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FBK FB Financial

Filed: 6 Aug 21, 2:49pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________
FORM 10-Q
______________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
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
____________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol  Name of each exchange on which registered 
Common Stock, Par Value $1.00 Per Share FBK  New York Stock Exchange 
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer 
Non-accelerated filer   Small reporting company 
Emerging growth company     
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of Registrant’s Common Stock outstanding as of July 30, 2021 was 47,363,275.
1


Table of Contents




2


GLOSSARY OF ABBREVIATIONS AND ACRONYMS

As used in this report, references to “we,” “our,” “us,” “FB Financial,” or “the Company” refer to FB Financial Corporation, a Tennessee corporation, and our wholly owned banking subsidiary, FirstBank, a Tennessee state-chartered bank, unless otherwise indicated or the context otherwise requires. References to “Bank” or “FirstBank” refer to FirstBank, our wholly owned banking subsidiary.

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

ACLAllowance For Credit LossesGAAPU.S. generally accepted accounting principles
AFSAvailable-for-SaleGNMAGovernment National Mortgage Association
ALCOAsset Liability Management CommitteeIPOInitial Public Offering
ASCAccounting Standard CodificationIRCInternal Revenue Code
ASUAccounting Standard UpdateMSRMortgage Servicing Rights
CAAConsolidated Appropriations ActJOBS ActJumpstart Our Business Startups Act
CARESCoronavirus Aid, Relief, and Economic Security ActLIBORLondon Interbank Offered Rate
CECLCurrent Expected Credit LossesLTIPLong-Term Incentive Plan
CEOChief Executive OfficerMSAMetropolitan Statistical Areas
CET1Common Equity Tier 1MSRMortgage Servicing Rights
CMACash Management AdvancesNIMNet Interest Margin
CPRConditional Prepayment RateOCCOffice of the Comptroller of the Currency
CRECommercial Real EstateOREOOther Real Estate Owned
EPSEarnings per SharePCDPurchased Credit Deteriorated
ESPPEmployee Stock Purchase PlanPPPPaycheck Protection Program
EVEEconomic Value of EquityPSUPerformance-based Restricted Stock Units
FASBFinancial Accounting Standards BoardREITReal Estate Investment Trust
FBINFirstBank Investments of Nevada, Inc.ROAAReturn on Average Total Assets
FBITFirstBank Investments of Tennessee, Inc.ROAEReturn on Average Shareholders' Equity
FBPCFirstBank Preferred Capital, Inc.ROATCEReturn on Average Tangible Common Equity
FBRMFirstBank Risk ManagementROURight-of-use
FDICFederal Deposit Insurance CorporationRSURestricted Stock Units
FHLBFederal Home Loan BankSBASmall Business Administration
FHLMCFederal Home Loan Mortgage CorporationSECU.S. Securities and Exchange Commission
FNBFarmers NationalTDFITennessee Department of Financial Institutions
FNMAFederal National Mortgage AssociationTDRTroubled Debt Restructuring
FTEFull Time Equivalent
3


PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS

FB Financial Corporation and subsidiaries
Consolidated balance sheets
(Amounts are in thousands except share and per share amounts) 


 June 30,December 31,
 2021 (Unaudited)2020 
ASSETS  
Cash and due from banks$60,908 $110,991 
Federal funds sold and reverse repurchase agreements59,321 121,153 
Interest-bearing deposits in financial institutions1,596,868 1,085,754 
Cash and cash equivalents1,717,097 1,317,898 
Investments:
Available-for-sale debt securities, at fair value1,404,372 1,172,400 
Equity securities, at fair value4,803 4,591 
Federal Home Loan Bank stock, at cost29,411 31,232 
Loans held for sale, at fair value821,529 899,173 
Loans7,198,954 7,082,959 
Less: allowance for credit losses144,663 170,389 
Net loans7,054,291 6,912,570 
Premises and equipment, net142,596 145,115 
Other real estate owned, net11,986 12,111 
Operating lease right-of-use assets45,423 49,537 
Interest receivable42,083 43,603 
Mortgage servicing rights, at fair value101,615 79,997 
Goodwill242,561 242,561 
Core deposit and other intangibles, net19,592 22,426 
Other assets281,008 274,116 
Total assets$11,918,367 $11,207,330 
LIABILITIES
Deposits
Noninterest-bearing$2,484,982 $2,274,103 
Interest-bearing checking3,015,253 2,491,765 
Money market and savings3,421,281 3,254,915 
Customer time deposits1,241,540 1,375,695 
Brokered and internet time deposits40,900 61,559 
Total deposits10,203,956 9,458,037 
Borrowings183,962 238,324 
Operating lease liabilities50,396 55,187 
Accrued expenses and other liabilities108,239 164,400 
Total liabilities10,546,553 9,915,948 
Commitments and contingencies (Note 9)00
SHAREHOLDERS' EQUITY
Common stock, $1 par value per share; 75,000,000 shares authorized;
47,360,950 and 47,220,743 shares issued and outstanding at
June 30, 2021 and December 31, 2020, respectively
47,361 47,222 
Additional paid-in capital902,782 898,847 
Retained earnings403,173 317,625 
Accumulated other comprehensive income, net18,405 27,595 
Total FB Financial Corporation common shareholders' equity1,371,721 1,291,289 
Noncontrolling interest93 93 
Total equity1,371,814 1,291,382 
Total liabilities and shareholders' equity$11,918,367 $11,207,330 
See the accompanying notes to the consolidated financial statements.
4


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

5
 Three Months Ended June 30,Six Months Ended June 30,
 2021 2020 2021 2020 
Interest income:  
Interest and fees on loans$89,861 $61,092 $179,273 $124,846 
Interest on securities
Taxable3,844 2,619 6,663 5,675 
Tax-exempt1,933 1,590 3,889 3,023 
Other691 306 1,289 1,737 
Total interest income96,329 65,607 191,114 135,281 
Interest expense:
Deposits7,919 9,309 17,745 21,477 
Borrowings1,847 961 4,230 2,218 
Total interest expense9,766 10,270 21,975 23,695 
Net interest income86,563 55,337 169,139 111,586 
Provision for credit losses(12,885)24,039 (24,517)52,003 
Provision for credit losses on unfunded commitments(954)1,882 (3,176)3,483 
Net interest income after provisions for credit losses100,402 29,416 196,832 56,100 
Noninterest income:
Mortgage banking income35,499 72,168 90,831 104,913 
Service charges on deposit accounts2,266 1,858 4,605 4,421 
ATM and interchange fees5,381 3,606 9,722 6,740 
Investment services and trust income2,999 1,368 5,007 3,065 
Gain (loss) from securities, net144 (28)227 35 
(Loss) gain on sales or write-downs of other real estate owned(23)86 473 137 
Loss from other assets(4)(54)(15)(382)
Other income3,038 2,487 5,180 5,262 
Total noninterest income49,300 81,491 116,030 124,191 
Noninterest expenses:
Salaries, commissions and employee benefits62,367 55,258 126,938 98,880 
Occupancy and equipment expense5,356 4,096 11,205 8,274 
Legal and professional fees2,090 1,952 4,524 3,510 
Data processing2,542 2,782 4,861 5,235 
Merger costs1,586 4,636 
Amortization of core deposit and other intangibles1,394 1,205 2,834 2,408 
Advertising3,559 2,591 5,812 4,980 
Other expense15,652 11,109 31,484 21,215 
Total noninterest expense92,960 80,579 187,658 149,138 
Income before income taxes56,742 30,328 125,204 31,153 
Income tax expense13,440 7,455 29,028 7,535 
Net income applicable to FB Financial Corporation and noncontrolling
interest
43,302 22,873 96,176 23,618 
Net income applicable to noncontrolling interest
Net income applicable to FB Financial Corporation$43,294 $22,873 $96,168 $23,618 
Earnings per common share
Basic$0.91 $0.71 $2.03 $0.75 
Diluted0.90 0.70 2.00 0.74 
See the accompanying notes to the consolidated financial statements.
5


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

 Three Months Ended June 30,Six Months Ended June 30,
 2021 2020 2021 2020 
Net income$43,302 $22,873 $96,176 $23,618 
Other comprehensive income (loss), net of tax:
Net change in unrealized gain in available-for-sale
securities, net of tax expenses (benefits) of $798, $429, $(2,654) and $4,704
2,286 1,209 (9,562)13,303 
Reclassification adjustment for gain on sale of securities
included in net income, net of tax expenses of $2, $0, $4 and $0
(6)(11)
Net change in unrealized loss in hedging activities, net of tax
    expenses (benefits) of $23, $(40), $135 and $(443)
67 (112)383 (1,257)
Reclassification adjustment for gain on hedging activities,
net of tax expenses of $0, $52, $0 and $104
(148)(295)
Total other comprehensive income (loss), net of tax2,347 949 (9,190)11,751 
Comprehensive income45,649 23,822 86,986 35,369 
Comprehensive income applicable to noncontrolling interests
Comprehensive income applicable to FB Financial Corporation$45,641 $23,822 $86,978 $35,369 
 
See the accompanying notes to the consolidated financial statements.
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 March 31, 2021$47,332 $900,521 $365,192 $16,058 $1,329,103 $93 $1,329,196 
Net income attributable to FB
Financial Corporation and
noncontrolling interest
— — 43,294 — 43,294 43,302 
Other comprehensive income, net
of taxes
— — — 2,347 2,347 — 2,347 
Stock based compensation expense2,513 — — 2,515 — 2,515 
Restricted stock units vested and
distributed, net of shares withheld
27 (252)— — (225)— (225)
Shares issued under employee
stock purchase program
— — — — — — 
Dividends declared ($0.11 per
   share)
— — (5,313)— (5,313)— (5,313)
Noncontrolling interest distribution— — — — — (8)(8)
Balance at June 30, 2021$47,361 $902,782 $403,173 $18,405 $1,371,721 $93 $1,371,814 
Balance at December 31, 2020$47,222 $898,847 $317,625 $27,595 $1,291,289 $93 $1,291,382 
Net income attributable to FB
Financial Corporation and
noncontrolling interest
— — 96,168 — 96,168 96,176 
Other comprehensive income, net
of taxes
— — — (9,190)(9,190)— (9,190)
Stock based compensation expense5,176 — — 5,181 — 5,181 
Restricted stock units vested and
distributed, net of shares withheld
112 (2,052)— — (1,940)— (1,940)
Shares issued under employee
stock purchase program
22 811 — — 833 — 833 
Dividends declared ($0.22 per
    share)
— — (10,620)— (10,620)— (10,620)
Noncontrolling interest distribution— — — — — (8)(8)
Balance at June 30, 2021$47,361 $902,782 $403,173 $18,405 $1,371,721 $93 $1,371,814 
7


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 March 31, 2020$32,067 $460,938 $266,385 $22,940 $782,330 $$782,330 
Net income— — 22,873 — 22,873 — 22,873 
Other comprehensive loss, net of
taxes
— — — 949 949 — 949 
Stock based compensation expense2,344 — — 2,350 — 2,350 
Restricted stock units vested and
distributed, net of shares withheld
28 (352)— — (324)— (324)
Dividends declared ($0.09 per
   share)
— — (2,962)— (2,962)— (2,962)
Balance at June 30, 2020$32,101 $462,930 $286,296 $23,889 $805,216 $$805,216 
Balance at December 31, 2019$31,034 $425,633 $293,524 $12,138 $762,329 $$762,329 
Cumulative effect of change in
   accounting principle
— — (25,018)— (25,018)— (25,018)
Balance at January 1, 202031,034 425,633 268,506 12,138 737,311 737,311 
Net income— — 23,618 — 23,618 — 23,618 
Other comprehensive income, net
of taxes
— — — 11,751 11,751 — 11,751 
     Common stock issued in
         connection with acquisition of the
         FNB Financial Corp., net of
         registration costs (See Note 2)
955 33,892 — — 34,847 — 34,847 
Stock based compensation expense11 4,222 — — 4,233 — 4,233 
Restricted stock units vested and
distributed, net of shares withheld
89 (1,251)— — (1,162)— (1,162)
Shares issued under employee
stock purchase program
12 434 — — 446 — 446 
Dividends declared ($0.18 per
   share)
— — (5,828)— (5,828)— (5,828)
Balance at June 30, 2020$32,101 $462,930 $286,296 $23,889 $805,216 $$805,216 
See the accompanying notes to the consolidated financial statements.
8

