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FB Financial (FBK)

Filed: 6 Nov 20, 4:23pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________
FORM 10-Q
______________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 300
Nashville, Tennessee
37201
(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 October 31, 2020 was 47,198,737.
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 
1


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)
 


 September 30,December 31,
 2020 (Unaudited)2019 
ASSETS  
Cash and due from banks$69,798 $48,806 
Federal funds sold118,588 131,119 
Interest-bearing deposits in financial institutions874,005 52,756 
Cash and cash equivalents1,062,391 232,681 
Investments:
Available-for-sale debt securities, at fair value1,160,521 688,381 
Equity securities, at fair value4,389 3,295 
Federal Home Loan Bank stock, at cost31,232 15,976 
Loans held for sale, at fair value851,951 262,518 
Loans7,213,538 4,409,642 
Less: allowance for credit losses183,973 31,139 
Net loans7,029,565 4,378,503 
Premises and equipment, net136,774 90,131 
Other real estate owned, net12,748 18,939 
Operating lease right-of-use assets52,410 32,539 
Interest receivable47,120 17,083 
Mortgage servicing rights, at fair value71,535 75,521 
Goodwill236,086 169,051 
Core deposit and other intangibles, net23,924 17,589 
Other assets289,792 122,714 
Total assets$11,010,438 $6,124,921 
LIABILITIES
Deposits
Noninterest-bearing$2,287,911 $1,208,175 
Interest-bearing checking2,005,536 1,014,875 
Money market and savings3,236,670 1,520,035 
Customer time deposits1,471,556 1,171,502 
Brokered and internet time deposits92,074 20,351 
Total deposits9,093,747 4,934,938 
Borrowings438,838 304,675 
Operating lease liabilities56,705 35,525 
Accrued expenses and other liabilities176,057 87,454 
Total liabilities9,765,347 5,362,592 
SHAREHOLDERS' EQUITY
Common stock, $1 par value per share; 75,000,000 shares authorized;
47,191,677 and 31,034,315 shares issued and outstanding at
September 30, 2020 and December 31, 2019, respectively
47,192 31,034 
Additional paid-in capital896,158 425,633 
Retained earnings276,361 293,524 
Accumulated other comprehensive income, net25,287 12,138 
Total common shareholders' equity1,244,998 762,329 
Noncontrolling interests93 
Total shareholders' equity1,245,091 762,329 
Total liabilities and shareholders' equity$11,010,438 $6,124,921 
See the accompanying notes to the 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 September 30,Nine Months Ended September 30,
 2020 2019 2020 2019 
Interest income:  
Interest and fees on loans$76,504 $67,639 $201,350 $194,363 
Interest on securities
Taxable2,286 3,137 7,961 10,254 
Tax-exempt1,933 1,174 4,956 3,478 
Other404 1,292 2,141 2,799 
Total interest income81,127 73,242 216,408 210,894 
Interest expense:
Deposits10,573 13,522 32,050 38,865 
Borrowings1,726 1,415 3,944 3,685 
Total interest expense12,299 14,937 35,994 42,550 
Net interest income68,828 58,305 180,414 168,344 
Provision for credit losses45,834 1,831 97,837 4,103 
Provision for credit losses on unfunded commitments9,567 13,050 
Net interest income after provisions for credit losses13,427 56,474 69,527 164,241 
Noninterest income:
Mortgage banking income84,686 29,193 189,599 74,740 
Service charges on deposit accounts2,162 2,416 6,583 6,822 
ATM and interchange fees3,913 3,188 10,653 8,846 
Investment services and trust income1,828 1,336 4,893 3,918 
Gain (loss) from securities, net583 (20)618 75 
(Loss) gain on sales or write-downs of other real estate owned(1,505)(126)(1,368)112 
Gain (loss) from other assets226 44 (156)52 
Other income5,133 2,114 10,395 5,598 
Total noninterest income97,026 38,145 221,217 100,163 
Noninterest expenses:
Salaries, commissions and employee benefits67,676 40,880 166,556 112,495 
Occupancy and equipment expense4,892 4,058 13,166 12,107 
Legal and professional fees1,917 1,993 5,427 5,412 
Data processing2,994 2,816 8,229 7,843 
Merger costs20,730 295 25,366 4,699 
Amortization of core deposit and other intangibles1,417 1,197 3,825 3,180 
Advertising2,256 1,895 7,236 7,066 
Other expense16,210 9,801 37,425 29,353 
Total noninterest expense118,092 62,935 267,230 182,155 
(Loss) income before income taxes(7,639)31,684 23,514 82,249 
Income tax (benefit) expense(2,040)7,718 5,495 20,007 
Net (loss) income(5,599)23,966 18,019 62,242 
Net income applicable to noncontrolling interests
Net (loss) income applicable to FB Financial Corporation$(5,599)$23,966 $18,019 $62,242 
(Loss) earnings per common share
Basic$(0.14)$0.77 $0.52 $2.01 
Diluted(0.14)0.76 0.52 1.97 
See the accompanying notes to the consolidated financial statements.
4


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

 Three Months Ended September 30,Nine Months Ended September 30,
 2020 2019 2020 2019 
Net (loss) income$(5,599)$23,966 $18,019 $62,242 
Other comprehensive income, net of tax:
Net change in unrealized gain in available-for-sale
securities, net of taxes of $521, $1,296, $5,225, and $6,430
1,788 3,762 15,091 18,265 
Reclassification adjustment for (gain) loss on sale of securities
included in net income, net of taxes of $(137), $20, $(137), and $20
(387)55 (387)56 
Net change in unrealized gain (loss) in hedging activities, net of
taxes of $40, $(90), $(403), and $(407)
112 (256)(1,145)(1,151)
Reclassification adjustment for gain on hedging activities,
net of taxes of $(41), $(46), $(145), and $(121)
(115)(130)(410)(343)
Total other comprehensive income, net of tax1,398 3,431 13,149 16,827 
Comprehensive (loss) income(4,201)27,397 31,168 79,069 
Comprehensive (loss) income applicable to noncontrolling interests
Comprehensive (loss) income applicable to FB Financial Corporation$(4,201)$27,397 $31,168 $79,069 
 See the accompanying notes to the 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 common
shareholders' equity
Noncontrolling interestsTotal shareholders' equity
Balance at June 30, 2020$32,101 $462,930 $286,296 $23,889 $805,216 $— $805,216 
Net (loss) income— — (5,599)— (5,599)— (5,599)
Other comprehensive income, net of taxes— — — 1,398 1,398 — 1,398 
Common stock issued in connection
with acquisition of Franklin Financial
Network, Inc., net of registration costs (See Note 2)
15,058 429,815 — — 444,873 93 444,966 
Stock based compensation expense3,014 — — 3,020 — 3,020 
Restricted stock units vested and
distributed, net of shares withheld
(115)— — (106)— (106)
Shares issued under employee stock
purchase program
18 514 — — 532 — 532 
Dividends declared ($0.09 per share)— — (4,336)— (4,336)— (4,336)
Balance at September 30, 2020$47,192 $896,158 $276,361 $25,287 $1,244,998 $93 $1,245,091 
Balance at December 31, 2019$31,034 $425,633 $293,524 $12,138 $762,329 $— $762,329 
Cumulative effect of change in
accounting principle (See Note 1)
— — (25,018)— (25,018)— (25,018)
Balance at January 1, 202031,034 425,633 268,506 12,138 737,311 — 737,311 
Net income— — 18,019 — 18,019 — 18,019 
Other comprehensive income, net of taxes— — — 13,149 13,149 — 13,149 
Common stock issued in connection
with acquisition of FNB Financial Corp., net of registration costs (See Note 2)
955 33,892 — — 34,847 — 34,847 
Common stock issued in connection with acquisition of Franklin Financial Network, Inc., net of registration costs (See Note 2)15,058 429,815 — — 444,873 93 444,966 
Stock based compensation expense17 7,236 — — 7,253 — 7,253 
Restricted stock units vested and
distributed, net of shares withheld
98 (1,366)— — (1,268)— (1,268)
Shares issued under employee stock
purchase program
30 948 — — 978 — 978 
Dividends declared ($0.27 per share)— — (10,164)— (10,164)— (10,164)
Balance at September 30, 2020$47,192 $896,158 $276,361 $25,287 $1,244,998 $93 $1,245,091 
6


FB Financial Corporation and subsidiaries
Consolidated statements of changes in shareholders’ equity
(Unaudited)
(Amounts are in thousands except per share amounts)

 Common
stock
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income, net
Total common
shareholders' equity
Noncontrolling interestsTotal shareholders' equity
Balance at June 30, 2019$30,866 $425,644 $253,080 $9,169 $718,759 $— $718,759 
Net income— — 23,966 — 23,966 — 23,966 
Other comprehensive income, net of taxes— — — 3,431 3,431 — 3,431 
Stock based compensation expense1,833 — — 1,836 — 1,836 
Restricted stock units vested and distributed, net of shares withheld47 (1,089)— — (1,042)— (1,042)
Shares issued under employee stock purchase program12 428 — — 440 — 440 
Dividends declared ($0.08 per share)— — (2,555)— (2,555)— (2,555)
Balance at September 30, 2019$30,928 $426,816 $274,491 $12,600 $744,835 $— $744,835 
Balance at December 31, 2018$30,725 $424,146 $221,213 $(4,227)$671,857 $— $671,857 
Cumulative effect of change in accounting principle— — (1,309)— (1,309)— (1,309)
Balance at January 1, 201930,725 424,146 219,904 (4,227)670,548 — 670,548 
Net income— — 62,242 — 62,242 — 62,242 
Other comprehensive income, net of taxes— — — 16,827 16,827 — 16,827 
Stock based compensation expense5,612 — — 5,621 — 5,621 
Restricted stock units vested and distributed, net of shares withheld171 (3,723)— — (3,552)— (3,552)
Shares issued under employee stock purchase program23 781 — — 804 — 804 
Dividends declared ($0.24 per share)— — (7,655)— (7,655)— (7,655)
Balance at September 30, 2019$30,928 $426,816 $274,491 $12,600 $744,835 $— $744,835 
See the accompanying notes to the consolidated financial statements.
7

