2022, compared with 3.20% for the three months ended September 30, 2021. The increase was primarily driven by our loan growth, increased interest rates and a shift in balance sheet composition during the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

We experienced a decrease in noninterest income of $36.4 million to $22.6 million for the three months ended September 30, 2022, compared with $59.0 million for the same period in the prior year. A decrease of $33.0 million in mortgage banking income was the primary driver for the downward movement in noninterest income, which was the result of interest rate increases and an overall slowdown in mortgage activity experienced throughout the industry.

Noninterest expense decreased to $81.8 million for the three months ended September 30, 2022, compared with $95.0 million for the three months ended September 30, 2021. The decrease in noninterest expense is primarily driven by decreases in salaries, commissions and employee benefit expenses due to a decrease in mortgage production volume.

Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

Our net income decreased during the nine months ended September 30, 2022 to $86.4 million from $141.5 million for the nine months ended September 30, 2021. Diluted earnings per common share were $1.83 and $2.95 for the nine months ended September 30, 2022 and 2021, respectively. Our net income represented a return on average assets of 0.93% and 1.61% for the nine months ended September 30, 2022 and 2021, respectively, and a return on average equity of 8.45% and 14.1% for the same periods. Our ratio of return on average tangible common equity for the nine months ended September 30, 2022 and 2021 were 10.4% and 17.5%, 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 average tangible common equity.

During the nine months ended September 30, 2022, our net interest income increased to $301.7 million compared with $257.6 million in the nine months ended September 30, 2021. Our net interest margin, on a tax-equivalent basis, increased to 3.50% for the nine months ended September 30, 2022 as compared to 3.19% for the nine months ended September 30, 2021. The increase was primarily driven by an increase in loan HFI origination volume, which was slightly offset by an increase in cost of funds of $1.9 million driven by rising interest rates in deposits and new short-term FHLB advances borrowed during the period.

Noninterest income for the nine months ended September 30, 2022 decreased by $77.8 million to $97.2 million, down from $175.0 million in the same period in the prior year. The decrease in noninterest income was primarily made up of a $71.7 million decrease in mortgage banking income for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. These results were impacted by increasing interest rates, compressing margins and a decrease in demand for residential mortgages experienced throughout the industry during the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021.

Noninterest expense decreased to $268.1 million for the nine months ended September 30, 2022, compared with $282.7 million for the nine months ended September 30, 2021. The decrease in noninterest expense is reflective of the $31.8 million decrease in salaries, commissions and employee-related costs in the Mortgage segment related to the reduction in mortgage production, which was partially offset by mortgage restructuring expenses of $12.5 million incurred during the nine months ended September 30, 2022 associated with the exit of our direct-to-consumer internet delivery channel.

Business segment highlights

We operate our business in two business segments: Banking and Mortgage. See Note 11, “Segment reporting” in the notes to our consolidated financial statements for a description of these business segments.

Banking

Three months ended September 30, 2022 compared to three months ended September 30, 2021

Income before taxes from the Banking segment decreased for the three months ended September 30, 2022 to $44.4 million, compared to $46.2 million for the three months ended September 30, 2021. These results were primarily driven by an increase in provisions for credit losses of $13.9 million to $11.4 million (including a provision for credit losses on unfunded commitments of $3.2 million) for the three months ended September 30, 2022 compared to a net reversal in provisions for credit losses of $2.5 million for the three months ended September 30, 2021, reflecting growth in loans HFI during the three months ended September 30, 2022 and changing economic outlook when compared to the three months ended September 30, 2021. Noninterest income decreased to $10.3 million in the three months ended September 30, 2022 as compared to $13.8 million in the three months ended September 30, 2021. The decrease in our noninterest income during the three months ended September 30, 2022 is partially attributable to a $2.3 million decrease in ATM and interchange fees due to the expiration of our exemption from the Durbin amendment becoming effective for the Company during the current period, which limits interchange fees for banking institutions with asset sizes greater than $10 billion. Additionally, gains on sales or write-downs of other real estate owned decreased $1.6 million to $0.4 million during the three months ended September 30, 2022, compared to gains of $2.0 million during the three months ended September 30, 2021. Noninterest expense increased during the three months ended September 30, 2022 to $65.9 million, from $58.8 million for three months ended September 30, 2021 due to increases in salaries, marketing and occupancy and temporary increases in legal and professional expenses.

Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

Income before taxes from the Banking segment decreased for the nine months ended September 30, 2022 to $130.5 million, compared to $154.5 million for the nine months ended September 30, 2021. Net interest income increased by $44.0 million to $301.7 million during the nine months ended September 30, 2022 compared to $257.7 million during the nine months ended September 30, 2021. Our provisions for credit losses on loans HFI and unfunded loan commitments resulted in $19.4 million of provision expense during the nine months ended September 30, 2022 compared to $30.2 million reversal of provision expense in the same period in the previous year. Noninterest income decreased to $33.0 million in the nine months ended September 30, 2022 as compared to $39.2 million in the nine months ended September 30, 2021. Similar to the discussion above, the decrease in ATM and interchange fees, gain on sales or write-downs of other real estate owned and the change in the fair value of our commercial loans held for sale were the main drivers in the decrease in our noninterest income period-over-period. During the nine months ended September 30, 2022, ATM and interchange fees decreased $1.5 million, gain on sales or write-downs of other real estate owned decreased $2.6 million and the change in the fair value of our commercial loans held for sale decreased $3.9 million for the nine months ended September 30, 2021. Noninterest expense was $184.8 million for nine months ended September 30, 2022 compared to $172.7 million for the same period in the previous year mainly due to increases in salaries, advertising, occupancy and temporary increases in legal and professional fees.

Mortgage

Three months ended September 30, 2022 compared to three months ended September 30, 2021

The Mortgage segment reported a pre-tax loss of $3.7 million for the three months ended September 30, 2022, compared to income of $8.9 million for the three months ended September 30, 2021. Noninterest income decreased by $32.9 million to $12.3 million for the three months ended September 30, 2022, compared with $45.2 million for the three months ended September 30, 2021, primarily related to a decrease in mortgage banking income and compressing margins impacted by the rising interest rate environment and a reduction in interest rate lock commitment volume.

Noninterest expense for the three months ended September 30, 2022 and 2021 was $16.0 million and $36.2 million, respectively. This reflects a decrease in salaries, commissions, incentives and employee benefits due to a reduction in production volume.

Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

Activity in our Mortgage segment resulted in a pre-tax net loss of $19.1 million for the nine months ended September 30, 2022 as compared to income of $25.7 million for the nine months ended September 30, 2021. There was a decrease in mortgage banking income of $71.7 million to $64.5 million during the nine months ended September 30, 2022 compared to $136.2 million for the nine months ended September 30, 2021. This was a result of interest rate increases, compressing margins, and a decrease in demand for residential mortgages, which lead to a 57.4% decrease in interest rate lock volume during the nine months ended September 30, 2022 compared with the same period in the prior year. Noninterest expense for the nine months ended September 30, 2022 and 2021 was $83.3 million and $110.0 million, respectively, reflecting decreases in commissions and incentive costs associated with the decrease in production volume partially offset by mortgage restructuring expenses of $12.5 million during the current period compared with the same period in the previous year.

Further discussion on the components of mortgage banking income and additional details related to the Mortgage restructuring are included under the subheadings 'Noninterest income' and 'Noninterest expense', respectively, 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, 2022 and 2021.

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 or amortization of discounts or premiums 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.

During the three and nine months ended September 30, 2022, the US Treasury yield curve remained inverted as long-term rates increased at a slower pace than short-term rates. This compares to the three and nine months ended September 30, 2021, when the US Treasury yield curve steepened as long-term rates rose and short-term rates remained constant. The Federal Funds Target Rate range was 0% - 0.25% and 3.00% - 3.25% as of December 31, 2021 and September 30, 2022, respectively. Effective November 2, 2022, the Federal Reserve increased the target range for the federal funds rate to 3.75% to 4.00% and additional increases in the target range are anticipated to slow inflation.

Three months ended September 30, 2022 compared to three months ended September 30, 2021

On a tax-equivalent basis, net interest income increased by $22.9 million to $112.1 million for the three months ended September 30, 2022 as compared to $89.2 million for the three months ended September 30, 2021. The increase in tax-equivalent net interest income for the three months ended September 30, 2022 was primarily driven by an increase in volume of loans HFI combined with increased interest rates for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. These fluctuations resulted in a 150.2% average interest-earning assets to average interest-bearing liabilities ratio compared to a 142.3% average interest-earning assets to average interest-bearing liabilities ratio for the three months ended September 30, 2021.

Interest income, on a tax-equivalent basis, was $129.2 million for the three months ended September 30, 2022, compared to $97.4 million for the three months ended September 30, 2021, an increase of $31.8 million primarily driven by increased interest income on loans HFI. Interest income on loans HFI, on a tax-equivalent basis, increased $30.4 million to $114.5 million for the three months ended September 30, 2022 from $84.1 million for the three months ended September 30, 2021. The increase in interest income on loans HFI was driven by both an increase in volume and yield period-over-period. The average loans HFI outstanding increased by $1.56 billion to $8.81 billion for the three months ended September 30, 2022 compared to $7.25 billion for the three months ended September 30, 2021. The increased loan HFI volume attributed $20.3 million to the total increase in interest income. The tax-equivalent yield on loans held for investment was 5.16% for the three months ended September 30, 2022, up 55 basis points from the three months ended September 30, 2021. The increase in yield was primarily due to the impact of interest rate hikes as well as loans with lower contractual rates maturing and new loans originated at higher interest rates. We expect loan yields to continue to increase due to the current interest rate environment discussed above. The increase in loan HFI tax-equivalent yield attributed $10.0 million to the total increase in interest income for the three months ended September 30, 2022.

Interest expense was $17.1 million for the three months ended September 30, 2022, an increase of $8.9 million as compared to the three months ended September 30, 2021. The primary driver for the increase was due an increase in interest expense on interest bearing checking, money market deposits and FHLB advances. Interest expense on interest-bearing checking deposits increased by $3.5 million to $5.8 million for the three months ended September 30, 2022, compared to $2.3 million for the three months ended September 30, 2021. Interest expense on money market deposits increased by $2.4 million to $4.7 million for the three months ended September 30, 2022, compared to $2.3 million for the three months ended September 30, 2021. The driver for the increase in interest expense on interest bearing checking deposits and money market deposits is due to an increase in deposit rate which increased by 51 basis points and 42 basis points period-over-period, respectively. In addition, during three months ended September 30, 2022, we drew on FHLB advances which resulted in a $2.2 million in interest expense. There was no such interest expense for the three months ended September 30, 2021.

During the first quarter of 2022, we entered into three designated fair value hedges to mitigate the effect of changing rates on various fixed rate liabilities, including certain money market deposits and subordinated debt. The fair value hedge on money market deposits increased interest expense by $0.3 million during the three months ended September 30, 2022.

Our NIM, on a tax-equivalent basis, increased to 3.93% during the three months ended September 30, 2022 from 3.20% in the three months ended September 30, 2021, driven by a change in balance sheet mix which is reflected in the increase in our average interest-earning assets to average interest-bearing liabilities ratio discussed above. This change in balance sheet mix was further illustrated by a decrease in excess liquidity, which we estimate to be interest-bearing deposits with other financial institutions in excess of 5% of average tangible assets. During the three months ended September 30, 2022, we deployed excess liquidity in our balance sheet funding strategy and as such, excess liquidity did not impact our NIM for the three months ended September 30, 2022. In contrast, we estimate excess liquidity during the three months ended September 30, 2021 to have negatively impacted our NIM by approximately 28 basis points. Origination and other loan fees increased the NIM by 23 basis point for the three months ended September 30, 2022 and 2021.

