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FB Financial (FBK)

Filed: 9 Aug 20, 8:00pm

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 June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-37875
_____________________________________________________________
FB FINANCIAL CORPORATION
(Exact name of Registrant as specified in its Charter)
______________________________________________________________
Tennessee62-1216058
( State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
211 Commerce Street, Suite 300Nashville, Tennessee37201
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (615) 564-1212
____________________________________________________________
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 July 31, 2020 was 32,103,348.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol  Name of each exchange on which registered 
Common Stock, Par Value $1.00 Per Share FBK  New York Stock Exchange 
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Table of Contents



2

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)
 


 June 30,December 31,
 2020 (Unaudited)2019
ASSETS  
Cash and due from banks$33,710  $48,806  
Federal funds sold34,638  131,119  
Interest-bearing deposits in financial institutions649,244  52,756  
Cash and cash equivalents717,592  232,681  
Investments:
Available-for-sale debt securities, at fair value747,438  688,381  
Equity securities, at fair value4,329  3,295  
Federal Home Loan Bank stock, at cost17,621  15,976  
Loans held for sale, at fair value435,479  262,518  
Loans4,827,023  4,409,642  
Less: allowance for credit losses113,129  31,139  
Net loans4,713,894  4,378,503  
Premises and equipment, net100,638  90,131  
Other real estate owned, net15,091  18,939  
Operating lease right-of-use assets30,447  32,539  
Interest receivable26,587  17,083  
Mortgage servicing rights, at fair value60,508  75,521  
Goodwill175,441  169,051  
Core deposit and other intangibles, net17,671  17,589  
Other assets192,800  122,714  
Total assets$7,255,536  $6,124,921  
LIABILITIES
Deposits
Noninterest-bearing$1,775,323  $1,208,175  
Interest-bearing checking1,236,094  1,014,875  
Money market and savings1,749,889  1,520,035  
Customer time deposits1,176,067  1,171,502  
Brokered and internet time deposits15,428  20,351  
Total deposits5,952,801  4,934,938  
Borrowings328,662  304,675  
Operating lease liabilities33,803  35,525  
Accrued expenses and other liabilities135,054  87,454  
Total liabilities6,450,320  5,362,592  
SHAREHOLDERS' EQUITY
Common stock, $1 par value per share; 75,000,000 shares authorized;
   32,101,108 and 31,034,315 shares issued and outstanding at
   June 30, 2020 and December 31, 2019, respectively
32,101  31,034  
Additional paid-in capital462,930  425,633  
Retained earnings286,296  293,524  
Accumulated other comprehensive income, net23,889  12,138  
Total shareholders' equity805,216  762,329  
Total liabilities and shareholders' equity$7,255,536  $6,124,921  
See accompanying notes to consolidated financial statements.
3


FB Financial Corporation and subsidiaries
Consolidated statements of income
(Unaudited)
(Amounts are in thousands except share and per share amounts)


 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Interest income:  
Interest and fees on loans$61,092  $66,276  $124,846  $126,724  
Interest on securities
Taxable2,619  3,548  5,675  7,117  
Tax-exempt1,590  1,160  3,023  2,304  
Other306  735  1,737  1,507  
Total interest income65,607  71,719  135,281  137,652  
Interest expense:
Deposits9,309  13,488  21,477  25,343  
Borrowings961  1,208  2,218  2,270  
Total interest expense10,270  14,696  23,695  27,613  
Net interest income55,337  57,023  111,586  110,039  
Provision for credit losses24,039  881  52,003  2,272  
Provision for credit losses on unfunded commitments1,882  —  3,483  —  
Net interest income after provisions for credit losses29,416  56,142  56,100  107,767  
Noninterest income:
Mortgage banking income72,168  24,526  104,913  45,547  
Service charges on deposit accounts1,858  2,327  4,421  4,406  
ATM and interchange fees3,606  3,002  6,740  5,658  
Investment services and trust income1,368  1,287  3,065  2,582  
(Loss) gain from securities, net(28) 52  35  95  
Gain on sales or write-downs of other real estate owned86  277  137  238  
(Loss) gain from other assets(54) (183) (382)  
Other income2,487  1,691  5,262  3,484  
Total noninterest income81,491  32,979  124,191  62,018  
Noninterest expenses:
Salaries, commissions and employee benefits55,258  37,918  98,880  71,615  
Occupancy and equipment expense4,096  4,319  8,274  8,049  
Legal and professional fees1,952  1,694  3,510  3,419  
Data processing2,782  2,643  5,235  5,027  
Merger costs1,586  3,783  4,636  4,404  
Amortization of core deposit and other intangibles1,205  1,254  2,408  1,983  
Advertising2,591  2,434  4,980  5,171  
Other expense11,109  10,074  21,215  19,552  
Total noninterest expense80,579  64,119  149,138  119,220  
Income before income taxes30,328  25,002  31,153  50,565  
Income tax expense7,455  6,314  7,535  12,289  
Net income$22,873  $18,688  $23,618  $38,276  
Earnings per common share
Basic$0.71  $0.60  $0.75  $1.24  
Diluted0.70  0.59  0.74  1.21  
See accompanying notes to consolidated financial statements.
4


FB Financial Corporation and subsidiaries
Consolidated statements of comprehensive income  
(Unaudited)
(Amounts are in thousands)

 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Net income$22,873  $18,688  $23,618  $38,276  
Other comprehensive income, net of tax:
Net change in unrealized gain in available-for-sale
     securities, net of taxes of $429, $2,382, $4,704, and $5,134
1,209  6,725  13,303  14,503  
Reclassification adjustment for (gain) loss on sale of securities
     included in net income, net of taxes of $0, $(2), $0, and $0
—  (3) —   
Net change in unrealized loss in hedging activities, net of
     taxes of $(40), $(201), $(443), and $(317)
(112) (564) (1,257) (895) 
Reclassification adjustment for gain on hedging activities,
     net of taxes of $(52), $(42), $(104), and $(75)
(148) (119) (295) (213) 
Total other comprehensive income, net of tax949  6,039  11,751  13,396  
Comprehensive income$23,822  $24,727  $35,369  $51,672  
 See accompanying notes to consolidated financial statements.
5


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
shareholders'
equity
Balance at March 31, 2020$32,067  $460,938  $266,385  $22,940  $782,330  
Net income—  —  22,873  —  22,873  
Other comprehensive income, net of taxes—  —  —  949  949  
Stock based compensation expense 2,344  —  —  2,350  
Restricted stock units vested and distributed,
net of shares withheld
28  (352) —  —  (324) 
Dividends declared ($0.09 per share)—  —  (2,962) —  (2,962) 
Balance at June 30, 2020$32,101  $462,930  $286,296  $23,889  $805,216  
Balance at December 31, 2019$31,034  $425,633  $293,524  $12,138  $762,329  
Cumulative effect of change in accounting principle
(See Note 1)
—  —  (25,018) —  (25,018) 
Balance at January 1, 202031,034  425,633  268,506  12,138  737,311  
Net income—  —  23,618  —  23,618  
Other comprehensive income, net of taxes—  —  —  11,751  11,751  
Common stock issued in connection with acquisition
of FNB Financial Corp., net of registration costs
(See Note 2)
955  33,892  —  —  34,847  
Stock based compensation expense11  4,222  —  —  4,233  
Restricted stock units vested and distributed,
net of shares withheld
89  (1,251) —  —  (1,162) 
Shares issued under employee stock
purchase program
12  434  —  —  446  
Dividends declared ($0.18 per share)—  —  (5,828) —  (5,828) 
Balance at June 30, 2020$32,101  $462,930  $286,296  $23,889  $805,216  
 Common
stock
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income, net
Total
shareholders'
equity
Balance at March 31, 2019$30,853  $423,647  $236,947  $3,130  $694,577  
Net income—  —  18,688  —  18,688  
Other comprehensive loss, net of taxes—  —  —  6,039  6,039  
Stock based compensation expense 2,144  —  —  2,147  
Restricted stock units vested and distributed,
net of shares withheld
10  (147) —  —  (137) 
Dividends declared ($0.08 per share)—  —  (2,555) —  (2,555) 
Balance at June 30, 2019$30,866  $425,644  $253,080  $9,169  $718,759  
Balance at December 31, 2018$30,725  $424,146  $221,213  $(4,227) $671,857  
Cumulative effect of change in accounting principle—  —  (1,309) —  (1,309) 
Balance at January 1, 201930,725  424,146  219,904  (4,227) 670,548  
Net income—  —  38,276  —  38,276  
Other comprehensive income, net of taxes—  —  —  13,396  13,396  
Stock based compensation expense 3,779  —  —  3,785  
Restricted stock units vested and distributed,
net of shares withheld
124  (2,634) —  —  (2,510) 
Shares issued under employee stock
purchase program
11  353  —  —  364  
Dividends declared ($0.16 per share)—  —  (5,100) —  (5,100) 
Balance at June 30, 2019$30,866  $425,644  $253,080  $9,169  $718,759  
See accompanying notes to consolidated financial statements.
6

FB Financial Corporation and subsidiaries
Consolidated statements of cash flows
(Unaudited)
(Amounts are in thousands)
Six Months Ended June 30,
20202019
Cash flows from operating activities:
Net income$23,618  $38,276  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense3,231  2,450  
Amortization of core deposit and other intangibles2,408  1,983  
Capitalization of mortgage servicing rights(20,063) (19,932) 
Net change in fair value of mortgage servicing rights35,076  13,221  
Stock-based compensation expense4,233  3,785  
Provision for credit losses52,003  2,272  
Provision for credit losses on unfunded commitments3,483  —  
Provision for mortgage loan repurchases1,227  148  
Accretion of yield on purchased loans(2,554) (3,928) 
Accretion of discounts and amortization of premiums on securities, net2,077  1,296  
Gain from securities, net(35) (95) 
Originations of loans held for sale(2,807,047) (2,240,059) 
Repurchases of loans held for sale—  (9,670) 
Proceeds from sale of loans held for sale2,739,933  2,269,654  
Gain on sale and change in fair value of loans held for sale(113,888) (42,425) 
Net gain on other real estate owned(137) (238) 
Loss (gain) on other assets382  (8) 
Relief of goodwill—  100  
Provision for deferred income taxes(16,380) (4,451) 
Changes in:
Operating leases370  —  
Other assets and interest receivable(104,474) (39,331) 
Accrued expenses and other liabilities48,799  13,803  
Net cash used in operating activities(147,738) (13,149) 
Cash flows from investing activities:
Activity in available-for-sale securities:
Sales—  1,758  
Maturities, prepayments and calls72,360  50,167  
Purchases(59,984) (54,218) 
Net change in loans(196,303) (239,425) 
Purchases of FHLB stock(1,176) (2,544) 
Proceeds from sale of mortgage servicing rights—  29,160  
Purchases of premises and equipment(4,827) (1,011) 
Proceeds from the sale of premises and equipment—  290  
Proceeds from the sale of other real estate owned4,150  1,864  
Net cash paid in business combinations (See Note 2)(4,227) 171,032  
Net cash used in investing activities(190,007) (42,927) 
Cash flows from financing activities:
Net increase in demand deposits891,237  71,898  
Net (decrease) increase in time deposits(82,909) 10,334  
Net increase in securities sold under agreements to repurchase and federal funds purchased5,795  16,716  
Net increase in FHLB advances—  3,235  
Proceeds from other borrowings15,000  —  
Share-based compensation withholding payments(1,162) (2,510) 
Net proceeds from sale of common stock446  364  
Dividends paid(5,751) (4,981) 
Net cash provided by financing activities822,656  95,056  
Net change in cash and cash equivalents484,911  38,980  
Cash and cash equivalents at beginning of the period232,681  125,356  
Cash and cash equivalents at end of the period$717,592  $164,336  
Supplemental cash flow information:
Interest paid$23,081  $23,869  
Taxes paid1,590  12,823  
Supplemental noncash disclosures:
Transfers from loans to other real estate owned$1,006  $2,030  
Transfers from other real estate owned to premises and equipment841  —  
Transfers from premises and equipment to other real estate owned—  2,640  
Loans provided for sales of other real estate owned—  166  
Transfers from loans to loans held for sale6,317  116  
Transfers from loans held for sale to loans14,358  6,732  
Stock consideration paid in business combination35,041  —  
Trade date payable - securities5,431  1,089  
Trade date receivable - securities—  86  
Dividends declared not paid on restricted stock units77  119  
Decrease to retained earnings for adoption of new accounting standards (See Note 1)25,018  1,309  
Right-of-use assets obtained in exchange for operating lease liabilities806  38,249  
See accompanying notes to consolidated financial statements.
7