FB Financial Corporation and subsidiaries
Consolidated statements of cash flows
(Unaudited)
(Amounts are in thousands)
Nine Months Ended September 30,
2020 2019 
Cash flows from operating activities:
Net income$18,019 $62,242 
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of fixed assets4,924 3,830 
Amortization of core deposit and other intangibles3,825 3,180 
Capitalization of mortgage servicing rights(33,415)(30,319)
Net change in fair value of mortgage servicing rights42,251 23,832 
Stock-based compensation expense7,253 5,621 
Provision for credit losses97,837 4,103 
Provision for credit losses on unfunded commitments13,050 
Provision for mortgage loan repurchases2,128 255 
Accretion of yield on purchased loans(3,080)(6,030)
Accretion of discounts and amortization of premiums on securities, net4,431 2,113 
Gain from securities, net(618)(75)
Originations of loans held for sale(4,739,497)(3,477,658)
Repurchases of loans held for sale(9,919)
Proceeds from sale of loans held for sale4,690,135 3,527,632 
Gain on sale and change in fair value of loans held for sale(202,336)(72,749)
Net loss (gain) or write-downs of other real estate owned1,368 (112)
Loss (gain) on other assets156 (52)
Relief of goodwill100 
Provision for deferred income taxes(31,543)(5,900)
Changes in:
Operating leases1,309 
Other assets and interest receivable(77,566)(50,509)
Accrued expenses and other liabilities59,325 4,243 
Net cash used in operating activities(142,044)(16,172)
Cash flows from investing activities:
Activity in available-for-sale securities:
Sales28,257 24,498 
Maturities, prepayments and calls140,246 78,861 
Purchases(214,285)(92,059)
Net change in loans(133,893)(295,791)
Purchases of FHLB stock(515)(2,544)
Proceeds from sale of mortgage servicing rights29,160 
Purchases of premises and equipment(2,652)(4,052)
Proceeds from the sale of premises and equipment1,275 
Proceeds from the sale of other real estate owned5,561 2,718 
Net cash paid in business combinations (See Note 2)248,439 171,032 
Net cash provided by (used in) investing activities71,158 (86,902)
Cash flows from financing activities:
Net increase in demand deposits1,043,928 231,763 
Net decrease in time deposits(201,659)(70,594)
Net increase in securities sold under agreements to repurchase5,532 1,546 
Net (decrease) increase in FHLB advances(50,000)68,235 
Issuance of subordinated debt100,000 
Payments for issuance costs associated with subordinated debt(1,890)
Proceeds from other borrowings15,000 
Share based compensation withholding payments(1,268)(3,552)
Net proceeds from sale of common stock under employee stock purchase program978 804 
Dividends paid(10,025)(7,487)
Net cash provided by financing activities900,596 220,715 
Net change in cash and cash equivalents829,710 117,641 
Cash and cash equivalents at beginning of the period232,681 125,356 
Cash and cash equivalents at end of the period$1,062,391 $242,997 
Supplemental cash flow information:
Interest paid$36,498 $41,463 
Taxes paid16,449 21,377 
Supplemental noncash disclosures:
Transfers from loans to other real estate owned$1,579 $3,565 
Transfers from other real estate owned to premises and equipment841 
Transfers from premises and equipment to other real estate owned2,640 
Loans provided for sales of other real estate owned166 
Transfers from loans to loans held for sale9,304 5,460 
Transfers from loans held for sale to loans(49,508)11,476 
Stock consideration paid in business combination480,867 
Trade date payable - securities1,214 3,671 
Trade date receivable - securities
Dividends declared not paid on restricted stock units139 168 
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 39,011 
See the accompanying notes to the consolidated financial statements.
8

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)


Note (1)—Basis of presentation:
Overview and presentation
FB Financial Corporation (the “Company”) is a financial holding company headquartered in Nashville, Tennessee. The Company operates through its wholly-owned subsidiary, FirstBank (the "Bank"). As of September 30, 2020, the Bank had 87 full-service branches throughout Tennessee, north Alabama, southern Kentucky and north Georgia, and a national mortgage business with office locations across the Southeast, which primarily originates loans to be sold in the secondary market.
The unaudited consolidated financial statements, including the notes thereto, have been prepared in accordance with United States generally accepted accounting principles (“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") and related relief programs
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 sudden, unprecedented job losses and action taken by governments in the United States and globally. The duration and potential financial impact of COVID-19 is currently unknown, however if these conditions are sustained without additional mitigating factors such as additional or extended government assistance programs, legislation or stimulus measures, 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.
The Coronavirus Aid, Relief and Economic Security ("CARES") Act, enacted on March 27, 2020, by the US Government to counteract the sudden economic hardship caused by the COVID-19 health pandemic included the creation of the Paycheck Protection Program (“PPP”). The PPP, a nearly $670 billion program, as amended, was designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks, for which the Company participated as a lender. These loans were intended to provide for payroll and other operating costs, helping recipient businesses remain viable and retain employees. Additionally, Section 4013 of the CARES Act further stipulated that a qualified loan modification was exempt by law from classification as a troubled debt restructuring (“TDR”), from the period beginning March 1, 2020 until the earlier of December 31, 2020, or the date that is 60 days after the date on which the national emergency concerning the COVID-19 pandemic is terminated. In accordance with this guidance, the Company introduced a payment deferral program for borrowers who are current and otherwise not past due. See Note 4, “Loans and allowance for credit losses” for additional information.
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 other
9

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
than described below that occurred after September 30, 2020, but prior to the issuance of these financial statements that would have a material impact on the Company’s consolidated financial statements.
Subsequent to September 30, 2020, the Company elected to not renew $100,000 in outstanding FHLB 90 day fixed rate advances, included in 'Borrowings' on the consolidated balance sheets at September 30, 2020 and December 31, 2019. In addition to the $100,000 repayment, the Company also reclassified the remaining unamortized gain from the legacy cash flow hedge associated with this borrowing from accumulated other comprehensive income to earnings, totaling approximately $545, net of taxes.
Earnings per share
Basic earnings per common share ("EPS") excludes dilution and is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS includes the dilutive effect of additional potential common shares issuable under the restricted stock units granted but not yet vested and distributable. Diluted EPS is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding for the period, plus an incremental number of common-equivalent shares computed using the treasury stock method.
Unvested share-based payment awards, which include the right to receive non-forfeitable dividends or dividend equivalents, are considered to participate with common shareholders in undistributed earnings for purposes of computing EPS. Companies that have such participating securities are required to calculate basic and diluted EPS using the two-class method. Certain restricted stock awards granted by the Company include non-forfeitable dividend equivalents and are considered participating securities. Calculations of EPS under the two-class method (i) exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities and (ii) exclude from the denominator the dilutive impact of the participating securities.
The following is a summary of the basic and diluted earnings per common share calculation for each of the periods presented:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020 2019 2020 2019 
Basic earnings per common share calculation:
Net (loss) income applicable to FB Financial Corporation$(5,599)$23,966 $18,019 $62,242 
Dividends paid on and undistributed earnings allocated to participating securities(128)(333)
(Loss) earnings available to common shareholders$(5,599)$23,838 $18,019 $61,909 
Weighted average basic shares outstanding40,154,841 30,899,583 34,404,064 30,849,035 
Basic (loss) earnings per common share$(0.14)$0.77 $0.52 $2.01 
Diluted earnings per common share:
(Loss) earnings available to common shareholders$(5,599)$23,838 $18,019 $61,909 
Weighted average basic shares outstanding40,154,841 30,899,583 34,404,064 30,849,035 
Weighted average diluted shares contingently issuable(1)
482,904 525,990 436,228 529,751 
Weighted average diluted shares outstanding40,637,745 31,425,573 34,840,292 31,378,786 
Diluted (loss) earnings per common share(2)
$(0.14)$0.76 $0.52 $1.97 
(1)Excludes 332,347 and 536,908 restricted stock units outstanding considered to be antidilutive for the three and nine months ended September 30, 2020, respectively.
(2)Diluted EPS is calculated using the basic weighted average number of common shares outstanding for periods in which a loss is incurred.
Recently adopted accounting policies:
The Company modified or adopted the following accounting policies during the nine months ended September 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 losses resulting from credit losses for available-for-sale debt securities are recognized in earnings as a provision for credit
10

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
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 and nine months ended September 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 amortized cost, which is 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, interest on nonaccrual loans is recognized only as received if future collection of principal is probable. If the collectibility of
11

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
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 September 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.
12

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 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.
13

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
As of that date, the 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.
14

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
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 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:
The following mergers and acquisitions were accounted for pursuant to FASB ASC 805. Accordingly, the purchase price of each acquisition was allocated to the acquired assets and liabilities assumed based on their estimated fair values as of the respective acquisition dates. The excess of the purchase price over the net assets acquired was recorded as goodwill.
Franklin Financial Network, Inc. merger
Effective August 15, 2020, the Company completed its previously announced merger with Franklin Financial Network, Inc ("Franklin"), and its wholly owned subsidiaries, with FB Financial Corporation continuing as the surviving entity. The merger added 15 branches and expanded the Company's footprint in middle Tennessee and the Nashville metropolitan statistical area, with 6 branches to be closed and consolidated. Under the terms of the agreement, the Company acquired total assets of $3,624,830, loans of $2,794,569 and assumed total deposits of $3,107,005. Total loans acquired includes a non-stratgegic institutional portfolio with a fair value of $318,365 the Company classified as held for sale. Franklin common shareholders received 15,058,181 shares of the Company's common stock, net of the equivalent value of 44,311 shares withheld on certain Franklin employee equity awards that vested upon change in control, as consideration in connection with the merger, in addition to $31,330 in cash consideration. Also included in the purchase price, the Company issued replacement restricted stock units for awards initially granted by Franklin during 2020 that did not vest upon change in control, with a total fair value of $674 attributed to pre-combination service. Based on the closing price of the Company's common stock on the New York Stock Exchange of $29.52 on August 15, 2020, the merger consideration represented approximately $477,830 in aggregate consideration.
The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available. As such, goodwill recorded in connection with the Franklin transaction is not final. Preliminary goodwill of $60,645 recorded in connection with the transaction resulted from the ongoing business contribution, reputation, operating model and expertise of Franklin. The goodwill is not deductible for income tax purposes. Goodwill is preliminarily included in the Banking segment as substantially all of the operations resulting from the acquisition of Franklin are in alignment with the Company's core banking business.
The Company incurred $20,489 and $22,896 in merger expenses during the three and nine months ended September 30, 2020, respectively, in connection with this transaction. These expenses are primarily comprised of professional services, employee-related costs, costs associated with branch consolidation, and integration costs.