The components of our loan yield, a key driver to our NIM for the three months ended September 30, 2022 and 2021, were as follows:


	Three Months Ended September 30,
	2022				2021
(dollars in thousands)	Interest income		Average yield		Interest income		Average yield
Loans HFI yield components:
Contractual interest rate on loans held for investment(1)(2)	$	106,405	4.79	%	$	77,150	4.23	%
Origination and other loan fee income(2)	6,665		0.30	%	6,377		0.35	%
Accretion on purchased loans	949		0.05	%	157		0.01	%
Nonaccrual interest collections	469		0.02	%	431		0.02	%

Total loans HFI yield	$	114,488	5.16	%	$	84,115	4.61	%

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

2.Includes $0.1 million of loan contractual interest and $0.4 million of loan fees related to PPP loans for three months ended September 30, 2021. Amounts in the current period are not meaningful.

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,
	2022						2021
(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)(3)	$	8,810,094	$	114,488	5.16	%	$	7,245,313	$	84,115	4.61	%
Mortgage loans held for sale(4)	124,358		1,626		5.19	%	709,654		4,687		2.62	%
Commercial loans held for sale	36,291		670		7.32	%	108,863		1,282		4.67	%
Securities:(4)
Taxable	1,469,934		6,843		1.85	%	1,117,647		3,989		1.42	%
Tax-exempt(3)	298,905		2,459		3.26	%	311,151		2,546		3.25	%
Total Securities(3)	1,768,839		9,302		2.09	%	1,428,798		6,535		1.81	%
Federal funds sold and reverse repurchase agreements’	160,597		877		2.17	%	145,315		135		0.37	%
Interest-bearing deposits with other financial institutions	361,684		1,850		2.03	%	1,404,772		508		0.14	%
FHLB stock	49,478		431		3.46	%	28,422		157		2.19	%
Total interest earning assets(3)	11,311,341		129,244		4.53	%	11,071,137		97,419		3.49	%
Noninterest Earning Assets:
Cash and due from banks	109,681						107,263
Allowance for credit losses	(127,710)						(144,652)
Other assets(5)	744,803						881,314
Total noninterest earning assets	726,774						843,925
Total assets	$	12,038,115					$	11,915,062
Interest-bearing liabilities:
Interest bearing deposits:
Interest-bearing checking	$	2,821,415	$	5,831	0.82	%	$	2,937,273	$	2,298	0.31	%
Money market(6)	2,551,521		4,684		0.73	%	2,997,595		2,322		0.31	%
Savings deposits	515,882		70		0.05	%	439,470		60		0.05	%
Customer time deposits(6)	1,151,843		2,535		0.87	%	1,200,760		1,840		0.61	%
Brokered and internet time deposits(6)	3,501		13		1.47	%	32,009		76		0.94	%
Time deposits	1,155,344		2,548		0.87	%	1,232,769		1,916		0.62	%
Total interest-bearing deposits	7,044,162		13,133		0.74	%	7,607,107		6,596		0.34	%
Other interest-bearing liabilities:
Securities sold under agreements to repurchase and federal funds purchased	29,580		12		0.16	%	40,437		20		0.20	%
Federal Home Loan Bank advances	329,130		2,155		2.60	%	—		—		—	%
Subordinated debt	127,263		1,792		5.59	%	129,395		1,565		4.80	%
Other borrowings	1,457		7		1.91	%	1,547		8		2.05	%
Total other interest-bearing liabilities	487,430		3,966		3.23	%	171,379		1,593		3.69	%
Total Interest-bearing liabilities	7,531,592		17,099		0.90	%	7,778,486		8,189		0.42	%
Noninterest bearing liabilities:
Demand deposits	2,973,650						2,596,650
Other liabilities	196,637						150,632
Total noninterest-bearing liabilities	3,170,287						2,747,282
Total liabilities	10,701,879						10,525,768
FB Financial Corporation common shareholders' equity	1,336,143						1,389,201
Noncontrolling interest	93						93
Shareholders' equity	1,336,236						1,389,294
Total liabilities and shareholders' equity	$	12,038,115					$	11,915,062
Net interest income (tax-equivalent basis)			$	112,145					$	89,230
Interest rate spread (tax-equivalent basis)					3.63	%					3.07	%
Net interest margin (tax-equivalent basis)(7)					3.93	%					3.20	%
Cost of total deposits					0.52	%					0.26	%
Average interest-earning assets to average interest-bearing liabilities					150.2	%					142.3	%

(1)Calculated using daily averages.

(2)Average balances of nonaccrual loans are included in average loan balances. Origination and other loan fee income of $6.7 million and $6.4 million, net accretion of $0.9 million and $0.2 million, and nonaccrual interest collections of $0.5 million and $0.4 million are included in interest income in the three months ended September 30, 2022 and 2021, respectively.

(3)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 for both the three months ended September 30, 2022 and 2021.

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

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

(6)Includes $0.9 million and $0.9 million of interest rate premium accretion on money market deposits, $180 thousand and $426 thousand of interest rate premium accretion on customer time deposits and $5 thousand and $99 thousand of interest rate premium accretion on brokered and internet deposits for the three months ended September 30, 2022 and 2021, respectively.

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

Nine months ended September 30, 2022 compared to nine months ended September 30, 2021

On a tax-equivalent basis, net interest income increased $44.1 million to $304.0 million for the nine months ended September 30, 2022 as compared to $259.9 million for the nine months ended September 30, 2021. The increase in tax-equivalent net interest income for the nine months ended September 30, 2022 was primarily driven by an increase in the average volume of loans held for investment outstanding. Further, the our net interest income increase was driven a change in balance sheet mix which is reflected in our average interest-bearing deposits with other financial institutions to average earning assets ratio which decreased to 8.70% for the nine months ended September 30, 2022 compared to 13.60% for the nine months ended September 30, 2021.

Interest income, on a tax-equivalent basis, was $336.1 million for the nine months ended September 30, 2022, compared to $290.1 million for the nine months ended September 30, 2021, an increase of $46.0 million. Interest income on loans held for investment, on a tax-equivalent basis, increased $43.1 million to $293.6 million for the nine months ended September 30, 2022 from $250.5 million for the nine months ended September 30, 2021. This is due to an increase in the average loans held for investment balance outstanding which increased to $8.30 billion for the nine months ended September 30, 2022 compared to $7.11 billion for the nine months ended September 30, 2021. The increase in average loan balance is due to the increased economic activity in our primary markets and combined with lower than expected payoffs during the period. We expect loan growth to slow down in future quarters relative to prior quarters to position for potential economic headwinds in 2023. The average yield on loans HFI increased by 2 basis points period-over-period to 4.73% for the nine months ended September 30, 2022. Contractual loan interest rates yielded 4.40% in the nine months ended September 30, 2022 compared with 4.31% in the nine months ended September 30, 2021. Excluding PPP loans, which have a 1% contractual loan yield, our contractual loan yield would have been 5 points higher for the nine months ended September 30, 2021. PPP loans did not impact our contractual loan yield for the nine months ended September 30, 2022.

Our yield on interest-earning assets increased to 3.86% for the nine months ended September 30, 2022 from 3.56% for the nine months ended September 30, 2021 largely due to the change in balance sheet composition discussed above and due to the current interest rate environment. The increase discussed above was partially offset by a $425.3 million decrease in our average mortgage loans held for sale portfolio for the nine months ended September 30, 2022 compared to the same balance for the nine months ended September 30, 2021. This balance decreased due to lower mortgage origination volumes which resulted from an increasing interest rate environment, continued housing inventory shortages, and compressed margins. Interest income on mortgage loans held for sale decreased by $6.4 million period-over-period.

Interest expense was $32.1 million for the nine months ended September 30, 2022, an increase of $1.9 million as compared to the nine months ended September 30, 2021. The increase was largely attributed to the FHLB advances which we entered into during the nine months ended September 30, 2022. Interest expense on our FHLB advances was $2.2 million for the nine months ended September 30, 2022. There was no such expense for the nine months ended September 30, 2021. Interest expense on interest-bearing checking deposits increased to $11.6 million for the nine months ended September 30, 2022 from $8.0 million for the nine months ended September 30, 2021 primarily due to increase in rates period-over-period. The average rate on interest-bearing checking deposits increased 10 basis points from 0.37% for the nine months ended September 30, 2021 to 0.47% for the nine months ended September 30, 2022.

The increase in interest expense during the period was partially offset by a $1.2 million decrease in interest expense on customer time deposits period-over-period. This decrease was largely driven by an decrease in the average customer time deposits outstanding which decreased to $1.12 billion for the nine months ended September 30, 2022 compared to $1.29 billion for the nine months ended September 30, 2021.

During the nine months ended September 30, 2022, we entered into three designated fair value hedges to mitigate the effect of changing rates on various fixed rate liabilities, including certain money market deposits and subordinated debt. The fair value hedge on money market deposits decreased interest expense by $0.4 million during the nine months ended September 30, 2022.

The average balance on our subordinated debt decreased to $128.4 million for the nine months ended September 30, 2022 compared to $155.7 million for the nine months ended September 30, 2021. As a result, interest expense on subordinated debt decreased to $4.7 million for the nine months ended September 30, 2022 compared to $5.7 million for the nine months ended September 30, 2021. The fair value hedge on subordinated debt lowered interest expense by $0.2 million during the nine months ended September 30, 2022.

Overall, our NIM, on a tax-equivalent basis, increased to 3.50% for the nine months ended September 30, 2022 from 3.19% for the nine months ended September 30, 2021, driven by the change in balance sheet composition. Our average interest-earning assets to average interest-bearing liabilities increased to 145.9% for the nine months ended September 30, 2022 from 139.9% for the nine months ended September 30, 2021. The change in our balance sheet composition was further illustrated by a decrease 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 13 basis points for the nine months ended September 30, 2022. This compares to excess liquidity representing 32 basis points of negative impact to our NIM during the nine months ended September 30, 2021. Our NIM for the nine months ended September 30, 2022 was negatively affected by 3 basis points from a $2.2 million in accelerated purchase accounting premium on purchased loans which was primarily driven by two purchased credit deteriorated loans with balances totaling $21.4 million paying off early.

The components of our loan yield, a key driver to our net interest margin for the nine months ended September 30, 2022 and 2021 were as follows:


	Nine Months Ended September 30,
	2022				2021
(dollars in thousands)	Interest income		Average yield		Interest income		Average yield
Loans HFI yield components:
Contractual interest rate on loans held for investment (1)(2)	$	273,199	4.40	%	$	229,105	4.31	%
Origination and other loan fee income (2)	18,574		0.30	%	19,945		0.37	%
Amortization on purchased loans	(1,339)		(0.02)	%	(127)		—	%
Nonaccrual interest collections	2,059		0.03	%	1,623		0.03	%
Syndicated loan fee income	1,150		0.02	%	—		—	%
Total loans HFI yield	$	293,643	4.73	%	$	250,546	4.71	%

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

(2)Includes $0.8 million of loan contractual interest and $3.1 million of loan fee income related to PPP loans for the nine months ended September 30, 2021, respectively. Amounts in the current year period are not significant.

Net amortization on purchased loans lowered the NIM by 2 basis points for the nine months ended September 30, 2022. Amortization on purchased loans did not impact our NIM for the nine months ended September 30, 2021. The increase in net amortization is due to the continued impact of purchase accounting resulting from our mergers, which can fluctuate based on volume of early pay-offs as discussed above. As a result of the Franklin merger, a $11.3 million premium was recorded on August 15, 2020 which is being amortized as a reduction to loan interest income. As of September 30, 2022 and December 31, 2021, the remaining net discount on all acquired loans amounted to $3.6 million and $2.3 million, respectively. Excluding PPP loans, our NIM would have been 5 basis points higher for the nine months ended September 30, 2021. PPP loans did not impact our NIM for the nine months ended September 30, 2022.