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 bank holding company headquartered in Nashville, Tennessee. The Company operates through its wholly-owned subsidiary, FirstBank (the "Bank"), with 72 full-service branches throughout Tennessee, north Alabama, Kentucky and north Georgia, and a national mortgage business with office locations across the Southeast, which primarily originates loans to be sold in the secondary market.
The unaudited consolidated financial statements, including the notes thereto, have been prepared in accordance with United States generally accepted accounting principles (“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 balance sheet and the reported results of operations for the periods then ended. Actual results could differ significantly from those estimates.
Certain prior period amounts have been reclassified to conform to the current period presentation without any impact on the reported amounts of net income or shareholders’ equity.
The Company continues to qualify as an emerging growth company as defined by the "Jumpstart Our Business Startups Act" ("JOBS Act").
Coronavirus Disease 2019 ("COVID-19")
The COVID-19 health pandemic that appeared in the United States in the first quarter of 2020 has created a health and economic crisis that has resulted in volatility in financial markets, disruption in consumer and commercial behavior and unprecedented job losses and action taken by governments in the United States and globally. All industries, municipalities and consumers have been impacted to some degree, including the markets that the Company serves. In an attempt to “flatten the curve”, commerce has been required to adapt, from virtually coming to a halt to exploring alternative ways to continue offering services. Businesses not deemed essential have closed and individuals have been asked to restrict their movements, observe social distancing and other restrictions, including shelter in place. These actions have resulted in rapid decreases in traditional commercial and consumer activities, temporary and intermittent closures of many businesses that have led to a loss of revenues and a rapid increase and volatility in unemployment rates, widening of credit spreads, dislocation of bond markets, disruption of global supply chains and changes in consumer spending behavior. During the end of second quarter of 2020, many municipalities within the Company's footprint began loosening restrictions and many customers began returning to work, pointing to an improvement in economic conditions, however subsequent to these changes, the number of COVID-19 cases began to rise in certain locations, leading to an increase in restrictions and slow down in commerce once again, which continues to persist. The duration and potential financial impact is currently unknown, however if these conditions are sustained without some mitigating factors such as additional or extended government assistance programs, it may impact borrowers' ability to repay loans, which could cause material adverse effect on the Company's business operations and lead to valuation impairments on the Company's intangible assets, loans, investments, mortgage servicing rights, and derivative instruments.
COVID-19 relief programs
On March 13, 2020, the COVID-19 Emergency Declaration was issued leading to the Coronavirus Aid, Relief and Economic Security ("CARES") Act, which was enacted on March 27, 2020. The CARES Act includes the Paycheck Protection Program (“PPP”), a nearly $670 billion program, as amended, designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. These loans are intended to guarantee up to 24 weeks of payroll and other costs, including rent and other operating costs, to help those businesses remain viable and allow their workers to continue paying bills. As of June 30, 2020, the Company funded $314,678 of PPP loans through the US Small Business Administration ("SBA"). Additionally, the Company introduced a payment deferral program for
8

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
commercial and consumer customers to assist during these unprecedented times. At June 30, 2020, the Company's recorded investment in loans in deferral status totaled $918.3 million. These payment deferrals are for initial terms of up to ninety-days with some having an option to extend further.
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 June 30, 2020, but prior to the issuance of these financial statements that would have a material impact on the Company's consolidated financial statements.
Earnings per share
Basic earnings per common share ("EPS") excludes dilution and is computed by dividing earnings attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS includes the dilutive effect of additional potential common shares issuable under the restricted stock units granted but not yet vested and distributable. Diluted EPS is computed by dividing earnings attributable to common shareholders by the weighted 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.
The following is a summary of the basic and diluted earnings per common share calculation for each of the periods presented:
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Basic earnings per common share calculation:
Net income$22,873  $18,688  $23,618  $38,276  
Dividends paid on and undistributed earnings allocated to
participating securities
—  (100) —  (205) 
Earnings attributable to common shareholders$22,873  $18,588  $23,618  $38,071  
Weighted-average basic shares outstanding32,094,274  30,859,596  31,676,004  30,823,341  
Basic earnings per common share$0.71  $0.60  $0.75  $1.24  
Diluted earnings per common share:
Earnings attributable to common shareholders$22,873  $18,588  $23,618  $38,071  
Weighted-average basic shares outstanding32,094,274  30,859,596  31,676,004  30,823,341  
Weighted-average diluted shares contingently issuable(1)
412,143  518,422  433,190  525,625  
Weighted-average diluted shares outstanding32,506,417  31,378,018  32,109,194  31,348,966  
Diluted earnings per common share$0.70  $0.59  $0.74  $1.21  
1Excludes 352,888 restricted stock units outstanding considered to be antidilutive for the three and six months ended June 30, 2020.
Recently adopted accounting policies:
The Company modified or adopted the following accounting policies during the six months ended June 30, 2020, primarily as a result of the implementation of FASB Accounting Standards Update ("ASU") 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” ("CECL"):

Investment securities:
Debt securities are classified as held to maturity and carried at amortized cost, excluding accrued interest, when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available-for-sale when they might be sold before maturity. Available-for-sale debt securities are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of applicable taxes. Beginning January 1, 2020, unrealized
9

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
losses resulting from credit losses for available-for-sale debt securities are recognized in earnings as a provision for credit losses. Unrealized losses that do not result from credit losses are excluded from earnings and reported as accumulated other comprehensive income, net of applicable taxes, which is included in equity. Accrued interest receivable is separated from other components of amortized cost and presented separately on the consolidated balance sheets.
Equity securities with readily determinable market values are carried at fair value on the balance sheet with any periodic changes in value made through adjustments to the statement of income. Equity securities without readily determinable market values are carried at cost less impairment and included in other assets on the consolidated balance sheets.
Interest income includes the amortization and accretion of purchase premium and discount. Premiums and discounts on securities are amortized on the level-yield method anticipating prepayments based upon the prior three month average monthly prepayments when available. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.
The Company evaluates available-for-sale securities for expected credit losses at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. For securities in an unrealized loss position, consideration is given to the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.
When credit losses are expected to occur, the amount of the expected credit loss recognized in earnings depends on the Company's intention to sell the security or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, the expected credit loss recognized in earnings is equal to the entire difference between its amortized cost basis and its fair value at the date it was determined to be impaired due to credit losses or other factors. The previous amortized cost basis less the impairment recognized in earnings becomes the new amortized cost basis of the investment.
However, if the Company does not intend to sell the security and it is not more likely than not to be required to sell the security before recovery of its amortized cost basis, the difference between the amortized cost and the fair value is separated into the amount representing the credit loss and the amount related to all other factors. If the Company determines a decline in fair value below the amortized cost basis of an available-for-sale investment security has resulted from credit related factors, beginning January 1, 2020 with the adoption of CECL, the Company records a credit loss through an allowance for credit losses. The allowance for credit losses is limited by the amount that the fair value is less than amortized cost. The amount of the allowance for credit losses is determined based on the present value of cash flows expected to be collected and is recognized as a charge to earnings. The amount of the impairment related to other, non-credit related, factors is recognized in other comprehensive income, net of applicable taxes.
The Company did not record any provision for credit losses for its available-for-sale debt securities during the three months or six months ended June 30, 2020, as the majority of the investment portfolio is government guaranteed and declines in fair value below amortized cost were determined to be non-credit related.
Loans:
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at the principal amount outstanding less any purchase accounting discount net of any accretion recognized to date. Interest on loans is recognized as income by using the simple interest method on daily balances of the principal amount outstanding plus any accretion of purchase accounting discounts. Accrued interest receivable is separated from other components of amortized cost and presented separately on the consolidated balance sheets.
Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest is discontinued on loans past due 90 days or more unless the credit is well secured and in the process of collection. Also, a loan may be placed on nonaccrual status prior to becoming past due 90 days if management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of principal or interest is doubtful. The decision to place a loan on nonaccrual status prior to becoming past due 90 days is based on an evaluation of the borrower’s financial condition, collateral liquidation value, economic and business conditions and other factors that affect the borrower’s ability to pay. When a loan is placed on nonaccrual status, the accrued but unpaid interest is charged against current period operations through a reversal of interest income. Thereafter,
10

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
interest on nonaccrual loans is recognized only as received if future collection of principal is probable. If the collectibility of outstanding principal is doubtful, interest received is applied as a reduction of principal. A loan may be restored to accrual status when principal and interest are no longer past due or it otherwise becomes both well secured and collectability is reasonably assured. The nonaccrual policy results in timely reversal of accrued interest receivable, so an allowance for credit losses is not required on accrued interest receivable.
Allowance for credit losses:
The allowance for credit losses represents the portion of the loan's amortized cost basis that the Company does 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 management believes 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 the Company promptly charges off uncollectible accrued interest receivable. Management’s determination of the appropriateness of the allowance is based on periodic evaluation of the loan portfolio, lending-related commitments and other relevant factors, including macroeconomic forecasts and historical loss rates. In future quarters, the Company may update information and forecasts that may cause significant changes in the estimate in those future quarters.
As of January 1, 2020, the Company’s policy for the allowance for credit losses changed with the adoption of CECL. As permitted, the new guidance was implemented using a modified retrospective approach with the impact of the initial adoption being recorded through retained earnings at January 1, 2020, with no restatement of prior periods. Prior to adopting CECL, the Company calculated the allowance using an incurred loss approach. Beginning January 1, 2020, the Company calculates the allowance using a lifetime expected credit loss approach as described in the previous paragraph. See Note 4 for additional details related to the Company's specific calculation methodology.
The allowance for credit losses is the Company’s best estimate. Actual losses may differ from the June 30, 2020 allowance for credit loss as the CECL estimate is sensitive to economic forecasts and management judgment. There have been no changes to portfolio segments as described in the accounting policies within the Company's Annual Report on Form 10-K.
Business combinations and accounting for loans purchased with credit deterioration:
Business combinations are accounted for by applying the acquisition method in accordance with Accounting Standards Codification ("ASC") 805, “Business Combinations” (“ASC 805”). Under the acquisition method, identifiable assets acquired and liabilities assumed and any non-controlling interest in the acquiree at the acquisition date are measured at their fair values as of that date. Any excess of the purchase price over fair value of net assets acquired is recorded as goodwill. To the extent the fair value of net assets acquired, including any other identifiable intangible assets, exceed the purchase price, a bargain purchase gain is recognized. Results of operations of acquired entities are included in the consolidated statements of income from the date of acquisition.
Beginning January 1, 2020, loans acquired in business combinations with evidence of more-than-insignificant credit deterioration since origination are considered to be Purchased Credit Deteriorated ("PCD"). The Company developed multiple criteria to assess the presence of more–than–insignificant credit deterioration in acquired loans, mainly focused on changes in credit quality and payment status. While general criteria have been established, each acquisition will vary in its specific facts and circumstances and the Company will apply judgment around PCD identification for each individual acquisition based on their unique portfolio mix and risks identified.
The Company adopted ASC 326 using the prospective transition approach for loans previously classified as purchased credit impaired ("PCI") and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption and all PCI loans were transitioned to PCD loans upon adoption. Under PCD accounting,the amount of expected credit losses as of the acquisition date is added to the purchase price of the PCD loan. This establishes the amortized cost basis of the PCD loan. The difference between the unpaid principal balance of the PCD loan and the amortized cost basis of the PCD loan as of the acquisition date is the non-credit discount. Interest income for a PCD loan is recognized by accreting the amortized cost basis of the PCD loan to its contractual cash flows. The discount related to estimated credit losses on acquisition recorded as an allowance for credit losses will not be accreted into interest income. Only the noncredit-related discount will be accreted into interest income and subsequent adjustments to expected credit losses will flow through the provision for credit losses on the income statement.
11