FB Financial Corporation and subsidiaries
Consolidated statements of cash flows
(Unaudited)
(Amounts are in thousands)
Six Months Ended June 30,
2021 2020 
Cash flows from operating activities:
Net income$96,176 $23,618 
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of fixed assets4,148 3,231 
Amortization of core deposit and other intangibles2,834 2,408 
Capitalization of mortgage servicing rights(22,167)(20,063)
Net change in fair value of mortgage servicing rights549 35,076 
Stock-based compensation expense5,181 4,233 
Provision for credit losses(24,517)52,003 
Provision for credit losses on unfunded commitments(3,176)3,483 
Provision for mortgage loan repurchases(266)1,227 
Amortization (accretion) of premiums and discounts on acquired loans, net284 (2,554)
Accretion of discounts and amortization of premiums on securities, net4,390 2,077 
Gain from securities, net(227)(35)
Originations of loans held for sale(3,308,882)(2,807,047)
Proceeds from sale of loans held for sale3,355,152 2,739,933 
Gain on sale and change in fair value of loans held for sale(86,031)(113,888)
Net gain or write-downs of other real estate owned(473)(137)
Loss on other assets15 382 
Provision for deferred income taxes13,538 (16,380)
Changes in:
Other assets and interest receivable(14,488)(102,382)
Accrued expenses and other liabilities(97,146)47,077 
Net cash used in operating activities(75,106)(147,738)
Cash flows from investing activities:
Activity in available-for-sale securities:
Maturities, prepayments and calls147,906 72,360 
Purchases(354,762)(59,984)
Net change in loans(4,146)(196,303)
Sales (purchases) of FHLB stock1,821 (1,176)
Purchases of premises and equipment(1,168)(4,827)
Proceeds from the sale of other real estate owned4,661 4,150 
Net cash paid in business combinations(4,227)
Net cash used in investing activities(205,688)(190,007)
Cash flows from financing activities:
Net increase in demand deposits900,733 891,237 
Net decrease in time deposits(154,814)(82,909)
Net increase in securities sold under agreements to repurchase857 5,795 
Payment of subordinated debt(40,000)
Accretion of subordinated debt fair value premium and amortization of issuance costs, net(176)
(Payments on) proceeds from other borrowings(15,000)15,000 
Share based compensation withholding payments(1,940)(1,162)
Net proceeds from sale of common stock under employee stock purchase program833 446 
Dividends paid(10,492)(5,751)
Noncontrolling interest distribution(8)
Net cash provided by financing activities679,993 822,656 
Net change in cash and cash equivalents399,199 484,911 
Cash and cash equivalents at beginning of the period1,317,898 232,681 
Cash and cash equivalents at end of the period$1,717,097 $717,592 
Supplemental cash flow information:
Interest paid$24,611 $23,081 
Taxes paid45,335 1,590 
Supplemental noncash disclosures:
Transfers from loans to other real estate owned$4,596 $1,006 
Transfers from premises and equipment to other real estate owned841 
Loans provided for sales of other real estate owned533 
Transfers from loans to loans held for sale3,709 6,317 
Transfers from loans held for sale to loans29,322 14,358 
Stock consideration paid in business combination35,041 
Trade date payable - securities41,722 5,431 
Dividends declared not paid on restricted stock units128 77 
Decrease to retained earnings for adoption of new accounting standard25,018 
Right-of-use assets obtained in exchange for operating lease liabilities670 806 
See the accompanying notes to the consolidated financial statements.

9

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 June 30, 2021, the Bank had 81 full-service branches throughout Tennessee, Alabama, southern Kentucky and north Georgia, and a national mortgage business with office locations across the Southeast, which primarily originates loans to be sold in the secondary market.
The unaudited consolidated financial statements, including the notes thereto, have been prepared in accordance with United States generally accepted accounting principles interim reporting requirements and general banking industry guidelines, and therefore, do not include all information and notes included in the annual consolidated financial statements in conformity with GAAP. These interim consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K.
The unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and the reported results of operations for the periods then ended. Actual results could differ significantly from those estimates.
Certain prior period amounts have been reclassified to conform to the current period presentation without any impact on the reported amounts of net income or shareholders’ equity.
As of June 30, 2021, the Company continues to qualify as an emerging growth company as defined by the "Jumpstart Our Business Startups Act," however beginning on December 31, 2021, the Company will cease to qualify.
Risks and uncertainties
The COVID-19 health pandemic that arose in 2020 created a crisis resulting in volatility in financial markets, sudden, unprecedented job losses, and disruption in consumer and commercial behavior, resulting in governments in the United States and globally to intervene with varying levels of direct monetary support and fiscal stimulus packages. All industries, municipalities and consumers have been impacted by the health crisis to some degree, including the markets that we serve. In attempts to “flatten the curve,” businesses not deemed essential were closed or constrained to capacity limitations, individuals were asked to restrict their movements, observe social distancing and shelter in place. These actions resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses, leading to a loss of revenues and a rapid increase in unemployment, widening of credit spreads, dislocation of bond markets, disruption of global supply chains and changes in consumer spending behavior. Although most restrictions were lifted and vaccines became widely available during the first half of 2021, during the three months ended June 30, 2021, concern began building regarding the potential impact the new Delta variant of the virus may have on the global economy and the efficacy of available vaccines to protect against widespread infection. As such, there continues to be uncertainty regarding the long term effects on the global economy, which could have a material adverse impact on the Company's business operations, asset valuations, financial condition, and results of operations.
Earnings per share
Basic EPS excludes dilution and is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS includes the dilutive effect of additional potential common shares issuable under the restricted stock units granted but not yet vested and distributable. Diluted EPS is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding for the period, plus an incremental number of common-equivalent shares computed using the treasury stock method.
Unvested share-based payment awards, which include the right to receive non-forfeitable dividends or dividend equivalents, are considered to participate with common shareholders in undistributed earnings for purposes of computing EPS. Companies that have such participating securities are required to calculate basic and diluted EPS using the two-class method. Certain restricted stock awards granted by the Company include non-forfeitable dividend equivalents and
10

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
are considered participating securities. Calculations of EPS under the two-class method (i) exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities and (ii) exclude from the denominator the dilutive impact of the participating securities.
The following is a summary of the basic and diluted earnings per common share calculation for each of the periods presented:
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Basic earnings per common share calculation:
Net income applicable to FB Financial Corporation$43,294 $22,873 $96,168 $23,618 
Dividends paid on and undistributed earnings allocated to participating securities
Earnings available to common shareholders$43,294 $22,873 $96,168 $23,618 
Weighted average basic shares outstanding47,351,969 32,094,274 47,312,312 $31,676,004 
Basic earnings per common share$0.91 $0.71 $2.03 $0.75 
Diluted earnings per common share:
Earnings available to common shareholders$43,294 $22,873 $96,168 $23,618 
Weighted average basic shares outstanding47,351,969 32,094,274 47,312,312 31,676,004 
Weighted average diluted shares contingently issuable(1)
641,804 412,143 664,221 433,190 
Weighted average diluted shares outstanding47,993,773 32,506,417 47,976,533 32,109,194 
Diluted earnings per common share$0.90 $0.70 $2.00 $0.74 
(1)Excludes 164,472 and 250,776 restricted stock units outstanding considered to be antidilutive for the three and six months ended June 30, 2021, respectively and 352,888 for three and six months ended June 30, 2020.
Recently adopted accounting policies:
The Company did not modify or adopt any new accounting policies during the three and six months ended June 30, 2021 that were not disclosed in the Company's 2020 audited consolidated financial statements included on Form 10-K, other than as described below.
As previously disclosed, during the three months March 31, 2021, the Company reevaluated its business segments to align all retail mortgage activities with the Mortgage segment. Previously, the Company assigned retail mortgage activities within the Banking geographical footprint to the Banking segment. See Note 12, "Segment reporting" for additional information on this change.
Recently adopted accounting standards:
Except as set forth below, the Company did not adopt any new accounting standards that were not disclosed in the Company's 2020 audited consolidated financial statements included on Form 10-K.
In January 2021, Financial Accounting Standards Board issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope". This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. The Company early adopted ASU 2021-01 upon issuance effective January 7, 2021. No contract modifications have been made under the new guidance, therefore the adoption of this update did not impact the Company's financial statements or disclosures.
Newly issued not yet effective accounting standards:
The Company has reviewed newly issued not yet effective accounting standards and concluded as of June 30, 2021, there are none that are likely to impact the Company's financial statements or disclosures.

11

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

Note (2)—Mergers and acquisitions:
The following mergers and acquisitions were accounted for pursuant to Accounting Standards Codification 805, "Business Combinations". Accordingly, the purchase price of each acquisition was allocated to the acquired assets and liabilities assumed based on estimated fair values as of the respective acquisition dates. The excess of the purchase price over the net assets acquired was recorded as goodwill.
Franklin Financial Network, Inc. merger
Effective August 15, 2020, the Company completed its previously announced merger with Franklin Financial Network, Inc. and its wholly owned subsidiaries, with FB Financial Corporation continuing as the surviving entity. After consolidating duplicative locations the merger added 10 branches and expanded the Company's footprint in middle Tennessee and the Nashville metropolitan statistical area. Under the terms of the agreement, the Company acquired total assets of $3.63 billion, loans of $2.79 billion and assumed total deposits of $3.12 billion. Total loans acquired includes a non-strategic institutional portfolio with a fair value of $326,206 the Company classified as held for sale. Franklin common shareholders received 15,058,181 shares of the Company's common stock, net of the equivalent value of 44,311 shares withheld on certain Franklin employee equity awards that vested upon change in control, as consideration in connection with the merger, in addition to $31,330 in cash consideration. Also included in the purchase price, the Company issued replacement restricted stock units for awards initially granted by Franklin during 2020 that did not vest upon change in control, with a total fair value of $674 attributed to pre-combination service. Based on the closing price of the Company's common stock on the New York Stock Exchange of $29.52 on August 15, 2020, the merger consideration represented approximately $477,830 in aggregate consideration.
Goodwill of $67,191 recorded in connection with the transaction resulted from the ongoing business contribution, reputation, operating model and expertise of Franklin. The goodwill is not deductible for income tax purposes. Goodwill is included in the Banking segment as substantially all of the operations resulting from the acquisition of Franklin are in alignment with the Company's banking business.


12

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The following table presents an allocation of the consideration to net assets acquired:
Purchase Price:
Equity consideration
Franklin shares outstanding(1)
15,588,337 
Franklin options converted to net 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 
Fair value of net assets acquired410,639 
Goodwill resulting from merger$67,191 
(1)Franklin shares outstanding includes restricted stock awards and restricted stock units that vested upon change in control.
(2)Only factors in whole share issuance. Cash was paid in lieu of fractional shares.
(3)Represents the equivalent value of approximately 44,311 shares of FB Financial Corporation stock on August 15, 2020.
(4)Includes $28 of cash paid in lieu of fractional shares.
FNB Financial Corp. merger
Effective February 14, 2020, the Company completed its previously announced acquisition of FNB Financial Corp. and its wholly owned subsidiary, Farmers National Bank of Scottsville (collectively, "Farmers National"). Following the acquisition, Farmers National was merged into the Company with FB Financial Corporation continuing as the surviving entity. The transaction added 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.
Goodwill of $6,319 recorded in connection with the transaction resulted from the ongoing business contribution of Farmers National and anticipated synergies arising from the combination of certain operational areas of the Company. Goodwill resulting from this transaction is not deductible for income tax purposes. Goodwill is included in the Banking segment as substantially all of the operations resulting from the acquisition of Farmers National are in alignment with the Company's core banking business.
13

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The following table presents the total purchase price, fair value of net assets acquired, and the goodwill as of the acquisition date.
Consideration:
Net shares 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 
Fair value of net assets acquired43,723 
Goodwill resulting from merger$6,319 
Net assets acquired
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the respective acquisition dates:
As of August 15, 2020As of February 14, 2020
Franklin Financial Network, Inc.FNB Financial Corp.
ASSETS
Cash and cash equivalents$284,004 $10,774 
Investments373,462 50,594 
Mortgage loans held for sale, at fair value38,740 
Commercial loans held for sale, at fair value326,206 
Loans held for investment, net of fair value adjustments2,427,527 182,171 
Allowance for credit losses on purchased credit
   deteriorated loans
(24,831)(669)
Premises and equipment45,471 8,049 
Operating lease right-of-use assets23,958 14 
Mortgage servicing rights5,111 
Core deposit intangible7,670 2,490 
Other assets124,571 4,795 
Total assets$3,631,889 $258,218 
LIABILITIES
Deposits:
Noninterest-bearing$505,374 $63,531 
Interest-bearing checking1,783,379 26,451 
Money market and savings342,093 37,002 
Customer time deposits383,433 82,551 
Brokered and internet time deposits107,452 
Total deposits3,121,731 209,535 
Borrowings62,435 3,192 
Operating lease liabilities24,330 14 
Accrued expenses and other liabilities12,661 1,754 
Total liabilities assumed3,221,157 214,495 
Noncontrolling interests acquired93 
Net assets acquired$410,639 $43,723 