Average balance sheet amounts, interest earned and yield analysis


	Nine Months Ended September 30,
	2022						2021
(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)(3)	$	8,302,649	$	293,643	4.73	%	$	7,111,240	$	250,546	4.71	%
Mortgage loans held for sale(4)	269,794		7,542		3.74	%	695,056		13,925		2.68	%
Commercial loans held for sale	56,951		2,316		5.44	%	152,802		5,065		4.43	%
Securities:(4)
Taxable	1,442,397		18,762		1.74	%	975,886		10,652		1.46	%
Tax-exempt (3)	308,418		7,474		3.24	%	323,034		7,806		3.23	%
Total Securities (3)	1,750,815		26,236		2.00	%	1,298,920		18,458		1.90	%
Federal funds sold and reverse repurchase agreements	196,282		1,490		1.01	%	128,504		196		0.20	%
Interest-bearing deposits with other financial institutions	1,012,061		4,039		0.53	%	1,481,939		1,423		0.13	%
FHLB stock	39,030		824		2.82	%	30,527		470		2.06	%
Total interest earning assets (3)	11,627,582		336,090		3.86	%	10,898,988		290,083		3.56	%
Noninterest Earning Assets:
Cash and due from banks	98,202						137,934
Allowance for credit losses	(124,635)						(157,910)
Other assets (5)	759,791						896,042
Total noninterest earning assets	733,358						876,066
Total assets	$	12,360,940					$	11,775,054
Interest-bearing liabilities:
Interest bearing deposits:
Interest bearing checking	$	3,262,730	$	11,573	0.47	%	$	2,904,387	$	8,005	0.37	%
Money market deposits(6)	2,802,070		7,672		0.37	%	2,958,864		8,753		0.40	%
Savings deposits	504,215		202		0.05	%	407,183		170		0.06	%
Customer time deposits(6)	1,119,905		5,653		0.67	%	1,288,348		6,892		0.72	%
Brokered and internet time deposits(6)	8,605		86		1.34	%	37,347		521		1.87	%
Time deposits	1,128,510		5,739		0.68	%	1,325,695		7,413		0.75	%
Total interest bearing deposits	7,697,525		25,186		0.44	%	7,596,129		24,341		0.43	%
Other interest-bearing liabilities:
Securities sold under agreements to repurchase and federal funds purchased	28,954		38		0.18	%	34,807		77		0.30	%
Federal Home Loan Bank advances	110,916		2,155		2.60	%	—		—		—	%
Subordinated debt(7)	128,387		4,686		4.88	%	155,704		5,725		4.92	%
Other borrowings	1,480		22		1.99	%	2,997		21		0.94	%
Total other interest-bearing liabilities	269,737		6,901		3.42	%	193,508		5,823		4.02	%
Total interest-bearing liabilities	7,967,262		32,087		0.54	%	7,789,637		30,164		0.52	%
Noninterest bearing liabilities:
Demand deposits	2,874,223						2,477,454
Other liabilities	151,337						163,257
Total noninterest-bearing liabilities	3,025,560						2,640,711
Total liabilities	10,992,822						10,430,348
FB Financial Corporation common shareholders' equity	1,368,025						1,344,613
Noncontrolling interest	93						93
Shareholders' equity	1,368,118						1,344,706
Total liabilities and shareholders' equity	$	12,360,940					$	11,775,054
Net interest income (tax-equivalent basis)			$	304,003					$	259,919
Interest rate spread (tax-equivalent basis)					3.32	%					3.04	%
Net interest margin (tax-equivalent basis) (8)					3.50	%					3.19	%
Cost of total deposits					0.32	%					0.32	%
Average interest-earning assets to average interest-bearing liabilities					145.9	%					139.9	%

(1)Calculated using daily averages.

(2)Average balances of nonaccrual loans and overdrafts (before deduction of ACL) are included in average loan balances. Syndication fee income $1.2 million and $0, origination and other loan fee income of $18.6 million and $19.9 million, net amortization of $1.3 million and $0.1 million, and nonaccrual interest collections of $2.1 million and $1.6 million are included in interest income for the nine months ended September 30, 2022 and 2021, respectively.

(3)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. For the nine months ended September 30, 2022 and 2021, the net taxable-equivalent adjustment amounts included was $2.3 million for both the nine months ended September 30, 2022 and 2021, respectively.

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

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

(6)Includes $2.8 million and $2.8 million of interest rate premium accretion on money market deposits, $0.6 million and $1.9 million on customer time deposits and $0.1 million and $0.4 million on brokered and internet time deposits for the nine months ended September 30, 2022 and 2021, respectively.

(7)Includes $0.4 million of accretion on subordinated debt fair value premium for the nine months ended September 30, 2021. There was no such accretion for nine months ended September 30, 2022.

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

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, 2022 and 2021. 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, 2022 compared to three months ended September 30, 2021


	Three months ended September 30, 2022 compared to three months ended September 30, 2021 due to changes in
(in thousands on a tax-equivalent basis)	Volume		Yield/ rate		Net increase (decrease)
Interest-earning assets:
Loans(1)(2)	$	20,334	$	10,039	$	30,373
Loans held for sale - residential	(7,653)		4,592		(3,061)
Loans held for sale - commercial	(1,340)		728		(612)
Securities available-for-sale and other securities:
Taxable	1,640		1,214		2,854
Tax Exempt(2)	(101)		14		(87)
Federal funds sold and reverse repurchase agreements	83		659		742
Time deposits in other financial institutions	(5,335)		6,677		1,342
FHLB stock	183		91		274
Total interest income(2)	7,811		24,014		31,825
Interest-bearing liabilities:
Interest-bearing checking	(239)		3,772		3,533
Money market(3)	(819)		3,181		2,362
Savings deposits	10		—		10
Customer time deposits(3)	(108)		803		695
Brokered and internet time deposits(3)	(106)		43		(63)
Securities sold under agreements to repurchase and federal funds purchased	(4)		(4)		(8)
Federal Home Loan Bank advances	2,155		—		2,155
Subordinated debt	(30)		257		227
Other borrowings	—		(1)		(1)
Total interest expense	859		8,051		8,910
Change in net interest income(2)	$	6,952	$	15,963	$	22,915

(1)Average loans are gross, including nonaccrual loans and overdrafts (before deduction of allowance for credit losses). Origination and other loan fee income of $6.7 million and $6.4 million, net accretion of $0.9 million and $0.2 million, and nonaccrual interest collections of $0.5 million and $0.4 million are included in interest income in the three months ended September 30, 2022 and 2021, 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 and $0.9 million of interest rate premium accretion on money market deposits, $180 thousand and $426 thousand of interest rate premium accretion on customer time deposits and $5 thousand and $99 thousand of interest rate premium accretion on brokered and internet deposits for the three months ended September 30, 2022 and 2021, respectively.

Nine months ended September 30, 2022 compared to nine months ended September 30, 2021


	Nine months ended September 30, 2022 compared to nine months ended September 30, 2021 due to changes in
(dollars in thousands on a tax-equivalent basis)	Volume		Yield/ rate		Net increase (decrease)
Interest-earning assets:
Loans(1)	$	42,137	$	960	$	43,097
Loans held for sale - residential	(11,888)		5,505		(6,383)
Loans held for sale - commercial	(3,898)		1,149		(2,749)
Securities available-for-sale and other securities:
Taxable	6,068		2,042		8,110
Tax Exempt(2)	(354)		22		(332)
Federal funds sold and reverse repurchase agreements	515		779		1,294
Time deposits in other financial institutions	(1,875)		4,491		2,616
FHLB stock	180		174		354
Total interest income(2)	30,885		15,122		46,007
Interest-bearing liabilities:
Interest bearing checking	1,271		2,297		3,568
Money market deposits(4)	(429)		(652)		(1,081)
Savings deposits	39		(7)		32
Customer time deposits(4)	(850)		(389)		(1,239)
Brokered and internet time deposits(4)	(287)		(148)		(435)
Securities sold under agreements to repurchase and federal funds purchased	(8)		(31)		(39)
Federal Home Loan Bank advances	2,155		—		2,155
Subordinated debt(3)	(997)		(42)		(1,039)
Other borrowings	(23)		24		1
Total interest expense	871		1,052		1,923
Change in net interest income(2)	$	30,014	$	14,070	$	44,084

(1)Average loans are gross, including nonaccrual loans and overdrafts (before deduction of ACL). Syndication fee income $1.2 million and $0, origination and other loan fee income of $18.6 million and $19.9 million, net amortization of $1.3 million and $0.1 million, and nonaccrual interest collections of $2.1 million and $1.6 million are included in interest income for the nine months ended September 30, 2022 and 2021, 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 of accretion on subordinated debt fair value premium for the nine months ended September 30, 2021. There was no such accretion for nine months ended September 30, 2022.

(4)Includes $2.8 million and $2.8 million of interest rate premium accretion on money market deposits, $0.6 million and $1.9 million on customer time deposits and $0.1 million and $0.4 million on brokered and internet time deposits for the nine months ended September 30, 2022 and 2021, 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 determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity. Refer to Note 1, "Basis of presentation" in the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021 for a detailed discussion regarding ACL methodology.

Our allowance for credit losses calculation as of September 30, 2022 resulted from management’s best estimate of losses over the life of loans and unfunded commitments in our portfolio in accordance with the CECL approach. Our calculation included qualitative adjustments for projected slower GDP growth over the next two to three fiscal years, expected elevated unemployment levels, and expected interest rate increases in the short-term from the Federal Reserve. We also considered the current global economic environment, including continued pressures on supply chains (and more specifically, oil and energy) and increased uncertainty surrounding the potential impact and hardship on the U.S. economy. The qualitative evaluations above include considered projections that the economy may be nearing a recession. These factors may continue to lead to increased volatility in forecasted macroeconomic variables, a key input to our calculated level of allowance for credit losses.

Three months ended September 30, 2022 compared to three months ended September 30, 2021

We recognized a provision for credit losses on loans HFI of $8.2 million as compared to a reversal of provision for credit losses of $2.8 million for the three months ended September 30, 2022 and 2021, respectively. The increase in our provision for credit losses on loans HFI during the three months ended September 30, 2022 was a result of increased loan growth and the factors discussed above. The increase in our loans HFI combined with the economic variables signaling a possible recession in our forward-looking model compared to the improving economic variables used for the three months ended September 30, 2021 are the primary drivers of the increase in the provision for credit losses on loans HFI during the three months ended September 30, 2022. In addition, our allowance for credit losses calculation as of September 30, 2022 considered our loans and unfunded commitments with commercial exposure to address elevated risk in these assets not covered by the model.See further discussion under the subheading "Allowance for credit losses."

We also estimate 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, we consider 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. We recorded a provision for credit losses on unfunded commitments of $3.2 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively. The increase in expense period-over-period is due to a $328.9 million increase in our unfunded commitment balance during the three months ended September 30, 2022 and change in macroeconomic variables discussed above.

During the three months ended September 30, 2022, our available-for-sale debt securities portfolio unrealized value declined $91.1 million to an unrealized loss position of $258.6 million as of September 30, 2022 from an unrealized loss position of $167.5 million as of June 30, 2022. During the three months ended September 30, 2021, our available-for-sale debt securities portfolio unrealized value decreased $7.9 million to an unrealized gain position of $14.4 million as of September 30, 2021 from an unrealized gain position of $22.3 million as of June 30, 2021. The majority of the investment portfolio was either government guaranteed or an issuance of a government sponsored entity or highly rated by major credit rating agencies and we historically have not recorded any losses associated with these investments. As such, as of September 30, 2022 and December 31, 2021, it was 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 months ended September 30, 2022 or 2021.