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Off-balance sheet financial instruments:
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded, unless considered derivatives.
For loan commitments that are not accounted for as derivatives and when the obligation is not unconditionally cancelable by the Company, the Company applies the CECL methodology to estimate the expected credit loss on off-balance-sheet commitments. The estimate of expected credit losses for off-balance-sheet credit commitments is recognized as a liability. When the loan is funded, an allowance for expected credit losses is estimated for that loan using the CECL methodology, and the liability for off-balance-sheet commitments is reduced. When applying the CECL methodology to estimate the expected credit loss, the Company considers the likelihood that funding will occur, the contractual period of exposure to credit loss, the risk of loss, historical loss experience, and current conditions along with expectations of future economic conditions.
Recently adopted accounting standards:
Except as set forth below, the Company did not adopt any new accounting standards that were not disclosed in the Company's 2019 audited consolidated financial statements included on Form 10-K.
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 and its subsequent amendments issued by the FASB, which requires the measurement of all current expected credit losses for financial assets (including off-balance sheet credit exposures) held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Additionally, the update requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. The new methodology requires institutions to calculate all probable and estimable losses that are expected to be incurred through the financial asset's entire life through a provision for credit losses, including certain loans obtained as a result of any acquisition. For available-for-sale debt securities that have experienced a deterioration in credit, Topic 326 requires an allowance for credit losses to be recognized, instead of a direct write-down, which was previously required under the other-than-temporary impairment ("OTTI") model. Topic 326 eliminates the concept of “other-than-temporary” impairment and instead focuses on determining whether any impairment is a result of a credit loss or other factors. As a result, the standard says the Company may not use the length of time a debt security has been in an unrealized loss position as a factor, either by itself or in combination with other factors, to conclude that a credit loss does not exist, as the Company was previously allowed under the OTTI model.
ASU 2016-13 eliminates the existing guidance for PCI loans, but requires an allowance for purchased financial assets with more than insignificant deterioration since origination to be determined in a manner similar to that of other financial assets measured at amortized cost; however, the initial allowance will be added to the purchase price rather than recorded as provision expense referred herein as the PCD asset gross-up approach. The Company applied the new PCD asset gross-up approach at transition to all assets that were accounted for as PCI prior to adoption. Any change in the allowance for credit losses for these assets as a result of applying the new guidance is accounted for as an adjustment to the asset’s amortized cost basis and not as a cumulative-effect adjustment to beginning retained earnings. Additionally, ASU 2016-13 requires additional disclosures related to loans and debt securities. See Note 3, “Investment securities” and Note 4, “Loans and allowance for credit losses” for these disclosures.
The Company formed a cross–functional working group to oversee the adoption of CECL at the effective date. The working group developed a project plan focused on understanding the new standard, researching issues, identifying data needs for modeling inputs, technology requirements, modeling considerations, and ensuring overarching governance was achieved for each objective and milestone. The key data driver for each model was identified, populated, and internally validated. The Company also completed data and model validation testing. The Company has performed model sensitivity analysis, developed a framework for qualitative adjustments, created supporting analytics, and executed the enhanced governance and approval process. Internal controls related to the CECL process were finalized prior to adoption.
ASU 2016-13 was adopted effective January 1, 2020 using a modified retrospective approach with no adjustments to prior period comparative financial statements. Upon adoption, the Company recorded a cumulative effective adjustment to decrease retained earnings by $25,018, with corresponding adjustments to the allowance for credit losses on loans and unfunded commitments in addition to recording a deferred tax asset on its consolidated balance sheet. As of that date, the
12

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Company also recorded a cumulative effective adjustment to gross-up the amortized cost amount of its PCD loans by $558, with a corresponding adjustment to the allowance for credit losses on its consolidated balance sheet.
A summary of the impact to the consolidated balance sheet as of the adoption date is presented in the table below:
Balance before adoption of ASC 326Cumulative effective adjustment to adopt ASC 326Impact of the adjustment to adopt ASC 326Balance at January 1, 2020 (post ASC 326 adoption)
ASSETS
   Loans$4,409,642  $558  Increase$4,410,200  
   Allowance for credit losses(31,139) (31,446) Increase(62,585) 
      Total impact to assets$(30,888) Net decrease
LIABILITIES AND EQUITY
   Allowance for credit losses on
unfunded commitments
$—  $2,947  Increase$2,947  
   Net deferred tax liability20,490  (8,817) Decrease11,673  
   Retained earnings293,524  (25,018) Decrease268,506  
      Total impact to liabilities and equity$(30,888) Net decrease

In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company elected the five-year capital transition relief option.
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates step two from the goodwill impairment test. Instead, an entity may perform only step one of its quantitative goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and then recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Entities have the option to perform a qualitative assessment for a reporting unit to determine if the quantitative step one impairment test is necessary. ASU 2017-04 became effective for the Company on January 1, 2020. The adoption of this standard did not have any impact on the Company's consolidated financial statements or disclosures.
In August 2018, the FASB issued "Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements." This update is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. The update became effective on January 1, 2020 and did not have an impact on the Company's consolidated financial statements or disclosures.
In March 2019, FASB issued ASU 2019-01, "Leases (Topic 842): Codification Improvements", which aligns the guidance for fair value of the underlying assets by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value in Topic 820, Fair Value Measurement should be applied. ASU No. 2019-01 also requires lessors within the scope of Topic 942, "Financial Services—Depository and Lending", to present all “principal payments received under leases” within investing activities. The adoption of this standard on January 1, 2020 did not have a material impact on the Company's consolidated financial statements or disclosures.
In April 2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments". The amendments related to Topic 326
13

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
address accrued interest, transfers between classifications or categories for loans and debt securities, recoveries, vintage disclosures, and contractual extensions and renewal options and became effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The improvements and clarifications related to Topic 815 address partial-term fair value hedges of interest-rate risk, amortization, and disclosure of fair value hedge basis adjustments and consideration of hedged contractually specified interest rates under the hypothetical method and became effective for the annual reporting period beginning January 1, 2020. The amendments related to Topic 825 contain various improvements to ASU 2016-01, including scope; held-to-maturity debt securities fair value disclosures; and remeasurement of equity securities at historical exchange rates and became effective as of January 1, 2020. The amendments in this update did not have a material impact on the financial statements.
Newly issued not yet effective accounting standards:
In June 2018, FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting", which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Consistent with the accounting for employee share-based payment awards, nonemployee share-based payment awards will be measured at grant-date fair value of the equity instruments obligated to be issued when the good has been delivered or the service rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied. This ASU is effective for all entities for fiscal years beginnings after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company does not expect adoption of this standard to have a significant impact on the consolidated financial statements or disclosures.
Note (2)—Mergers and acquisitions:
Franklin Financial Network, Inc.
On January 21, 2020, the Company entered into a definitive merger agreement with Franklin Financial Network, Inc ("Franklin"), pursuant to which Franklin will be merged with and into the Company. Franklin has 15 branches and approximately $3.78 billion in total assets, $2.79 billion in loans, and $3.14 billion in deposits as of June 30, 2020. According to the terms of the merger agreement, Franklin shareholders will receive 0.9650 shares of FB Financial Corporation's common stock and $2.00 in cash for each share of Franklin stock. Based on the Company's closing price on the New York Stock Exchange of $24.77 per share as of June 30, 2020, the implied transaction value is approximately $394,000. The merger, as approved by the Company's and Franklin's shareholders, has received regulatory approvals and the Company intends to close effective August 15, 2020.
FNB Financial Corp. merger
Effective February 14, 2020, the Company completed its previously announced acquisition of FNB Financial Corp. and its wholly owned subsidiary, Farmers National Bank of Scottsville (collectively, "Farmers National"). Following the acquisition, Farmers National was merged into the Company with FB Financial Corporation continuing as the surviving entity. The transaction added 5 branches and expanded the Company's footprint into Kentucky. Under the terms of the agreement, the Company acquired total assets of $258,218, loans of $182,171 and assumed total deposits of $209,535. Farmers National shareholders received 954,797 shares of the company's common stock as consideration in connection with the merger, in addition to $15,001 in cash consideration. Based on the closing price of the Company's common stock on the New York Stock Exchange of $36.70 on February 14, 2020, the merger consideration represented approximately $50,042 in aggregate consideration.
The acquisition of Farmers National was accounted for in accordance with FASB ASC Topic 805 "Business Combinations." Accordingly, the assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition date. The Company is finalizing the fair value of acquired assets and liabilities assumed and as such, purchase accounting is not yet complete. Goodwill of $6,390 recorded in connection with the transaction resulted from the ongoing business contribution of Farmers National and anticipated synergies arising from the combination of certain operational areas of the Company. The goodwill is not deductible for income tax purposes. Goodwill is included in the Banking segment as substantially all of the operations resulting from the acquisition of Farmers National are in alignment with the Company's core banking business.
The Company incurred $1,503 and $2,097 in merger expenses during the three and six months ended June 30, 2020 in connection with this transaction. These expenses are primarily comprised of professional services, employee-related costs and integration costs.
14

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 summarize the estimated fair values of assets acquired and liabilities assumed as of the acquisition date and an allocation of the consideration to net assets acquired:
As of February 14, 2020
As Recorded by FB Financial Corporation
ASSETS
Cash and cash equivalents$10,774  
Securities50,594  
Loans, net of fair value adjustments182,171  
Allowance for credit losses on PCD loans(669) 
Premises and equipment8,049  
Core deposit intangible2,490  
Other assets4,809  
Total assets$258,218  
LIABILITIES
Deposits
Noninterest-bearing$63,531  
Interest-bearing checking26,451  
Money market and savings37,002  
Customer time deposits82,551  
Total deposits209,535  
Borrowings3,192  
Accrued expenses and other liabilities1,839  
Total liabilities214,566  
Total net assets acquired$43,652  
Consideration:
Net shares issued954,797  
Purchase price per share on February 14, 2020$36.70  
Value of stock consideration$35,041  
Cash consideration paid15,001  
Total purchase price$50,042  
FV of net assets acquired43,652  
Goodwill resulting from merger$6,390  
Under CECL, the Company is required to determine whether purchased loans held for investment have experienced more-than-insignificant deterioration in credit quality since origination. Loans that have experienced this level of deterioration in credit quality are subject to special accounting at initial recognition and measurement. The Company initially measures the amortized cost of a PCD loan by adding the acquisition date estimate of expected credit losses to the loan's purchase price (i.e. the "gross up" approach). There is no provision for credit loss recognized upon acquisition of a PCD loan because the initial allowance is established through the gross-up.
15

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The Company determined that 10.1% of the FNB loan portfolio had more-than-insignificant deterioration in credit quality since origination. These were primarily delinquent loans as of February 14, 2020, or loans that FNB has classified as nonaccrual or TDR prior to the Company's acquisition.
As of February 14,
2020
Purchased credit-deteriorated loans
Principal balance$18,964  
Allowance for credit losses at acquisition(669) 
Net premium attributable to other factors63  
Loans purchased credit-deteriorated fair value$18,358  
Loans recognized through the acquisition of FNB that have not experienced more-than-insignificant credit deterioration since origination are initially recognized at the purchase price. Expected credit losses are measured under CECL through the provision for credit losses. The Company recorded a provision for credit losses of $2,885 in the income statement at acquisition related to estimated credit losses on non-PCD loans.
Farmers National's results of operations have been included in the Company's consolidated financial statements prospectively beginning on the date of acquisition. The acquisition has been fully integrated with the Company's existing operations. Accordingly, post-acquisition net interest income, total revenues, and net income are not discernible.The following unaudited pro forma condensed consolidated financial information presents the results of operations for the three months ended June 30, 2019, and the six months ended June 30, 2020 and 2019, respectively, as though the merger had been completed as of January 1, 2019. The unaudited estimated pro forma information combines the historical results of Farmers National with the Company’s historical consolidated results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the periods presented. Merger expenses are reflected in the periods they were incurred. The pro forma information is not indicative of what would have occurred had the acquisition taken place on January 1, 2019 and does not include the effect of all cost-saving or revenue-enhancing strategies.
Three Months Ended June 30,Six Months Ended June 30,
2019  2020  2019  
Net interest income$59,543  $112,804  $115,128  
Total revenues92,919  237,258  177,938  
Net income19,097  24,045  38,696  
Atlantic Capital Bank, N.A. Branches
On April 5, 2019, the Bank completed its branch acquisition to purchase 11 Tennessee and 3 Georgia branch locations (the "Branches") from Atlantic Capital Bank, N.A., a national banking association and a wholly owned subsidiary of Atlantic Capital Bancshares, Inc., a Georgia corporation (collectively, "Atlantic Capital") in a transaction valued at $36,790, further increasing market share in existing markets and expanding the Company's footprint into new locations. The branch acquisition added $588,877 in customer deposits at a premium of 6.25% and $374,966 in loans at 99.32% of principal outstanding. All of the operations of the Branches are included in the Banking segment.