14

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Purchased credit-deteriorated loans
Under the CECL methodology, the Company is required to determine whether purchased loans held for investment have experienced more-than-insignificant deterioration in credit quality since origination. Loans that have experienced this level of deterioration in credit quality are subject to special accounting at initial recognition and measurement. The Company initially measures the amortized cost of a PCD loan by adding the acquisition date estimate of expected credit losses to the loan's purchase price (i.e. the "gross up" approach). There is no provision for credit loss recognized upon acquisition of a PCD loan because the initial allowance is established through gross-up of the loans' amortized cost.
The Company determined that 27.9% of the Franklin loan portfolio had more-than-insignificant deterioration in credit quality since origination as of the acquisition date. This included deterioration in credit metrics, such as delinquency, nonaccrual status or risk ratings as well as certain loans within designated industries of concern that have been negatively impacted by COVID-19. It was determined that 10.1% of the Farmers National loan portfolio had more-than-insignificant deterioration in credit quality since origination as of the February acquisition date. These were primarily delinquent loans or loans that Farmers National had classified as nonaccrual or troubled debt restructuring prior to the Company's acquisition.
As of August 15, 2020As of February 14, 2020
Franklin Financial Network, Inc.FNB Financial Corp.
Purchased credit-deteriorated loans
Principal balance$693,999 $18,964 
Allowance for credit losses at acquisition(24,831)(669)
Net premium attributable to other factors8,810 63 
Loans purchased credit-deteriorated fair value$677,978 $18,358 
Loans recognized through acquisition that have not experienced more-than-insignificant credit deterioration since origination are initially recognized at the purchase price. Expected credit losses are measured under CECL through the provision for credit losses. The Company recorded provisions for credit losses in the amounts of $52,822 and $2,885 as of August 15, 2020 and February 14, 2020, respectively, in the income statement related to estimated credit losses on non-PCD loans from Franklin and Farmers National, respectively. Additionally, the Company estimates expected credit losses on off-balance sheet loan commitments that are not accounted for as derivatives. The Company recorded an increase in provision for credit losses from unfunded commitments of $10,499 as of August 15, 2020 related to the Franklin acquisition.
Pro forma financial information (unaudited)
The results of operations of the acquisitions have been included in the Company's consolidated financial statements prospectively beginning on the date of each acquisition. The acquisitions have been fully integrated with the Company's existing operations. Accordingly, post-acquisition net interest income, total revenues, and net income are not discernible. The following unaudited pro forma condensed consolidated financial information presents the results of operations for the three and six months ended June 30, 2020, as though the Franklin and Farmers National acquisitions had been completed as of January 1, 2019. The unaudited estimated pro forma information combines the historical results of the mergers with the Company’s historical consolidated results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the periods presented. Merger expenses are reflected in the period they were incurred. The pro forma information is not indicative of what would have occurred had the transactions taken place on January 1, 2019 and does not include the effect of cost-saving or revenue-enhancing strategies.
Three Months Ended June 30,Six Months Ended June 30,
2020 2020 
Net interest income$84,610 $169,352 
Total revenues$176,657 $310,254 
Net income applicable to FB Financial Corporation$32,623 $32,149 




15

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 June 30, 2021 and December 31, 2020:  
June 30, 2021
 Amortized costGross unrealized gainsGross unrealized lossesAllowance for credit losses for investmentsFair Value
Investment Securities    
Available-for-sale debt securities  
U.S. government agency securities$8,255 $$(1)$$8,255 
Mortgage-backed securities - residential1,031,233 9,507 (5,737)1,035,003 
Mortgage-backed securities - commercial14,715 446 15,161 
Municipal securities314,862 18,088 (67)332,883 
U.S. Treasury securities10,486 48 10,534 
Corporate securities2,500 42 (6)2,536 
Total$1,382,051 $28,132 $(5,811)$$1,404,372 
December 31, 2020
 Amortized costGross unrealized gainsGross unrealized lossesAllowance for credit losses for investmentsFair Value
Investment Securities    
Available-for-sale debt securities    
U.S. government agency securities$2,000 $$$$2,003 
Mortgage-backed securities - residential760,099 14,040 (803)773,336 
Mortgage-backed securities - commercial20,226 1,362 21,588 
Municipal securities336,543 19,806 (20)356,329 
U.S. Treasury securities16,480 148 16,628 
Corporate securities2,500 17 (1)2,516 
Total$1,137,848 $35,376 $(824)$$1,172,400 
The components of amortized cost for debt securities on the consolidated balance sheets excludes accrued interest receivable since the Company elected to present accrued interest receivable separately on the consolidated balance sheets. As of June 30, 2021 and December 31, 2020, total accrued interest receivable on debt securities was $4,630 and $4,540, respectively.
As of June 30, 2021 and December 31, 2020, the Company had $4,803 and $4,591, in marketable equity securities recorded at fair value, respectively.
Securities pledged at June 30, 2021 and December 31, 2020 had carrying amounts of $998,047 and $804,821, respectively, and were pledged to secure a Federal Reserve Bank line of credit, public deposits and repurchase agreements.
There were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders' equity during any period presented.
At June 30, 2021 and December 31, 2020, there were 0 trade date receivables that related to sales settled after period end. At June 30, 2021 and December 31, 2020, there were $41,722 and $0 respectively, in trade date payables that related to purchases settled after period end.
 
16

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The amortized cost and fair value of debt securities by contractual maturity at June 30, 2021 and December 31, 2020 are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgage underlying the security may be called or repaid without any penalties. Therefore, mortgage-backed securities are not included in the maturity categories in the following maturity summary.
June 30,December 31,
 2021 2020 
 Available-for-saleAvailable-for-sale
 Amortized costFair valueAmortized costFair value
Due in one year or less$18,861 $18,971 $35,486 $35,662 
Due in one to five years21,955 22,387 24,278 24,684 
Due in five to ten years44,248 45,746 40,038 41,332 
Due in over ten years251,039 267,104 257,721 275,798 
336,103 354,208 357,523 377,476 
Mortgage-backed securities - residential1,031,233 1,035,003 760,099 773,336 
Mortgage-backed securities - commercial14,715 15,161 20,226 21,588 
Total debt securities$1,382,051 $1,404,372 $1,137,848 $1,172,400 
Sales and other dispositions of available-for-sale securities were as follows:
 Three Months Ended June 30,Six Months Ended June 30,
 2021 2020 2021 2020 
Proceeds from sales$$$$
Proceeds from maturities, prepayments and calls86,866 44,703 147,906 72,360 
Gross realized gains15 
Gross realized losses
Additionally, net unrealized gains on equity securities of $136 and $212 were recognized in the three and six months ended June 30, 2021, respectively, and $28 net loss and $35 net gain were recognized in the three and six months ended June 30, 2020, respectively.
The following tables show gross unrealized losses for which an allowance for credit losses has 0t been recorded at June 30, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
June 30, 2021
 Less than 12 months12 months or moreTotal
 Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
U.S. government agency securities$1,250 $(1)$$$1,250 $(1)
Mortgage-backed securities - residential449,834 (5,737)449,834 (5,737)
Municipal securities7,979 (67)7,979 (67)
Corporate securities494 (6)494 (6)
Total$459,557 $(5,811)$$$459,557 $(5,811)

 December 31, 2020
 Less than 12 months12 months or moreTotal
 Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized loss
Mortgage-backed securities - residential$182,012 $(803)$$$182,012 $(803)
Municipal securities3,184 (20)3,184 (20)
Corporate Securities499 (1)00499 (1)
Total$185,695 $(824)$$$185,695 $(824)
As of June 30, 2021 and December 31, 2020, the Company’s securities portfolio consisted of 508 and 514 securities, 32 and 16 of which were in an unrealized loss position, respectively.
17

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
As of June 30, 2021 and 2020, the Company evaluated available-for-sale debt securities with unrealized losses for expected credit loss and recorded 0 allowance for credit loss as the majority of the investment portfolio was either government guaranteed or an issuance of a government sponsored entity, was highly rated by major credit rating agencies and have a long history of zero losses. As such, 0 provision for credit losses was recorded during the three and six months ended June 30, 2021 and 2020.
Note (4)—Loans and allowance for credit losses:
Loans outstanding at June 30, 2021 and December 31, 2020, by class of financing receivable are as follows:
 June 30,December 31,
 2021 2020 
Commercial and industrial (1)
$1,238,940 $1,346,122 
Construction1,145,165 1,222,220 
Residential real estate:
1-to-4 family mortgage1,126,623 1,089,270 
Residential line of credit401,343 408,211 
Multi-family mortgage363,600 175,676 
Commercial real estate:
Owner occupied923,605 924,841 
Non-owner occupied1,675,214 1,598,979 
Consumer and other324,464 317,640 
Gross loans7,198,954 7,082,959 
Less: Allowance for credit losses(144,663)(170,389)
Net loans$7,054,291 $6,912,570 
(1)Includes $57,406 and $212,645 of loans originated as part of the Paycheck Protection Program as of June 30, 2021 and December 31, 2020, respectively. PPP loans are federally guaranteed as part of the CARES Act, provided PPP loan recipients receive loan forgiveness under the SBA regulations. As such, there is minimal credit risk associated with these loans.
As of June 30, 2021 and December 31, 2020, $1,256,344 and $1,248,857, respectively, of qualifying residential mortgage loans (including loans held for sale) $1,542,531 and $1,532,749, respectively, of qualifying commercial mortgage loans were pledged to the Federal Home Loan Bank of Cincinnati securing advances against the Bank’s line of credit. Additionally, as of June 30, 2021 and December 31, 2020, $2,290,661 and $2,463,281, respectively, of qualifying loans were pledged to the Federal Reserve Bank under the Borrower-in-Custody program.
The components of amortized cost for loans on the consolidated balance sheet excludes accrued interest receivable as the Company elected to present accrued interest receivable separately on the balance sheet. As of June 30, 2021 and December 31, 2020, total accrued interest receivable on loans held for investment was $35,892 and $38,316, respectively.
Allowance for Credit Losses
The Company estimated the allowance for credit losses under a current expected credit loss model as of June 30, 2021 and December 31, 2020. The Company utilizes probability-weighted forecasts, which consider multiple macroeconomic variables from a third-party vendor that are applicable to the type of loan. Each of the Company's loss rate models incorporate forward-looking macroeconomic projections throughout the reasonable and supportable forecast period and the subsequent historical reversion at the macroeconomic variable input level. In order to estimate the life of a loan, the contractual term of the loan is adjusted for estimated prepayments based on market information and the Company’s prepayment history.
The Company's loss rate models estimate the lifetime loss rate for pools of loans by combining the calculated loss rate based on each variable within the model (including the macroeconomic variables). The lifetime loss rate for the pool is then multiplied by the loan balances to determine the expected credit losses on the pool.
The Company considers the need to qualitatively adjust its modeled quantitative expected credit loss estimate for information not already captured in the model loss estimation process. These qualitative factor adjustments may increase or decrease the Company’s estimate of expected credit losses. The Company reviews the qualitative adjustments so as to validate that information that has already been considered and included in the modeled quantitative loss estimation process is not also included in the qualitative adjustment. The Company considers the qualitative factors that are relevant to the institution as of the reporting date, which may include, but are not limited to: levels of and trends in delinquencies
18