Nine months ended September 30, 2022 compared to nine months ended September 30, 2021

We recognized a provision for credit losses on loans HFI for the nine months ended September 30, 2022 of $10.2 million. This compares to a reversal in provision for credit losses on loans HFI of $27.3 million recorded for the nine months ended September 30, 2021. The current period provision resulted from management’s best estimate of losses over the life of loans in our portfolio in accordance with the CECL approach driven by an $1.50 billion increase in loans HFI outstanding from December 31, 2021 to September 30, 2022 and the increased possibility of a future recession and inflationary pressures as discussed in further detail above. For the nine months ended September 30, 2021, the reversal in total provision for credit losses was primarily the result of improving economic forecasts allowing for a reduction of our reserves.

For the nine months ended September 30, 2022, the Company recorded a provision for credit losses on unfunded commitments of $9.2 million compared to a release in provision of $2.9 million for the nine months ended September 30, 2021. The increase in the provision for credit losses on unfunded commitments is primarily due to the increase in the total loan commitment balance combined with the qualitative evaluations discussed above.

During the nine months ended September 30, 2022, the unrealized value in our available-for-sale debt securities portfolio declined $263.3 million from an unrealized gain position of $4.7 million as of December 31, 2021. During the nine months ended September 30, 2021, the Company's available-for-sale debt securities portfolio unrealized value declined $20.2 million from an unrealized gain position of $34.6 million as of December 31, 2020. Based on our evaluation of potential credit risk in the portfolio, no provision for credit losses on available-for-sale debt securities was required during the nine months ended September 30, 2022 or 2021.

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)	2022		2021		2022		2021
Mortgage banking income	$	12,384	$	45,384	$	64,474	$	136,215
Service charges on deposit accounts	3,208		2,612		9,030		7,217
ATM and interchange fees	2,614		4,868		13,054		14,590
Investment services and trust income	2,227		2,511		6,634		7,518
(Loss) gain from securities, net	(140)		51		(401)		278
Gain (loss) on sales or write-downs of other real estate owned	435		2,005		(89)		2,478
(Loss) gain from other assets	(6)		177		76		162
Other income	1,870		1,398		4,420		6,578
Total noninterest income	$	22,592	$	59,006	$	97,198	$	175,036

Three months ended September 30, 2022 compared to three months ended September 30, 2021

Noninterest income amounted to $22.6 million for the three months ended September 30, 2022, a decrease of $36.4 million, or 61.7%, as compared to $59.0 million for the three months ended September 30, 2021. 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 loan servicing fees, which includes the net change in fair value of MSRs and related derivatives. Mortgage banking income is initially driven by the recognition of interest rate lock commitments 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 $12.4 million and $45.4 million for the three months ended September 30, 2022 and 2021, respectively.

During the quarter, we completed our wind-down from our direct-to-consumer internet delivery channel, resulting in lower volume of activity and revenue within our Mortgage segment. During the three months ended September 30, 2022, the Company’s mortgage operations had sales of $569.7 million which generated a sales margin of 1.95%. This compares to $1.54 billion and 2.55% for the three months ended September 30, 2021. The industry benefited greatly from historically low interest rates during the three months ended September 30, 2021, causing an increase in interest rate lock commitment volume, which slowed dramatically in 2022 across the industry. Mortgage banking income from gains on sale and related fair value changes decreased to $8.6 million during the three months ended September 30, 2022 compared to $40.2 million for the three months ended September 30, 2021. Total interest rate lock volume decreased $1,603.0 million, or 79.7% to $408.9 million for the three months ended September 30, 2022 compared to the same period in the previous year. The exit of direct-to-consumer internet delivery channel attributed $1,085.2 million of the $1,603.0 million decrease in our interest rate lock volume.

Our mortgage 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, 2022 was composed of 14.2% refinancing activity compared with 66.1% during the same period in the previous year. As interest rates have increased, we continue to see margin compression and reduced volumes due to excess capacity in the

industry, refinance fatigue and affordability constraints in our markets. Our interest rate lock volume can be materially and adversely impacted by rising interest rates, seasonality and excess market capacity, and we expect to see further declines in interest rate lock volume in our retail channel and consequently, mortgage banking income in the last quarter of 2022.

Income from mortgage servicing of $8.1 million and $7.5 million for three months ended September 30, 2022 and 2021, respectively, was partially offset by losses on changes in fair value of MSRs and related hedging activity of $4.3 million and $2.4 million in the three months ended September 30, 2022 and 2021, respectively.

The components of mortgage banking income for three months ended September 30, 2022 and 2021 were as follows:


	Three Months Ended September 30,
(in thousands)	2022			2021
Mortgage banking income:
Origination and sales of mortgage loans	$	11,085		$	39,210
Net change in fair value of loans held for sale and derivatives	(2,460)			1,002
Change in fair value on MSRs	(4,345)			(2,367)
Mortgage servicing income	8,104			7,539
Total mortgage banking income	$	12,384		$	45,384
Interest rate lock commitment volume by line of business:
Direct-to-consumer	$	—		$	1,085,180

Retail	408,879			926,723

Total	$	408,879		$	2,011,903
Interest rate lock commitment volume by purpose (%):
Purchase	85.8		%	33.9		%
Refinance	14.2		%	66.1		%
Mortgage sales	$	569,655		$	1,535,897
Mortgage sale margin	1.95		%	2.55		%
Closing volume	$	409,641		$	1,617,508
Outstanding principal balance of mortgage loans serviced	$	11,233,249		$	10,633,805

ATM and interchange fees income for the three months ended September 30, 2022 decreased by 46.3% to $2.6 million compared to $4.9 million for the three months ended September 30, 2021. The decrease was partially attributable to the expiration of our temporary exemption from the Durbin amendment during the current period. The Durbin amendment limits the amount of interchange transaction fees that banks with asset sizes greater than $10 billion are permitted to charge retailers for debit card processing. Interchange fee income varies with size and volume of transactions, which can fluctuate with seasonality, consumer spending habits and economic conditions. While our volume of transactions for the three months ended September 30, 2022 increased by approximately 7.00% from the three months ended September 30, 2021, our total interchange fee income declined 48.3% for the same period, primarily driven by the imposition of the Durbin amendment interchange fee cap in the third quarter of 2022.

Gain on sales or write-downs of other real estate owned decreased to $0.4 million for the three months ended September 30, 2022 compared to $2.0 million for the three months ended September 30, 2021. The change is the result of specific sales and valuation transactions. In the prior period, the gain was primarily related to the sale of one of our branch locations, which had been vacated as a result of consolidating locations following one of our acquisitions.

Other noninterest income for the three months ended September 30, 2022 increased $0.5 million to $1.9 million compared with $1.4 million for the three months ended September 30, 2021. This includes a $0.4 million loss associated with the change in fair value in our commercial loans held for sale portfolio for the three months ended September 30, 2022 compared with $0.7 million gain for the three months ended September 30, 2021. 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, 2022 compared to nine months ended September 30, 2021

Noninterest income amounted to $97.2 million for the nine months ended September 30, 2022, a decrease of $77.8 million, or 44.5%, as compared to $175.0 million for the nine months ended September 30, 2021. Changes in selected components of noninterest income in the above table are discussed below.

Mortgage banking income was $64.5 million and $136.2 million for the nine months ended September 30, 2022 and 2021, respectively, representing a $71.7 million, or 52.7% decrease year-over-year.

During the nine months ended September 30, 2022, our mortgage operations had sales of $2.72 billion which generated a gain on sales margin of 2.26%. This compares to $4.79 billion and 3.06% for the nine months ended September 30, 2021. Sales of mortgage loans HFS began to slow with the continual rise of interest rates in 2022 and affordability constraints in many of our markets. The decrease in gain on sales is a result of over-capacity in the industry and compressing margins. Mortgage banking income from gains on sale and related fair value changes decreased to $46.2 million during the nine months ended September 30, 2022 compared to $125.7 million for the nine months ended September 30, 2021. Total interest rate lock volume decreased $3.26 billion, or 57.4%, during the nine months ended September 30, 2022 compared to the same period in the previous year. Market conditions during the nine months ended September 30, 2022, including declining consumer demand for mortgages and increased interest rates have also shifted the mix of interest rate lock commitments by purpose down to 30.3% refinance volume for the nine months ended September 30, 2022 compared with 63.7% refinance interest rate lock volume for the same period in the previous year.

As previously discussed, we completed the process of winding down our direct-to-consumer internet delivery channel within our Mortgage segment during the third quarter of 2022. Our direct-to-consumer channel was particularly dependent on the support of a strong refinance market and the current lack of demand and interest rate environment was unfavorable for future profitability in this delivery channel. For the nine months ended September 30, 2022 and 2021, direct-to-consumer comprised 27.4% and 52.0% of the Company's total interest rate lock volume and 37.6% and 53.5% of the Company's sales volume, respectively. We incurred restructuring charges of $12.5 million during the nine months ended September 30, 2022 as a result of exiting this channel.

Income from mortgage servicing was $23.5 million and $21.3 million for nine months ended September 30, 2022 and 2021, respectively, was partially offset by losses on changes in fair value of MSRs and related hedging activity of $5.2 million and $10.8 million for nine months ended September 30, 2022 and 2021, respectively.

The components of mortgage banking income for the nine months ended September 30, 2022 and 2021 were as follows:


	Nine Months Ended September 30,
(dollars in thousands)	2022			2021
Mortgage banking income
Origination and sales of mortgage loans	$	61,581		$	146,538
Net change in fair value of loans held for sale and derivatives	(15,362)			(20,806)
Change in fair value on MSRs	(5,244)			(10,775)
Mortgage servicing income	23,499			21,258
Total mortgage banking income	$	64,474		$	136,215
Interest rate lock commitment volume by line of business:
Direct-to-consumer	$	663,848		$	2,948,530

Retail	1,755,008			2,726,956

Total	$	2,418,856		$	5,675,486
Interest rate lock commitment volume by purpose (%):
Purchase	69.7		%	36.3		%
Refinance	30.3		%	63.7		%
Mortgage sales	$	2,723,825		$	4,789,476
Mortgage sale margin	2.26		%	3.06		%
Closing volume	$	2,129,129		$	4,926,390
Outstanding principal balance of mortgage loans serviced	$	11,233,249		$	10,633,805

ATM and interchange fees decreased $1.5 million to $13.1 million during the nine months ended September 30, 2022 as compared to $14.6 million for the nine months ended September 30, 2021. As discussed above, this decrease is attributable to the expiration of our temporary exemption from the Durbin amendment in the third quarter of 2022. While our volume of interchange transactions increased approximately 6.00%% for the nine months ended September 30, 2022 from the nine months ended September 30, 2021, interchange fee income declined by 10.9% in the same periods, the majority of which related to the application of the fee cap imposed by the Durbin amendment in the third quarter of 2022.

Other income decreased $2.2 million to $4.4 million during the nine months ended September 30, 2022 as compared to $6.6 million during the nine months ended September 30, 2021. This decrease is primarily related to $2.6 million loss from change in fair value of commercial loans held for sale that were acquired through business combination during the nine months ended September 30, 2022 compared to $1.3 million gain for the nine months ended September 30, 2021. 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

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)	2022		2021		2022		2021
Salaries, commissions and employee benefits	$	51,028	$	62,818	$	165,652	$	189,756
Occupancy and equipment expense	6,011		5,979		17,267		17,184
Legal and professional fees	4,448		2,177		10,171		6,701
Data processing	2,334		2,595		7,219		7,456

Amortization of core deposit and other intangibles	1,108		1,344		3,546		4,178





Advertising	2,050		4,200		8,114		10,012
Mortgage restructuring expense	—		—		12,458		—
Other expense	14,868		15,894		43,689		47,378
Total noninterest expense	$	81,847	$	95,007	$	268,116	$	282,665

Three months ended September 30, 2022 compared to three months ended September 30, 2021

Noninterest expense decreased by $13.2 million during the three months ended September 30, 2022 to $81.8 million as compared to $95.0 million in the three months ended September 30, 2021. Changes in selected components of noninterest expense in the above table are discussed below.