15

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)

Purchase Price:
Equity consideration
Franklin shares outstanding(1)
15,588,337 
Franklin options converted to net shares62,906 
15,651,243 
Exchange ratio to FB Financial shares0.965 
FB Financial shares to be issued as merger consideration(2)
15,102,492 
Issuance price as of August 15, 2020$29.52 
Value of FB Financial stock to be issued as merger consideration$445,826 
Less: tax withholding on vested restricted stock awards, units and options(3)
(1,308)
Value of FB Financial stock issued$444,518 
FB Financial shares issued15,058,181 
Franklin restricted stock units that do not vest on change in control114,915 
Replacement awards issued to Franklin employees118,776 
Fair value of replacement awards$3,506 
Fair value of replacement awards attributable to pre-combination service$674 
Cash consideration
Total Franklin shares and net shares outstanding15,651,243 
Cash consideration per share$2.00 
Total cash to be paid to Franklin(4)
$31,330 
Total purchase price$477,830 
Preliminary fair value of net assets acquired417,185 
Preliminary goodwill resulting from merger$60,645 
(1)Franklin shares outstanding includes restricted stock awards and restricted stock units that vested upon change in control.
(2)Only factors in whole share issuance. Cash was paid in lieu of fractional shares.
(3)Represents the equivalent value of approximately 44,311 shares of FB Financial Corporation stock on August 15, 2020.
(4)Includes $28 of cash paid in lieu of fractional shares.
FNB Financial Corp. merger
Effective February 14, 2020, the Company completed its previously announced acquisition of FNB Financial Corp. and its wholly owned subsidiary, Farmers National Bank of Scottsville (collectively, "Farmers National"). Following the acquisition, Farmers National was merged into the Company with FB Financial Corporation continuing as the surviving entity. The transaction added 4 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 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. Goodwill resulting from this transaction is not deductible for income tax purposes. Goodwill is included in the Banking segment as substantially all of the operations resulting from the acquisition of Farmers National are in alignment with the Company's core banking business.
The Company incurred $196 and $2,293 in merger expenses during the three and nine months ended September 30, 2020, respectively, in connection with this transaction. These expenses are primarily comprised of professional services, employee-related costs, and integration costs. The following table presents the total purchase price, fair value of net assets acquired, and the goodwill as of the acquisition date.
16

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
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 
Preliminary fair value of net assets acquired43,652 
Preliminary goodwill resulting from merger$6,390 
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.
Net assets acquired
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the respective acquisition dates:
As of August 15, 2020As of February 14, 2020
Franklin Financial Network, Inc.FNB Financial Corp.
ASSETS
Cash and cash equivalents$283,996 $10,774 
Investments373,459 50,594 
Mortgage loans held for sale, at fair value39,525 
Commercial loans held for sale, at fair value318,365 
Loans held for investment, net of fair value adjustments2,436,679 182,171 
Allowance for credit losses on PCD loans(24,831)(669)
Premises and equipment39,691 8,049 
Operating lease right-of-use assets24,330 14 
Mortgage servicing rights4,850 
Core deposit intangible7,670 2,490 
Other assets121,096 4,795 
Total assets$3,624,830 $258,218 
LIABILITIES
Deposits:
Noninterest-bearing$505,401 $63,531 
Interest-bearing1,783,379 26,451 
Money market and savings327,340 37,002 
Customer time deposits383,433 82,551 
Brokered and internet time deposits107,452 
Total deposits3,107,005 209,535 
Borrowings62,435 3,192 
Operating lease liabilities24,330 14 
Accrued expenses and other liabilities13,782 1,825 
Total liabilities assumed3,207,552 214,566 
Noncontrolling interests acquired93 
Net assets acquired$417,185 $43,652 
Purchased credit-deteriorated loans
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
17

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
initially measures the amortized cost of a PCD loan by adding the acquisition date estimate of expected credit losses to the loan's purchase price (i.e. the "gross up" approach). There is no provision for credit loss recognized upon acquisition of a PCD loan because the initial allowance is established through gross-up of the loans' amortized cost.
The Company determined that 28.2% of the Franklin loan portfolio had more-than-insignificant deterioration in credit quality since origination as of the acquisition date. This included deterioration in credit metrics, such as delinquency, nonaccrual status or risk ratings as well as certain loans within designated industries of concern that have been negatively impacted by COVID-19. Additionally, it was determined that 10.1% of the Farmers National loan portfolio had more-than-insignificant deterioration in credit quality since origination as of the February acquisition date. These were primarily delinquent loans as of February 14, 2020, or loans that Farmers National had classified as nonaccrual or TDR prior to the Company's acquisition.
As of August 15, 2020As of February 14, 2020
Franklin Financial Network, Inc.FNB Financial Corp.
Purchased credit-deteriorated loans
Principal balance$703,143 $18,964 
Allowance for credit losses at acquisition(24,831)(669)
Net premium attributable to other factors8,530 63 
Loans purchased credit-deteriorated fair value$686,842 $18,358 
Loans recognized through the acquisition of Franklin and Farmers National that have not experienced more-than-insignificant credit deterioration since origination are initially recognized at the purchase price. Expected credit losses are measured under CECL through the provision for credit losses. The Company recorded provisions for credit losses in the amounts of $52,822 and $2,885 as of August 15, 2020 and February 14, 2020, respectively, in the income statement related to estimated credit losses on non-PCD loans from Franklin and Farmers National, respectively.
Pro forma financial information
The results of operations of the acquisitions have been included in the Company's consolidated financial statements prospectively beginning on the date of each acquisition. The acquisitions have been fully integrated with the Company's existing operations. Accordingly, post-acquisition net interest income, total revenues, and net income are not discernible.The following unaudited pro forma condensed consolidated financial information presents the results of operations for the three and nine months ended September 30, 2020 and 2019, respectively, as though the Franklin merger and Farmers National acquisition had been completed as of January 1, 2019, and the Atlantic Capital acquisition had been completed as of January 1, 2018. The unaudited estimated pro forma information combines the historical results of the mergers with the Company’s historical consolidated results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the periods presented. Merger expenses are reflected in the periods they were incurred. The pro forma information is not indicative of what would have occurred had the merger and acquisitions taken place on January 1, 2019 and January 1, 2018, and does not include the effect of cost-saving or revenue-enhancing strategies.
Three Months Ended September 30,Nine Months Ended September 30,
2020 2019 2020 2019 
Net interest income$83,641 $90,195 $252,849 $260,353 
Total revenues71,214 126,918 272,375 343,425 
Net income(12,428)36,723 19,526 83,072 

18

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)

Note (3)—Investment securities:
The following tables summarize the amortized cost, allowance for credit losses and fair value of the available-for-sale debt securities and the corresponding amounts of unrealized gains and losses recognized in accumulated other comprehensive income at September 30, 2020 and December 31, 2019: 
September 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$2,000 $$(6)$$1,994 
Mortgage-backed securities - residential723,333 15,093 (320)738,106 
Mortgage-backed securities - commercial20,478 1,376 21,854 
Municipals, tax exempt359,761 15,813 (694)374,880 
Treasury securities21,482 218 21,700 
Corporate securities1,999 (15)1,987 
Total$1,129,053 $32,503 $(1,035)$$1,160,521 

December 31, 2019
 Amortized costGross unrealized gainsGross unrealized lossesFair Value
Investment Securities    
Available-for-sale debt securities    
Mortgage-backed securities - residential$474,144 $4,829 $(1,661)$477,312 
Mortgage-backed securities - commercial12,957 407 13,364 
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 September 30, 2020 and December 31, 2019, total accrued interest receivable on debt securities was $4,753 and $2,843, respectively.
As of September 30, 2020 and December 31, 2019, the Company had $4,389 and $3,295 in marketable equity securities recorded at fair value, respectively.
Securities pledged at September 30, 2020 and December 31, 2019 had carrying amounts of $607,304 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 September 30, 2020 and December 31, 2019, there were $1,214 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 September 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.
19