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
and performance of loans; levels of and trends in write-offs and recoveries collected; trends in volume and terms of loans; effects of any changes in reasonable and supportable economic forecasts; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and expertise; available relevant information sources that contradict the Company’s own forecast; effects of changes in prepayment expectations or other factors affecting assessments of loan contractual terms; industry conditions; and effects of changes in credit concentrations.
The quantitative models require loan data and macroeconomic variables based on the inherent credit risks in each portfolio to more accurately measure the credit risks associated with each. Each of the quantitative models pools loans with similar risk characteristics and collectively assesses the lifetime loss rate for each pool to estimate its expected credit loss.
When a loan no longer shares similar risk characteristics with other loans in any given pool, the loan is individually assessed. The Company has determined the following circumstances in which a loan may require an individual evaluation: collateral dependent loans; loans for which foreclosure is probable; TDRs and reasonably expected TDRs. A loan is deemed collateral dependent when 1) the borrower is experiencing financial difficulty and 2) the repayment is expected to be primarily through sale or operation of the collateral. The allowance for credit losses for collateral dependent loans as well as loans where foreclosure is probable is calculated as the amount for which the loan’s amortized cost basis exceeds fair value. Fair value is determined based on appraisals performed by qualified appraisers and reviewed by qualified personnel. In cases where repayment is to be provided substantially through the sale of collateral, the Company reduces the fair value by the estimated costs to sell. Loans experiencing financial difficulty for which a concession has not yet been provided may be identified as reasonably expected TDRs.
Reasonably expected TDRs use the same methodology as TDRs. In cases where the expected credit loss can only be captured through a discounted cash flow analysis (such as an interest rate modification for a TDR loan), the allowance is measured by the amount which the loan’s amortized cost exceeds the discounted cash flow analysis. The allowance for credit losses on a TDR or a reasonably expected TDR is calculated individually using a discounted cash flow methodology, unless the loan is deemed to be collateral dependent or foreclosure is probable.
The Company performed qualitative evaluations within the Company's established qualitative framework, weighting the impact of the current economic outlook, status of federal government stimulus programs, and other considerations, in order to identify specific industries or borrowers seeing credit improvement or deterioration specific to the COVID-19 pandemic. The decrease in estimated required reserve during the three and six months ended June 30, 2021 was a result of improving macroeconomic variables incorporated into the Company's reasonable and supportable forecasts when compared to both March 31, 2021 and December 31, 2020.
19

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The following provide the changes in the allowance for credit losses by class of financing receivable for the three and six months ended June 30, 2021 and 2020:
 Commercial
and industrial
Construction1-to-4
family
residential
mortgage
Residential
line of credit
Multi-family
residential
mortgage
Commercial
real estate
owner
occupied
Commercial
real estate
non-owner
occupied
Consumer
and other
Total
Three Months Ended June 30, 2021
Beginning balance -
March 31, 2021
$14,643 $38,622 $19,572 $9,268 $11,657 $3,609 $50,179 $10,404 $157,954 
Provision for credit losses(579)(5,784)75 (2,558)1,818 972 (7,323)494 (12,885)
Recoveries of loans
previously charged-off
87 41 126 190 453 
Loans charged off(360)(16)(3)(480)(859)
Ending balance -
June 30, 2021
$13,791 $32,838 $19,672 $6,716 $13,475 $4,707 $42,856 $10,608 $144,663 
Six Months Ended June 30, 2021
Beginning balance -
December 31, 2020
$14,748 $58,477 $19,220 $10,534 $7,174 $4,849 $44,147 $11,240 $170,389 
Provision for credit losses(536)(25,610)536 (3,815)6,301 (281)(1,291)179 (24,517)
Recoveries of loans
previously charged-off
216 65 15 139 385 820 
Loans charged off(637)(29)(149)(18)(1,196)(2,029)
Ending balance -
June 30, 2021
$13,791 $32,838 $19,672 $6,716 $13,475 $4,707 $42,856 $10,608 $144,663 
 
 Commercial
and industrial
Construction1-to-4
family
residential
mortgage
Residential
line of credit
Multi-family
residential
mortgage
Commercial
real estate
owner
occupied
Commercial
real estate
non-owner
occupied
Consumer
and other
Total
Three Months Ended June 30, 2020
Beginning balance -
March 31, 2020
$10,881 $22,842 $13,006 $6,213 $2,328 $9,047 $18,005 $6,819 $89,141 
Provision for loan losses(2,663)12,624 (446)595 2,171 (1,630)12,984 404 24,039 
Recoveries of loans
previously charged-off
807 151 26 24 103 1,114 
Loans charged off(147)(18)(123)(21)(545)(311)(1,165)
Ending balance -
June 30, 2020
$8,878 $35,599 $12,463 $6,811 $4,499 $7,420 $30,444 $7,015 $113,129 
Six Months Ended June 30, 2020 
Beginning balance -
December 31, 2019
$4,805 $10,194 $3,112 $752 $544 $4,109 $4,621 $3,002 $31,139 
Impact of adopting ASC
326 on non-purchased credit deteriorated loans
5,300 1,533 7,920 3,461 340 1,879 6,822 3,633 30,888 
Impact of adopted ASC
326 on purchased credit deteriorated loans
82 150 421 (3)162 184 (438)558 
Provision for loan losses(834)23,578 1,218 2,580 3,615 1,408 18,919 1,519 52,003 
Recoveries of loans
previously charged-off
895 151 50 39 17 296 1,448 
Loans charged off(1,381)(18)(365)(21)(209)(545)(1,037)(3,576)
Initial allowance on loans
purchased with deteriorated credit quality
11 11 107 54 443 40 669 
Ending balance -
   June 30, 2020
$8,878 $35,599 $12,463 $6,811 $4,499 $7,420 $30,444 $7,015 $113,129 


20

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The following tables provide the amount of the allowance for credit losses by class of financing receivable disaggregated by measurement methodology as of June 30, 2021 and December 31, 2020:

 June 30, 2021
 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 credit loss$105 $131 $$$$23 $676 $$943 
Collectively evaluated for
credit loss
13,073 31,151 18,063 6,467 12,976 4,015 29,020 9,985 124,750 
Purchased credit
deteriorated
613 1,556 1,609 241 499 669 13,160 623 18,970 
Ending balance -
June 30, 2021
$13,791 $32,838 $19,672 $6,716 $13,475 $4,707 $42,856 $10,608 $144,663 
 December 31, 2020
 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 credit loss$373 $95 $$$$30 $1,531 $$2,039 
Collectively evaluated for
credit loss
13,493 54,065 17,206 10,031 6,326 4,062 33,706 10,516 149,405 
Purchased credit
deteriorated
882 4,317 2,014 494 848 757 8,910 723 18,945 
Ending balance -
December 31, 2020
$14,748 $58,477 $19,220 $10,534 $7,174 $4,849 $44,147 $11,240 $170,389 

21

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The following tables provide the amount of loans by class of financing receivable disaggregated by measurement methodology as of June 30, 2021, and December 31, 2020:

 June 30, 2021
 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 credit loss$15,159 $5,993 $894 $412 $$9,135 $7,207 $26 $38,826 
Collectively evaluated for
credit loss
1,176,960 1,097,065 1,038,746 384,698 354,021 822,532 1,368,161 311,481 6,553,664 
Purchased credit
deteriorated
46,821 42,107 86,983 16,233 9,579 91,938 299,846 12,957 606,464 
Ending balance -
June 30, 2021
$1,238,940 $1,145,165 $1,126,623 $401,343 $363,600 $923,605 $1,675,214 $324,464 $7,198,954 
 December 31, 2020
 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 credit loss$15,578 $4,851 $848 $412 $$7,846 $8,631 $39 $38,205 
Collectively evaluated for
credit loss
1,270,058 1,140,634 987,142 387,250 156,447 813,151 1,272,203 302,983 6,329,868 
Purchased credit
deteriorated
60,486 76,735 101,280 20,549 19,229 103,844 318,145 14,618 714,886 
Ending balance -
December 31, 2020
$1,346,122 $1,222,220 $1,089,270 $408,211 $175,676 $924,841 $1,598,979 $317,640 $7,082,959 

22

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Credit Quality
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans that share similar risk characteristics collectively. Loans that do not share similar risk characteristics are evaluated individually.
The Company uses the following definitions for risk ratings:
Pass.Loans rated Pass include those that are adequately collateralized performing loans which management believes do not have conditions that have occurred or may occur that would result in the loan being downgraded into an inferior category. The Pass category also includes loans rated as Watch, which include those that management believes have conditions that have occurred, or may occur, which could result in the loan being downgraded to an inferior category.

Special Mention.Loans rated Special Mention are those that have potential weakness that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Management does not believe there will be a loss of principal or interest. These loans require intensive servicing and may possess more than normal credit risk.
Classified.Loans included in the Classified category include loans rated as Substandard and Doubtful. Loans rated as Substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Also included in this category are loans classified as Doubtful, which have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weakness or weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and values, highly questionable and improbable. The total amortized cost of loans rated as Doubtful were insignificant for all periods presented.
Risk ratings are updated on an ongoing basis and are subject to change by continuous loan monitoring processes.
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 tables present the credit quality of our loan portfolio by year of origination as of June 30, 2021 and December 31, 2020. Revolving loans are presented separately. Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal constitutes a current period origination. Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for the purposes of the tables below.
As of June 30, 2021
Term Loans
Amortized Cost Basis by Origination Year
20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
Commercial and industrial
Pass$93,229 $160,243 $162,002 $63,799 $48,206 $66,856 $584,470 $1,178,805 
Special Mention27 278 423 20 468 3,118 15,920 20,254 
Classified660 2,706 2,674 10,426 3,728 6,914 12,773 39,881 
Total93,916 163,227 165,099 74,245 52,402 76,888 613,163 1,238,940 
Construction
Pass261,384 393,404 205,133 48,972 29,372 84,769 110,748 1,133,782 
Special Mention160 1,209 734 2,103 
Classified32 2,199 3,967 124 2,757 201 9,280 
Total261,384 393,596 207,332 52,939 30,705 88,260 110,949 1,145,165 
Residential real estate:
1-to-4 family mortgage
Pass203,719 241,270 152,228 126,627 130,028 246,202 1,100,074 
Special Mention44 1,145 1,201 606 328 2,752 6,076 
Classified339 1,807 3,374 5,237 9,716 20,473 
Total203,763 242,754 155,236 130,607 135,593 258,670 1,126,623 
Residential line of credit
Pass396,297 396,297 
Special Mention344 344 
Classified4,702 4,702 
Total401,343 401,343 
Multi-family mortgage
Pass143,092 31,127 74,713 7,370 39,365 57,426 10,454 363,547 
Special Mention
Classified53 53 
Total143,092 31,127 74,713 7,370 39,365 57,479 10,454 363,600 
Commercial real estate:
Owner occupied
Pass64,153 138,004 187,870 89,391 90,172 256,949 58,761 885,300 
Special Mention1,335 3,649 1,464 5,749 288 12,485 
Classified3,123 2,634 4,157 14,146 1,760 25,820 
Total64,153 138,004 192,328 95,674 95,793 276,844 60,809 923,605 
Non-owner occupied
Pass226,622 162,080 166,597 300,073 202,577 505,746 54,947 1,618,642 
Special Mention3,500 8,278 11,778 
Classified4,136 24,616 1,542 14,455 45 44,794 
Total226,622 162,080 170,733 328,189 204,119 528,479 54,992 1,675,214 
24

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
As of June 30, 2021
Term Loans
Amortized Cost Basis by Origination Year
20212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
Consumer and other loans
Pass56,647 65,973 44,844 36,124 23,731 76,402 14,476 318,197 
Special Mention75 14 522 612 
Classified38 144 222 1,023 926 2,865 437 5,655 
Total56,760 66,117 45,080 37,147 24,658 79,789 14,913 324,464 
Total Loans
Pass1,048,846 1,192,101 993,387 672,356 563,451 1,294,350 1,230,153 6,994,644 
        Special Mention146 1,583 2,973 7,775 3,470 21,153 16,552 53,652 
Classified698 3,221 14,161 46,040 15,714 50,906 19,918 150,658 
Total$1,049,690 $1,196,905 $1,010,521 $726,171 $582,635 $1,366,409 $1,266,623 $7,198,954 
25