Salaries, commissions and employee benefits expense is the largest component of noninterest expenses representing 62.3% and 66.1% of total noninterest expense in the three months ended September 30, 2022 and 2021, respectively. During the three months ended September 30, 2022, salaries and employee benefits expense decreased $11.8 million, or 18.8%, to $51.0 million as compared to $62.8 million for the three months ended September 30, 2021. This decrease was mainly driven by a decrease of $14.5 million in salaries, commissions and employee benefits in the Mortgage segment during the three months ended September 30, 2022 from the same period in 2021, reflective of the slowdown in mortgage production and completion of the direct-to-consumer wind-down during the current period. Costs resulting from our equity compensation grants during the three months ended September 30, 2022 and 2021 amounted $2.5 million and $2.9 million, respectively. These grants mainly comprise annual restricted stock unit and performance stock unit grants to our employees, which are discussed further in Note 13, "Stock-based compensation" in the notes to the Consolidated financial statements within this Report.

Legal and professional fees increased by $2.3 million during the three months ended September 30, 2022 to $4.4 million as compared to $2.2 million for the three months ended September 30, 2021. This increase was primarily due to consulting, legal and other fees related to acceleration of some of our internal projects.

Advertising expense includes expenses related to sponsorships, advertising, marketing, customer relations and business development and public relations. During the three months ended September 30, 2022, advertising expense decreased $2.2 million to $2.1 million as compared to $4.2 million in the three months ended September 30, 2021. This decrease is primarily attributable to decreased costs of lead generation in our Mortgage segment driven by the Mortgage restructuring and reduction in production.

Occupancy and equipment expense remained relatively stable for the three months ended September 30, 2022 compared with the same period in the prior year. As previously disclosed, during the year ended December 31, 2020, we entered into an operating lease for a new corporate headquarters building located in downtown Nashville. During the three months ended September 30, 2022, construction of the exterior of the building was completed and we took possession of the leased space and began the build-out of the interior space. As such, as of August 1, 2022, we recorded a right-of-use asset and right-of-use liability of $22.1 million and $26.1 million, respectively, which will be amortized over the initial lease term of approximately 13 years. Our lease expense during this build-out phase will be elevated into the first half of 2023 until our headquarters is fully transitioned to the new location as we will be temporarily incurring lease expense related to two headquarters locations during this build-out and transition period.

During the three months ended September 30, 2022, other noninterest expense decreased $1.0 million to $14.9 million from $15.9 million for the same period in the previous year. Other noninterest expense during the three months ended September 30, 2022 was reduced by a decrease in franchise tax expense from Tennessee State tax credits amounting to $0.7 million during the period. This is a geography shift when compared to the three months ended September 30, 2021 as these tax credits were recognized as a reduction to income tax expense amounting to $0.8 million for that period.

Nine months ended September 30, 2022 compared to nine months ended September 30, 2021

Noninterest expense decreased by $14.6 million during the nine months ended September 30, 2022 to $268.1 million as compared to $282.7 million in the nine months ended September 30, 2021. 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 61.8% and 67.1% of total noninterest expense in the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022, salaries and employee benefits expense decreased $24.1 million, or 12.7%, to $165.7 million as compared to $189.8 million for the nine months ended September 30, 2021. This decrease includes a $22.5 million decrease in incentive and commission compensation during the nine months ended September 30, 2022, which was driven by the decrease in mortgage production volume and decline in profitability during the period in addition to the impact of the Mortgage restructuring.

Legal and professional expense increased by $3.5 million during the nine months ended September 30, 2022 to $10.2 million as compared to $6.7 million in the nine months ended September 30, 2021. As discussed above, the increase in legal and professional expenses was due to temporary increases on consulting, legal, and other fees related to acceleration of some of our internal projects.

Mortgage restructuring expenses of $12.5 million were reported during the nine months ended September 30, 2022 related to the exit from our direct-to-consumer internet delivery channel. These expenses primarily include $10.0 million related to salaries, commissions and employee benefits expense, including the acceleration of vesting on restricted stock units. Other components of this expense includes $1.1 million related to software license and maintenance fees, $0.4 million impairment of our operating lease right-of-use assets, and $0.9 million loss on disposal of fixed assets.

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 decreased $3.7 million during the nine months ended September 30, 2022 to $43.7 million compared to $47.4 million during the nine months ended September 30, 2021. The change includes a $1.8 million decrease in franchise tax expense, which reflects the impact of $2.1 million in Tennessee state tax credits. These credits have historically been reflected in the income tax expense line item and were required to be reported in our pre-tax results given the limited Tennessee state taxable income earned during the nine months ended September 30, 2022. This compares to $2.5 million in Tennessee State tax credits for the nine months ended September 30, 2021 which was included in income tax expense rather than other noninterest expense. Additionally, during the nine months ended September 30, 2021, we incurred $0.6 million in offering costs under our registration rights agreement from the secondary offering completed during the period. There were no such costs during the nine months ended September 30, 2022.

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 61.1% and 67.2% for the three and nine months ended September 30, 2022, respectively, and 64.4% and 65.3% for the three and nine months ended September 30, 2021, respectively. Our adjusted efficiency ratio, on a tax-equivalent basis, was 60.7% and 63.3% for the three and nine months ended September 30, 2022, respectively, and 64.7% and 65.4% for the three and nine months ended September 30, 2021, respectively. See “GAAP reconciliation and management explanation of non-GAAP financial measures” in this Report for a discussion of the adjusted efficiency ratio.

Income taxes

Income tax expense was $8.9 million and $9.7 million for the three months ended September 30, 2022 and 2021, respectively, and $25.0 million and $38.7 million for the nine months ended September 30, 2022 and 2021, respectively. This represents effective tax rates of 21.9% and 17.7% for the three months ended September 30, 2022 and 2021, respectively, and 22.4% and 21.5% for the nine months ended September 30, 2022 and 2021, 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. State taxes, net of federal benefits, increased our effective tax rate by 2.5% and 6.0% for the three months ended September 30, 2022 and 2021 and by 3.2% and 3.8% for the nine months ended September 30, 2022 and 2021, respectively. The effect of state taxes were slightly lower during the three and nine months ended September 30, 2022 due to the impact of Tennessee state tax credits of $0.7 million and $2.1 million, respectively, which moved to other noninterest expense during the three and nine months ended September 30, 2022 versus in income tax expense in the comparable previous periods. For further information regarding our state credits, please refer to the section captioned 'Noninterest expense' within this Report. We had a net operating loss carryforward generated as a result of one of our previous acquisitions which amounted to $5.5 million and $6.5 million as of September 30, 2022 and December 31, 2021, respectively. The net operating loss carryforward can be used to offset taxable income in future periods and reducing income tax liabilities in those future periods. While net operating losses are subject to certain annual utilization limits under Section 382, we believe the net operating loss carryforwards will be realized based on the projected annual limitation and the length of the net operating loss carryover period. Our 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 will begin to expire in 2029.

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 our 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, we have disallowed a portion of compensation paid to the applicable individuals.

Financial condition

The following discussion of our financial condition compares balances as of September 30, 2022 and December 31, 2021.

Loan portfolio

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:


	September 30,						December 31,
	2022								2021
(dollars in thousands)	Committed		Amount Outstanding		% of total outstanding		Committed		Amount Outstanding		% of total outstanding
Loan Type:
Commercial and industrial (1)	$	2,596,816	$	1,534,159	17	%	$	2,060,028	$	1,290,565	17	%
Construction	3,376,230		1,679,497		18	%	2,886,088		1,327,659		17	%
Residential real estate:
1-to-4 family mortgage	1,546,120		1,545,252		17	%	1,272,477		1,270,467		17	%
Residential line of credit	1,101,608		460,774		5	%	935,571		383,039		5	%
Multi-family mortgage	422,773		394,366		4	%	339,882		326,551		4	%
Commercial real estate:
Owner-occupied	1,221,800		1,158,343		13	%	1,005,534		951,582		13	%
Non-owner occupied	2,090,382		1,954,219		22	%	1,839,990		1,730,165		23	%
Consumer and other	408,764		378,406		4	%	351,153		324,634		4	%
Total loans	$	12,764,493	$	9,105,016	100	%	$	10,690,723	$	7,604,662	100	%

(1)Includes $0.9 million and $4.0 million of PPP loans outstanding as of September 30, 2022 and December 31, 2021, respectively.

Our loans HFI portfolio is our most significant earning asset, comprising 74.3% and 60.4% of our total assets as of September 30, 2022 and December 31, 2021, 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 in the markets we serve, but we are also party to loan syndications and participations from other banks (collectively, “participated loans”). At September 30, 2022 and December 31, 2021, loans held for investment included approximately $292.3 million and $263.9 million, respectively, related to purchased participated loans. All loans, whether or not we act as a participant, are underwritten to the same standards as all other loans we originate. We believe our loan portfolio is well-balanced, which provides us with the opportunity to grow while monitoring our loan concentrations.

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. Our lending activity is heavily concentrated in the geographic market areas we serve, with highest concentration in Tennessee. This geographic concentration subjects our loan portfolio to the general economic conditions within the state. The risks created by this concentration have been considered by management in the determination of the appropriateness of the allowance for credit losses. As of September 30, 2022 and December 31, 2021, 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.

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, 2022 and December 31, 2021.


	As a percentage (%) of tier 1 capital plus allowance for credit losses
	FirstBank		FB Financial Corporation
September 30, 2022
Construction	123.6	%	121.1	%
Commercial real estate	298.5	%	292.4	%
December 31, 2021
Construction	102.7	%	99.8	%
Commercial real estate	263.5	%	256.0	%

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. 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. Growth in our commercial and industrial loans portfolio is expected to decrease as we position for potential economic headwinds.









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. 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. We expect to make construction loans at a more moderate pace compared to prior quarters due to our current macroeconomic forecasts and our increasing expectation that the economy may be nearing a recession.










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. Our future origination volume could be impacted by any deterioration of housing values in our markets and increased unemployment or underemployment.





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. The value of these loans and growth in this area of our portfolio may be affected by unemployment or underemployment and deteriorating market values of real estate.


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. Due to current market conditions and macroeconomic forecasts, we expect growth in commercial real estate owner-occupied loans in future quarters to be moderated compared to prior quarters.







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. We expect growth in commercial real estate non-owner occupied loans to be reduced in comparison to prior quarters due to current macroeconomic outlook.








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. These 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 table presents the contractual maturities of our loan portfolio as of September 30, 2022. 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.


Loan type (dollars in thousands)	Maturing in one year or less			Maturing in one to five years			Maturing in five years to fifteen years			Maturing after fifteen years			Total
As of September 30, 2022
Commercial and industrial	$	541,119		$	771,016		$	221,110		$	914		$	1,534,159
Commercial real estate:
Owner-occupied	129,047			549,679			449,825			29,792			1,158,343
Non-owner occupied	165,373			845,148			916,603			27,095			1,954,219
Residential real estate:
1-to-4 family mortgage	73,853			418,281			301,628			751,490			1,545,252
Residential line of credit	28,203			94,291			337,647			633			460,774
Multi-family mortgage	13,137			231,698			132,973			16,558			394,366
Construction	840,313			619,513			195,832			23,839			1,679,497
Consumer and other	44,064			88,120			59,214			187,008			378,406
Total ($)	$	1,835,109		$	3,617,746		$	2,614,832		$	1,037,329		$	9,105,016
Total (%)	20.2		%	39.7		%	28.7		%	11.4		%	100.0		%

For loans due after one year or more, the following table presents the interest rate composition for loans outstanding as of September 30, 2022. As of September 30, 2022 and December 31, 2021, the Company had $21.1 million and $21.5 million, respectively, in fixed-rate loans in which the Company has entered into variable rate swap contracts.