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
September 30,December 31,
 2020 2019 
 Available-for-saleAvailable-for-sale
 Amortized costFair valueAmortized costFair value
Due in one year or less$18,861 $19,009 $1,148 $1,152 
Due in one to five years29,353 29,811 11,553 11,676 
Due in five to ten years30,513 31,676 18,287 18,887 
Due in over ten years306,515 320,065 158,616 165,990 
385,242 400,561 189,604 197,705 
Mortgage-backed securities - residential723,333 738,106 474,144 477,312 
Mortgage-backed securities - commercial20,478 21,854 12,957 13,364 
Total debt securities$1,129,053 $1,160,521 $676,705 $688,381 
Sales and other dispositions of available-for-sale securities were as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020 2019 2020 2019 
Proceeds from sales$28,257 $22,740 $28,257 $24,498 
Proceeds from maturities, prepayments and calls67,886 28,694 140,246 78,861 
Gross realized gains563 563 
Gross realized losses39 76 39 83 
Additionally, net gains on the change in fair value of equity securities of $59 and $94 were recognized in the three and nine months ended September 30, 2020, respectively and $55 and $151 were recognized in the three and nine months ended September 30, 2019, respectively.
The following tables show gross unrealized losses for which an allowance for credit losses has not been recorded at September 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:
September 30, 2020
 Less than 12 months12 months or moreTotal
 Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
U.S. government agency securities$1,994 $(6)$$$1,994 $(6)
Mortgage-backed securities - residential107,236 (320)107,236 (320)
Municipals, tax exempt56,923 (694)56,923 (694)
Corporate securities985 (15)985 (15)
Total$167,138 $(1,035)$$$167,138 $(1,035)
 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 September 30, 2020 and December 31, 2019, the Company’s securities portfolio consisted of 553 and 365 securities, 33 and 58 of which were in an unrealized loss position, respectively.
As of September 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 nine months ended September 30, 2020.
20

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
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 nine months ended September 30, 2019.
Note (4)—Loans and allowance for credit losses:
Loans outstanding at September 30, 2020 and December 31, 2019, by class of financing receivable are as follows:
 September 30,December 31,
 2020 2019 
Commercial and industrial (1)
$1,417,671 $1,034,036 
Construction1,190,878 551,101 
Residential real estate:
1-to-4 family mortgage1,140,611 710,454 
Residential line of credit420,318 221,530 
Multi-family mortgage165,937 69,429 
Commercial real estate:
Owner occupied924,987 630,270 
Non-owner occupied1,644,400 920,744 
Consumer and other308,736 272,078 
Gross loans7,213,538 4,409,642 
Less: Allowance for credit losses(183,973)(31,139)
Net loans$7,029,565 $4,378,503 
(1)Includes $310,719 of loans originated as part of the PPP at September 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 $49 at September 30, 2020, has been calculated 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.
As of September 30, 2020 and December 31, 2019, $1,083,393 and $412,966, respectively, of qualifying residential mortgage loans (including loans held for sale) and $996,582 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 September 30, 2020 and December 31, 2019, $1,378,968 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 September 30, 2020, total accrued interest receivable on loans was $41,797.
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.
21

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The Company 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.
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 acquisitions and changes in reasonable and supportable forecasts of macroeconomic variables, primarily due to the impact of the COVID-19 pandemic, resulted in projected credit deterioration requiring the Company to recognize significant increases in the provision for credit losses during the nine months ended September 30, 2020. Specifically, the Company performed additional qualitative evaluations by class of financing receivable in line with the Company's established qualitative framework, weighting the impact of the current economic outlook, status of federal government stimulus programs, and other considerations, in order to identify specific industries or borrowers seeing credit improvement or deterioration specific to the COVID-19 pandemic.
Loans acquired during the period from Franklin increased the allowance for credit losses by $77,653 as of the August 15, 2020 acquisition date and Farmers National increased the allowance for credit losses by $4,494 as of the February 14, 2020 acquisition date. Outside of the impact of Franklin on the provision for credit losses, the remaining loan portfolio benefited from improved economic forecasts, seen for the first time in 2020, reflective of the resumption of more normalized commercial activity within our markets. As such, excluding the increase recorded upon the acquisition of Franklin, we reduced the allowance for credit losses by $7,336 during the three months ended September 30, 2020 based on these improved economic forecasts. See Note 2, "Mergers and acquisitions" for additional details related to PCD loans acquired on February 14, 2020.

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 provides the changes in the allowance for credit losses by class of financing receivable for the three and nine months ended September 30, 2020 and 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
Three Months Ended September 30, 2020
Beginning balance -
June 30, 2020
$8,878 $35,599 $12,463 $6,811 $4,499 $7,420 $30,444 $7,015 $113,129 
Provision for credit losses(1,520)22,383 4,194 4,053 1,908 (1,276)12,364 3,728 45,834 
Recoveries of loans
previously charged-off
757 51 116 22 51 175 1,172 
Loans charged off(249)(8)(95)(166)(475)(993)
Initial allowance on loans
purchased with
deteriorated credit quality
743 5,596 1,533 569 784 605 14,998 24,831 
Ending balance -
September 30, 2020
$8,609 $63,629 $18,298 $11,455 $7,191 $6,705 $57,640 $10,446 $183,973 
Nine Months Ended September 30, 2020
Beginning balance -
December 31, 2019
$4,805 $10,194 $3,112 $752 $544 $4,109 $4,621 $3,002 $31,139 
Impact of adopting ASC
326 on non-purchased
credit deteriorated loans
5,300 1,533 7,920 3,461 340 1,879 6,822 3,633 30,888 
Impact of adopting ASC
326 on purchased credit
deteriorated loans
82 150 421 (3)162 184 (438)558 
Provision for credit losses(2,354)45,962 5,412 6,633 5,523 132 31,282 5,247 97,837 
Recoveries of loans
previously charged-off
1,652 202 166 61 68 471 2,620 
Loans charged off(1,630)(18)(373)(21)(304)(711)(1,512)(4,569)
Initial allowance on loans
purchased with
deteriorated credit quality
754 5,606 1,640 572 784 659 15,442 43 25,500 
Ending balance -
September 30, 2020
$8,609 $63,629 $18,298 $11,455 $7,191 $6,705 $57,640 $10,446 $183,973 
 
 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 September 30, 2019
Beginning balance -
June 30, 2019
$4,923 $9,655 $3,288 $755 $617 $3,512 $4,478 $2,910 $30,138 
Provision for loan losses234 186 18 67 (43)194 461 714 1,831 
Recoveries of loans
previously charged-off
16 25 75 92 212 
Loans charged off(3)(170)(12)(532)(717)
Ending balance -
September 30, 2019
$5,170 $9,842 $3,331 $727 $574 $3,709 $4,927 $3,184 $31,464 
Nine Months Ended September 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 losses17 105 (77)100 482 790 2,678 4,103 
Recoveries of loans
previously charged-off
66 62 121 95 435 787 
Loans charged off(261)(82)(305)(12)(1,698)(2,358)
Ending balance -
September 30, 2019
$5,170 $9,842 $3,331 $727 $574 $3,709 $4,927 $3,184 $31,464 


23

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
24

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 September 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.
September 30, 2020
Term Loans
Amortized Cost Basis by Origination Year
20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
Commercial and industrial
Pass$399,906 $186,100 $69,916 $53,213 $33,976 $45,860 $511,111 $1,300,082 
Watch3,236 3,034 6,283 3,652 11,293 6,245 36,083 69,826 
Substandard3,160 17,022 6,552 686 6,869 13,269 47,564 
Doubtful35 164 199 
Total403,183 192,294 93,221 63,417 45,955 58,974 560,627 1,417,671 
Construction
Pass311,117 448,019 110,473 49,845 41,750 75,570 115,894 1,152,668 
Watch1,282 1,231 9,435 13,822 1,305 3,585 30,660 
Substandard972 642 132 880 4,919 7,545 
Doubtful
Total312,399 450,222 120,550 63,799 43,935 84,079 115,894 1,190,878 
Residential real estate:
1-to-4 family mortgage
Pass232,248 203,167 188,471 170,725 119,327 168,732 1,082,670 
Watch1,257 786 3,318 12,580 4,155 14,506 36,602 
Substandard532 1,452 3,274 4,128 2,039 9,120 20,545 
Doubtful34 270 490 794 
Total234,037 205,439 195,063 187,433 125,791 192,848 1,140,611 
Residential line of credit
Pass254 87 208 3,577 405,767 409,893 
Watch5,205 5,205 
Substandard109 4,848 4,961 
Doubtful259 259 
Total363 87 208 3,577 416,079 420,318 
Multi-family mortgage
Pass23,747 15,055 12,629 54,660 11,718 36,812 11,259 165,880 
Watch
Substandard57.00 57 
Doubtful
Total23,747 15,055 12,629 54,660 11,718 36,869 11,259 165,937 
25

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
Pass99,827 181,214 106,212 97,689 81,383 221,365 49,382 837,072 
Watch3,596 4,343 6,843 22,939 7,858 19,233 3,188 68,000 
Substandard428 1,302 3,815 1,457 2,931 8,440 1,542 19,915 
Doubtful
Total103,851 186,859 116,870 122,085 92,172 249,038 54,112 924,987 
Non-owner occupied
Pass108,229 248,852 360,309 218,431 291,626 250,806 43,005 1,521,258 
Watch6,181 5,897 26,361 21,775 43,984 45 104,243 
Substandard149 12,130 1,166 1,693 3,761 18,899 
Doubtful
Total108,229 255,182 378,336 245,958 315,094 298,551 43,050 1,644,400 
Consumer and other loans
Pass65,261 57,677 42,388 28,207 42,014 32,720 18,440 286,707 
Watch159 707 1,714 1,418 3,044 8,352 392 15,786 
Substandard121 68 264 618 463 2,653 407 4,594 
Doubtful260 295 544 196 354 1,649 
Total65,541 58,712 44,661 30,787 45,717 44,079 19,239 308,736 
Total
Pass1,240,589 1,340,084 890,485 672,770 622,002 835,442 1,154,858 6,756,230 
Watch9,530 16,282 33,490 80,772 49,430 95,905 44,913 330,322 
Substandard1,196 7,104 37,147 14,056 8,692 35,819 20,066 124,080 
Doubtful35 294 295 544 466 849 423 2,906 
Total$1,251,350 $1,363,764 $961,417 $768,142 $680,590 $968,015 $1,220,260 $7,213,538 