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

As of December 31, 2020
Term Loans
Amortized Cost Basis by Origination Year
20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
Commercial and industrial
Pass$339,074 $185,636 $70,549 $59,917 $37,573 $42,685 $540,960 $1,276,394 
Special Mention231 824 561 445 915 2,580 24,826 30,382 
Classified2,501 2,688 11,227 4,425 6,582 1,277 10,646 39,346 
Total341,806 189,148 82,337 64,787 45,070 46,542 576,432 1,346,122 
Construction
Pass461,715 390,443 86,490 52,942 40,907 62,890 112,004 1,207,391 
Special Mention469 1,485 2,197 1,221 729 13 6,114 
Classified573 1,755 3,178 141 3,068 8,715 
Total462,757 393,683 91,865 54,304 41,636 65,971 112,004 1,222,220 
Residential real estate:
1-to-4 family mortgage
Pass283,107 176,711 164,499 157,731 111,194 162,051 1,055,293 
Special Mention1,423 1,829 1,209 753 721 3,865 9,800 
Classified448 1,428 3,806 5,473 3,622 9,400 24,177 
Total284,978 179,968 169,514 163,957 115,537 175,316 1,089,270 
Residential line of credit
Pass400,206 400,206 
Special Mention2,653 2,653 
Classified5,352 5,352 
Total408,211 408,211 
Multi-family mortgage
Pass29,006 13,446 11,843 46,561 28,330 35,339 11,094 175,619 
Special Mention
Classified57 57 
Total29,006 13,446 11,843 46,561 28,330 35,396 11,094 175,676 
Commercial real estate:
Owner occupied
Pass140,904 179,500 97,577 94,659 76,539 224,108 53,451 866,738 
Special Mention967 1,356 4,251 16,173 6,101 2,466 230 31,544 
Classified44 1,785 2,423 6,074 274 11,226 4,733 26,559 
Total141,915 182,641 104,251 116,906 82,914 237,800 58,414 924,841 
Non-owner occupied
Pass166,962 229,442 342,640 221,149 290,163 272,18438,820 1,561,360 
Special Mention1,500 6,672 207 8,44516,824 
Classified2,210 1,502 17,08320,795 
Total166,962 233,152 350,814 221,149 290,370 297,712 38,820 1,598,979 
Consumer and other loans
Pass89,625 52,839 39,725 27,201 43,503 37,67314,817 305,383 
Special Mention281 797 1,588 468 526 1,36411 5,035 
Classified151 565 1,434 1,161 935 2,308668 7,222 
Total90,057 54,201 42,747 28,830 44,964 41,345 15,496 317,640 
26

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
As of December 31, 2020
Term Loans
Amortized Cost Basis by Origination Year
20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
Total Loans
   Pass1,510,393 1,228,017 813,323 660,160 628,209 836,930 1,171,352 6,848,384 
   Special Mention3,371 7,791 16,478 19,060 9,199 18,733 27,720 102,352 
   Classified3,717 10,431 23,570 17,274 11,413 44,419 21,399 132,223 
Total$1,517,481 $1,246,239 $853,371 $696,494 $648,821 $900,082 $1,220,471 $7,082,959 
Nonaccrual and Past Due Loans
Nonperforming loans include loans that are no longer accruing interest (nonaccrual loans) and loans past due ninety or more days and still accruing interest.
The following tables represent an analysis of the aging by class of financing receivable as of June 30, 2021 and December 31, 2020:
June 30, 202130-89 days
past due
90 days or 
more and accruing
interest
Non-accrual
loans
Loans current
on payments
and accruing
interest
Total
Commercial and industrial$757 $104 $15,538 $1,222,541 $1,238,940 
Construction1,023 487 5,303 1,138,352 1,145,165 
Residential real estate:
1-to-4 family mortgage3,753 8,002 5,094 1,109,774 1,126,623 
Residential line of credit716 48 1,189 399,390 401,343 
Multi-family mortgage53 363,547 363,600 
Commercial real estate:
Owner occupied1,100 8,074 914,431 923,605 
Non-owner occupied737 12,016 1,662,461 1,675,214 
Consumer and other2,660 457 3,162 318,185 324,464 
Total$10,746 $9,098 $50,429 $7,128,681 $7,198,954 
 
December 31, 202030-89 days
past due
90 days or 
more and accruing
interest
Non-accrual
loans
Loans current on payments and accruing interestTotal
Commercial and industrial$3,297 $330 $16,005 $1,326,490 $1,346,122 
Construction7,607 573 4,053 1,209,987 1,222,220 
Residential real estate:
1-to-4 family mortgage7,058 10,470 5,923 1,065,819 1,089,270 
Residential line of credit3,551 239 1,757 402,664 408,211 
Multi-family mortgage57 175,619 175,676 
Commercial real estate:
Owner occupied98 7,948 916,795 924,841 
Non-owner occupied915 12,471 1,585,593 1,598,979 
Consumer and other4,469 2,027 2,603 308,541 317,640 
Total$26,995 $13,696 $50,760 $6,991,508 $7,082,959 

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 tables provide the amortized cost basis of loans on non-accrual status, as well as any related allowance as of June 30, 2021 and December 31, 2020 by class of financing receivable.
June 30, 2021Non-accrual
with no
related
allowance
Non-accrual
with
related
allowance
Related
allowance
Commercial and industrial$14,401 $1,137 $119 
Construction4,254 1,049 151 
Residential real estate:
1-to-4 family mortgage1,493 3,601 91 
Residential line of credit830 359 
Multi-family mortgage53 
Commercial real estate:
Owner occupied7,412 662 43 
Non-owner occupied6,418 5,598 736 
Consumer and other3,162 162 
Total$34,808 $15,621 $1,318 

December 31, 2020Non-accrual
with no
related
allowance
Non-accrual
with
related
allowance
Related
allowance
Commercial and industrial$13,960 $2,045 $383 
Construction3,061��992 131 
Residential real estate:
1-to-4 family mortgage3,048 2,875 84 
Residential line of credit854 903 31 
Multi-family mortgage
Commercial real estate:
Owner occupied7,172 776 63 
Non-owner occupied4,566 7,905 1,711 
Consumer and other2,603 147 
Total$32,661 $18,099 $2,550 

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

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Commercial and industrial$219 $17 $333 $169 
Construction16 30 33
Residential real estate:
1-to-4 family mortgage67 85 13 
Residential line of credit27 45 
Multi-family mortgage
Commercial real estate:
Owner occupied101 43 232 64
Non-owner occupied141 109 230 128 
Consumer and other55 24 55 24 
Total$627 $205 $1,012 $432 
Accrued interest receivable written off as an adjustment to interest income amounted to $132 and $162 for the three months ended June 30, 2021 and 2020, respectively, and $597 and $282 for the six months ended June 30, 2021 and 2020, respectively.
28

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Troubled debt restructurings
As of June 30, 2021 and December 31, 2020, the Company had a recorded investment in TDRs of $42,678 and $15,988, respectively. The modifications included extensions of the maturity date and/or a stated rate of interest to one lower than the current market rate to borrowers experiencing financial difficulty. Of these loans, $23,608 and $8,279 were classified as non-accrual loans as of June 30, 2021 and December 31, 2020, respectively. The Company has calculated $1,285 and $310 in allowances for credit losses on TDRs as of June 30, 2021 and December 31, 2020, respectively. Unfunded loan commitments related to these loans totaled $6,153 as of June 30, 2021. There were 0 commitments to extend any additional funds on troubled debt restructurings as of December 31, 2020.
The following tables present the financial effect of TDRs recorded during the periods indicated.
Three Months Ended June 30, 2021Number of loansPre-modification outstanding recorded investmentPost-modification outstanding recorded investmentCharge offs and specific reserves
Commercial and industrial4$13,055 $13,055 $
Commercial real estate:
Owner occupied43,550 3,550 
Residential real estate:
1-to-4 family mortgage2811 811 
Residential line of credit111 11 
Total11$17,427 $17,427 $
Six Months Ended June 30, 2021Number of loansPre-modification outstanding recorded investmentPost-modification outstanding recorded investmentCharge offs and specific reserves
Commercial and industrial$13,162 $13,162 $
Commercial real estate:
Owner occupied3,550 3,550 
Non-owner occupied11,997 11,997 
Residential real estate:
1-to-4 family mortgage811 811 
Residential line of credit11 11 
Total13 $29,531 $29,531 $
Three Months Ended June 30, 2020Number of loansPre-modification outstanding recorded investmentPost-modification outstanding recorded investmentCharge offs and specific reserves
Commercial and industrial$1,153 $1,153 $
Commercial real estate:
Owner occupied788 788
Residential real estate:
1-to-4 family mortgage13 13
Total$1,954 $1,954 $
Six Months Ended June 30, 2020Number of loansPre-modification outstanding recorded investmentPost-modification outstanding recorded investmentCharge offs and specific reserves
Commercial and industrial$1,153 $1,153 $
Commercial real estate:
Owner occupied1788 788 
Residential real estate:
1-4 family mortgage277 77 
Total4$2,018 $2,018 $
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 and six months ended June 30, 2021 and 2020. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
29

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy. The terms of certain other loans were modified during the three and six months ended June 30, 2021 and 2020 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. Significant changes in individually assessed reserves are due to changes in the valuation of the underlying collateral in addition to changes in accrual and past due status.
June 30, 2021
Type of Collateral
Real EstateFinancial Assets and EquipmentIndividually assessed allowance for credit loss
Commercial and industrial$696 $14,524 $
Construction5,993 131 
Residential real estate:
1-to-4 family mortgage1,615 
Residential line of credit1,241 
Commercial real estate:
Owner occupied10,045 23 
Non-owner occupied11,624 676 
Total$31,214 $14,524 $839 
December 31, 2020
Type of Collateral
Real EstateFinancial Assets and EquipmentIndividually assessed allowance for credit loss
Commercial and industrial$$1,728 $117 
Construction3,877 
Residential real estate:
1-to-4 family mortgage226 
Residential line of credit1,174 
Commercial real estate:
Owner occupied3,391 30 
Non-owner occupied8,164 1,531 
Total$16,832 $1,728 $1,687 
Deferrals Program included in COVID-19 Relief
The following table outlines the Company's recorded investment and percentage of loans held for investment by class of financing receivable for executed deferrals remaining on deferral status as of June 30, 2021 or December 31, 2020, in connection with Company's COVID-19 relief programs. These deferrals typically ranged from sixty to ninety days per deferral and the majority were not considered TDRs under the interagency regulatory guidance or CARES Act, issued in March 2020. Section 541 of the Consolidated Appropriations Act (CAA) extended this relief to the earlier of January 1, 2022 or 60 days after the national emergency termination date. As of June 30, 2021 and December 31, 2020, the Company had a recorded investment in loans totaling $1,355,475 and $1,399,088 previously deferred that were no longer in deferral status.
30

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
June 30, 2021December 31, 2020
% of Loans% of Loans
Commercial and industrial$13 %$7,118 0.5 %
Construction%1,918 0.2 %
Residential real estate:
1-to-4 family mortgage3,194 0.3 %19,201 1.8 %
Residential line of credit%204 %
Multi-family mortgage%3,305 1.9 %
Commercial real estate:
Owner occupied871 0.1 %19,815 2.1 %
Non-owner occupied69,587 4.2 %139,590 8.7 %
Consumer and other217 0.1 %11,366 3.6 %
Total$73,882 1.0 %$202,517 2.9 %
Note (5)—Other real estate owned
The amount reported as other real estate owned includes property acquired through foreclosure in addition to excess facilities held for sale and is carried at fair value less estimated cost to sell the property. The following table summarizes the other real estate owned for the three and six months ended June 30, 2021 and 2020: 
Three Months EndedSix Months Ended
June 30,June 30,
 2021202020212020
Balance at beginning of period$11,177 $17,072 $12,111 $18,939 
Transfers from loans3,201 641 4,596 1,006 
Transfers to premises and equipment(841)
Proceeds from sale of other real estate
   owned
(2,166)(2,708)(4,661)(4,150)
Gain on sale of other real estate owned272 170 1,100 345 
Loans provided for sales of other real
   estate owned
(203)(533)
Write-downs and partial liquidations(295)(84)(627)(208)
Balance at end of period$11,986 $15,091 $11,986 $15,091 
Foreclosed residential real estate properties totaled $774 and $1,890 as of June 30, 2021 and December 31, 2020, respectively. The recorded investment in residential mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process totaled $31 and $167 at June 30, 2021 and December 31, 2020, respectively.
Excess land and facilities held for sale resulting from branch consolidations totaled $5,498 and $5,703 as of June 30, 2021 and December 31, 2020, respectively.

Note (6)—Leases:
As of June 30, 2021, the Company was the lessee in 58 operating leases and 1 finance lease of certain branch, mortgage and operations locations, of which 44 operating leases and 1 finance lease currently have remaining terms varying from greater than one year to 34 years. Leases with initial terms of less than one year are not recorded on the consolidated balance sheets. The Company also does not include equipment leases and leases in which the Company is the lessor on the consolidated balance sheets as these are insignificant.
Many leases include 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 and fixed rent escalations are included in the right-of-use asset and lease liability.
During the year ended December 31, 2020, the Company entered into a lease for a new corporate headquarters building located in downtown Nashville. The building is currently under construction and anticipated to be completed in late 2022.
31

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Upon commencement, the Company estimates recording a ROU asset and operating lease liability of approximately $29,000 and $30,000, respectively, in connection with this lease.