Loan type (dollars in thousands)	Fixed interest rate			Floating interest rate			Total
As of September 30, 2022
Commercial and industrial	$	471,945		$	521,095		$	993,040
Commercial real estate:
Owner-occupied	755,304			273,992			1,029,296
Non-owner occupied	951,746			837,100			1,788,846
Residential real estate:
1-to-4 family mortgage	1,173,229			298,170			1,471,399
Residential line of credit	4,999			427,572			432,571
Multi-family mortgage	242,392			138,837			381,229
Construction	307,791			531,393			839,184
Consumer and other	328,632			5,710			334,342
Total ($)	$	4,236,038		$	3,033,869		$	7,269,907
Total (%)	58.3		%	41.7		%	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, 2022.


(dollars in thousands)	Fixed interest rate			Floating interest rate			Total
As of September 30, 2022
One year or less	$	569,166		$	1,265,943		$	1,835,109
One to five years	2,141,724			1,476,022			3,617,746
Five to fifteen years	1,334,168			1,280,664			2,614,832
Over fifteen years	760,146			277,183			1,037,329
Total ($)	$	4,805,204		$	4,299,812		$	9,105,016
Total (%)	52.8		%	47.2		%	100.0		%

Of the loans shown above with floating interest rates as of September 30, 2022, 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 in five years to fifteen years		Weighted average level of support (bps)	Maturing after fifteen years		Weighted average level of support (bps)	Total		Weighted average level of support (bps)
Loans with current rates above floors:

1-25 bps	$	1,438	24.98	$	29,791	22.45	$	3,430	13.62	$	91	25.00	$	34,750	21.69
26-50 bps	1,850		46.90	4,680		50.00	8,590		31.63	—		—	15,120		39.18
51-75 bps	19,485		75.00	11,308		74.32	4,883		69.92	5,744		67.91	41,420		73.23
76-100 bps	2,989		98.60	37,613		99.99	19,443		88.98	5,957		92.28	66,002		95.99
101-125 bps	5,285		119.49	16,834		120.65	10,994		117.93	5,773		115.15	38,886		118.90
126-150 bps	32,563		147.73	50,762		142.88	35,921		137.40	9,014		144.17	128,260		142.67
151-200 bps	103,336		188.10	71,761		187.93	130,261		175.35	11,504		180.71	316,862		182.55
201-250 bps	259,123		235.03	330,537		233.68	299,825		236.79	125,311		241.34	1,014,796		235.89
251 bps and above	536,364		297.51	429,643		301.98	443,023		310.19	71,312		375.07	1,480,342		306.34
Total loans with current rates above floors	$	962,433	256.88	$	982,929	239.34	$	956,370	250.82	$	234,706	264.05	$	3,136,438	250.08
Loans at interest rate floors providing support:
1-25 bps	$	2,132	23.60	$	6,928	25.00	$	16,886	15.12	$	140	19.00	$	26,086	18.46
26-50 bps	—		—	7,015		50.00	36		50.00	—		—	7,051		50.00
51-75 bps	—		—	2,391		62.21	—		—	—		—	2,391		62.21
76-100 bps	—		—	—		—	1,544		87.63	—		—	1,544		87.63
101-125 bps	—		—	—		—	292		119.00	—		—	292		119.00
126-150 bps	—		—	42		134.00	—		—	—		—	42		134.00



Total loans at interest rate floors providing support	$	2,132	23.60	$	16,376	41.42	$	18,758	22.77	$	140	19.00	$	37,406	30.97

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. As of September 30, 2022 and December 31, 2021, we had $75.7 million and $63.0 million, respectively, in nonperforming 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 $0.2 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively, and $0.5 million and $0.7 million for the nine months ended September 30, 2022 and 2021, respectively. Additionally, we had net interest recoveries on nonperforming assets previously charged off of $0.5 million

and $0.4 million, respectively, for the three months ended September 30, 2022 and 2021, and $2.1 million and $1.6 million for the nine months ended September 30, 2022 and 2021, respectively.

In addition to loans HFI, we also include loans HFS that have stopped accruing interest or become 90 days or more past due. As such, our nonperforming commercial loans HFS represent a pool of previously acquired shared national credits and institutional healthcare loans that amounted to $5.2 million as of December 31, 2021. Loans within this portfolio were all considered performing as of September 30, 2022.

During the three months ended September 30, 2022, we revised our accounting estimate and methodology with regard to GNMA loans previously sold that are contractually delinquent greater than 90 days and began recording this right to repurchase option on the balance sheet on a prospective basis without impact to prior periods. See Note 1, "Basis of presentation" within this Report for additional information regarding our change in accounting estimate. As a result of this change, as of September 30, 2022, we recorded $26.5 million of delinquent GNMA loans previously sold on our Consolidated balance sheets in loans held for sale and borrowings. These are considered nonperforming assets as the Company does not earn any interest on the unexercised option to repurchase these loans. Rebooked GNMA optional repurchase loans do not meet the requirements under FASB ASC Topic 825 to be accounted for under the fair value option. As of December 31, 2021, there was $94.6 million of delinquent GNMA loans previously sold that we did not record on its consolidated balance sheets as we 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.

As of September 30, 2022 and December 31, 2021, other real estate owned included $2.5 million and $3.3 million, respectively, of excess land and facilities held for sale resulting from branch consolidations from our prior acquisitions. Other nonperforming assets also included other repossessed non-real estate amounting to $0.6 million and $0.7 million as of September 30, 2022 and December 31, 2021, respectively.

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:


	September 30,						December 31,
(dollars in thousands)	2022			2021			2021
Loan Type
Commercial and industrial	$	1,768		$	3,022		$	1,583
Construction	—			4,908			4,340
Residential real estate:
1-to-4 family mortgage	19,347			11,925			13,956
Residential line of credit	1,880			1,269			1,736
Multi-family mortgage	44			50			49
Commercial real estate:
Owner-occupied	4,873			6,239			6,710
Non-owner occupied	6,960			11,666			14,084
Consumer and other	7,755			3,948			4,845
Total nonperforming loans held for investment	$	42,627		$	43,027		$	47,303
Commercial loans held for sale	—			5,625			5,217
Mortgage loans held for sale(1)	26,485			—			—
Other real estate owned	5,919			10,015			9,777
Other	639			347			686
Total nonperforming assets	$	75,670		$	59,014		$	62,983
Total nonperforming loans held for investment as a percentage of total loans HFI	0.47		%	0.59		%	0.62		%
Total nonperforming assets as a percentage of total assets	0.62		%	0.50		%	0.50		%
Total nonaccrual loans HFI as a percentage of loans HFI	0.29		%	0.47		%	0.47		%
Total accruing loans over 90 days delinquent as a percentage of total assets	0.13		%	0.08		%	0.09		%
Loans restructured as troubled debt restructurings	$	14,959		$	29,645		$	32,435
Troubled debt restructurings as a percentage of total loans held for investment	0.16		%	0.41		%	0.43		%

(1)Includes optional right to repurchase seriously delinquent government guaranteed GNMA mortgage loans previously sold as a result of a prospective revision in accounting estimate made during the third quarter of 2022.

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, 2022 and December 31, 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 $30.6 million at September 30, 2022 as compared to $26.5 million at December 31, 2021.

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. See "Critical Accounting Estimates- Allowance for credit losses" within management's discussion and analysis in our Form 10-K for additional information regarding our methodology.

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:



	September 30, 2022						December 31, 2021
(dollars in thousands)	Amount		% of Loans		ACL as a % of loans HFI category		Amount		% of Loans		ACL as a % of loans HFI category

Loan Type:
Commercial and industrial	$	10,538	17	%	0.69	%	$	15,751	17	%	1.22	%
Construction	41,427		18	%	2.47	%	28,576		17	%	2.15	%
Residential real estate:
1-to-4 family mortgage	25,366		17	%	1.64	%	19,104		17	%	1.50	%
Residential line of credit	6,952		5	%	1.51	%	5,903		5	%	1.54	%
Multi-family mortgage	5,874		4	%	1.49	%	6,976		4	%	2.14	%
Commercial real estate:
Owner occupied	8,068		13	%	0.70	%	12,593		13	%	1.32	%
Non-owner occupied	22,783		22	%	1.17	%	25,768		23	%	1.49	%
Consumer and other	13,468		4	%	3.56	%	10,888		4	%	3.35	%
Total allowance	$	134,476	100	%	1.48	%	$	125,559	100	%	1.65	%

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)	2022			2021			2022			2021			2021
Allowance for credit losses at beginning of period	$	126,272		$	144,663		$	125,559		$	170,389		$	170,389


Charge-offs:
Commercial and industrial	—			(2,175)			(1,755)			(2,812)			(4,036)
Construction	—			(1)			—			(30)			(30)
Residential real estate:
1-to-4 family mortgage	(20)			—			(43)			(149)			(154)
Residential line of credit	—			—			—			(18)			(18)
Multi-family mortgage	—			—			—			—			(1)
Commercial real estate:

Non-owner occupied	—			—			—			—			(1,566)
Consumer and other	(441)			(438)			(1,630)			(1,634)			(2,063)
Total charge-offs	$	(461)		$	(2,614)		$	(3,428)		$	(4,643)		$	(7,868)
Recoveries:
Commercial and industrial	$	342		$	19		$	1,326		$	235		$	861
Construction	—			3			11			3			3
Residential real estate:
1-to-4 family mortgage	13			33			39			98			125
Residential line of credit	—			1			17			16			115

Commercial real estate:
Owner-occupied	51			4			76			143			156

Consumer and other	70			169			635			554			773
Total recoveries	$	476		$	229		$	2,104		$	1,049		$	2,033
Net charge-offs	15			(2,385)			(1,324)			(3,594)			(5,835)
Provision for credit losses	8,189			(2,832)			10,241			(27,349)			(38,995)


Allowance for credit losses at the end of period	$	134,476		$	139,446		$	134,476		$	139,446		$	125,559
Ratio of net charge-offs during the period to average loans outstanding during the period	—		%	(0.13)		%	(0.02)		%	(0.07)		%	(0.08)		%
Allowance for credit losses as a percentage of loans at end of period(1)	1.48		%	1.91		%	1.48		%	1.91		%	1.65		%
Allowance for credit losses as a percentage of nonaccrual loans HFI(1)	505.1		%	408.6		%	505.1		%	408.6		%	353.0		%
Allowance for credit losses as a percentage of nonperforming loans at end of period(1)	315.5		%	324.1		%	315.5		%	324.1		%	265.4		%

(1) Excludes reserve for credit losses on unfunded commitments of $23.6 million, $13.5 million and $14.4 million recorded in accrued expenses and other liabilities at September 30, 2022, September 30, 2021, and December 31, 2021, respectively.