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 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 
Construction2,681 203 2,884 
Residential real estate:
1-to-4 family mortgage15,091 4,247 19,338 
Residential line of credit73 73 
Multi-family mortgage
Commercial real estate: 
Owner occupied4,535 1,356 5,891 
Non-owner occupied6,617 3,580 10,197 
Consumer and other13,521 3,564 17,085 
Total purchased credit impaired loans43,669 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 September 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 September 30, 2020 nonperforming disclosures.
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 table represents an analysis of the aging by class of financing receivable as of September 30, 2020:
September 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$1,581 $11 $6,579 $1,409,500 $1,417,671 
Construction4,346 196 2,018 1,184,318 1,190,878 
Residential real estate:
1-to-4 family mortgage4,143 7,452 6,752 1,122,264 1,140,611 
Residential line of credit287 216 1,925 417,890 420,318 
Multi-family mortgage57 165,880 165,937 
Commercial real estate:
Owner occupied1,096 2,194 921,697 924,987 
Non-owner occupied114 12,358 1,631,928 1,644,400 
Consumer and other3,584 1,132 2,759 301,261 308,736 
Total$15,151 $9,064 $34,585 $7,154,738 $7,213,538 

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 nine months ended September 30, 2020:
September 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 $913 $5,666 $936 
Construction1,254 980 1,038 145 
Residential real estate:
1-to-4 family mortgage4,585 4,247 2,505 62 
Residential line of credit489 1,925 74 
Commercial real estate:
Owner occupied2,285 1,469 725 66 
Non-owner occupied9,460 5,475 6,883 1,568 
Consumer and other1,623 88 2,671 165 
Total$25,282 $13,172 $21,413 $3,016 
Interest Income
September 30, 2020Three Months EndedNine Months Ended
Commercial and industrial$287 $304 
Construction42 48 
Residential real estate:
1-to-4 family mortgage15 21 
Residential line of credit72 72 
Commercial real estate:
Owner occupied32 75 
Non-owner occupied76 185 
Consumer and other24 
Total$524 $729 
28

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 interestTotal
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 


29

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 nine months ended September 30, 2019 on impaired loans, segregated by class, were as follows:
Three Months EndedNine Months Ended
September 30, 2019Average recorded investmentInterest income recognized (cash basis)Average recorded investmentInterest income recognized (cash basis)
With a related allowance recorded:
Commercial and industrial$3,109 $51 $1,850 $156 
Residential real estate:
1-to-4 family mortgage265 205 13 
Commercial real estate:
Owner occupied184 371 10 
Non-owner occupied6,143 56 6,241 90 
Consumer and other447 198 19 
Total$10,148 $113 $8,865 $288 
With no related allowance recorded:
Commercial and industrial$766 $11 $991 $36 
Construction1,639 90 1,641 142 
Residential real estate:
1-to-4 family mortgage835 24 962 50 
Residential line of credit427 245 
Commercial real estate:
Owner occupied2,045 41 2,171 103 
Non-owner occupied1,050 1,050 
Consumer and other66 69 
Total$6,828 $168 $7,129 $338 
Total impaired loans$16,976 $281 $15,994 $626 
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 $57,152. The following table presents changes in the value of the accretable yield for PCI loans for the periods indicated.
Three Months Ended September 30,Nine Months Ended September 30,
 2019 2019 
Balance at the beginning of period$(14,862)$(16,587)
Additions through business combinations(1,167)
Principal reductions and other reclassifications from nonaccretable difference(150)100 
Accretion1,583 5,471 
Changes in expected cash flows110 (1,136)
Balance at end of period$(13,319)$(13,319)
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.
30

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 $1,583 and $5,471 was recognized on PCI loans during the three and nine months ended September 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 $2,102 and $6,030 for the three and nine months ended September 30, 2019, respectively.
Restructured Loans
As of September 30, 2020 and December 31, 2019, the Company has a recorded investment in TDRs of $16,681 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 $854 and $360 of specific reserves for those loans at September 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, $12,243 and $5,201 were classified as non-accrual loans as of September 30, 2020 and December 31, 2019, respectively.
The following tables present the financial effect of TDRs recorded during the periods indicated.

Three Months Ended September 30, 2020Number of loansPre-modification outstanding recorded investmentPost-modification outstanding recorded investmentCharge offs and specific reserves
Commercial and industrial2$420 $420 $
Total2$420 $420 $
Three Months Ended September 30, 2019Number of loansPre-modification outstanding recorded investmentPost-modification outstanding recorded investmentCharge offs and specific reserves
Commercial and industrial$16 $16 $
Construction1,070 1,070 
Commercial real estate:
Owner occupied927 927 
Non-owner occupied1,366 1,366 106 
Residential real estate:
1-to-4 family mortgage128 128 
Total$3,507 $3,507 $106 
31

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Nine Months Ended September 30, 2020Number of loansPre-modification outstanding recorded investmentPost-modification outstanding recorded investmentCharge offs and specific reserves
Commercial and industrial$1,573 $1,573 $
Commercial real estate:
Owner occupied788 788 
Non-owner occupied3,752 3,752 $
Residential real estate:
1-to-4 family mortgage77 77 
Total$6,190 $6,190 $
Nine Months Ended September 30, 2019Number of loansPre-modification outstanding recorded investmentPost-modification outstanding recorded investmentCharge offs and specific reserves
Commercial and industrial3$3,204 $3,204 $
Construction11,070 1,070 
Commercial real estate:
Owner occupied1927 927 
Non-owner occupied11,366 1,366 106 
Residential real estate:
1-4 family mortgage1128 128 
Total7$6,695 $6,695 $106 
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 nine months ended September 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 nine months ended September 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.
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.
September 30, 2020
Type of Collateral
Real EstateFinancial Assets and EquipmentIndividually assessed allowance for credit loss
Commercial and industrial$$4,697 $668 
Construction1,817 
Residential real estate:
1-to-4 family mortgage190 
Residential line of credit1,195 
Multi-family mortgage
Commercial real estate:
Owner occupied928 34 
Non-owner occupied8,181 1,544 
Consumer and other333 36 
Total$12,644 $4,697 $2,291 
32

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
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 that remain on deferral at September 30, 2020, in connection with Company COVID-19 relief programs. 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. As of September 30, 2020, the Company had a total of $1,181,232 loans previously deferred that returned to normal payment status.
September 30, 2020
% of Loans
Commercial and industrial$25,641 1.8 %
Construction35,920 3.0 %
Residential real estate:
1-to-4 family mortgage43,281 3.8 %
Residential line of credit9,226 2.2 %
Multi-family mortgage19,005 11.5 %
Commercial real estate:
Owner occupied60,614 6.6 %
Non-owner occupied270,552 16.5 %
Consumer and other593 0.2 %
Total$464,832 6.4 %
Note (5)—Loans held for sale:
Loans held for sale are recorded at fair value, and consist primarily of residential mortgage loans originated to be sold in the secondary market. During the three months ended September 30, 2020, the Company acquired a portfolio of commercial loans, including shared national credits and institutional healthcare loans, as part of the Franklin transaction that the Company has elected to account for as held for sale. As such, these loans are excluded from the allowance for credit losses. Instead, the loans are recorded at fair value with subsequent changes to fair value recognized in earnings. During the three months ended September 30, 2020, the Company recorded gains of $20,378 in 'other noninterest income' related to changes in fair value of this portfolio. The following table summarizes loans held for sale, at fair value, as of the periods presented:
September 30,December 31,
20202019
Commercial and industrial$241,256 $0
Residential real estate:
1-4 family mortgage610,695 262,518 
Total loans held for sale, at fair value$851,951 $262,518 

33

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Note (6)—Other real estate owned
The amount reported as other real estate owned includes property acquired through foreclosure in addition to excess facilities held for sale and is carried at fair value less estimated cost to sell the property. The following table summarizes the other real estate owned for the three and nine months ended September 30, 2020 and 2019: 
Three Months EndedNine Months Ended
September 30,September 30,
 2020201920202019
Balance at beginning of period$15,091 $15,521 $18,939 $12,643 
Transfers from loans573 1,535 1,579 3,565 
Transfers (to) from premises and equipment(841)2,640 
Proceeds from sale of other real estate owned(1,411)(854)(5,561)(2,718)
Gain on sale of other real estate owned119 260 464 582 
Loans provided for sales of other real estate owned(166)
Write-downs and partial liquidations(1,624)(386)(1,832)(470)
Balance at end of period$12,748 $16,076 $12,748 $16,076 
Foreclosed residential real estate properties totaled $2,180 and $4,295 as of September 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 $310 and $82 at September 30, 2020 and December 31, 2019, respectively.
Excess land and facilities held for sale resulting from branch consolidations totaled $6,178 and $8,956 as of September 30, 2020 and December 31, 2019, respectively.
Note (7)—Goodwill and intangible assets:
Goodwill
Balance at December 31, 2019$169,051 
Addition from acquisition of Farmers National (see Note 2)6,390 
Addition from merger with Franklin (see Note 2)60,645 
Balance at September 30, 2020$236,086 
Core deposit and other intangibles
Balance at December 31, 2019$17,589 
Addition of core deposit intangible from acquisition of Farmers National (see Note 2)2,490 
Addition of core deposit intangible from merger with Franklin (see Note 2)7,670 
Less: amortization expense(3,825)
Balance at September 30, 2020$23,924 
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 performed a qualitative test of goodwill for impairment as of December 31, 2019 and determined there to be no impairment. Given the significant economic decline during the first nine months of 2020 due to COVID-19 and the resulting 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 September 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. The Company recorded $100 in relief of goodwill during the nine months ended September 30, 2019, related to the sale of the TPO mortgage delivery channel.
34