Information related to the Company's leases is presented below as of June 30, 2021 and December 31, 2020:
June 30,December 31,
Classification20212020
Right-of-use assets:
Operating leasesOperating lease right-of-use assets$45,423$49,537
Finance leasesPremises and equipment, net1,5331,588 
Total right-of-use assets$46,956$51,125
Lease liabilities:
Operating leasesOperating lease liabilities$50,396$55,187
Finance leasesBorrowings1,5551,598
Total lease liabilities$51,951$56,785
Weighted average remaining lease term (in years) -
   operating
12.312.2
Weighted average remaining lease term (in years) - finance13.914.4
Weighted average discount rate - operating2.72 %2.65 %
Weighted average discount rate - finance1.76 %1.76 %

The components of total lease expense included in the consolidated statements of income were as follows:
Three Months EndedSix Months Ended
June 30,June 30,
Classification2021 2020 2021 2020 
Operating lease costs:
Amortization of right-of-use assetOccupancy and equipment$2,171 $1,389 $4,110 $2,678 
Short-term lease costOccupancy and equipment102 30 189 166 
Variable lease costOccupancy and equipment241 160 476 298 
Gain on lease modifications and
    terminations
Occupancy and equipment(787)(787)
Finance lease costs:
Interest on lease liabilitiesInterest expense on borrowings14 
Amortization of right-of-use assetOccupancy and equipment27 55 
Total lease cost$1,762 $1,579 $4,057 $3,142 

During the three and six months ended June 30, 2021, the Company recorded a $787 gain on lease modifications and terminations on certain vacated locations that were consolidated as a result of acquisitions.
The Company does not separate lease and non-lease components and instead elects to account for them as a single lease component. Variable lease cost primarily represents variable payments such as common area maintenance, utilities, and property taxes.
32

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
A maturity analysis of operating and finance lease liabilities and a reconciliation of undiscounted cash flows to the total lease liability as of June 30, 2021 is as follows:
OperatingFinance
LeasesLease
Lease payments due:
June 30, 2022$7,734 $115 
June 30, 20236,759 117 
June 30, 20245,696 119 
June 30, 20255,002 121 
June 30, 20264,675 122 
Thereafter30,976 1,164 
     Total undiscounted future minimum lease payments60,842 1,758 
Less: imputed interest(10,446)(203)
     Lease liability$50,396 $1,555 

Note (7)—Mortgage servicing rights:
Changes in the Company’s mortgage servicing rights were as follows for the three and six months ended June 30, 2021 and 2020:
 Three Months Ended June 30,Six Months Ended June 30,
 2021 2020 2021 2020 
Carrying value at beginning of period$104,192 $62,581 $79,997 $75,521 
Capitalization10,573 12,267 22,167 20,063 
Change in fair value:
    Due to pay-offs/pay-downs(7,865)(7,277)(17,186)(11,920)
    Due to change in valuation inputs or assumptions(5,285)(7,063)16,637 (23,156)
        Carrying value at end of period$101,615 $60,508 $101,615 $60,508 

The following table summarizes servicing income and expense, which are included in 'Mortgage banking income' and 'Other noninterest expense', respectively, within the Mortgage segment operating results for the three and six months ended June 30, 2021 and 2020: 
 Three Months Ended June 30,Six Months Ended June 30,
 2021 2020 2021 2020 
Servicing income:
   Servicing income$6,788 $5,113 $13,719 $10,131 
   Change in fair value of mortgage servicing rights(13,150)(14,340)(549)(35,076)
   Change in fair value of derivative hedging instruments10,005 1,102 (7,859)15,970 
Servicing income3,643 (8,125)5,311 (8,975)
Servicing expenses2,693 1,992 5,225 3,393 
          Net servicing income (loss)(1)
$950 $(10,117)$86 $(12,368)
(1) Excludes benefit of custodial service related noninterest-bearing deposits held by the Bank.
33

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Data and key economic assumptions related to the Company’s mortgage servicing rights as of June 30, 2021 and December 31, 2020 are as follows: 
 June 30,December 31,
 20212020
Unpaid principal balance$10,527,708 $9,787,657 
Weighted-average prepayment speed (CPR)11.07 %14.07 %
Estimated impact on fair value of a 10% increase$(4,840)$(4,493)
Estimated impact on fair value of a 20% increase$(9,311)$(8,599)
Discount rate11.05 %11.49 %
Estimated impact on fair value of a 100 bp increase$(3,981)$(2,942)
Estimated impact on fair value of a 200 bp increase$(7,700)$(5,674)
Weighted-average coupon interest rate3.35 %3.58 %
Weighted-average servicing fee (basis points)2828
Weighted-average remaining maturity (in months)329328
The Company hedges the mortgage servicing rights portfolio with various derivative instruments to offset changes in the fair value of the related mortgage servicing rights. See Note 10, "Derivatives" for additional information on these hedging instruments.
As of June 30, 2021 and December 31, 2020, mortgage escrow deposits totaled to $166,126 and $147,957, respectively.
34

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Note (8)—Income taxes:
An allocation of federal and state income taxes between current and deferred portions is presented below:
 Three Months Ended June 30,
 2021 2020 
Current$9,541 $15,747 
Deferred3,899 (8,292)
Total$13,440 $7,455 
Six Months Ended June 30,
2021 2020 
Current$15,490 $23,915 
Deferred13,538 (16,380)
Total$29,028 $7,535 
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 six months ended June 30, 2021 and 2020:
 Three Months Ended June 30,
 2021 2020 
Federal taxes calculated at statutory rate$11,916 21.0 %$6,369 21.0 %
Increase (decrease) resulting from:
State taxes, net of federal benefit1,879 3.3 %1,298 4.3 %
(Benefit) expense from equity based compensation(124)(0.2)%22 0.1 %
Municipal interest income, net of interest disallowance(419)(0.7)%(310)(1.0)%
Bank owned life insurance(82)(0.1)%(17)(0.1)%
Merger and offering costs127 0.2 %32 0.1 %
Section 162(m) limitation21 %%
Other122 0.2 %61 0.2 %
Income tax expense, as reported$13,440 23.7 %$7,455 24.6 %
Six Months Ended June 30,
2021 2020 
Federal taxes calculated at statutory rate$26,293 21.0 %$6,542 21.0 %
Increase (decrease) resulting from:
State taxes, net of federal benefit3,629 2.9 %1,166 3.7 %
(Benefit) expense from equity based compensation(345)(0.3)%161 0.5 %
Municipal interest income, net of interest disallowance(843)(0.7)%(574)(1.8)%
Bank owned life insurance(166)(0.1)%(35)(0.1)%
Merger and offering costs127 0.1 %163 0.5 %
Section 162(m) limitation248 0.2 %%
Other85 0.1 %112 0.4 %
Income tax expense, as reported$29,028 23.2 %$7,535 24.2 %

As of August 15, 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. While net operating losses are subject to certain annual utilization limits under IRC Section 382, the Company believes the net operating losses carryforward will be realized based on the projected annual limitation and the length of the net operating loss carryover period. The Company's determination of the realization of the net deferred tax asset is based on its assessment of all available positive and negative evidence. The net operating loss carryforward is set to expire as of December 31, 2029.

The Company is subject to Internal Revenue Code Section 162(m), which limits the deductibility of compensation of certain individuals. The restricted stock unit plans that existed prior to the corporation being public will have payments in 2021 after the reliance period defined in the Section 162 regulations. Under the limitations of IRC Section 162(m), the Company will not be able to realize the deferred tax asset established on certain restricted stock units granted to these
35

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
covered individuals. Therefore, a valuation allowance was established in the first quarter of 2021 for the Company's inability to take the benefit of the exercise of the restricted stock units. It is the Company’s policy to apply the IRC Section 162(m) limitations to stock based compensation first; therefore, the first quarter 2021 nondeductible IRC Section 162(m) expense was related to cash compensation and expense on the exercised restricted stock units that were above the limit as defined in IRC Section 162(m).
The components of the net deferred tax assets at June 30, 2021 and December 31, 2020, are as follows: 
June 30,December 31
 2021 2020 
Deferred tax assets:  
Allowance for credit losses$40,878 $48,409 
Operating lease liabilities13,067 14,496 
Federal net operating loss1,753 1,753 
Deferred compensation8,572 8,872 
Unrealized loss on cash flow hedges364 499 
Other19,817 19,101 
Subtotal84,451 93,130 
Deferred tax liabilities:  
FHLB stock dividends$(561)$(561)
Operating leases - right of use assets(11,831)(13,197)
Depreciation(7,088)(7,491)
Amortization of core deposit intangibles(349)(684)
Unrealized gain on equity securities(3,877)(17)
Unrealized gain on debt securities(5,987)(13,027)
Mortgage servicing rights(26,435)(20,803)
Goodwill(12,522)(11,301)
Other(9,828)(9,653)
Subtotal(78,478)(76,734)
Net deferred tax assets$5,973 $16,396 

 
Note (9)—Commitments and contingencies:
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates.
Commitments may expire without being used. Off-balance sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.
June 30,December 31,
 2021 2020 
Commitments to extend credit, excluding interest rate lock commitments$2,529,697 $2,719,996 
Letters of credit68,792 67,598 
Balance at end of period$2,598,489 $2,787,594 
As of June 30, 2021 and December 31, 2020, loan commitments included above with floating interest rates totaled $1.82 billion and $1.65 billion, respectively.
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.
36

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 and six months ended June 30, 2021 and 2020:
Three Months Ended June 30,Six Months Ended June 30,
2021 20202021 2020 
Balance at beginning of period$14,156 $4,618 $16,378 $
Impact of CECL adoption on provision for credit losses
    on unfunded commitments
2,947 
Increase in provision for credit losses from unfunded commitments acquired in business combination70 
Provision for credit losses on unfunded commitments(954)1,882 (3,176)3,483 
Balance at end of period$13,202 $6,500 $13,202 $6,500 
In connection with the sale of mortgage loans to third party investors, the Company makes usual and customary representations and warranties as to the propriety of its origination activities. Occasionally, the investors require the Company to repurchase loans sold to them under the terms of the warranties. When this happens, the loans are recorded at fair value with a corresponding charge to a valuation reserve. The total principal amount of loans repurchased (or indemnified for) was $761 and $1,469 for the three and six months ended June 30, 2021, respectively and $1,568 and $4,367 for the three and six months ended June 30, 2020, respectively. The Company has established a reserve associated with loan repurchases. This reserve is recorded in accrued expenses and other liabilities on the consolidated balance sheets.
The following table summarizes the activity in the repurchase reserve:
Three Months Ended June 30,Six Months Ended June 30,
 2021 2020 2021 2020 
Balance at beginning of period$6,284 $3,829 $5,928 $3,529 
Provision for loan repurchases or indemnifications(706)855 (266)1,227 
Losses on loans repurchased or indemnified(89)(83)(173)(155)
Balance at end of period$5,489 $4,601 $5,489 $4,601 

37

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


Note (10)—Derivatives:
The Company utilizes derivative financial instruments as part of its ongoing efforts to manage its interest rate risk exposure as well as the exposure for its customers. Derivative financial instruments are included in the consolidated balance sheets line item “Other assets” or “Other liabilities” at fair value in accordance with ASC 815, “Derivatives and Hedging.”
The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate-lock commitments). Under such commitments, interest rates for mortgage loans are typically locked in for between 45 to 90 days with the customer. These interest rate lock commitments are recorded at fair value in the Company’s consolidated balance sheets. The Company also enters into best effort or mandatory delivery forward commitments to sell residential mortgage loans to secondary market investors. Gains and losses arising from changes in the valuation of the rate-lock commitments and forward commitments are recognized currently in earnings and are reflected under the line item “Mortgage banking income” on the consolidated statements of income.
The Company enters into forward commitments, futures and options contracts that are not designated as hedging instruments as economic hedges to offset the changes in fair value of Mortgage servicing rights. Gains and losses associated with these instruments are included in earnings and are reflected under the line item “Mortgage banking income” on the consolidated statements of income.
Additionally, the Company enters into derivative instruments that are not designated as hedging instruments to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with customer contracts, the Company enters into an offsetting derivative contract. The Company manages its credit risk, or potential risk of default by its commercial customers through credit limit approval and monitoring procedures.