16

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Atlantic Capital's results of operations have been included in the Company's consolidated financial statements prospectively beginning on the date of acquisition. The acquisition has been fully integrated with the Company's existing operations. Accordingly, post-acquisition net interest income, total revenues, and net income are not discernible. The following unaudited pro forma condensed consolidated financial information presents the results of operations for the three and six months ended June 30, 2019 as though the merger had been completed as of January 1, 2018. The unaudited estimated pro forma information combines the historical results of Atlantic Capital with the Company’s historical consolidated results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the periods presented. Merger expenses are reflected in the periods they were incurred. The pro forma information is not indicative of what would have occurred had the acquisition taken place on January 1, 2018 and does not include the effect of all cost-saving or revenue-enhancing strategies.
Three Months Ended June 30,Six Months Ended June 30,
2019  2019  
Net interest income$57,023  $113,610  
Total revenues$90,002  $176,413  
Net income$18,688  $37,191  

Note (3)—Investment securities:
The following table summarizes 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 June 30, 2020 and December 31, 2019: 
June 30, 2020
 Amortized costGross unrealized gainsGross unrealized lossesAllowance for credit losses for investmentsFair Value
Investment Securities    
Available-for-sale debt securities  
U.S. government agency securities$3,003  $21  $—  $—  $3,024  
Mortgage-backed securities - residential439,843  14,770  (7) —  454,606  
Municipals, tax exempt251,424  14,875  (247) —  266,052  
Treasury securities22,485  286  —  —  22,771  
Corporate securities1,000  —  (15) —  985  
Total$717,755  $29,952  $(269) $—  $747,438  

December 31, 2019
 Amortized costGross unrealized gainsGross unrealized lossesFair Value
Investment Securities    
Available-for-sale debt securities    
Mortgage-backed securities - residential$487,101  $5,236  $(1,661) $490,676  
Municipals, tax exempt181,178  8,287  (230) 189,235  
Treasury securities7,426  22  —  7,448  
Corporate securities1,000  22  —  1,022  
Total$676,705  $13,567  $(1,891) $688,381  
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 June 30, 2020 and December 31, 2019, total accrued interest receivable on debt securities was $3,184 and $2,843, respectively.
As of June 30, 2020 and December 31, 2019, the Company had $4,329 and $3,295 in marketable equity securities recorded at fair value, respectively.
17

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Securities pledged at June 30, 2020 and December 31, 2019 had carrying amounts of $475,645 and $373,674, 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 the U.S. Government and its agencies, in an amount greater than 10% of shareholders' equity during any period presented.
At June 30, 2020 and December 31, 2019, there were $5,431 and $0, respectively, in trade date payables that related to purchases settled after period end.
 
The amortized cost and fair value of debt securities by contractual maturity at June 30, 2020 and December 31, 2019 are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgage underlying the security may be called or repaid without any penalties. Therefore, mortgage-backed securities are not included in the maturity categories in the following maturity summary.
June 30,December 31,
 2020  2019  
 Available-for-saleAvailable-for-sale
 Amortized costFair valueAmortized costFair value
Due in one year or less$17,374  $17,473  $1,148  $1,152  
Due in one to five years33,022  33,515  11,553  11,676  
Due in five to ten years30,203  31,373  18,287  18,887  
Due in over ten years197,313  210,471  158,616  165,990  
277,912  292,832  189,604  197,705  
Mortgage-backed securities - residential439,843  454,606  487,101  490,676  
Total debt securities$717,755  $747,438  $676,705  $688,381  
Sales and other dispositions of available-for-sale securities were as follows:
 Three Months Ended June 30,Six Months Ended June 30,
 2020  2019  2020  2019  
Proceeds from sales$—  $—  $—  $1,758  
Proceeds from maturities, prepayments and calls44,703  29,353  72,360  50,167  
Gross realized gains—   —   
Gross realized losses—  —  —   
Additionally, net (losses) gains on the change in fair value of equity securities of $(28) and $35 were recognized in the three and six months ended June 30, 2020, respectively and $47 and $96 were recognized in the three and six months ended June 30, 2019, respectively.
18

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 show gross unrealized losses for which an allowance for credit losses has not been recorded at June 30, 2020 and December 31, 2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
 
June 30, 2020
 Less than 12 months12 months or moreTotal
 Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized loss
Mortgage-backed securities - residential$14,746  $(7) $—  $—  $14,746  $(7) 
Municipals, tax exempt2,784  (247) —  —  2,784  (247) 
Corporate securities985  (15) —  —  985  (15) 
Total$18,515  $(269) $—  $—  $18,515  $(269) 
 December 31, 2019
 Less than 12 months12 months or moreTotal
 Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized loss
Mortgage-backed securities - residential$47,641  $(164) $175,730  $(1,497) $223,371  $(1,661) 
Municipals, tax exempt15,433  (230) —  —  15,433  (230) 
Total$63,074  $(394) $175,730  $(1,497) $238,804  $(1,891) 
As of June 30, 2020 and December 31, 2019, the Company’s securities portfolio consisted of 445 and 365 securities, 8 and 58 of which were in an unrealized loss position, respectively.
As of June 30, 2020, Company evaluated available-for-sale debt securities with unrealized losses for expected credit loss and recorded 0 allowance for credit loss as the majority of the investment portfolio was either government guaranteed or an issuance of a government sponsored entity, was highly rated by major credit rating agencies and have a long history of zero losses. As such, 0 provision for credit losses was recorded during the three and six months ended June 30, 2020.
Prior to the adoption of ASC 326, the Company evaluated available-for-sale debt securities with unrealized losses for OTTI and recorded 0 OTTI for the three and six months ended June 30, 2019.
Note (4)—Loans and allowance for credit losses:
Loans outstanding at June 30, 2020 and December 31, 2019, by class of financing receivable are as follows:
 June 30,December 31,
 20202019
Commercial and industrial(1)
$1,289,646  $1,034,036  
Construction553,619  551,101  
Residential real estate:
1-to-4 family mortgage741,936  710,454  
Residential line of credit236,974  221,530  
Multi-family mortgage115,149  69,429  
Commercial real estate:
Owner occupied683,245  630,270  
Non-owner occupied923,192  920,744  
Consumer and other283,262  272,078  
Gross loans4,827,023  4,409,642  
Less: Allowance for credit losses(113,129) (31,139) 
Net loans$4,713,894  $4,378,503  
(1)Includes $314,678 of loans originated as part of the PPP at June 30, 2020, established by the CARES Act, in response to the COVID-19 pandemic. The PPP is administered by the SBA; loans originated as part of the PPP may be forgiven by the SBA under a set of defined rules. An allowance for credit losses of $51 at June 30, 2020, has been allocated for these loans. 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.
19

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
As of June 30, 2020 and December 31, 2019, $501,728 and $412,966, respectively, of qualifying residential mortgage loans (including loans held for sale) and $567,515 and $545,540, 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 June 30, 2020 and December 31, 2019, $1,492,666 and $1,407,662, respectively, of qualifying loans were pledged to the Federal Reserve Bank under the Borrower-in-Custody program.
The components of amortized cost for loans on the consolidated balance sheet excludes accrued interest receivable as the Company elected to present accrued interest receivable separately on the balance sheet. As of June 30, 2020, total accrued interest receivable on loans was $23,009.
Allowance for Credit Losses
As of January 1, 2020, the Company’s policy for the allowance changed with the adoption of CECL. As permitted, the new guidance was implemented using a modified retrospective approach with the impact of the initial adoption being recorded through retained earnings at January 1, 2020, with no restatement of prior periods. Before January 1, 2020, the Company calculated the allowance on an incurred loss approach. As of January 1, 2020, the Company calculated an expected credit loss using a lifetime loss rate methodology. As a result of the difference in methodology between periods, disclosures presented below may not be comparative in nature.
The Company utilizes probability-weighted forecasts, which consider multiple macroeconomic variables from a third-party vendor that are applicable to the type of loan. The weighting of the economic forecast scenarios, macroeconomic variables, and the reasonable and supportable forecast period at the macroeconomic variable-level were reviewed and approved by the Company's forecast governance committee based on expectations of future economic conditions. 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; TDRs and reasonably expected TDRs. A loan is deemed collateral dependent when 1) the borrower is experiencing financial difficulty and 2) the repayment is expected to be primarily through sale or operation of the collateral. The allowance for credit losses for collateral dependent loans as well as loans where foreclosure is probable is calculated as the amount for which the loan’s amortized cost basis exceeds fair value. Fair value is determined based on appraisals performed by qualified appraisers and reviewed by qualified personnel. In cases where repayment is to be provided substantially through the sale of collateral, the Company reduces the fair value by the estimated costs to sell. Loans experiencing financial difficulty for which a concession has not yet been provided may be identified as reasonably expected TDRs.
20

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Reasonably expected TDRs use the same methodology as TDRs. In cases where the expected credit loss can only be captured through a discounted cash flow analysis (such as an interest rate modification for a TDR loan), the allowance is measured by the amount which the loan’s amortized cost exceeds the discounted cash flow analysis. The allowance for credit losses on a TDR or a reasonably expected TDR is calculated individually using a discounted cash flow methodology, unless the loan is deemed to be collateral dependent or foreclosure is probable.
The Company’s changes in reasonable and supportable forecasts of macroeconomic variables, primarily due to the impact of the COVID-19 pandemic, resulted in credit deterioration requiring the Company to recognize significant increases in the provision for credit losses during the three and six months ended June 30, 2020. Specifically, the Company performed additional qualitative evaluations on certain classes of financing receivables, including construction, commercial and industrial and commercial real estate, in line with the Company's established qualitative framework, weighting the impact of the current economic outlook, status of federal government stimulus programs, and geographical and demographic considerations, in order to identify potential geographies and industries seeing credit improvement or deterioration specific to the COVID-19 pandemic.
Additionally, the loans acquired from Farmers National increased the allowance for credit losses by $4,494 as of the February 14, 2020 acquisition date. See Note 2, "Mergers and acquisitions" for additional details related to PCD loans acquired on February 14, 2020.

21

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The following provides the changes in the allowance for credit losses by class of financing receivable for the three and six months ended June 30, 2020 and 2019:

 Commercial and industrialConstruction1-to-4 family residential mortgageResidential line of creditMulti-family residential mortgageCommercial real estate owner occupiedCommercial real estate non-owner occupiedConsumer and otherTotal
Three Months Ended June 30, 2020
Beginning balance -
March 31, 2020
$10,881  $22,842  $13,006  $6,213  $2,328  $9,047  $18,005  $6,819  $89,141  
Provision for credit losses(2,663) 12,624  (446) 595  2,171  (1,630) 12,984  404  24,039  
Recoveries of loans
previously charged-off
807  151  26  24  —   —  103  1,114  
Loans charged off(147) (18) (123) (21) —  —  (545) (311) (1,165) 
Ending balance -
June 30, 2020
$8,878  $35,599  $12,463  $6,811  $4,499  $7,420  $30,444  $7,015  $113,129  
Six Months Ended June 30, 2020
Beginning balance -
December 31, 2019
$4,805  $10,194  $3,112  $752  $544  $4,109  $4,621  $3,002  $31,139  
Impact of adopting ASC
326 on non-purchased
credit deteriorated loans
5,300  1,533  7,920  3,461  340  1,879  6,822  3,633  30,888  
Impact of adopting ASC
326 on purchased credit
deteriorated loans
82  150  421  (3) —  162  184  (438) 558  
Provision for credit losses(834) 23,578  1,218  2,580  3,615  1,408  18,919  1,519  52,003  
Recoveries of loans
previously charged-off
895  151  50  39  —  17  —  296  1,448  
Loans charged off(1,381) (18) (365) (21) —  (209) (545) (1,037) (3,576) 
Initial allowance on loans
purchased with
deteriorated credit quality
11  11  107   —  54  443  40  669  
Ending balance -
June 30, 2020
$8,878  $35,599  $12,463  $6,811  $4,499  $7,420  $30,444  $7,015  $113,129  
 
 Commercial
and industrial
Construction1-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 June 30, 2019
Beginning balance -
March 31, 2019
$5,514  $9,758  $3,295  $731  $539  $3,098  $4,583  $2,296  $29,814  
Provision for loan losses(550) (109) (30) 106  78  409  (105) 1,082  881  
Recoveries of loans
previously charged-off
38   24  21  —   —  119  213  
Loans charged off(79) —  (1) (103) —  —  —  (587) (770) 
Ending balance -
June 30, 2019
$4,923  $9,655  $3,288  $755  $617  $3,512  $4,478  $2,910  $30,138  
Six Months Ended June 30, 2019 
Beginning balance -
December 31, 2018
$5,348  $9,729  $3,428  $811  $566  $3,132  $4,149  $1,769  $28,932  
Provision for loan losses(217) (81) (95) 33  51  288  329  1,964  2,272  
Recoveries of loans
previously charged-off
50   37  46  —  92  —  343  575  
Loans charged off(258) —  (82) (135) —  —  —  (1,166) (1,641) 
Ending balance -
June 30, 2019
$4,923  $9,655  $3,288  $755  $617  $3,512  $4,478  $2,910  $30,138  


22

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The following disclosures are presented in accordance with GAAP in effect prior to the adoption of CECL. The Company has included these disclosures to address the applicable prior periods presented.