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 September 30, 2020 and December 31, 2019 is as follows:
 Core deposit and other intangibles
 Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
September 30, 2020   
Core deposit intangible$59,835 $(37,403)$22,432 
Customer base trust intangible1,600 (507)1,093 
Manufactured housing servicing intangible1,088 (689)399 
Total core deposit and other intangibles$62,523 $(38,599)$23,924 
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. During the third quarter of 2020, the Company recorded $7,670 of core deposit intangibles resulting from the Franklin merger, 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:
Remainder of 2020$1,494 
20215,477 
20224,586 
20233,658 
20242,946 
Thereafter5,763 
 $23,924 

Note (8)—Leases:
As of September 30, 2020, the Company was the lessee in 60 operating leases and 1 finance lease of certain branch, mortgage and operations locations, of which 54 operating leases and 1 finance lease currently have remaining terms varying from greater than one year to 36 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.
As of August 15, 2020, the Company recorded $24,330 in ROU assets and liabilities for operating leases assumed in the Franklin transaction. Additionally, the Company also assumed a finance lease in the Franklin transaction amounting to $1,630 included in other assets and borrowings on the consolidated balance sheets.
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.
35

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 leases is presented below:
September 30,December 31,
Classification20202019
Right-of-use assets - operatingOperating lease right-of-use assets$52,410$32,539
Right-of-use assets - financeOther assets1,616
Lease liabilities - operatingOperating lease liabilities56,705$35,525
Lease liabilities - financeBorrowings1,6190
Weighted average remaining lease term (in years) - operating12.414.1
Weighted average remaining lease term (in years) - finance14.60.0
Weighted average discount rate - operating2.66 %3.44 %
Weighted average discount rate - finance1.76 %— %
As of September 30, 2020, the Company recorded impairment of ROU assets of $1,038, which is included in merger costs related to our branch consolidations from the Franklin transaction.
The components of lease expense included in 'Occupancy and equipment expense' were as follows:
Three Months EndedNine Months Ended
September 30,September 30,
2020 2019 2020 2019 
Operating lease cost(1)
$1,663 $1,260 $4,341 $3,875 
Short-term lease cost95 81 261 239 
Variable lease cost78 146 376 580 
Total lease cost$1,836 $1,487 $4,978 $4,694 
(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:
September 30,
2020 
Lease payments due:
September 30, 2021$7,928 
September 30, 20227,196 
September 30, 20236,572 
September 30, 20246,046 
September 30, 20255,298 
Thereafter35,242 
     Total undiscounted future minimum lease payments68,282 
Discount on cash flows(11,577)
     Total lease liability$56,705 



36

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Note (9)—Mortgage servicing rights:
Changes in the Company’s mortgage servicing rights were as follows for the three and nine months ended September 30, 2020 and 2019:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020 2019 2020 2019 
Carrying value at beginning of period$60,508 $66,380 $75,521 $88,829 
Capitalization18,202 10,387 33,415 30,319 
Mortgage servicing rights acquired from Franklin, at fair value4,850 4,850 
Sales(29,160)
Change in fair value:
Due to pay-offs/pay-downs(7,756)(5,050)(19,676)(10,150)
Due to change in valuation inputs or assumptions581 (5,561)(22,575)(13,682)
Carrying value at end of period$71,535 $66,156 $71,535 $66,156 

The following table summarizes servicing income and expense, which are included in 'Mortgage banking income' and 'Other noninterest expense,' respectively, within the Mortgage segment operating results for the three and nine months ended September 30, 2020 and 2019: 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020 2019 2020 2019 
Servicing income:
Servicing income$5,536 $3,960 $15,667 $12,763 
Change in fair value of mortgage servicing rights(7,175)(10,611)(42,251)(23,832)
Change in fair value of derivative hedging instruments(265)5,520 15,705 13,060 
Servicing income(1,904)(1,131)(10,879)1,991 
Servicing expenses1,999 1,732 5,392 4,961 
Net servicing (loss) income (1)
$(3,903)$(2,863)$(16,271)$(2,970)
(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 September 30, 2020 and December 31, 2019 are as follows: 
 September 30,December 31,
 20202019
Unpaid principal balance$9,101,007 $6,734,496 
Weighted-average prepayment speed (CPR)15.28 %10.05 %
Estimated impact on fair value of a 10% increase$(4,214)$(2,839)
Estimated impact on fair value of a 20% increase$(8,053)$(5,474)
Discount rate11.27 %9.68 %
Estimated impact on fair value of a 100 bp increase$(2,570)$(3,086)
Estimated impact on fair value of a 200 bp increase$(4,960)$(5,932)
Weighted-average coupon interest rate3.75 %4.20 %
Weighted-average servicing fee (basis points)2829
Weighted-average remaining maturity (in months)328335
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 13, "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 nine months ended September 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 nine months ended September 30, 2020, there were no such transactions. As of
37

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
September 30, 2020 and 2019, there were no loans being serviced that related to the bulk sale of mortgage servicing rights. As of September 30, 2020 and December 31, 2019, mortgage escrow deposits totaled to $194,276 and $92,610, respectively.
Note (10)—Borrowings:
Borrowings include securities sold under agreements to repurchase, lines of credit, Federal Home Loan Bank advances, and subordinated debt.
Outstanding BalanceWeighted Average Interest Rate
September 30,December 31,September 30,December 31,
2020 2019 2020 2019 
Securities sold under agreements to repurchase$32,469 $23,745 0.61 %0.89 %
FHLB advances200,000 250,000 0.77 %1.60 %
Subordinated debt189,750 30,930 5.10 %5.13 %
Other borrowings16,619 1.88 %%
$438,838 $304,675 
Federal Home Loan Bank Advances
As a member of the FHLB Cincinnati, the Bank receives advances from the FHLB pursuant to the terms of various agreements that assist in funding its mortgage and loan portfolio production. Under these agreements, the Company pledged qualifying loans of $2,079,975 as collateral securing a line of credit with a total borrowing capacity of $1,604,499 as of September 30, 2020. As of December 31, 2019, the Company pledged qualifying loans of $958,506 as collateral securing a line of credit with a total borrowing capacity of $760,607. Two letters of credit with the FHLB totaling $145,000 and one letter of credit with the FHLB of $75,000 was pledged to secure public funds that require collateralization at September 30, 2020 and December 31, 2019, respectively.
Borrowings against the Company's line totaled $200,000 and $250,000 as of September 30, 2020 and December 31, 2019, respectively. Total borrowings as of September 30, 2020 comprised $100,000 in long term advances, $0 in overnight cash management advances (CMAs) and $100,000 in 90 day fixed rate advances. The long-term advances as of September 30, 2020 contains putable features and is composed of $100.0 million carrying a maximum final term of 10 years. However, the FHLB owns the option to cancel the advances after one year and quarterly thereafter and carrying a fixed rate of 1.24%. During the third quarter of 2020, the Company repaid $50,000 in putable advances carrying a maximum final term of seven years. In addition to the repayment, the Company also incurred $2,593 in early termination costs associated with this advance. Subsequent to September 30, 2020, the Company elected to not renew the remaining $100,000 in outstanding FHLB 90 day fixed rate advances as discussed in Note 1, "Basis of presentation."
Maturities of FHLB advances as of September 30, 2020 are as follows:
 FHLB advances
Due on or before: 
September 30, 2021$100,000 
September 30, 2022
September 30, 2023
September 30, 2024
September 30, 2025
Due thereafter100,000 
Total$200,000 
The Company maintained a line with the Federal Reserve Bank through the Borrower-in-Custody program in 2020 and 2019.  As of September 30, 2020 and December 31, 2019, $1,378,968 and $1,407,662 of qualifying loans and $4,129 and $4,963 of investment securities were pledged to the Federal Reserve Bank through the Borrower-in-Custody program securing a line of credit of $1,001,764 and $1,013,239, respectively.
Subordinated Debt
In 2003, 2 separate trusts formed by the Company issued $9,000 of floating rate trust preferred securities (“Trust I”) and $21,000 of floating rate trust preferred securities (“Trust II”), respectively, as part of a pooled offering of such securities. The Company issued junior subordinated debentures of $9,280, which included proceeds of common securities purchased by the Company of $280, and junior subordinated debentures of $21,650, which included proceeds of common
38