The Company also maintains 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 June 30, 2021 and December 31, 2020, the fair value of these contracts resulted in liability balances of $1,391 and $1,909, 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 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. During the year ended December 31, 2020, the Company did not renew the advances associated with the legacy cash flow hedge, and reclassified the remaining unamortized gain, from accumulated other comprehensive income to earnings.

38

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:
June 30, 2021
Notional AmountAssetLiability
Not designated as hedging:
  Interest rate contracts$650,268 $26,355 $26,168 
  Forward commitments1,172,717 1,401 
  Interest rate-lock commitments787,258 13,120 
  Futures contracts502,500 2,707 
    Total$3,112,743 $42,182 $27,569 

 December 31, 2020
 Notional AmountAssetLiability
Not designated as hedging:   
  Interest rate contracts$606,878 $34,547 $34,317 
  Forward commitments1,358,328 11,633 
  Interest rate-lock commitments1,191,621 34,391 
  Futures contracts375,400 383 
    Total$3,532,227 $68,938 $46,333 
 
 June 30, 2021
 Notional AmountAssetLiability
Designated as hedging:   
  Interest rate swaps$30,000 $$1,391 
December 31, 2020
Notional AmountAssetLiability
Designated as hedging:
   Interest rate swaps$30,000 $$1,909 
Gains (losses) included in the consolidated statements of income related to the Company’s derivative financial instruments were as follows:
Three Months Ended June 30,Six Months Ended June 30,
 2021 2020 2021 2020 
Not designated as hedging instruments (included in mortgage banking income):
  Interest rate lock commitments$171 $9,541 $(21,271)$30,003 
  Forward commitments(19,200)(13,993)24,058 (40,450)
  Futures contracts9,104 631 (7,228)11,542 
    Total$(9,925)$(3,821)$(4,441)$1,095 
Three Months Ended June 30,Six Months Ended June 30,
 2021 2020 2021 2020 
Designated as hedging:
   Amount of gain reclassified from other comprehensive
      income and recognized in interest expense on
      borrowings, net of taxes of $0, $52, $0, and $104
$$148 $$295 
   Loss included in interest expense on borrowings(143)(62)(280)(74)
     Total$(143)$86 $(280)$221 
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 discloses the amount included in other comprehensive income, net of tax, for derivative instruments designated as cash flow hedges for the periods presented: 
Three Months Ended June 30,Six Months Ended June 30,
 2021 2020 2021 2020 
Designated as hedging:
   Amount of gain (loss) recognized in other comprehensive
     income, net of tax $23, $(40), $135, and $(443)
$67 $(112)$383 $(1,257)
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 0, had the Company elected to offset those instruments subject to an enforceable master netting agreement:
Offsetting Derivative AssetsOffsetting Derivative Liabilities
June 30, 2021December 31, 2020June 30, 2021December 31, 2020
Gross amounts recognized$4,466 $3,863 $23,536 $34,051 
Gross amounts offset in the consolidated balance sheets
Net amounts presented in the consolidated balance sheets4,466 3,863 23,536 34,051 
Gross amounts not offset in the consolidated balance sheets
Less: financial instruments3,146 857 3,146 857 
Less: financial collateral pledged20,390 33,194 
Net amounts$1,320 $3,006 $$
Most derivative contracts with clients are secured by collateral. Additionally, in accordance with the interest rate agreements with derivatives dealers, the Company may be required to post margin to these counterparties. At June 30, 2021 and December 31, 2020, the Company had minimum collateral posting thresholds with certain derivative counterparties and had collateral posted of $66,557 and $57,985, respectively, against its obligations under these agreements. Cash collateral related to derivative contracts is recorded in other assets in the consolidated balance sheets.
Note (11)—Fair value of financial instruments:
FASB ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a framework for measuring the fair value of assets and liabilities according to a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that are derived from assumptions based on management’s estimate of assumptions that market participants would use in pricing the asset or liability based on the best information available under the circumstances.
40

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The hierarchy is broken down into the following three levels, based on the reliability of inputs:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs for assets or liabilities that are derived from assumptions based on management’s estimate of assumptions that market participants would use in pricing the assets or liabilities.
The Company records the fair values of financial assets and liabilities on a recurring and non-recurring basis using the following methods and assumptions:
Investment securities - Investment securities are recorded at fair value on a recurring basis. Fair values for securities are based on quoted market prices, where available. If quoted prices are not available, fair values are based on quoted market prices of similar instruments or are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the pricing relationship or correlation among other benchmark quoted securities. Investment securities valued using quoted market prices of similar instruments or that are valued using matrix pricing are classified as Level 2. When significant inputs to the valuation are unobservable, the available-for-sale securities are classified within Level 3 of the fair value hierarchy.
Where no active market exists for a security or other benchmark securities, fair value is estimated by the Company with reference to discount margins for other high-risk securities.
Loans held for sale - Loans held for sale are carried at fair value. Fair value is determined using current secondary market prices for loans with similar characteristics for the mortgage portfolio, that is, using Level 2 inputs. Commercial loans held for sale at fair value is determined using an income approach with various assumptions including expected cash flows, market discount rates, credit metrics and collateral value when appropriate. As such, these are considered Level 3.
Derivatives - The fair value of the Company's interest rate swaps are based upon fair values provided from entities that engage in interest rate swap activity and is based upon projected future cash flows and interest rates. Fair value of commitments is based on fees currently charged to enter into similar agreements, and for fixed-rate commitments, the difference between current levels of interest rates and the committed rates is also considered. These financial instruments are classified as Level 2.
OREO - OREO is comprised of commercial and residential real estate obtained in partial or total satisfaction of loan obligations and excess land and facilities held for sale. OREO acquired in settlement of indebtedness is recorded at the lower of the carrying amount of the loan or the fair value of the real estate less costs to sell. Fair value is determined on a nonrecurring basis based on appraisals by qualified licensed appraisers and is adjusted for management’s estimates of costs to sell and holding period discounts. The valuations are classified as Level 3.
Mortgage servicing rights - MSRs are carried at fair value. Fair value is determined using an income approach with various assumptions including expected cash flows, market discount rates, prepayment speeds, servicing costs, and other factors. As such, MSRs are considered Level 3.
Collateral dependent loans - Collateral dependent loans are loans for which, based on current information and events, the Company has determined foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral and it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collateral dependent loans are classified as Level 3.
41

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The following table contains the estimated fair values and the related carrying values of the Company's financial instruments. Items which are not financial instruments are not included.
 
 Fair Value
June 30, 2021Carrying amountLevel 1Level 2Level 3Total
Financial assets:     
Cash and cash equivalents$1,717,097 $1,717,097 $$$1,717,097 
Investment securities1,409,175 1,409,175 1,409,175 
Loans, net7,054,291 7,199,111 7,199,111 
Loans held for sale821,529 697,407 124,122 821,529 
Interest receivable42,083 72 6,119 35,892 42,083 
Mortgage servicing rights101,615 101,615 101,615 
Derivatives42,182 42,182 42,182 
Financial liabilities: 
Deposits: 
Without stated maturities$8,921,516 $8,921,516 $$$8,921,516 
With stated maturities1,282,440 1,292,720 1,292,720 
Securities sold under agreement to
repurchase and federal funds sold
33,056 33,056 33,056 
Subordinated debt149,351 153,631 153,631 
Other borrowings1,555 1,555 1,555 
Interest payable4,136 169 2,442 1,525 4,136 
Derivatives28,960 28,960 28,960 

 
 Fair Value
December 31, 2020Carrying amountLevel 1Level 2Level 3Total
Financial assets:     
Cash and cash equivalents$1,317,898 $1,317,898 $$$1,317,898 
Investment securities1,176,991 1,176,991 1,176,991 
Loans, net6,912,570 7,058,693 7,058,693 
Loans held for sale899,173 683,770 215,403 899,173 
Interest receivable43,603 33 5,254 38,316 43,603 
Mortgage servicing rights79,997 79,997 79,997 
Derivatives68,938 68,938 68,938 
Financial liabilities: 
Deposits: 
Without stated maturities$8,020,783 $8,020,783 $$$8,020,783 
With stated maturities1,437,254 1,446,605 1,446,605 
Securities sold under agreement to
repurchase and federal funds sold
32,199 32,199 32,199 
Subordinated debt189,527 192,149 192,149 
Other borrowings16,598 16,598 16,598 
Interest payable6,772 327 4,210 2,235 6,772 
Derivatives48,242 48,242 48,242 
42

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
The balances and levels of the assets measured at fair value on a recurring basis at June 30, 2021 are presented in the following table:
At June 30, 2021Quoted 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$$8,255 $$8,255 
Mortgage-backed securities - residential1,035,003 1,035,003 
Mortgage-backed securities - commercial15,161 15,161 
Municipal securities332,883 332,883 
Treasury securities10,534 10,534 
Corporate securities2,536 2,536 
Equity securities4,803 4,803 
Total securities$$1,409,175 $$1,409,175 
Loans held for sale697,407 124,122 821,529 
Mortgage servicing rights101,615 101,615 
Derivatives42,182 42,182 
Financial Liabilities:
Derivatives28,960 28,960 


The balances and levels of the assets measured at fair value on a non-recurring basis at June 30, 2021 are presented in the following table: 
At June 30, 2021Quoted prices
in active
markets for
identical assets
(liabilities
(level 1)
Significant
other
observable
inputs
(level 2)
Significant unobservable
inputs
(level 3)
Total
Non-recurring valuations:    
Financial assets:    
Other real estate owned$$$6,927 $6,927 
Collateral dependent loans:
Commercial and industrial$$$15,220 $15,220 
Construction5,993 5,993 
Residential real estate:
1-4 family mortgage1,615 1,615 
Residential line of credit1,241 1,241 
Commercial real estate:
Owner occupied10,045 10,045 
Non-owner occupied11,624 11,624 
Total collateral dependent loans$$$45,738 $45,738 
43

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

The balances and levels of the assets measured at fair value on a recurring basis at December 31, 2020 are presented in the following table: 
At December 31, 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$$2,003 $$2,003 
Mortgage-backed securities - residential773,336 773,336 
Mortgage-backed securities - commercial21,588 21,588 
Municipals, tax-exempt356,329 356,329 
Treasury securities16,628 16,628 
Corporate securities2,516 2,516 
Equity securities4,591 4,591 
Total securities$$1,176,991 $$1,176,991 
Loans held for sale$$683,770 $215,403 $899,173 
Mortgage servicing rights79,997 79,997 
Derivatives68,938 68,938 
Financial Liabilities:
Derivatives48,242 48,242 
 
44

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, 2020 are presented in the following table: 
At December 31, 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$$$6,662 $6,662 
Collateral dependent loans:
Commercial and industrial$$$1,728 $1,728 
Construction3,877 3,877 
Residential real estate:
1-4 family mortgage226 226 
Residential line of credit1,174 1,174 
Commercial real estate: 
Owner occupied3,391 3,391 
Non-owner occupied8,164 8,164 
Total collateral dependent loans$$$18,560 $18,560 

The following tables present information as of June 30, 2021 and December 31, 2020 about significant unobservable inputs (Level 3) used in the valuation of assets measured at fair value on a nonrecurring basis:
As of June 30, 2021
Financial instrumentFair ValueValuation techniqueSignificant 
Unobservable inputs
Range of
inputs
Collateral dependent loans$45,738 Valuation of collateralDiscount for comparable sales0%-30%
Other real estate owned$6,927 Appraised value of property less costs to sellDiscount for costs to sell0%-15%
As of December 31, 2020
Financial instrumentFair ValueValuation techniqueSignificant 
Unobservable inputs
Range of
inputs
Collateral dependent loans$18,560 Valuation of collateralDiscount for comparable sales0%-30%
Other real estate owned$6,662 Appraised value of property less costs to sellDiscount for costs to sell0%-15%
For collateral dependent loans, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. Fair value of the loan's collateral is determined by third-party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on changes in market conditions from the time of valuation and management's knowledge of the client and client's business. Other real estate owned acquired in settlement of indebtedness is recorded at fair value of the real estate less estimated costs to sell. Subsequently, it may be necessary to record nonrecurring fair value adjustments for declines in fair value. Any write-downs based on the asset's fair value at the date of foreclosure are charged to the allowance for credit losses. Appraisals for both collateral dependent loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the lending administrative department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry wide statistics. Collateral dependent loans that are dependent on recovery through sale of equipment, such as farm equipment, automobiles and aircrafts are generally valued based on public source pricing or subscription services while more complex assets are valued through leveraging brokers who have expertise in the collateral involved.
45