The following tables details our provision for credit losses and net charge-offs to average loans outstanding by loan category during the periods indicated:


	Provision for credit losses(1)		Net charge-offs		Average loans held for investment		Ratio of annualized net recoveries (charge-offs) to average loans
(dollars in thousands)
Three months ended September 30, 2022
Commercial and industrial	$	5	$	342	$	1,505,262	0.09	%
Construction	3,044		—		1,577,025		—	%
Residential real estate:
1-to-4 family mortgage	3,975		(7)		1,495,509		—	%
Residential line of credit	77		—		443,881		—	%
Multi-family mortgage	(629)		—		385,030		—	%
Commercial real estate:
Owner-occupied	688		51		1,146,149		0.02	%
Non-owner occupied	247		—		1,904,720		—	%
Consumer and other	782		(371)		352,518		(0.42)	%
Total	$	8,189	$	15	$	8,810,094	—	%
Three months ended September 30, 2021
Commercial and industrial	$	3,203	$	(2,156)	$	1,248,440	(0.69)	%
Construction	(3,080)		2		1,155,051		—	%
Residential real estate:
1-to-4 family mortgage	(2,677)		33		1,153,768		0.01	%
Residential line of credit	(952)		1		397,300		—	%
Multi-family mortgage	(1,462)		—		366,166		—	%
Commercial real estate:
Owner-occupied	7,665		4		925,069		—	%
Non-owner occupied	(6,450)		—		1,674,382		—	%
Consumer and other	921		(269)		325,137		(0.33)	%
Total	$	(2,832)	$	(2,385)	$	7,245,313	(0.13)	%
Nine months ended September 30, 2022
Commercial and industrial	$	(4,784)	$	(429)	$	1,424,734	(0.04)	%
Construction	12,840		11		1,491,710		—	%
Residential real estate:
1-to-4 family mortgage	6,266		(4)		1,405,879		—	%
Residential line of credit	1,032		17		415,006		0.01	%
Multi-family mortgage	(1,102)		—		383,093		—	%
Commercial real estate:
Owner-occupied	(4,601)		76		1,049,851		0.01	%
Non-owner occupied	(2,985)		—		1,798,010		—	%
Consumer and other	3,575		(995)		334,366		(0.40)	%
Total	$	10,241	$	(1,324)	$	8,302,649	(0.02)	%
Nine months ended September 30, 2021
Commercial and industrial	$	2,667	$	(2,577)	$	1,278,041	(0.27)	%
Construction	(28,690)		(27)		1,112,248		—	%
Residential real estate:
1-to-4 family mortgage	(2,141)		(51)		1,110,943		(0.01)	%
Residential line of credit	(4,767)		(2)		396,695		—	%
Multi-family mortgage	4,839		—		304,709		—	%
Commercial real estate:
Owner occupied	7,384		143		914,687		0.02	%
Non-owner occupied	(7,741)		—		1,685,293		—	%
Consumer and other	1,100		(1,080)		308,624		(0.47)	%
Total	$	(27,349)	$	(3,594)	$	7,111,240	(0.07)	%

(1) Excludes provision for credit losses on unfunded commitments of $3.2 million and $0.3 million recorded for the three months ended September 30, 2022 and 2021, respectively, and $9.2 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2021, excludes a reversal of provision for credit losses on unfunded commitments of $2.9 million.


	Provision for credit losses(1)		Net recoveries (charge-offs)		Average loans held for investment		Ratio of annualized net recoveries (charge-offs) to average loans
(dollars in thousands)
Year ended December 31, 2021
Commercial and industrial	$	4,178	$	(3,175)	$	1,271,476	(0.25)	%
Construction	(29,874)		(27)		1,138,769		—	%
Residential real estate:
1-to-4 family mortgage	(87)		(29)		1,130,019		—	%
Residential line of credit	(4,728)		97		392,907		0.02	%
Multi-family mortgage	(197)		(1)		310,874		—	%
Commercial real estate:
Owner-occupied	7,588		156		917,334		0.02	%
Non-owner occupied	(16,813)		(1,566)		1,683,413		(0.09)	%
Consumer and other	938		(1,290)		352,421		(0.37)	%
Total	$	(38,995)	$	(5,835)	$	7,197,213	(0.08)	%

1) Excludes reversal of provision for credit losses on unfunded commitments of $2.0 million recorded for the year ended December 31, 2021, respectively.

The allowance for credit losses was $134.5 million and $125.6 million and represented 1.48% and 1.65% of loans held for investment as of September 30, 2022 and December 31, 2021, respectively.

The primary reason for the increase in the allowance for credit losses is due to loan growth and a tightening monetary policy environment during the three and nine months ended September 30, 2022. Specifically, we performed qualitative evaluations within our established qualitative framework, weighting the impact of the current economic outlook, including inflation, employment, global conflicts, supply chain concerns, and other considerations. Further, we increased our required reserve due to projected slower GDP growth over the next two to three fiscal years; forecasted elevated unemployment levels; and expected further increases in interest rates in the short term. The qualitative evaluations above include weighted projections that the economy may be nearing a recession.

We experienced an improvement in credit quality indicators in our loans HFI portfolio including lower nonaccrual loans and net recoveries of $15 thousand for the three months ended September 30, 2022. Our total nonperforming loans HFI as a percentage of loans HFI as of September 30, 2022 was 0.47% compared to 0.62% as of December 31, 2021.

Nonperforming assets as a percentage of total assets at September 30, 2022 was 0.62% compared to 0.50% as of the December 31, 2021. The increase was solely due to our change in accounting estimate related to the rebooking of our option to repurchase seriously delinquent GNMA loans previously sold, which negatively impacted the NPA ratio by 22 bps as of September 30, 2022.

We also maintain an allowance for credit losses on unfunded commitments, which increased to $23.6 million as of September 30, 2022 from $14.4 million as of December 31, 2021 due to an increase in unfunded loan commitments, particularly in our commercial and construction unfunded pipelines, and change in macroeconomic forecasts as discussed above.

Loans held for sale

Commercial loans held for sale

Our loans held for sale includes a previously acquired portfolio of commercial loans, including shared national credits and institutional healthcare loans that we have elected to account for as held for sale. The loans had a fair value of $33.7 million as of September 30, 2022 compared to $79.3 million as of December 31, 2021. The change is attributable to loans within the portfolio being paid off through external refinancing and pay-downs and was partially offset by loan fundings on pre-existing loan commitments.

This decrease also includes losses recognized on the change in fair value of the portfolio which is included in 'other noninterest income' on the consolidated statement of income of $0.4 million and $2.6 million for the three and nine months ended September 30, 2022, respectively, compared to gains of $0.7 million and $1.3 million for the three and nine months ended September 30, 2021, respectively.

Mortgage loans held for sale

Mortgage loans held for sale consisted of $70.5 million of residential real estate mortgage loans in the process of being sold to third parties and $26.5 million of GNMA optional repurchase loans. This compares to $672.9 million of residential mortgage loans in the process of being sold as of December 31, 2021. There were no GNMA optional repurchase loans included within our consolidated balance sheet as of December 31, 2021. For additional information regarding GNMA optional repurchase loans, please refer to the nonperforming assets table and discussion included under the section captioned 'Asset Quality' within this MD&A. Interest rate lock volume for the three months ended September 30, 2022 and 2021 totaled $0.41 billion and $2.01 billion, respectively, and $2.42 billion and $5.68 billion for the nine months ended September 30, 2022 and 2021, respectively. Generally, mortgage volume decreases in rising interest rate environments and slower housing markets and increases in lower interest rate environments and robust housing markets. The decrease in interest rate lock volume during the three and nine months ended September 30, 2022 reflects the slow down experienced across the industry compared with the three and nine months ended September 30, 2021, which benefited from historically low interest rates pre-empted by the COVID-19 Pandemic. The decrease also reflects the exit from our direct-to-consumer internet delivery channel completed during 2022. Interest rate lock commitments in the pipeline were $188.4 million as of September 30, 2022 compared with $487.4 million as of December 31, 2021. We expect our pipeline to remain low relative to the prior year through the remainder of 2022 associated with our exit from our direct-to-consumer channel, which was completed during the third quarter of 2022.

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 $10.01 billion and $10.84 billion as of September 30, 2022 and December 31, 2021, respectively. Noninterest-bearing deposits at September 30, 2022 and December 31, 2021 were $2.97 billion and $2.74 billion, respectively, while interest-bearing deposits were $7.04 billion and $8.10 billion at September 30, 2022 and December 31, 2021, respectively. This deposit decrease is primarily due to a decrease in interest-bearing demand deposits of $770.5 million and decrease in money market deposits of $345.2 million from December 31, 2021.The decrease in the money market deposits and interest-bearing deposits was driven by a $677.0 million decrease from December 31, 2021 in certain high-cost deposits from municipal and governmental entities (i.e. "public deposits") that we exited. This was partially offset by increases in customer time and saving deposits of $57.1 million and $26.6 million, respectively, as of September 30, 2022 compared to balances as of December 31, 2021. In addition, as noted above, our noninterest-bearing deposits increased by $226.3 million from December 31, 2021.

During the three months ended September 30, 2022, we increased deposit rates on customer time and money market deposits to improve our liquidity profile and future funding cost. The Company's total cost of deposits increased during the three months ended September 30, 2022 from the three months ended September 30, 2021 by 26 basis points to 0.52%, and the cost of interest-bearing deposits increased to 0.74% from 0.34% in the same period for the prior year. We expect total customer time and money market deposits to increase during the fourth quarter of 2022.

During the nine months ended September 30, 2022, the Company entered into two designated fair value hedges to mitigate interest rate exposure associated with certain fixed-rate money market deposits. The aggregate fair value of these hedges included in the carrying amount of total money market deposits as of September 30, 2022 was $10.2 million.

Included in noninterest-bearing deposits are certain mortgage escrow and related customer deposits that our third-party servicing provider, Specialized Loan Servicing, transfers to the Bank which totaled $140.8 million and $127.6 million at September 30, 2022 and December 31, 2021, respectively. Additionally, our deposits from public deposits totaled $1.61 billion at September 30, 2022, compared to $2.29 billion at December 31, 2021.

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 14, "Related party transactions" in the notes to our consolidated financial statements included in this Report.

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,
	2022						2021
(dollars in thousands)	Amount		% of total deposits		Average rate		Amount		% of total deposits		Average rate

Deposit Type
Noninterest-bearing demand	$	2,966,514	30	%	—	%	$	2,740,214	26	%	—	%
Interest-bearing demand	2,648,161		26	%	0.47	%	3,418,666		32	%	0.35	%
Money market	2,721,186		27	%	0.37	%	3,066,347		28	%	0.36	%
Savings deposits	507,151		5	%	0.05	%	480,589		4	%	0.06	%
Customer time deposits	1,160,726		12	%	0.67	%	1,103,594		10	%	0.67	%
Brokered and internet time deposits	2,344		—	%	1.34	%	27,487		—	%	1.69	%
Total deposits	$	10,006,082	100	%	0.32	%	$	10,836,897	100	%	0.30	%

Total Uninsured Deposits	$	4,959,418	50	%			$	4,877,819	45	%

Customer Time Deposits
0.00-0.50%	$	538,237	46	%			$	792,020	72	%
0.51-1.00%	91,248		8	%			97,644		9	%
1.01-1.50%	75,289		6	%			78,539		7	%
1.51-2.00%	270,231		23	%			36,090		3	%
2.01-2.50%	48,140		4	%			44,653		4	%
Above 2.50%	137,581		13	%			54,648		5	%
Total customer time deposits	$	1,160,726	100	%			$	1,103,594	100	%
Brokered and Internet Time Deposits
0.00-0.50%	$	99	4	%			$	99	—	%
0.51-1.00%	—		—	%			—		—	%
1.01-1.50%	247		11	%			595		2	%
1.51-2.00%	752		32	%			16,358		60	%
2.01-2.50%	747		32	%			4,464		16	%
Above 2.50%	499		21	%			5,971		22	%
Total brokered and internet time deposits	$	2,344	100	%			$	27,487	100	%
Total time deposits	$	1,163,070					$	1,131,081

Other earning assets

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

We enter into agreements with certain customers to purchase investment securities under agreements to resell at specific dates in the future. This investment deploys some of our liquidity position into an instrument that improves the return on those funds in low interest rate environments. Additionally, we believe it positions us more favorably for a rising interest rate environment. Securities purchased under agreements to resell totaled $74.8 million and $74.2 million at September 30, 2022 and December 31, 2021, respectively.