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
securities of $650. Both issuances were to the trusts in exchange for the proceeds of the securities offerings, which represent the sole asset of the trusts. Trust I pays interest quarterly based upon the 3-month LIBOR plus 3.25%. Trust II pays interest quarterly based upon the 3-month LIBOR plus 3.15%. Rates for the two issues at September 30, 2020, were 3.56% and 3.43%, respectively. Rates for the two issues at December 31, 2019, were 5.19% and 5.10%, respectively. The Company may redeem the first junior subordinated debenture listed, in whole or in part, on any distribution payment date within 120 days of the occurrence of a special event, at the redemption price. The Company may redeem the second junior subordinated debentures listed, in whole or in part, any time after June 26, 2008, on any distribution payment date, at the redemption price. The junior subordinated debentures must be redeemed no later than 2033. The Company has classified $30,000 of subordinated debt as Tier 1 capital at both September 30, 2020 and December 31, 2019.
Additionally, in the third quarter of 2020, the Company placed $100,000 of ten year fixed-to-floating rate subordinated notes, maturing September 1, 2030. This subordinated note instrument pays interest semi-annually in arrears based on a 4.5% fixed annual interest rate for the first five years of the notes. For years six through ten, the interest rate resets on a quarterly basis, and will be based on the 3-month Secured Overnight Financing Rate plus a spread of 439 basis points. The Company is entitled to redeem the notes in whole or in part on any interest payment date on or after September 1, 2025. The Company classified the entire $100,000 placement of subordinated notes as Tier 2 capital at September 30, 2020. Under current regulatory guidelines, the instrument loses 20% of its Tier 2 capital treatment on a graded basis in the final five years prior to maturity.
The Company also assumed 2 issues of subordinated debt, totaling $60,000, as part of the Franklin merger. The notes, issued in 2016, feature $40,000 of 6.875% fixed-to-floating rate subordinated notes due March 30, 2026 ("March 2026 Subordinated Notes"), and $20,000 of 7% fixed-to-floating rate subordinated notes due July 1, 2026 ("July 2026 Subordinated Notes"). Both note issuances currently pay interest semi-annually, and will begin resetting interest rates on a quarterly basis after March 30, 2021 and July 1, 2021. For years six through ten, interest for the March 2026 Subordinated Notes will based on the 3-month LIBOR plus 5.636%, and interest for the July 2026 Subordinated Notes will be based on the 3-month LIBOR plus 6.04%. The Company is entitled to redeem in whole or in part after the respective fifth anniversary of each note issuance. The Company classified the entire $60,000 in subordinated notes as Tier 2 capital at September 30, 2020.
Note (11)—Income taxes:
An allocation of federal and state income taxes between current and deferred portions is presented below:
 Three Months Ended September 30,
 2020 2019 
Current$13,123 $9,167 
Deferred(15,163)(1,449)
Total$(2,040)$7,718 
Nine Months Ended September 30,
2020 2019 
Current$37,038 $25,907 
Deferred(31,543)(5,900)
Total$5,495 $20,007 
39

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 a reconciliation of federal income taxes at the statutory federal rate of 21% to the Company's effective tax rates for the three and nine months ended September 30, 2020 and 2019:
 Three Months Ended September 30,
 2020 2019 
Federal taxes calculated at statutory rate$(1,604)21.0 %$6,653 21.0 %
Increase (decrease) resulting from:
State taxes, net of federal benefit100 (1.3)%1,512 4.7 %
Benefit from equity based compensation(7)0.1 %(275)(0.9)%
Municipal interest income, net of interest disallowance(422)5.5 %(211)(0.7)%
Bank owned life insurance(55)0.7 %(11)0.1 %
Merger costs126 (1.6)%%
Other(177)2.3 %50 0.2 %
Income tax (benefit) expense, as reported$(2,040)26.7 %$7,718 24.4 %
Nine Months Ended September 30,
2020 2019 
Federal taxes calculated at statutory rate$4,938 21.0 %$17,272 21.0 %
Increase (decrease) resulting from:
State taxes, net of federal benefit1,266 5.4 %3,855 4.7 %
Expense (benefit) from equity based compensation154 0.7 %(668)(0.8)%
Municipal interest income, net of interest disallowance(996)(4.2)%(650)(0.8)%
Bank owned life insurance(90)(0.4)%(38)0.1 %
Merger costs289 1.2 %%
Other(65)(0.3)%236 0.3 %
Income tax expense, as reported$5,495 23.4 %$20,007 24.3 %

As of September 30, 2020, the Company acquired $8,346 of net operating losses from Franklin. The net operating loss carryforwards can be used to offset taxable income in future periods and reduce income tax liabilities in those future periods. It is possible that net operating losses acquired will be subject to limitation under IRC Section 382. The net operating loss carryforward is set to expire as of December 31, 2030.
40

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The components of the net deferred tax assets (liabilities) at September 30, 2020 and December 31, 2019, are as follows: 
September 30,December 31
 2020 2019 
Deferred tax assets:  
Allowance for credit losses$51,869 $8,113 
Operating lease liabilities14,892 9,373 
Federal net operating loss1,753 
Amortization of core deposit intangibles1,386 
Deferred compensation8,250 5,231 
Unrealized loss on debt securities54 
Unrealized loss on equity securities41 60 
Unrealized loss on cash flow hedges347 
Other6,684 2,388 
Subtotal83,836 26,605 
Deferred tax liabilities:  
FHLB stock dividends$(561)$(550)
Operating leases - right of use assets(13,863)(8,641)
Depreciation(5,689)(5,078)
Amortization of core deposit intangibles(668)
Unrealized gain on cash flow hedges(203)
Unrealized gain on debt securities(12,116)(3,051)
Mortgage servicing rights(18,557)(19,678)
Goodwill(10,691)(8,859)
Other200 (1,035)
Subtotal(61,945)(47,095)
Net deferred tax assets (liabilities)$21,891 $(20,490)
 
Note (12)—Commitments and contingencies:
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates.
Commitments may expire without being used. Off-balance sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.
September 30,December 31,
 2020 2019 
Commitments to extend credit, excluding interest rate lock commitments$1,819,070 $1,086,173 
Letters of credit18,239 19,569 
Balance at end of period$1,837,309 $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, upon adoption the Company recorded an initial 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.
41

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 September 30,For the Nine Months Ended September 30,
2020 2020 
Balance at beginning of period$6,500 $
Impact of CECL adoption on provision for credit losses on unfunded commitments2,947 
Increase in allowance for credit losses from unfunded commitments acquired in business combination10,429 10,499 
Provision for credit losses on unfunded commitments(862)2,621 
Balance at end of period$16,067 $16,067 
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 $1,329 and $5,696 for the three and nine months ended September 30, 2020, respectively, and $1,165 and $4,675, for the three and nine months ended September 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 September 30,For the Nine Months Ended September 30,
 2020 2019 2020 2019 
Balance at beginning of period$4,601 $3,407 $3,529 $3,273 
Provision for loan repurchases or indemnifications901 107 2,128 255 
Recoveries on previous losses(44)(79)(199)(93)
Balance at end of period$5,458 $3,435 $5,458 $3,435 

Note (13)—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.
42

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
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 hedges with the objective of reducing the variability in cash flows resulting from changes in interest rates. As of September 30, 2020 and December 31, 2019, the fair value of these contracts resulted in a liability of $2,063 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 September 30, 2020 and December 31, 2019, there was $545 and $955, respectively, remaining in the other comprehensive income to be accreted. Subsequent to September 30, 2020, the Company elected to not renew the outstanding borrowing associated with the legacy cash flow hedge, and reclassified the remaining unamortized gain, reflected above, from accumulated other comprehensive income to earnings, as discussed in Note 1, "Basis of presentation."
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
September 30, 2020December 31, 2019September 30, 2020December 31, 2019
Gross amounts recognized$4,328 $331 $39,298 $14,682 
Gross amounts offset in the consolidated balance sheets
Net amounts presented in the consolidated balance sheets4,328 331 39,298 14,682 
Gross amounts not offset in the consolidated balance sheets
Less: financial instruments974 139 974 139 
Less: financial collateral pledged38,324 14,543 
Net amounts$3,354 $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 September 30, 2020 and December 31, 2019, the Company had minimum collateral posting thresholds with certain derivative counterparties and had collateral posted of $76,063 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.
43

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The following tables provide details on the Company’s derivative financial instruments as of the dates presented:
September 30, 2020
Notional AmountAssetLiability
Not designated as hedging:
Interest rate contracts$590,166 $39,538 $39,303 
Forward commitments1,510,902 4,523 
Interest rate-lock commitments1,364,222 43,049 
Futures contracts327,700 66 
Total$3,792,990 $82,587 $43,892 

 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 
 
 September 30, 2020
 Notional AmountAssetLiability
Designated as hedging:   
Interest rate swaps$30,000 $$2,063 
December 31, 2019
Notional AmountAssetLiability
Designated as hedging:
Interest rate swaps$30,000 $$515 
Gains (losses) included in the consolidated statements of income related to the Company’s derivative financial instruments were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
 2020 2019 2020 2019 
Not designated as hedging instruments (included in mortgage banking income):
Interest rate lock commitments$5,994 $447 $35,997 $4,202 
Forward commitments(16,548)(3,227)(56,998)(12,895)
Futures contracts(587)4,685 10,955 10,663 
Option contracts47 
Total$(11,141)$1,908 $(10,046)$2,017 
Three Months Ended September 30,Nine Months Ended September 30,
 2020 2019 2020 2019 
Designated as hedging:
Amount of gain reclassified from other comprehensive income and recognized in interest expense on borrowings, net of taxes of $(41), $(46), $(145), and $(121)$115 $130 $410 $343 
(Loss) gain included in interest expense on borrowings(137)19 (211)113 
Total$(22)$149 $199 $456 
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 discloses the amount included in other comprehensive income, net of tax, for derivative instruments designated as cash flow hedges for the periods presented: 
Three Months Ended September 30,Nine Months Ended September 30,
 2020 2019 2020 2019 
Designated as hedging:
Amount of (loss) gain recognized in other comprehensive income, net of tax $40, $(90), $(403), $(407)$112 $(256)$(1,145)$(1,151)
Note (14)—Fair value of financial instruments:
FASB ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a framework for measuring the fair value of assets and liabilities according to a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that are derived from assumptions based on management’s estimate of assumptions that market participants would use in pricing the asset or liability based on the best information available under the circumstances.
The hierarchy is broken down into the following three levels, based on the reliability of inputs:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs for assets or liabilities that are derived from assumptions based on management’s estimate of assumptions that market participants would use in pricing the assets or liabilities.
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.
45

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
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.
The following table contains the estimated fair values and the related carrying values of the Company's financial instruments. Items which are not financial instruments are not included.
 