The following table provides the amount of the allowance for credit losses by class of financing receivable for loans individually evaluated for impairment, loans collectively evaluated for impairment and loans acquired with deteriorated credit quality as of December 31, 2019:
 December 31, 2019
 Commercial
and 
industrial
Construction1-to-4
family
residential
mortgage
Residential
line of credit
Multi-
family
residential
mortgage
Commercial
real estate
owner
occupied
Commercial
real estate
non-owner
occupied
Consumer
and other
Total
Amount of allowance
allocated to:
         
Individually evaluated for
impairment
$241  $—  $ $ $—  $238  $399  $—  $895  
Collectively evaluated for
impairment
4,457  10,192  2,940  743  544  3,853  3,909  1,933  28,571  
Acquired with deteriorated
credit quality
107   164  —  —  18  313  1,069  1,673  
Ending balance -
December 31, 2019
$4,805  $10,194  $3,112  $752  $544  $4,109  $4,621  $3,002  $31,139  
 
The following table provides the amount of loans by class of financing receivable for loans individually evaluated for impairment, loans collectively evaluated for impairment and loans acquired with deteriorated credit quality as of December 31, 2019:
 
 December 31, 2019
 Commercial
and 
industrial
Construction1-to-4
family
residential
mortgage
Residential
line of credit
Multi-
family
residential
mortgage
Commercial
real estate
owner
occupied
Commercial
real estate
non-owner
occupied
Consumer
and other
Total
Loans, net of unearned
income
         
Individually evaluated
for impairment
$9,026  $2,061  $1,347  $579  $—  $2,993  $7,755  $49  $23,810  
Collectively evaluated
for impairment
1,023,326  546,156  689,769  220,878  69,429  621,386  902,792  254,944  4,328,680  
Acquired with deteriorated
credit quality
1,684  2,884  19,338  73  —  5,891  10,197  17,085  57,152  
Ending balance -
December 31, 2019
$1,034,036  $551,101  $710,454  $221,530  $69,429  $630,270  $920,744  $272,078  $4,409,642  

Credit Quality
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans that share similar risk characteristics collectively. Loans that do not share similar risk characteristics are evaluated individually.
The Company uses the following definitions for risk ratings:
        Pass.  Loans rated Pass include those that are adequately performing and collateralized and which management believes do not have conditions that have occurred or may occur which would result in the loan being downgraded into an inferior category.
        Watch.  Loans rated as Watch 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. Also included in watch are loans rated as special mention, which have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
        Substandard. 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. Loans so rated have a well-defined weakness or weaknesses
23

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
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.
Doubtful. Loans classified as Doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of 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.
The following table presents the credit quality of our loan portfolio by year of origination as of June 30, 2020. Revolving loans are presented separately. Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal constitutes a current period origination. Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for the purposes of the table below.
June 30, 2020
Term Loans
Amortized Cost Basis by Origination Year
20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
Commercial and industrial
Pass$338,964  $168,783  $69,250  $41,722  $32,820  $31,449  $481,897  $1,164,885  
Watch2,791  10,761  33,603  3,928  5,772  4,414  39,740  101,009  
Substandard250  2,535  4,584  3,251  1,414  3,696  7,806  23,536  
Doubtful16  —  —  —  —  —  200  216  
Total342,021  182,079  107,437  48,901  40,006  39,559  529,643  1,289,646  
Construction
Pass62,335  170,746  74,183  32,656  32,790  71,149  90,620  534,479  
Watch58  10  229  10,126  740  2,807  —  13,970  
Substandard—  1,170  409  11  —  3,205  208  5,003  
Doubtful—  167  —  —  —  —  —  167  
Total62,393  172,093  74,821  42,793  33,530  77,161  90,828  553,619  
Residential real estate:
1-to-4 family mortgage
Pass99,613  172,190  137,308  89,665  62,505  142,668  —  703,949  
Watch913  603  608  2,139  3,537  12,938  —  20,738  
Substandard353  1,222  1,891  3,674  1,640  7,664  —  16,444  
Doubtful—  —  56  —  325  424  —  805  
Total100,879  174,015  139,863  95,478  68,007  163,694  —  741,936  
Residential line of credit
Pass56  —  —  —  284  3,297  230,334  233,971  
Watch—  —  —  —  —  —  788  788  
Substandard—  —  —  —  —  77  1,692  1,769  
Doubtful—  —  —  —  —  —  446  446  
Total56  —  —  —  284  3,374  233,260  236,974  
Multi-family mortgage
Pass20,796  14,346  6,758  42,196  2,965  28,030  —  115,091  
Watch—  —  —  —  —  58  —  58  
Substandard—  —  —  —  —  —  —  —  
Doubtful—  —  —  —  —  —  —  —  
Total20,796  14,346  6,758  42,196  2,965  28,088  —  115,149  
24

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
Commercial real estate:
Owner occupied
Pass49,663  129,755  84,301  69,678  62,755  161,851  48,023  606,026  
Watch997  7,758  1,530  24,105  5,634  14,847  7,716  62,587  
Substandard—  1,804  314  3,959  58  6,846  1,651  14,632  
Doubtful—  —  —  —  —  —  —  —  
Total50,660  139,317  86,145  97,742  68,447  183,544  57,390  683,245  
Non-owner occupied
Pass34,657  139,867  202,792  132,792  164,798  175,966  24,834  875,706  
Watch1,496  2,193  10,707  4,973  3,769  5,090  94  28,322  
Substandard—  —  273  —  383  18,425  83  19,164  
Doubtful—  —  —  —  —  —  —  —  
Total36,153  142,060  213,772  137,765  168,950  199,481  25,011  923,192  
Consumer and other loans
Pass43,369  60,546  45,556  29,342  43,123  31,011  8,110  261,057  
Watch74  487  1,291  1,515  3,450  8,567  587  15,971  
Substandard18  95  596  691  733  2,066  413  4,612  
Doubtful—  253  344  524  56  445  —  1,622  
Total43,461  61,381  47,787  32,072  47,362  42,089  9,110  283,262  
Total Loans
Pass649,453  856,233  620,148  438,051  402,040  645,421  883,818  4,495,164  
Watch6,329  21,812  47,968  46,786  22,902  48,721  48,925  243,443  
Substandard621  6,826  8,067  11,586  4,228  41,979  11,853  85,160  
Doubtful16  420  400  524  381  869  646  3,256  
Total$656,419  $885,291  $676,583  $496,947  $429,551  $736,990  $945,242  $4,827,023  
25

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The following disclosures are presented in accordance with GAAP in effect prior to the adoption of CECL. The Company has included these disclosures to address the applicable prior periods presented.
The following table shows credit quality indicators by class of financing receivable at December 31, 2019.
December 31, 2019PassWatchSubstandardTotal
Loans, excluding purchased credit impaired loans    
Commercial and industrial$946,247  $66,910  $19,195  $1,032,352  
Construction541,201  4,790  2,226  548,217  
Residential real estate:
1-to-4 family mortgage666,177  11,380  13,559  691,116  
Residential line of credit218,086  1,343  2,028  221,457  
Multi-family mortgage69,366  63  —  69,429  
Commercial real estate:
Owner occupied576,737  30,379  17,263  624,379  
Non-owner occupied876,670  24,342  9,535  910,547  
Consumer and other248,632  3,304  3,057  254,993  
Total loans, excluding purchased credit impaired loans$4,143,116  $142,511  $66,863  $4,352,490  
Purchased credit impaired loans    
Commercial and industrial$—  $1,224  $460  $1,684  
Construction—  2,681  203  2,884  
Residential real estate:
1-to-4 family mortgage—  15,091  4,247  19,338  
Residential line of credit—  —  73  73  
Multi-family mortgage—  —  —  —  
Commercial real estate: 
Owner occupied—  4,535  1,356  5,891  
Non-owner occupied—  6,617  3,580  10,197  
Consumer and other—  13,521  3,564  17,085  
Total purchased credit impaired loans—  43,669  13,483  57,152  
Total loans$4,143,116  $186,180  $80,346  $4,409,642  
Nonaccrual and Past Due Loans
Nonperforming loans include loans that are no longer accruing interest (nonaccrual loans) and loans past due ninety or more days and still accruing interest.
The following tables provide information on nonaccrual and past due loans as of June 30, 2020 and December 31, 2019. For December 31, 2019, purchased credit impaired ("PCI") loans are not included in the nonperforming disclosures as these loans are considered to be performing, even though they may be contractually past due. This is because any non-payment of contractual principal or interest was considered in the periodic re-estimation of expected cash flows and was included in the 2019 loan loss provision or future period yield adjustments. Under PCD accounting, management considers changes in the credit quality of the borrower as part of its regular estimation of expected credit losses and does not make the same future yield adjustments as under the PCI accounting. Consequently, PCD loans that are contractually past due or on nonaccrual status, including those formerly accounted for as PCI loans, are included in the June 30, 2020 nonperforming disclosures.
26

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 represents an analysis of the aging by class of financing receivable as of June 30, 2020:
June 30, 202030-89 days
past due
90 days or
 more and
accruing
interest
Non-accrual
loans
Loans current
on payments
and accruing
interest
Total
Commercial and industrial$1,057  $111  $2,308  $1,286,170  $1,289,646  
Construction769  465  1,482  550,903  553,619  
Residential real estate:
1-to-4 family mortgage5,658  4,712  5,392  726,174  741,936  
Residential line of credit398  277  704  235,595  236,974  
Multi-family mortgage58  —  —  115,091  115,149  
Commercial real estate:
Owner occupied43  —  2,644  680,558  683,245  
Non-owner occupied169  226  13,113  909,684  923,192  
Consumer and other3,172  621  2,770  276,699  283,262  
Total$11,324  $6,412  $28,413  $4,780,874  $4,827,023  

The following tables provide the amortized cost basis of loans on non-accrual status, as well as any related allowance and interest income, by class of financing receivable as of and for the three and six months ended June 30, 2020:
June 30, 2020
uEnd of period amortized cost
Beginning of
period non-accrual
amortized cost
Non-accrual
with no
related
allowance
Non-accrual
with
related
allowance
Related
allowance
Commercial and industrial$5,586  $1,098  $1,210  $350  
Construction1,254  1,218  264  47  
Residential real estate:
1-to-4 family mortgage4,585  1,789  3,603  68  
Residential line of credit489  151  553  12  
Commercial real estate:
Owner occupied2,285  1,723  921  78  
Non-owner occupied9,460  2,762  10,351  1,625  
Consumer and other1,623  —  2,770  134  
Total$25,282  $8,741  $19,672  $2,314  
Interest Income
June 30, 2020Three Months EndedSix Months Ended
Commercial and industrial$17  $169  
Construction 33  
Residential real estate:
1-to-4 family mortgage 13  
Residential line of credit—   
Commercial real estate:
Owner occupied43  64  
Non-owner occupied109  128  
Consumer and other24  24  
Total$205  $432  
27

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The following disclosures are presented in accordance with GAAP in effect prior to the adoption of CECL. The Company has included these disclosures to address the applicable prior periods presented.

