Note (1)—Basis of presentation:

FB Financial Corporation (the “Company”) is a bank holding company, headquartered in Nashville, Tennessee. FB Financial operates through its wholly-owned banking subsidiary, FirstBank (the “Bank”), with 45 full-service bank branches across Tennessee, north Alabama and north Georgia, and a national mortgage business with office locations across the Southeast.

The consolidated financial statements, including the notes thereto of the Company, formerly First South Bancorp, Inc. until the Company name was changed in 2016, have been prepared in accordance with United States generally accepted accounting principles (“GAAP’) interim reporting requirements, 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.

The accompanying consolidated financial statements have been prepared in conformity with GAAP and general banking industry. 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. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the determination of the fair value of financial instruments, including investment securities, derivatives and mortgage servicing rights. In connection with the determination of the estimated fair value of foreclosed real estate and impaired loans, management obtains independent appraisals for significant properties.

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.

On June 28, 2016, the Company declared a 100-for-1 stock split, increasing the number of issued and authorized shares from 171,800 to 17,180,000 and 250,000 to 25,000,000, respectively. Additional shares issued as a result of the stock split were distributed immediately upon issuance to the shareholder on that date. Share and per share amounts included in the consolidated financial statements and notes thereto reflect the effect of the split for all periods presented. Additionally, in July 2016, the Company increased the number of authorized shares from 25,000,000 to 75,000,000.

On August 19, 2016, the Company filed a Registration Statement on Form S-1 with the Securities and Exchange Commission (“SEC”) which was declared effective by the SEC on September 15, 2016. The Company sold and issued 6,764,704 shares of common stock at $19 per share pursuant to that Registration Statement. Total proceeds received by the Company, net of offering costs, were approximately $115,525. The proceeds were used to fund a $55,000 distribution to the majority shareholder and to repay all $10,075 aggregate principal amount of subordinated notes held by the majority shareholder, plus any accrued and unpaid interest thereon.

The Company terminated its S-Corporation status and became a taxable corporate entity (“C Corporation”) on September 16, 2016 in connection with its initial public offering. Pro forma amounts for income tax expense and basic and diluted earnings per share have been presented assuming the Company’s pro forma combined effective tax rate of 37.45% and 37.39% for the three and six months ended June 30, 2016, respectively, as if it had been a C Corporation during that period.

On May 26, 2017, the Company entered into Securities Purchase Agreements (the “Securities Purchase Agreements”) with accredited investors (the “Purchasers”) pursuant to which the Company agreed to sell in a private placement (the “Private Placement”) an aggregate of 4,806,710 shares of the Company’s common stock, par value $1.00 (the “Private Placement Shares”), at a purchase price of $33.00 per share. Total proceeds received from the sale of such Private Placement Shares, net of placement agent and other offering costs, was approximately $152.7 million.

The Company has evaluated, for consideration of recognition or disclosure, subsequent events that occurred through the date of issuance of these financial statements. On July 31, 2017, the Bank completed its previously announced acquisitions of Clayton Bank and Trust and American City Bank headquartered in Knoxville, TN and Tullahoma, TN, respectively. In connection with the acquisition, the Company borrowed $100,000 from the FHLB under short-term borrowing with fixed rates arrangement and entered into certain derivative instruments as discussed in Note 9. See Note 2, “Mergers and acquisitions” in the Notes to the consolidated unaudited financial statements for further details regarding the terms and conditions of the Bank’s acquisitions. Additionally, subsequent to June 30, 2017, the Company began hedging a portion of the mortgage servicing rights portfolio as discussed in Note 6.

The Company has determined that there were no other subsequent events, other than what has been disclosed above, that occurred after June 30, 2017, but prior to the issuance of these financial statements that would have a material impact on the Company’s consolidated financial statements.

As of June 30, 2017, the Company is considered a “controlled company” and is controlled by the Company’s Executive Chairman and former sole shareholder, James W. Ayers. The Company qualifies as an “emerging growth company” as defined by the Jumpstart Our Business Startups Act (“JOBS Act”).

Basic earnings per common share are net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under the restricted stock units granted but not yet vested and distributable. Unearned compensation plus assumed proceeds from the applicable tax benefits are used to repurchase common stock at the average market price. There were no dilutive instruments outstanding during the three and six months ended June 30, 2016; therefore, diluted net income per common share is the same as basic net income per share for these periods.

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,
	2017		2016		2017		2016
Basic earnings per share calculation:
Net income	$	11,239	$	15,775	$	20,992	$	30,374
Weighted-average basic shares outstanding		25,741,968		17,180,000		24,944,633		17,180,000
Basic earnings per share	$	0.44	$	0.92	$	0.84	$	1.77
Diluted earnings per share:
Net income	$	11,239	$	15,775	$	20,992	$	30,374
Weighted-average basic shares outstanding		25,741,968		17,180,000		24,944,633		17,180,000
Average diluted common shares outstanding		559,490		—		505,786		—
Weighted-average diluted shares outstanding		26,301,458		17,180,000		25,450,419		17,180,000
Diluted earnings per share	$	0.43	$	0.92	$	0.82	$	1.77
Pro forma earnings per share:
Pro forma net income	$	11,239	$	10,576	$	20,992	$	20,379
Weighted-average basic shares outstanding		25,741,968		17,180,000		24,944,633		17,180,000
Pro forma basic earnings per share	$	0.44	$	0.62	$	0.84	$	1.19
Pro forma diluted earnings per share:
Pro forma net income	$	11,239	$	10,576	$	20,992	$	20,379
Weighted-average diluted shares outstanding		26,301,458		17,180,000		25,450,419		17,180,000
Pro forma diluted earnings per share	$	0.43	$	0.62	$	0.82	$	1.19

Except as set forth below, the Company did not adopt any new accounting policies that were not disclosed in the Company’s 2016 audited financial statements included on Form 10-K.

As of January 1, 2017, the Company elected to account for its mortgage servicing rights under the fair value option as permitted under ASC 860-50-35, Transfers and Servicing. The change in accounting policy resulted in a one-time adjustment to retained earnings of $615 for the after-tax increase in fair value above book value at January 1, 2017.

There are currently no new accounting standards that have been issued that will have a significant impact on the Company’s financial position, results of operations or cash flows upon adoption that were not disclosed in the Company’s 2016 audited financial statements included on Form 10-K.