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 following table summarizes the Company's loans held for sale, at fair value, as of the dates presented:
June 30,December 31,
20212020
Commercial and industrial$124,122 $215,403
Residential real estate:
1-4 family mortgage697,407 683,770 
Total loans held for sale$821,529 $899,173 
Mortgage loans held for sale
The Company measures mortgage loans originated for sale at fair value under the fair value option as permitted under ASC 825, "Financial Instruments" ("ASC 825"). Electing to measure these assets at fair value reduces certain timing differences and more accurately matches the changes in fair value of the loans with changes in the fair value of derivative instruments used to economically hedge them.
Net gains (losses) of $9,730 and $(10,986) resulting from fair value changes of mortgage loans were recorded in income during the three and six months ended June 30, 2021, respectively, compared to net gains of $8,048 and $13,866 during the three and six months ended June 30, 2020, respectively. The amount does not reflect changes in fair values of related derivative instruments used to hedge exposure to market-related risks associated with these mortgage loans. The change in fair value of both loans held for sale and the related derivative instruments are recorded in Mortgage Banking Income in the consolidated statements of income. Election of the fair value option allows the Company to reduce the accounting volatility that would otherwise result from the asymmetry created by accounting for the financial instruments at the lower of cost or fair value and the derivatives at fair value.
Government National Mortgage Association (GNMA) optional repurchase programs allow financial institutions to buy back
individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing and was the original transferor. At the servicer’s option and without GNMA’s prior authorization, the servicer may repurchase such a delinquent loan for an amount equal to 100 percent of the remaining principal balance of the loan. Under FASB ASC Topic 860, “Transfers and Servicing,” this buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. When the Company is deemed to have regained effective control over these loans under the unconditional buy-back option, the loans can no longer be reported as sold and must be brought back onto the balance sheet, regardless of whether the Company intends to exercise the buy-back option if the buyback option provides the transferor a more-than-trivial benefit. As of June 30, 2021, and December 31, 2020, there were $120,880 and $151,184, respectively, of delinquent GNMA loans previously sold that the Company did not record on its consolidated balance sheets as the Company determined there not to be a more-than-trivial benefit based on an analysis of interest rates and an assessment of potential reputational risk associated with these loans.
The Company’s valuation of mortgage loans held for sale incorporates an assumption for credit risk; however, given the short-term period that the Company holds these mortgage loans held for sale, valuation adjustments attributable to instrument-specific credit risk is nominal.
Commercial loans held for sale
The Company also has a portfolio of shared national credits and institutional healthcare loans that were acquired during 2020 in the acquisition of Franklin. These commercial loans are also being measured under the fair value option. As such, these loans are excluded from the allowance for credit losses. The following table sets forth the changes in fair value associated with this portfolio.
46

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Three Months Ended June 30, 2021
Principal BalanceFair Value DiscountFair Value
Carrying value at beginning of period$197,490 $(22,506)$174,984 
Change in fair value:
  Pay-downs and pay-offs(52,226)(52,226)
  Write-offs to discount(9,292)9,292 
  Changes in valuation included in other noninterest income1,364 1,364 
        Carrying value at end of period$135,972 $(11,850)$124,122 
Six Months Ended June 30, 2021
Principal BalanceFair Value DiscountFair Value
Carrying value at beginning of period$239,063 $(23,660)$215,403 
Change in fair value:
Pay-downs and pay-offs(91,792)(91,792)
Write-offs to discount(11,299)11,299 
Changes in valuation included in other noninterest income511 511 
Carrying value at end of period$135,972 $(11,850)$124,122 
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 and nonaccrual loans measured at fair value as of June 30, 2021 and December 31, 2020: 
June 30, 2021Aggregate
fair value
Aggregate Unpaid Principal BalanceDifference
Mortgage loans held for sale measured at fair value$697,407 $676,510 $20,897 
Commercial loans held for sale measured at fair value118,278 124,846 (6,568)
Nonaccrual loans5,844 11,126 (5,282)
December 31, 2020 
Mortgage loans held for sale measured at fair value$683,770 $651,887 $31,883 
Commercial loans held for sale measured at fair value208,914 226,867 (17,953)
Past due loans of 90 days or more83 163 (80)
Nonaccrual loans6,406 12,033 (5,627)


Note (12)—Segment reporting:
The Company and the Bank are engaged in the business of banking and provide a full range of financial services. The Company determines reportable segments based on the significance of the segment’s operating results to the overall Company, the products and services offered, customer characteristics, processes and service delivery of the segments and the regular financial performance review and allocation of resources by the Chief Executive Officer, the Company’s chief operating decision maker. The Company has identified 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 2 distinct delivery channels: retail and ConsumerDirect. Additionally, the Mortgage segment includes the servicing of residential mortgage loans and the packaging and securitization of loans to governmental agencies. The Company’s mortgage division represents a distinct reportable segment which differs from the Company’s primary business of commercial and retail banking.
As previously reported, on March 31, 2021, the Company re-evaluated its business segments and revised to align all mortgage activities with the Mortgage segment. Previously, the Company had attributed retail mortgage activities originating from geographical locations within the footprint of the Company's branches to the Banking segment. Results for the comparable prior period have been revised to reflect this realignment. The impact of this change on previously reported segment results was the reclassification of mortgage retail footprint total net contribution of $5,398 and $8,874 from the Banking segment to the Mortgage segment for the three and six months ended June 30, 2020, respectively.
47

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
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.
The following tables provide segment financial information for three and six months ended June 30, 2021 and 2020 as follows:
Three months ended June 30, 2021BankingMortgageConsolidated
Net interest income$86,553 $10 $86,563 
Provisions for credit losses(1)
(13,839)(13,839)
Mortgage banking income(2)
38,644 38,644 
Change in fair value of mortgage servicing rights, net of hedging(2)
(3,145)(3,145)
Other noninterest income14,002 (201)13,801 
Depreciation and amortization1,618 344 1,962 
Amortization of intangibles1,394 1,394 
Other noninterest expense55,182 34,422 89,604 
Income before income taxes$56,200 $542 $56,742 
Income tax expense13,440 
Net income applicable to FB Financial Corporation and noncontrolling
interest
43,302 
Net income applicable to noncontrolling interest(3)
Net income applicable to FB Financial Corporation$43,294 
Total assets$10,908,107 $1,010,260 $11,918,367 
Goodwill242,561 242,561 
(1)Included $(954) in provision for credit losses on unfunded commitments.
(2)Change in fair value of mortgage servicing rights, net of hedging is included in mortgage banking income in the Company's consolidated statements of income.
(3)Banking segment includes noncontrolling interest.
Three months ended June 30, 2020BankingMortgageConsolidated
Net interest income$55,350 $(13)$55,337 
Provisions for credit losses(1)
25,921 25,921 
Mortgage banking income(2)
85,406 85,406 
Change in fair value of mortgage servicing rights, net of hedging(2)
(13,238)(13,238)
Other noninterest income9,323 9,323 
Depreciation and amortization1,503 247 1,750 
Amortization of intangibles1,205 1,205 
Other noninterest expense(3)
39,332 38,292 77,624 
(Loss) income before income taxes$(3,288)$33,616 $30,328 
Income tax expense7,455 
Net income applicable to FB Financial Corporation and noncontrolling
interest
22,873 
Net income applicable to noncontrolling interest(4)
Net income applicable to FB Financial Corporation$22,873 
Total assets$6,632,506 $623,030 $7,255,536 
Goodwill175,441 175,441 
(1)Included $1,882 in provision for credit losses on unfunded commitments.
(2)Change in fair value of mortgage servicing rights, net of hedging is included in mortgage banking income in the Company's consolidated statements of income.
(3)Included $1,586 of merger costs in the Banking Segment primarily related to the integration of Farmers National
(4)Banking segment includes noncontrolling interest.


48

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Six Months Ended June 30, 2021BankingMortgageConsolidated
Net interest income$169,150 $(11)$169,139 
Provisions for credit losses(1)
(27,693)(27,693)
Mortgage banking income(2)
99,239 99,239 
Change in fair value of mortgage servicing rights, net of hedging(2)
(8,408)(8,408)
Other noninterest income25,400 (201)25,199 
Depreciation and amortization3,476 672 4,148 
Amortization of intangibles2,834 2,834 
Other noninterest expense107,619 73,057 180,676 
Income before income taxes$108,314 $16,890 $125,204 
Income tax expense29,028 
Net income applicable to FB Financial Corporation and noncontrolling
interest
96,176 
Net income applicable to noncontrolling interest(3)
Net income applicable to FB Financial Corporation$96,168 
Total assets$10,908,107 $1,010,260 $11,918,367 
Goodwill242,561 242,561 
(1)Included $(3,176) in provision for credit losses on unfunded commitments.
(2)Change in fair value of mortgage servicing rights, net of hedging is included in mortgage banking income in the Company's consolidated statements of income.
(3)Banking segment includes noncontrolling interest.

Six Months Ended June 30, 2020BankingMortgageConsolidated
Net interest income$111,583 $$111,586 
Provisions for credit losses(1)
55,486 55,486 
Mortgage banking income(2)
124,019 124,019 
Change in fair value of mortgage servicing rights, net of hedging(2)
(19,106)(19,106)
Other noninterest income19,278 19,278 
Depreciation and amortization2,995 497 3,492 
Amortization of intangibles2,408 2,408 
Other noninterest expense(3)
80,454 62,784 143,238 
(Loss) income before income taxes$(10,482)$41,635 $31,153 
Income tax expense7,535 
Net income applicable to FB Financial Corporation and noncontrolling
interest
23,618 
Net income applicable to noncontrolling interest(4)
Net income applicable to FB Financial Corporation$23,618 
Total assets$6,632,506 $623,030 $7,255,536 
Goodwill175,441 175,441 
(1)Includes $3,483 in provision for credit losses on unfunded commitments.
(2)Change in fair value of mortgage servicing rights, net of hedging is included in mortgage banking income in the Company's consolidated statements of income.
(3)Includes $4,636 of merger costs in the Banking segment related to the Farmers National acquisition and the Franklin merger.
(4)Banking segment includes noncontrolling interest.

Our Banking segment provides our Mortgage segment with a warehouse line of credit that is used to fund mortgage loans held for sale. The warehouse line of credit, which is eliminated in consolidation, had a prime interest rate of 3.25% as of June 30, 2021 and 2020, 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 $6,110 and $3,335 for the three months ended June 30, 2021 and 2020, respectively, and $11,510 and $5,710 for the six months ended June 30, 2021 and 2020, respectively.


49

FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Note (13)—Minimum capital requirements:
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.
Under regulatory guidance for non-advanced approaches institutions, the Bank and Company are required to maintain minimum capital ratios as outlined in the table below. Additionally, under U.S. Basel III Capital Rules, the decision was made to opt out of including accumulated other comprehensive income in regulatory capital. As of June 30, 2021 and December 31, 2020, the Bank and Company met all capital adequacy requirements to which they are subject.
In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC announced a final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company adopted the capital transition relief over the permissible five-year period.
Actual and required capital amounts and ratios are included below as of the dates indicated.

 ActualMinimum Capital
adequacy with
capital buffer
To be well capitalized
under prompt corrective
action provisions
AmountRatioAmountRatioAmountRatio
June 30, 2021
Total Capital (to risk-weighted assets)      
FB Financial Corporation$1,383,471 14.9 %$974,690 10.5 %N/AN/A
FirstBank1,317,759 14.2 %971,072 10.5 %$924,831 10.0 %
Tier 1 Capital (to risk-weighted assets)
FB Financial Corporation$1,177,609 12.7 %$789,034 8.5 %N/AN/A
FirstBank1,131,897 12.2 %786,106 8.5 %$739,865 8.0 %
Tier 1 Capital (to average assets)
FB Financial Corporation$1,177,609 10.1 %$466,866 4.0 %N/AN/A
FirstBank1,131,897 9.7 %465,961 4.0 %$582,451 5.0 %
Common Equity Tier 1 Capital
(to risk-weighted assets)
FB Financial Corporation$1,147,609 12.4 %$649,793 7.0 %N/AN/A
FirstBank1,131,897 12.2 %647,382 7.0 %$601,140 6.5 %
 ActualMinimum Capital
adequacy with
capital buffer
To be well capitalized
under prompt corrective
action provisions
AmountRatioAmountRatioAmountRatio