The following table provides the period-end amounts of loans that are past due, loans not accruing interest and loans current on payments accruing interest by category at December 31, 2019:
 
December 31, 201930-89
days
past due
90 days or more
and
accruing
interest
Non-accrual
loans
Purchased
Credit
Impaired
loans
Loans current
on payments
and accruing
interest
Total
Commercial and industrial$1,918  $291  $5,587  $1,684  $1,024,556  $1,034,036  
Construction1,021  42  1,087  2,884  546,067  551,101  
Residential real estate:
1-to-4 family mortgage10,738  3,965  3,332  19,338  673,081  710,454  
Residential line of credit658  412  416  73  219,971  221,530  
Multi-family mortgage63  —  —  —  69,366  69,429  
Commercial real estate:
Owner occupied1,375  —  1,793  5,891  621,211  630,270  
Non-owner occupied327  —  7,880  10,197  902,340  920,744  
Consumer and other2,377  833  967  17,085  250,816  272,078  
Total$18,477  $5,543  $21,062  $57,152  $4,307,408  $4,409,642  

Impaired Loans

The following disclosures are presented in accordance with GAAP in effect prior to the adoption of CECL. The Company has included these disclosures to address the applicable prior periods presented.
Impaired loans recognized in conformity with ASC 310 at December 31, 2019 segregated by class, were as follows:
December 31, 2019Recorded
investment
Unpaid
principal
Related
allowance
With a related allowance recorded:
Commercial and industrial$6,080  $8,350  $241  
Residential real estate:
1-to-4 family mortgage264  324   
Residential line of credit320  320   
Commercial real estate:
Owner occupied756  1,140  238  
Non-owner occupied6,706  6,747  399  
Consumer and other—  —  —  
Total$14,126  $16,881  $895  
With no related allowance recorded:
Commercial and industrial$2,946  $3,074  $—  
Construction2,061  2,499  —  
Residential real estate:
1-to-4 family mortgage1,083  1,449  —  
Residential line of credit259  280  —  
Commercial real estate:
Owner occupied2,237  2,627  —  
Non-owner occupied1,049  1,781  —  
Consumer and other49  49  —  
Total$9,684  $11,759  $—  
Total impaired loans$23,810  $28,640  $895  


28

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Average recorded investment and interest income on a cash basis recognized during the three and six months ended June 30, 2019 on impaired loans, segregated by class, were as follows:
Three Months EndedSix Months Ended
June 30, 2019Average recorded
investment
Interest income
recognized
(cash basis)
Average recorded
investment
Interest income
recognized
(cash basis)
With a related allowance recorded:
Commercial and industrial$3,161  $67  $1,877  $105  
Residential real estate:
1-to-4 family mortgage336   206  11  
Commercial real estate:
Owner occupied187   373   
Non-owner occupied5,570  34  5,588  34  
Consumer and other250  19  250  19  
Total$9,504  $133  $8,294  $175  
With no related allowance recorded:
Commercial and industrial$819  $11  $1,004  $25  
Construction1,218   1,219  52  
Residential real estate:
1-to-4 family mortgage528  18  715  26  
Residential line of credit607  —  427   
Commercial real estate:
Owner occupied1,830  34  1,922  62  
Non-owner occupied1,049  —  1,049  —  
Consumer and other70   71   
Total$6,121  $68  $6,407  $170  
Total impaired loans$15,625  $201  $14,701  $345  
Purchased Credit Impaired Loans
The following disclosures are presented in accordance with GAAP in effect prior to the adoption of CECL. The Company has included these disclosures to address the applicable prior periods presented.
As of December 31, 2019, the carrying value of PCI loans accounted for under ASC 310-30 "Loans and Debt Securities Acquired with Deteriorated Credit Quality" was $57,152. The following table presents changes in the value of the accretable yield for PCI loans for the periods indicated.
Three Months Ended
June 30,
Six Months Ended
June 30,
 20192019
Balance at the beginning of period$(14,814) $(16,587) 
Additions through business combinations(1,167) (1,167) 
Principal reductions and other reclassifications from nonaccretable difference30  250  
Accretion1,705  3,888  
Changes in expected cash flows(616) (1,246) 
Balance at end of period$(14,862) $(14,862) 
Included in the ending balance of the accretable yield on PCI loans at December 31, 2019, was a purchase accounting liquidity discount of $292. There was also a purchase accounting nonaccretable credit discount of $3,537 related to the PCI loan portfolio at December 31, 2019, and an accretable credit and liquidity discount on non-PCI loans of $8,964 and $3,924, respectively, as of December 31, 2019.
29

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Interest revenue, through accretion of the difference between the recorded investment of the loans and the expected cash flows, was recognized on all PCI loans. Accretion of interest income amounting to $1,705 and $3,888 was recognized on PCI loans during the three and six months ended June 30, 2019, respectively. This included both the contractual interest income recognized and the purchase accounting contribution through accretion of the liquidity discount for changes in estimated cash flows. The total purchase accounting contribution through accretion excluding contractual interest collected for all purchased loans was $2,097 and $3,928 for the three and six months ended June 30, 2019, respectively.
Restructured Loans
As of June 30, 2020 and December 31, 2019, the Company has a recorded investment in TDRs of $13,277 and $12,206, 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. The Company has calculated $606 and $360 of specific reserves for those loans at June 30, 2020 and December 31, 2019, respectively. There were no commitments to lend any additional amounts to these customers for either period end. Of these loans, $5,821 and $5,201 were classified as non-accrual loans as of June 30, 2020 and December 31, 2019, respectively.
The following tables present the financial effect of TDRs recorded during the periods indicated. There were no new TDRs added during the three months ended June 30, 2019.

Three Months Ended June 30, 2020Number of loansPre-modification outstanding recorded investmentPost-modification outstanding recorded investmentCharge offs and specific reserves
Commercial and industrial1$1,153  $1,153  $—  
Commercial real estate:
Owner occupied1788  788  —  
Residential real estate:
1-to-4 family mortgage113  13  —  
Total3$1,954  $1,954  $—  
Six Months Ended June 30, 2020Number of loansPre-modification outstanding recorded investmentPost-modification outstanding recorded investmentCharge offs and specific reserves
Commercial and industrial $1,153  $1,153  $—  
Commercial real estate:
Owner occupied 788  788  —  
Residential real estate:
1-to-4 family mortgage 77  77  —  
Total $2,018  $2,018  $—  
Six Months Ended June 30, 2019Number of loansPre-modification outstanding recorded investmentPost-modification outstanding recorded investmentCharge offs and specific reserves
Commercial and industrial2$3,188  $3,188  $—  
Total2$3,188  $3,188  $—  
There were 0 loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the three or six months ended June 30, 2020 and 2019. 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 six months ended June 30, 2020 and 2019 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.

30

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Collateral Dependent Loans
For loans for which the repayment (based on the Company's assessment) is expected to be provided substantially through the operation or sale of collateral and the borrower is experiencing financial difficulty, the following table presents the loans and the corresponding individually assessed allowance for credit losses by class of financing receivable.
June 30, 2020
Type of Collateral
Real EstateFinancial Assets and EquipmentIndividually assessed allowance for credit loss
Commercial and industrial$—  $3,062  $543  
Construction1,232  —  —  
Residential real estate:
1-to-4 family mortgage100  —  —  
Residential line of credit471  —   
Multi-family mortgage—  —  —  
Commercial real estate:
Owner occupied1,461  —  35  
Non-owner occupied8,500  —  1,563  
Consumer and other—  336  35  
Total$11,764  $3,398  $2,185  
Deferrals Program as part of COVID-19 Relief
On March 22, 2020, an Interagency Statement was issued by banking regulators encouraging financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak terminates.The following table outlines the Company's recorded investment and percentage of loans held for investment by class of financing receivable for Company executed deferrals in connection with COVID-19 relief. These deferrals typically ranged from sixty to ninety days per deferral and were not considered TDRs under the interagency regulatory guidance or the CARES Act issued in March 2020.
June 30, 2020
% of Loans
Commercial and industrial$164,804  12.8 %
Construction82,514  14.9 %
Residential real estate:
1-to-4 family mortgage83,590  11.3 %
Residential line of credit14,200  6.0 %
Multi-family mortgage45,321  39.4 %
Commercial real estate:
Owner occupied190,044  27.8 %
Non-owner occupied321,707  34.8 %
Consumer and other16,078  5.7 %
Total$918,258  19.0 %
31

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Note (5)—Other real estate owned:
The amount reported as other real estate owned includes property acquired through foreclosure in addition to excess facilities held for sale and is carried at fair value less estimated cost to sell the property. The following table summarizes the other real estate owned for the three and six months ended June 30, 2020 and 2019: 
Three Months EndedSix Months Ended
June 30,June 30,
 2020201920202019
Balance at beginning of period$17,072  $12,828  $18,939  $12,643  
Transfers from loans641  924  1,006  2,030  
Transfers from (to) premises and equipment—  2,640  (841) 2,640  
Proceeds from sale of other real estate owned(2,708) (1,148) (4,150) (1,864) 
Gain on sale of other real estate owned170  329  345  322  
Loans provided for sales of other real estate owned—  —  —  (166) 
Write-downs and partial liquidations(84) (52) (208) (84) 
Balance at end of period$15,091  $15,521  $15,091  $15,521  
Foreclosed residential real estate properties totaled $3,045 and $4,295 as of June 30, 2020 and December 31, 2019, respectively. The recorded investment in residential mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process totaled $239 and $82 at June 30, 2020 and December 31, 2019, respectively.
Excess land and facilities held for sale resulting from branch consolidations totaled $7,751 and $8,956 as of June 30, 2020 and December 31, 2019, respectively.
Note (6)—Goodwill and intangible assets:
The following table summarizes changes in goodwill during the six months ended June 30, 2020 and 2019.
Goodwill
Balance at December 31, 2018$137,190  
Addition from acquisition of Atlantic Capital branches31,396  
Relief of goodwill due to sale of TPO mortgage delivery channel(100) 
Balance at June 30, 2019$168,486  
Balance at December 31, 2019$169,051  
Addition from acquisition of Farmers National (see Note 2)6,390  
Balance at June 30, 2020$175,441  
Goodwill is tested annually, or more often if circumstances warrant, for impairment. Impairment exists when a reporting unit's carrying value exceeds its fair value. The Company tested goodwill for impairment as of December 31, 2019 and determined there to be no impairment. Given the significant economic decline during the first half of 2020 due to COVID-19 and the negative impact on most businesses, including banking, management determined it would be prudent to evaluate any adverse impact to the Company's recorded goodwill. As of June 30, 2020, the Company performed a qualitative assessment and determined it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. As such, no impairment was indicated.
32

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Core deposit and other intangibles include core deposit intangibles, customer base trust intangible and manufactured housing servicing intangible. The composition of core deposit and other intangibles as of June 30, 2020 and December 31, 2019 are as follows:
 Core deposit and other intangibles
 Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
June 30, 2020   
Core deposit intangible$52,165  $(36,080) $16,085  
Customer base trust intangible1,600  (467) 1,133  
Manufactured housing servicing intangible1,088  (635) 453  
Total core deposit and other intangibles$54,853  $(37,182) $17,671  
December 31, 2019
Core deposit intangible$49,675  $(33,861) $15,814  
Customer base trust intangible1,600  (387) 1,213  
Manufactured housing servicing intangible1,088  (526) 562  
Total core deposit and other intangibles$52,363  $(34,774) $17,589  
During the first quarter of 2020, the Company recorded $2,490 of core deposit intangibles resulting from the Farmers National acquisition, which is being amortized over a weighted average life of approximately 4 years.
The estimated aggregate future amortization expense of core deposit and other intangibles is as follows:
2020$2,287  
20214,089  
20223,350  
20232,574  
20242,015  
Thereafter3,356  
 $17,671  

Note (7)—Leases:
As of June 30, 2020, the Company was the lessee in 45 operating leases of certain branch, mortgage and operations locations, of which 36 operating leases currently have remaining terms varying from greater than one year to 35 years. Leases with initial terms of less than one year are not recorded on the consolidated balance sheets. The Company also does not include equipment leases and leases in which the Company is the lessor on the consolidated balance sheets as these are insignificant.
Many leases include 1 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 are included in the right-of-use ("ROU") asset and lease liability.
The Company entered into a lease for a new corporate headquarters building located in downtown Nashville. The lease agreement, comprising approximately 52,000 square feet of rentable space, includes signage rights, and is anticipated to commence in the fourth quarter of 2022. Upon commencement, the Company estimates recording a ROU asset and operating lease liability of approximately $29,000 and $30,000, respectively, as well as associated deferred taxes, in connection with this lease.
33