 Fair Value
September 30, 2020Carrying amountLevel 1Level 2Level 3Total
Financial assets:     
Cash and cash equivalents$1,062,391 $1,062,391 $$$1,062,391 
Investment securities1,164,910 1,164,910 1,164,910 
Loans, net7,029,565 7,119,243 7,119,243 
Loans held for sale851,951 851,951 851,951 
Interest receivable47,120 39 5,284 41,797 47,120 
Mortgage servicing rights71,535 71,535 71,535 
Derivatives82,587 82,587 82,587 
Financial liabilities: 
Deposits: 
Without stated maturities$7,530,117 $7,530,117 $$$7,530,117 
With stated maturities1,563,630 1,573,537 1,573,537 
Securities sold under agreement to
repurchase and federal funds sold
32,469 32,469 32,469 
Federal Home Loan Bank advances200,000 206,232 206,232 
Subordinated debt189,750 189,711 189,711 
Other borrowings16,619 16,619 16,619 
Interest payable5,961 237 5,724 5,961 
Derivatives45,955 45,955 45,955 

46

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
 
 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 
The balances and levels of the assets measured at fair value on a recurring basis at September 30, 2020 are presented in the following table:
September 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$$1,994 $$1,994 
Mortgage-backed securities738,106 738,106 
Municipals, tax-exempt374,880 374,880 
Treasury securities21,700 21,700 
Corporate securities1,987 1,987 
Equity securities4,389 4,389 
Total$$1,143,056 $$1,143,056 
Loans held for sale$$851,951 $$851,951 
Mortgage servicing rights71,535 71,535 
Derivatives82,587 82,587 
Financial Liabilities:
Derivatives45,955 45,955 











47

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 non-recurring basis at September 30, 2020 are presented in the following table: 
At September 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$$$5,708 $5,708 
Collateral dependent loans:
Commercial and industrial$$$4,697 $4,697 
Construction1,817 1,817 
Residential real estate:
1-4 family mortgage190 190 
Residential line of credit1,195 1,195 
Commercial real estate:
Owner occupied928 928 
Non-owner occupied8,181 8,181 
Consumer and other333 333 
Total collateral dependent loans$$$17,341 $17,341 
The balances and levels of the assets measured at fair value on a recurring basis at December 31, 2019 are presented in the following table: 
At December 31, 2019Quoted prices
in active
markets for
identical assets
(liabilities)
(level 1)
Significant
other
observable
inputs
(level 2)
Significant unobservable
inputs
(level 3)
Total
Recurring valuations:    
Financial assets:    
Available-for-sale securities:    
Mortgage-backed securities$$477,312 $$477,312 
Municipals, tax-exempt189,235 189,235 
Treasury securities7,448 7,448 
Corporate securities1,022 1,022 
Equity securities3,295 3,295 
Total$$678,312 $$678,312 
Loans held for sale$$262,518 $$262,518 
Mortgage servicing rights75,521 75,521 
Derivatives21,981 21,981 
Financial Liabilities:
Derivatives17,933 17,933 
 
48

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 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 mortgage378 378 
Residential line of credit321 321 
Commercial real estate: 
Owner occupied951 951 
Non-owner occupied2,560 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 September 30, 2020 about significant unobservable inputs (Level 3) used in the valuation of assets measured at fair value on a nonrecurring basis:
Financial instrumentFair ValueValuation techniqueSignificant 
Unobservable inputs
Range of
inputs
Collateral dependent loans$17,341 Valuation of collateralDiscount for comparable sales0%-30%
Other real estate owned$5,708 Appraised value of property less costs to sellDiscount for costs to sell0%-15%
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 instrumentFair ValueValuation techniqueSignificant 
Unobservable inputs
Range 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.
49

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
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 $20,378 and $6,512 resulting from fair value changes of mortgage loans were recorded in income during the three and nine months ended September 30, 2020, respectively, compared to $3,291 and $2,329 during the three and nine months ended September 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 September 30, 2020 and December 31, 2019, there was $129,644 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.
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 September 30, 2020 and December 31, 2019: 
September 30, 2020Aggregate
fair value
Aggregate
Unpaid
Principal
Balance
Difference
Mortgage loans held for sale measured at fair value$610,695 $587,352 $23,343 
Commercial loans held for sale measured at fair value228,444 250,649 (22,205)
Past due loans of 90 days or more
Nonaccrual loans12,812 12,812 
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
50

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)


Note (15)—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 $112 and $1,995 in restructuring charges, during the three and nine months ended September 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.
51

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 nine months ended September 30, 2020 and 2019 as follows:
Three Months Ended September 30, 2020
Banking
MortgageConsolidated
Net interest income$68,791 $37 $68,828 
Provisions for credit losses(1)
55,401 55,401 
Mortgage banking income24,683 67,443 92,126 
Change in fair value of mortgage servicing rights, net of hedging(2)
(7,440)(7,440)
Other noninterest income12,340 12,340 
Depreciation and amortization1,550 143 1,693 
Amortization of intangibles1,417 1,417 
Other noninterest mortgage banking expense15,175 29,909 45,084 
Other noninterest expense(3)
69,568 330 69,898 
(Loss) income before income taxes$(37,297)$29,658 $(7,639)
Income tax benefit(2,040)
Net loss(5,599)
Total assets$10,378,122 $632,316 $11,010,438 
Goodwill236,086 236,086 
(1)Included $9,567 in provision for credit losses on unfunded commitments.
(2)Included in mortgage banking income in the Company's consolidated statements of income.
(3)Included $20,400 of merger costs in the Banking segment related to the acquisition and integration of Franklin, and $330 of merger costs in the Mortgage segment related to the Franklin merger.
Three Months Ended September 30, 2019
Banking
MortgageConsolidated
Net interest income$58,350 $(45)$58,305 
Provision for credit losses1,831 1,831 
Mortgage banking income10,693 23,591 34,284 
Change in fair value of mortgage servicing rights, net of hedging(1)
(5,091)(5,091)
Other noninterest income8,952 8,952 
Depreciation and amortization1,255 125 1,380 
Amortization of intangibles1,197 1,197 
Other noninterest mortgage banking expense8,087 15,561 23,648 
Other noninterest expense(2)
36,598 112 36,710 
Income before income taxes29,027 2,657 31,684 
Income tax expense7,718 
Net income23,966 
Total assets$5,730,492 $358,403 $6,088,895 
Goodwill168,486 168,486 
(1)Included in mortgage banking income in the Company's consolidated statements of income.
(2)Included $295 in merger costs in the Banking segment related to the Atlantic Capital branch acquisition and $112 in mortgage restructuring charges in the Mortgage segment.
52

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Nine Months Ended September 30, 2020
Banking
MortgageConsolidated
Net interest income$180,374 $40 $180,414 
Provision for credit losses(1)
110,887 110,887 
Mortgage banking income52,274 163,871 216,145 
Change in fair value of mortgage servicing rights, net of hedging(2)
(26,546)(26,546)
Other noninterest income31,618 31,618 
Depreciation and amortization4,545 379 4,924 
Amortization of intangibles3,825 3,825 
Other noninterest mortgage banking expense33,892 74,237 108,129 
Other noninterest expense(3)
150,022 330 150,352 
(Loss) income before income taxes$(38,905)$62,419 $23,514 
Income tax expense5,495 
Net income$18,019 
Total assets$10,378,122 $632,316 $11,010,438 
Goodwill236,086 236,086 
(1)Included $13,050 in provision for credit losses on unfunded commitments.
(2)Included in mortgage banking income in the Company's consolidated statements of income.
(3)Included $25,036 of merger costs in the Banking segment related to the acquisition and integration of Farmers National and Franklin, and $330 of merger costs in the Mortgage segment related to the Franklin merger.

Nine Months Ended September 30, 2019
Banking
MortgageConsolidated
Net interest income$168,322 $22 $168,344 
Provision for credit losses4,103 4,103 
Mortgage banking income20,530 64,982 85,512 
Change in fair value of mortgage servicing rights, net of hedging(1)
(10,772)(10,772)
Other noninterest income25,423 25,423 
Depreciation and amortization3,431 399 3,830 
Amortization of intangibles3,180 3,180 
Other noninterest mortgage banking expense15,090 50,608 65,698 
Other noninterest expense(2)
107,452 1,995 109,447 
Income before income taxes$81,019 $1,230 $82,249 
Income tax expense20,007 
Net income$62,242 
Total assets$5,730,492 $358,403 $6,088,895 
Goodwill168,486 168,486 
(1)Included in mortgage banking income in the Company's consolidated statements of income.
(2)Includes $4,699 in merger costs in the Banking segment related to the Atlantic Capital branch acquisition and $1,995 in mortgage restructuring charges in the Mortgage segment.
Our Banking segment provides our Mortgage segment with a warehouse line of credit that is used to fund mortgage loans held for sale. The warehouse line of credit, which is eliminated in consolidation, had a prime interest rate of 3.25% and 5.00% as of September 30, 2020 and 2019, respectively, and is limited based on interest income earned by the Mortgage segment. The amount of interest paid by our Mortgage segment to our Banking segment under this warehouse line of credit is recorded as interest income to our Banking segment and as interest expense to our Mortgage segment, both of which are included in the calculation of net interest income for each segment. The amount of interest paid by our Mortgage segment to our Banking segment under this warehouse line of credit was $3,940 and $2,875 for the three months ended September 30, 2020 and 2019, respectively, and $9,650 and $8,723 for the nine months ended September 30, 2020 and 2019, respectively.
Note (16)—Minimum capital requirements:
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.
53

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Under regulatory guidance for non-advanced approaches institutions, the Bank and Company are required to maintain minimum amounts and ratios of common equity Tier I capital to risk-weighted assets. Additionally, under U.S. Basel III Capital Rules, the decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. As of September 30, 2020 and December 31, 2019, the Bank and Company met all capital adequacy requirements to which they are subject.
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 a final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company adopted the capital transition relief over the permissible five-year period. Actual and required capital amounts and ratios are included below for the periods presented.

 ActualFor capital adequacy purposesMinimum Capital
adequacy with
capital buffer
To be well capitalized
under prompt corrective
action provisions
 AmountRatioAmountRatioAmountRatioAmountRatio
September 30, 2020