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 lines of credit and other borrowings. The investment objectives guide the portfolio allocation among securities types, maturities, and other attributes.

The fair value of our available-for-sale debt securities portfolio was $1.48 billion and $1.68 billion as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022 and December 31, 2021, the Company had $3.0 million and $3.4 million, respectively, in equity securities recorded at fair value that primarily consisted of mutual funds.

During the three months ended September 30, 2022 and 2021, we purchased $0.9 million and $290.9 million in investment securities, respectively. During the nine months ended September 30, 2022 and 2021, we purchased $242.6 million and $645.7 million in investment securities, respectively. During the nine months ended September 30, 2022, we sold $1.2 million in investment securities. There were no investment securities sold during three months ended September 30, 2022. The trade value of securities sold was $8.9 million during three and nine months ended September 30, 2021. During the three months ended September 30, 2022 and 2021, maturities and calls of securities totaled $44.4 million and $68.1 million, respectively. During the nine months ended September 30, 2022 and 2021, maturities and calls of securities totaled $170.7 million and $216.0 million, respectively.

Included in the fair value of available-for-sale debt securities were net unrealized losses of $258.6 million at September 30, 2022 compared to net unrealized gains of $4.7 million at December 31, 2021. Our available-for-sale debt securities portfolio incurred unrealized losses during the period due to a rising interest rate environment, but we believe we are well positioned to mitigate the impact of future rate increases due to the low duration of our portfolio. During the three months ended September 30, 2022 and 2021, the change in the fair value of equity securities resulted in a net loss of $141 thousand and $24 thousand, respectively. During the nine months ended September 30, 2022 and 2021, the change in the fair value of equity securities resulted in a net loss of $405 thousand and a net gain of $188 thousand, respectively.

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


	As of September 30,						As of December 31,
	2022						2021
(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	$	487	—	%	2.55	%	$	—	—	%	—	%
Maturing in one to five years	106,810		7.2	%	2.10	%	14,908		0.9	%	1.24	%
Maturing in five to ten years	—		—	%	—	%	—		—	%	—	%
Maturing after ten years	—		—	%	—	%	—		—	%	—	%
Total Treasury securities	107,297		7.2	%	2.10	%	14,908		0.9	%	1.24	%
Government agency securities:
Maturing within one year	—		—	%	—	%	—		—	%	—	%
Maturing in one to five years	20,838		1.4	%	1.58	%	20,141		1.2	%	1.33	%
Maturing in five to ten years	18,015		1.2	%	1.54	%	13,729		0.8	%	1.40	%
Maturing after ten years	978		0.1	%	1.85	%	—		—	%	—	%
Total government agency securities	39,831		2.7	%	1.57	%	33,870		2.0	%	1.36	%
Municipal securities:
Maturing within one year	3,475		0.2	%	2.18	%	21,884		1.3	%	1.26	%
Maturing in one to five years	18,413		1.2	%	2.35	%	19,903		1.2	%	2.05	%
Maturing in five to ten years	31,821		2.1	%	3.42	%	27,086		1.6	%	3.38	%
Maturing after ten years	198,434		13.5	%	3.13	%	269,737		16.1	%	3.14	%
Total obligations of state and municipal subdivisions	252,143		17.0	%	3.09	%	338,610		20.2	%	2.97	%
Residential and commercial mortgage backed securities guaranteed by FNMA, GNMA and FHLMC:
Maturing within one year	—		—	%	—	%	—		—	%	—	%
Maturing in one to five years	3,700		0.2	%	2.74	%	4,041		0.2	%	2.55	%
Maturing in five to ten years	20,596		1.4	%	2.67	%	17,368		1.0	%	2.28	%
Maturing after ten years	1,051,314		71.0	%	1.86	%	1,263,213		75.3	%	1.51	%
Total residential and commercial mortgage backed securities guaranteed by FNMA, GNMA and FHLMC	1,075,610		72.6	%	1.88	%	1,284,622		76.5	%	1.53	%






Corporate securities:
Maturing within one year	—		—	%	—	%	—		—	%	—	%
Maturing in one to five years	367		—	%	5.00	%	355		—	%	5.06	%
Maturing in five to ten years	6,923		0.5	%	3.87	%	6,160		0.4	%	4.05	%
Maturing after ten years	—		—	%	—	%	—		—	%	—	%
Total Corporate securities	7,290		0.5	%	3.94	%	6,515		0.4	%	4.13	%
Total available-for-sale debt securities	$	1,482,171	100.0	%	2.10	%	$	1,678,525	100.0	%	1.83	%

(1)Yields on a tax-equivalent basis.

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 purchased, and subordinated debt.

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 $29.0 million and $40.7 million at September 30, 2022 and December 31, 2021, respectively.

FHLB short-term borrowings

As a member of the FHLB Cincinnati, we receive advances from the FHLB pursuant to the terms of various agreements that assist in funding our mortgage and loan commitments, as well as providing liquidity for relevant balance sheet funding strategies. Under these agreements, we pledged qualifying loans of $2.53 billion as collateral securing a line of credit with a total borrowing capacity of $1.20 billion as of September 30, 2022. As of December 31, 2021, the Company pledged qualifying loans of $2.72 billion as collateral securing a line of credit with a total borrowing capacity of $1.23 billion. As of September 30, 2022, we had outstanding advances from the FHLB totaling $540.0 million. There were no such borrowings outstanding as of December 31, 2021.

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, 2022 and December 31, 2021, 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 (6.79% and 3.37% at September 30, 2022 and December 31, 2021, respectively) for the $21.7 million debenture and 3-month LIBOR plus 325 basis points (6.92% and 3.47% at September 30, 2022 and December 31, 2021, 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. The Company classified both debentures as additional Tier 1 capital as of September 30, 2022 and December 31, 2021.

We also have $100.0 million of ten year fixed-to-floating rate subordinated notes scheduled to mature on September 1, 2030. This subordinated note pays interest semi-annually in arrears based on a 4.50% 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. During the first quarter of 2022, the Company entered into a designated fair value hedge to mitigate our interest rate exposure associated with these notes. The estimated fair value of the hedge included in borrowings on the consolidated balance sheet as of September 30, 2022 was $3.8 million. The Company classified the subordinated notes issuance, net of the impact of the designated fair value hedge and unamortized issuance costs, as Tier 2 capital as of September 30, 2022, and net of unamortized issuance costs as of December 31, 2021.

Other borrowings

Other borrowings on our consolidated balance sheets includes our finance lease liability totaling $1.4 million and $1.5 million as of September 30, 2022 and December 31, 2021, respectively. In addition, other borrowings on our consolidated balance sheets includes guaranteed GNMA loans eligible for repurchase totaling $26.5 million as of September 30, 2022. There were no such borrowings outstanding as of December 31, 2021. See Note 5, "Leases" and Note 10, "Fair Value of financial instruments" within the Notes to our consolidated financial statements for additional information regarding our finance lease and guaranteed GNMA loans eligible for repurchase, respectively.

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.

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, 2022 and December 31, 2021, securities with a carrying value of $1.21 billion and $1.23 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, 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. As of September 30, 2022, we had outstanding advances from the FHLB totaling $540.0 million. There were no outstanding overnight cash management advances or other advances with the FHLB as of December 31, 2021. There was $1.20 billion and $1.23 billion as of September 30, 2022 and December 31, 2021, respectively available to borrow against.

We also maintain lines of credit with other commercial banks totaling $315.0 million and $325.0 million as of September 30, 2022 and December 31, 2021, respectively. These are unsecured, uncommitted lines of credit typically maturing at various times within the next twelve months. There were no borrowings against these lines as of September 30, 2022 or December 31, 2021. We also had an additional $50.0 million available through the promontory network as of both September 30, 2022 and December 31, 2021.

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, 2022 and December 31, 2021, $130.1 million and $170.8 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, 2022, there were $7.3 million and $41.8 million 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, 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. None of these required approval from the TDFI. Subsequent to September 30, 2022, the board approved a dividend from the Bank to the holding company to be paid in the fourth quarter for $7.3 million that also did not require approval from the TDFI.

During the three and nine months ended September 30, 2022, the Company declared and paid shareholder dividends of $0.13 per share, or $6.1 million and $0.39 per share, or $18.5 million, respectively. During the three and nine months ended September 30, 2021, the Company declared and paid dividends of $0.11 per share, or $5.3 million and $0.33 per share, or $15.9 million, respectively. Subsequent to September 30, 2022, the Company declared a quarterly dividend in the amount of $0.13 per share, payable on November 23, 2022, to stockholders of record as of November 9, 2022.

Shareholders’ equity and capital management

Our total shareholders’ equity was $1.28 billion at September 30, 2022 and $1.43 billion at December 31, 2021. Book value per share was $27.30 at September 30, 2022 and $30.13 at December 31, 2021, respectively. The decrease in shareholders’ equity, during the first half of 2022, was primarily attributable to a decrease in accumulated other comprehensive income related to unrealized losses on our available-for-sale securities portfolio. Additionally, our capital was impacted by retained net income, dividends paid, and $32.7 million in common stock repurchases during the nine months ended September 30, 2022.

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. As of September 30, 2022 and December 31, 2021, we met all capital adequacy requirements for which we are subject. See additional discussion regarding our capital adequacy and ratios at within Note 12, "Minimum capital requirements" in the notes to our consolidated financial statements contained herein.

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. Economic Value of Equity 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:
	Net interest income (1)
	Year 1				Year 2
Change in interest rates	September 30,		December 31,		September 30,		December 31,
(in basis points)	2022		2021		2022		2021
+400	19.3	%	40.9	%	29.5	%	54.8	%
+300	14.2	%	30.2	%	21.9	%	40.8	%
+200	10.3	%	20.9	%	15.3	%	28.3	%
+100	5.67	%	10.8	%	8.23	%	14.7	%
-100	(5.83)	%	(6.32)	%	(8.59)	%	(10.2)	%
-200	(12.5)	%	(8.73)	%	(18.2)	%	(13.5)	%


	Percentage change in:
	Economic value of equity (2)
Change in interest rates	September 30,		December 31,
(in basis points)	2022		2021
+400	(9.89)	%	5.30	%
+300	(6.79)	%	5.67	%
+200	(3.71)	%	5.72	%
+100	(1.33)	%	3.90	%
-100	0.50	%	(8.13)	%
-200	(0.08)	%	(21.4)	%

(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 interest 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, 2022 and December 31, 2021 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. While our variable rate loan portfolio is indexed to market rates, deposits typically adjust at a percentage of the overall movement in market rates.

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.

For more information about our derivative financial instruments, see Note 9, “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, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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, 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, 2022:


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(2)
July 1 - July 31, 2022	—	$	—	—	$	73,440,676
August 1 - August 31, 2022	—	—		—	73,440,676
September 1 - September 30, 2022	—	—		—	73,440,676
Total	—	$	—	—	$	73,440,676

(1) On March 14, 2022, 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 purchase authorizations granted under the new repurchase plan will terminate either on the date on which the maximum dollar amount is repurchased under the new repurchase plan or on January 31, 2024, whichever date occurs earlier. The new repurchase plan will be conducted pursuant to a written plan and is intended to comply with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended.

(2) Amounts are inclusive of commissions and fees related to the stock repurchases.

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)






















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.

†			Represents a management contract or a compensatory plan or arrangement.

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 7, 2022						Michael M. Mettee Chief Financial Officer (Principal Financial Officer)

						/s/ Keith Rainwater
November 7, 2022						Keith Rainwater Chief Accounting Officer (Principal Accounting Officer)