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Information related to the Company's operating leases is presented below:
June 30,December 31,
2020  2019  
Right-of-use assets$30,447  $32,539  
Lease liabilities$33,803  $35,525  
Weighted average remaining lease term (in years)13.9314.07
Weighted average discount rate3.44 %3.40 %
The components of lease expense included in Occupancy and equipment expense were as follows:
Three Months EndedSix Months Ended
June 30,June 30,
2020201920202019
Operating lease cost(1)
$1,389  $1,421  $2,678  $2,533  
Short-term lease cost30  260  166  484  
Variable lease cost160  99  298  199  
Total lease cost$1,579  $1,780  $3,142  $3,216  
(1) Includes amortization of favorable lease intangible
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.
A maturity analysis of operating lease liabilities and a reconciliation of undiscounted cash flows to the total operating lease liability is as follows:
June 30,
2020  
Lease payments due:
June 30, 2021$5,432  
June 30, 20224,807  
June 30, 20234,075  
June 30, 20243,624  
June 30, 20253,057  
Thereafter22,713  
     Total undiscounted future minimum lease payments43,708  
Discount on cash flows(9,905) 
     Total lease liability$33,803  

Note (8)—Mortgage servicing rights:
Changes in the Company’s mortgage servicing rights were as follows for the three and six months ended June 30, 2020 and 2019:
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Carrying value at beginning of period$62,581  $64,031  $75,521  $88,829  
Capitalization12,267  11,212  20,063  19,932  
Sales—  —  —  (29,160) 
Change in fair value:
Due to pay-offs/pay-downs(7,277) (3,305) (11,920) (5,100) 
Due to change in valuation inputs or assumptions(7,063) (5,558) (23,156) (8,121) 
Carrying value at end of period$60,508  $66,380  $60,508  $66,380  

34

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 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 six months ended June 30, 2020 and 2019: 
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Servicing income:
Servicing income$5,113  $4,052  $10,131  $8,803  
Change in fair value of mortgage servicing rights(14,340) (8,863) (35,076) (13,221) 
Change in fair value of derivative hedging instruments1,102  5,063  15,970  7,540  
Servicing income(8,125) 252  (8,975) 3,122  
Servicing expenses1,992  1,485  3,393  3,229  
Net servicing (loss) income(1)
$(10,117) $(1,233) $(12,368) $(107) 
(1) Excludes benefit of custodial service related noninterest-bearing deposits held by the Bank.
Data and key economic assumptions related to the Company’s mortgage servicing rights as of June 30, 2020 and December 31, 2019 are as follows: 
 June 30,December 31,
 20202019
Unpaid principal balance$7,700,862  $6,734,496  
Weighted-average prepayment speed (CPR)15.60 %10.05 %
Estimated impact on fair value of a 10% increase$(3,755) $(2,839) 
Estimated impact on fair value of a 20% increase$(7,170) $(5,474) 
Discount rate10.75 %9.68 %
Estimated impact on fair value of a 100 bp increase$(2,230) $(3,086) 
Estimated impact on fair value of a 200 bp increase$(4,300) $(5,932) 
Weighted-average coupon interest rate3.94 %4.20 %
Weighted-average servicing fee (basis points)2829
Weighted-average remaining maturity (in months)332335
The Company hedges the mortgage servicing rights portfolio with various derivative instruments to offset changes in the fair value of the related mortgage servicing rights. See Note 11, "Derivatives" for additional information on these hedging instruments.
From time to time, the Company enters agreements to sell certain tranches of mortgage servicing rights. Upon consummation of the sale, the Company generally continues to subservice the underlying mortgage loans until they can be transferred to the purchaser. During the six months ended June 30, 2019, the Company sold $29,160 of mortgage servicing rights on $2,034,374 of serviced mortgage loans. There was not a significant gain or loss recognized in connection with the sale. During the six months ended June 30, 2020, there were no such transactions. As of June 30, 2020 and 2019, there were no loans being serviced that related to the bulk sale of mortgage servicing rights. As of June 30, 2020 and December 31, 2019, mortgage escrow deposits totaled to $149,053 and $92,610, respectively.
35

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Note (9)—Income taxes:
An allocation of federal and state income taxes between current and deferred portions is presented below:
 Three Months Ended June 30,
 20202019
Current$15,747  $6,546  
Deferred(8,292) (232) 
Total$7,455  $6,314  
Six Months Ended June 30,
20202019
Current$23,915  $16,740  
Deferred(16,380) (4,451) 
Total$7,535  $12,289  
Federal income tax expense differs from the statutory federal rate of 21% for the three and six months ended June 30, 2020 and 2019:
 Three Months Ended June 30,
 2020  2019  
Federal taxes calculated at statutory rate$6,369  21.0 %$5,251  21.0 %
Increase (decrease) resulting from:
State taxes, net of federal benefit1,298  4.3 %1,205  4.8 %
Benefit of equity based compensation22  0.1 %(1) — %
Municipal interest income, net of interest disallowance(310) (1.0)%(223) (0.9)%
Bank owned life insurance(17) (0.1)%(15) — %
Merger costs32  0.1 %—  — %
Other61  0.2 %97  0.4 %
Income tax expense, as reported$7,455  24.6 %$6,314  25.3 %
Six Months Ended June 30,
2020  2019  
Federal taxes calculated at statutory rate$6,542  21.0 %$10,619  21.0 %
Increase (decrease) resulting from:
State taxes, net of federal benefit1,166  3.7 %2,343  4.6 %
Benefit of equity based compensation161  0.5 %(393) (0.8)%
Municipal interest income, net of interest disallowance(574) (1.8)%(439) (0.9)%
Bank owned life insurance(35) (0.1)%(27) — %
Merger costs163  0.5 %—  — %
Other112  0.4 %186  0.4 %
Income tax expense, as reported$7,535  24.2 %$12,289  24.3 %


36

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The components of the net deferred tax liability at June 30, 2020 and December 31, 2019, are as follows: 
June 30,December 31,
 20202019
Deferred tax assets:  
Allowance for credit losses$31,170  $8,113  
Operating lease liability8,924  9,373  
Amortization of core deposit intangible986  1,386  
Deferred compensation4,623  5,231  
Unrealized loss on debt securities54  54  
Unrealized loss on equity securities51  60  
Unrealized loss on cash flow hedges345  —  
Other3,041  2,388  
Subtotal49,194  26,605  
Deferred tax liabilities:  
FHLB stock dividends(550) (550) 
Operating lease - right of use asset(8,084) (8,641) 
Depreciation(5,802) (5,078) 
Unrealized gain on cash flow hedges—  (203) 
Unrealized gain on debt securities(7,758) (3,051) 
Mortgage servicing rights(15,766) (19,678) 
Goodwill(10,080) (8,859) 
Other(1,234) (1,035) 
Subtotal(49,274) (47,095) 
Net deferred tax liability$(80) $(20,490) 
 
Note (10)—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.
June 30,December 31,
 20202019
Commitments to extend credit, excluding interest rate lock commitments$1,146,158  $1,086,173  
Letters of credit17,881  19,569  
Balance at end of period$1,164,039  $1,105,742  
In connection with the adoption of CECL on January 1, 2020, the Company estimates expected credit losses on off-balance sheet loan commitments that are not accounted for as derivatives. When applying the CECL methodology to estimate expected credit loss, the Company considers the likelihood that funding will occur, the contractual period of exposure to credit loss, the risk of loss, historical loss experience, and current conditions along with expectations of future economic conditions. As such, the Company recorded an allowance for credit losses on unfunded commitments in other liabilities amounting to $2,947. The impact net of taxes was recorded as part of the cumulative adjustment to retained earnings of $25,018 on January 1, 2020.
37

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The table below presents activity within the allowance for credit losses on unfunded commitments:
For the Three Months Ended June 30,For the Six Months Ended June 30,
20202020
Balance at beginning of period$4,618  $—  
Impact of CECL adoption on provision for credit losses on unfunded commitments—  2,947  
Increase from unfunded commitments acquired in business combination—  70  
Provision for credit losses on unfunded commitments1,882  3,483  
Balance at end of period$6,500  $6,500  
In connection with the sale of mortgage loans to third party investors, the Bank makes usual and customary representations and warranties as to the propriety of its origination activities. Occasionally, the investors require the Bank 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 $1,568 and $4,367 for the three and six months ended June 30, 2020, respectively, and $2,117 and $3,510, for the three and six months ended June 30, 2019, respectively. The Company has established a reserve associated with loan repurchases. This reserve is recorded in accrued expenses and other liabilities on the consolidated balance sheets.
The following table summarizes the activity in the repurchase reserve:
Three Months Ended June 30,For the Six Months Ended June 30,
 2020201920202019
Balance at beginning of period$3,829  $3,332  $3,529  $3,273  
Provision for loan repurchases or indemnifications855  89  1,227  148  
Recoveries on previous losses(83) (14) (155) (14) 
Balance at end of period$4,601  $3,407  $4,601  $3,407  

Note (11)—Derivatives:
The Company utilizes derivative financial instruments as part of its ongoing efforts to manage its interest rate risk exposure as well as the exposure for its customers. Derivative financial instruments are included in the consolidated balance sheets line item “Other assets” or “Other liabilities” at fair value in accordance with ASC 815, “Derivatives and Hedging.”
The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate-lock commitments). Under such commitments, interest rates for mortgage loans are typically locked in for between 45 to 90 days with the customer. These interest rate lock commitments are recorded at fair value in the Company’s consolidated balance sheets. The Company also enters into best effort or mandatory delivery forward commitments to sell residential mortgage loans to secondary market investors. Gains and losses arising from changes in the valuation of the rate-lock commitments and forward commitments are recognized currently in earnings and are reflected under the line item “Mortgage banking income” on the consolidated statements of income.
The Company enters into forward commitments, futures and options contracts that are not designated as hedging instruments as economic hedges to offset the changes in fair value of MSRs. Gains and losses associated with these instruments are included in earnings and are reflected under the line item “Mortgage banking income” on the consolidated statements of income.
Additionally, the Company enters into derivative instruments that are not designated as hedging instruments to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with customer contracts, the Company enters into an offsetting derivative contract. The Company manages its credit risk, or potential risk of default by its commercial customers through credit limit approval and monitoring procedures.
The Company also maintains 2 interest rate swap agreements with notional amounts totaling $30,000 used to hedge interest rate exposure on outstanding subordinated debentures included in long-term debt totaling $30,930. Under these agreements, the Company receives a variable rate of interest equal to 3-month LIBOR and pays a weighted average fixed rate of interest of 2.08%. The interest rate swap contracts, which mature in June of 2024, are designated as cash flow
38

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
hedges with the objective of reducing the variability in cash flows resulting from changes in interest rates. As of June 30, 2020 and December 31, 2019, the fair value of these contracts resulted in a liability of $2,215 and $515, respectively.
In July 2017, the Company entered into 3 interest rate swap contracts on floating rate liabilities at the Bank level with notional amounts of $30,000, $35,000 and $35,000 for a period of three, four and five years, respectively. These interest rate swaps were designated as cash flow hedges with the objective of reducing the variability of cash flows associated with $100,000 of FHLB borrowings. During the first quarter of 2018, these swaps were canceled, locking in a tax-adjusted gain of $1,564 in other comprehensive income to be accreted over the three, four and five-year terms of the underlying contracts. As of June 30, 2020 and December 31, 2019, there was $660 and $955, respectively, remaining in the other comprehensive income to be accreted.
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 AssetsOffsetting Derivative Liabilities
June 30, 2020December 31, 2019June 30, 2020December 31, 2019
Gross amounts recognized$4,562  $331  $41,059  $14,682  
Gross amounts offset in the consolidated
balance sheets
—  —  —  —  
Net amounts presented in the consolidated
balance sheets
4,562  331  41,059  14,682  
Gross amounts not offset in the
consolidated balance sheets
Less: financial instruments1,054  139  1,054  139  
Less: financial collateral pledged—  —  40,005  14,543  
Net amounts$3,508  $192  $—  $—  
Most derivative contracts with clients are secured by collateral. Additionally, in accordance with the interest rate agreements with derivatives dealers, the Company may be required to post margin to these counterparties. At June 30, 2020 and December 31, 2019, the Company had minimum collateral posting thresholds with certain derivative counterparties and had collateral posted of $46,267 and $33,616, respectively, against its obligations under these agreements. Cash collateral related to derivative contracts is recorded in other assets in the consolidated balance sheets.

The following tables provide details on the Company’s derivative financial instruments as of the dates presented:
June 30, 2020
Notional AmountAssetLiability
Not designated as hedging:
Interest rate contracts$541,983  $41,236  $41,068  
Forward commitments1,142,224  —  6,786  
Interest rate-lock commitments1,205,932  37,055  —  
Futures contracts248,700  2,253  —  
Total$3,138,839  $80,544  $47,854  

39

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
 December 31, 2019
 Notional AmountAssetLiability
Not designated as hedging:   
Interest rate contracts$440,556  $14,929  $14,929  
Forward commitments684,437  —  866  
Interest rate-lock commitments453,198  7,052  —  
Futures contracts389,000  —  1,623  
Total$1,967,191  $21,981  $17,418  
 
 June 30, 2020
 Notional AmountAssetLiability
Designated as hedging:   
Interest rate swaps$30,000  $—  $2,215  
December 31, 2019
Notional AmountAssetLiability
Designated as hedging:
Interest rate swaps$30,000  $—  $515  
Gains (losses) included in the consolidated statements of income related to the Company’s derivative financial instruments were as follows:
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Not designated as hedging instruments (included in
mortgage banking income):
Interest rate lock commitments$9,541  $1,875  $30,003  $3,755  
Forward commitments(13,993) (5,264) (40,450) (9,668) 
Futures contracts631  4,107  11,542  5,978  
Option contracts—  31  —  44  
Total$(3,821) $749  $1,095  $109  
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Designated as hedging:
Amount of gain reclassified from other comprehensive
   income and recognized in interest expense on
   borrowings, net of taxes of $(52), $(42), $(104), and $(75)
$148  $119  $295  $213  
(Loss) gain included in interest expense on borrowings(62) 39  (74) 94  
Total$86  $158  $221  $307  
The following discloses the amount included in other comprehensive income, net of tax, for derivative instruments designated as cash flow hedges for the periods presented: 
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Designated as hedging:
Amount of loss recognized in other comprehensive
   income, net of taxes $40, $201, $443, and $317
$(112) $(564) $(1,257) $(895) 
Note (12)—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
40

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
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.
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, that is, using Level 2 inputs.
Derivatives-The fair value of the interest rate swaps are based upon fair values provided from entities that engage in interest rate swap activity and is based upon projected future cash flows and interest rates. Fair value of commitments is based on fees currently charged to enter into similar agreements, and for fixed-rate commitments, the difference between current levels of interest rates and the committed rates is also considered. These financial instruments are classified as Level 2.
Other real estate owned (“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")-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, mortgage servicing rights are considered Level 3.
Collateral dependent loans (Impaired loans prior to the adoption of ASC 326)-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.
41

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
June 30, 2020Carrying amountLevel 1Level 2Level 3Total
Financial assets:     
Cash and cash equivalents$717,592  $717,592  $—  $—  $717,592  
Investment securities751,767  —  751,767  —  751,767  
Loans, net4,713,894  —  —  4,755,504  4,755,504  
Loans held for sale435,479  —  435,479  —  435,479  
Interest receivable26,587  45  3,533  23,009  26,587  
Mortgage servicing rights60,508  —  —  60,508  60,508  
Derivatives80,544  —  80,544  —  80,544  
Financial liabilities: 
Deposits: 
Without stated maturities$4,761,306  $4,761,306  $—  $—  $4,761,306  
With stated maturities1,191,495  —  1,204,271  —  1,204,271  
Securities sold under agreement to
repurchase and federal funds sold
32,732  32,732  —  —  32,732  
Federal Home Loan Bank advances250,000  —  258,901  —  258,901  
Subordinated debt30,930  —  23,396  —  23,396  
Other borrowings15,000  —  15,000  —  15,000  
Interest payable7,079  207  6,872  —  7,079  
Derivatives50,069  —  50,069  —  50,069  
 
 Fair Value
December 31, 2019Carrying amountLevel 1Level 2Level 3Total
Financial assets:     
Cash and cash equivalents$232,681  $232,681  $—  $—  $232,681  
Investment securities691,676  —  691,676  —  691,676  
Loans, net4,378,503  —  —  4,363,903  4,363,903  
Loans held for sale262,518  —  262,518  —  262,518  
Interest receivable17,083  —  3,282  13,801  17,083  
Mortgage servicing rights75,521  —  —  75,521  75,521  
Derivatives21,981  —  21,981  —  21,981  
Financial liabilities: 
Deposits: 
Without stated maturities$3,743,085  $3,743,085  $—  $—  $3,743,085  
With stated maturities1,191,853  —  1,200,145  —  1,200,145  
Securities sold under agreement to
repurchase and federal funds sold
23,745  23,745  —  —  23,745  
Federal Home Loan Bank advances250,000  —  250,213  —  250,213  
Subordinated debt30,930  —  29,706  —  29,706  
Interest payable6,465  376  6,089  —  6,465  
Derivatives17,933  —  17,933  —  17,933  
42

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 June 30, 2020 are presented in the following table:
June 30, 2020Quoted 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$—  $3,024  $—  $3,024  
Mortgage-backed securities—  454,606  —  454,606  
Municipals, tax-exempt—  266,052  —  266,052  
Treasury securities—  22,771  —  22,771  
Corporate securities—  985  —  985  
Equity securities—  4,329  —  4,329  
Total$—  $751,767  $—  $751,767  
Loans held for sale$—  $435,479  $—  $435,479  
Mortgage servicing rights—  —  60,508  60,508  
Derivatives—  80,544  —  80,544  
Financial Liabilities:
Derivatives—  50,069  —  50,069  
The balances and levels of the assets measured at fair value on a non-recurring basis at June 30, 2020 are presented in the following table: 
At June 30, 2020Quoted prices
in active
markets for
identical assets
(liabilities)
(level 1)
Significant
other
observable
inputs
(level 2)
Significant
unobservable
inputs
(level 3)
Total
Non-recurring valuations:    
Financial assets:    
Other real estate owned$—  $—  $3,407  $3,407  
Collateral dependent loans:
Commercial and industrial$—  $—  $3,062  $3,062  
Residential real estate:
1-4 family mortgage—  —  100  100  
Residential line of credit—  —  471  311  
Commercial real estate:
Owner occupied—  —  1,461  1,461  
Non-owner occupied—  —  8,500  8,500  
Consumer and other—  —  336  336  
Total collateral dependent loans$—  $—  $15,162  $15,162  
43

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, 2019 are presented in the following table: 
At December 31, 2019
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:    
Mortgage-backed securities$—  $490,676  $—  $490,676  
Municipals, tax-exempt—  189,235  —  189,235  
Treasury securities—  7,448  —  7,448  
Corporate securities—  1,022  —  1,022  
Equity securities—  3,295  —  3,295  
Total$—  $691,676  $—  $691,676  
Loans held for sale$—  $262,518  $—  $262,518  
Mortgage servicing rights—  —  75,521  75,521  
Derivatives—  21,981  —  21,981  
Financial Liabilities:
Derivatives—  17,933  —  17,933  
 
The balances and levels of the assets measured at fair value on a non-recurring basis at December 31, 2019 are presented in the following table: 
At December 31, 2019Quoted 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$—  $—  $9,774  $9,774  
Impaired Loans(1):
Commercial and industrial$—  $—  $6,481  $6,481  
Residential real estate:
1-4 family mortgage—  —  378  378  
Residential line of credit—  —  321  321  
Commercial real estate: 
Owner occupied—  —  951  951  
Non-owner occupied—  —  2,560  2,560  
Total$—  $—  $10,691  $10,691  
(1) Includes both impaired non-purchased loans and collateral-dependent PCI loans.
There were no transfers between Level 1, 2 or 3 during the periods presented.
The following table presents information as of June 30, 2020 about significant unobservable inputs (Level 3) used in the valuation of assets measured at fair value on a nonrecurring basis:
Financial instrument
Fair Value
Valuation techniqueSignificant Unobservable inputsRange of
inputs
Collateral dependent loans$15,162  Valuation of collateralDiscount for comparable sales0%-30%
Other real estate owned$3,407  Appraised value of property less costs to sellDiscount for costs to sell0%-15%
44

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The following table presents information as of December 31, 2019 about significant unobservable inputs (Level 3) used in the valuation of assets measured at fair value on a nonrecurring basis:
Financial instrument
Fair Value
Valuation techniqueSignificant Unobservable inputsRange of
inputs
Impaired loans(1)
$10,691  Valuation of collateralDiscount for comparable sales0%-30%
Other real estate owned$9,774  Appraised value of property less costs to sellDiscount for costs to sell0%-15%
(1) Includes both impaired non-purchased loans and collateral-dependent PCI loans.
For collateral dependent loans, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. Fair value of the loan's collateral is determined by third-party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of of the collateral. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on changes in market conditions from the time of valuation and management's knowledge of the client and client's business. 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.
Fair value option
The Company measures all loans originated for sale at fair value under the fair value option as permitted under 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 gains of $8,048 and $13,866 resulting from fair value changes of mortgage loans were recorded in income during the three and six months ended June 30, 2020, respectively, compared to $2,169 and $962 during the three and six months ended June 30, 2019, 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.
As of June 30, 2020 and December 31, 2019, there was $81,229 and $51,705, respectively, of GNMA loans previously sold that the Company did not record on its consolidated balance sheets as the Company determined there not to be a more-than-trivial benefit based on an analysis of interest rates and an assessment of potential reputational risk associated with these loans.
The Company’s valuation of loans held for sale incorporates an assumption for credit risk; however, given the short-term period that the Company holds these loans, valuation adjustments attributable to instrument-specific credit risk is nominal.
Interest income on loans held for sale measured at fair value is accrued as it is earned based on contractual rates and is reflected in loan interest income in the consolidated statements of income.
45

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 measured at fair value as of June 30, 2020 and December 31, 2019: 
June 30, 2020Aggregate
fair value
Aggregate
Unpaid
Principal
Balance
Difference
Mortgage loans held for sale measured at fair value$435,479  $413,963  $21,516  
Past due loans of 90 days or more—  —  —  
Nonaccrual loans—  —  —  
December 31, 2019 
Mortgage loans held for sale measured at fair value$262,518  $254,868  $7,650  
Past due loans of 90 days or more—  —  —  
Nonaccrual loans—  —  —  

Note (13)—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 (“CEO”), the Company’s chief operating decision maker. The Company has identified 2 distinct reportable segments—Banking and Mortgage. The Company’s primary segment is Banking, which provides a full range of deposit and lending products and services to corporate, commercial and consumer customers. The Company offers full-service conforming residential mortgage products, including conforming residential loans and services through the Mortgage segment utilizing mortgage offices outside of the geographic footprint of the Banking operations. Additionally, the Mortgage segment includes the servicing of residential mortgage loans and the packaging and securitization of loans to governmental agencies. The residential mortgage products and services originated in our Banking footprint and related revenues and expenses are included in our Banking segment. 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. The Mortgage segment utilizes funding sources from the Banking segment in order to fund mortgage loans that are ultimately sold on the secondary market. The Mortgage segment uses the proceeds from loan sales to repay obligations due to the Banking segment.
During the first quarter of 2019, the Company's Board of Directors approved management's strategic plan to exit its wholesale mortgage delivery channels. On June 7, 2019, the Company completed the sale of its third party origination ("TPO") channel and on August 1, 2019, the Company completed the sale of its correspondent channel. The Mortgage segment incurred $829 and $1,883 in restructuring charges, during the three and six months ended June 30, 2019, respectively, related to these sales. The restructuring charges include a one time charge of $100 in relief of goodwill associated with the TPO channel.
46

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The following tables provide segment financial information for the three and six months ended June 30, 2020 and 2019 as follows:
Three Months Ended June 30, 2020BankingMortgageConsolidated
Net interest income$55,350  $(13) $55,337  
Provisions for credit losses(1)
25,921  —  25,921  
Mortgage banking income16,940  68,466  85,406  
Change in fair value of mortgage servicing rights, net of hedging(2)
—  (13,238) (13,238) 
Other noninterest income9,323  —  9,323  
Depreciation and amortization1,503  116  1,619  
Amortization of intangibles1,205  —  <