Basis of presentation (Policies)

9 Months Ended

Sep. 30, 2018

Overview and presentation

FB Financial Corporation (the “Company”) is a bank holding company, headquartered in Nashville, Tennessee. The Company operates through its wholly owned bank subsidiary, FirstBank (the “Bank”), with 56 full-service bank branches across Tennessee, North Alabama and North Georgia, and a national mortgage business with office locations across the Southeast.

The unaudited consolidated financial statements, including the notes thereto of the Company, 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 unaudited consolidated financial statements have been prepared in conformity with GAAP and general banking industry guidelines. 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.

Effective July 31, 2017, the Bank completed its previously announced acquisitions of Clayton Bank and Trust and American City Bank headquartered in Knoxville, Tennessee and Tullahoma, Tennessee, respectively. See Note 2, “Mergers and acquisitions” in these Notes to the consolidated unaudited financial statements for further details regarding acquisitions.

Prior to May 31, 2018, the Company was considered a “controlled company” and was controlled by the Company’s Executive Chairman and former majority shareholder, James W. Ayers. During the second quarter of 2018, the Company completed a secondary offering of 3,680,000 shares of common stock pursuant to the Company’s effective registration statement on Form S-3 whereby James W. Ayers was the seller. As a result of this transaction, the Company ceased to qualify as a “controlled company” as the selling shareholder’s ownership was reduced to approximately 44% of the voting power of the Company’s issued and outstanding shares of common stock. The Company continues to qualify as an emerging growth company as defined by the “Jumpstart Our Business Startups Art” (“JOBS Act”).

Subsequent Events

Subsequent events

The Company has evaluated, for consideration of recognition or disclosure, subsequent events that occurred through the date of issuance of these financial statements. The Company has determined that there were no other subsequent events other than described below that occurred after September 30, 2018, but prior to the issuance of these financial statements that would have a material impact on the Company’s consolidated financial statements.

On October 22, 2018, the Company declared a regular quarterly dividend of $0.08 per share to be paid on November 15, 2018 to shareholders of record as of November 1, 2018, totaling approximately $2,548. Additionally, the Company’s Board of Directors authorized a plan to allow the repurchase of up to $50 million of the Company’s outstanding common stock, which plan will remain in effect until the earlier of October 22, 2019 or the date at which the Company has repurchased $50 million in shares.

Earnings Per Share

Earnings per share

Basic earnings per common share (“EPS”) excludes dilution and is computed by dividing earnings attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS includes the dilutive effect of additional potential common shares issuable under the restricted stock units granted but not yet vested and distributable. Diluted EPS is computed by dividing earnings attributable to common shareholders by the weighted average number of common shares outstanding for the year, 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, including the Company, are required to calculate basic and diluted EPS using the two-class method. Certain restricted stock awards granted by the Company include non-forfeitable dividend equivalents and are considered participating securities. Calculations of EPS under the two-class method (i) exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities and (ii) exclude from the denominator the dilutive impact of the participating securities.

The following is a summary of the basic and diluted earnings per common share calculation for each of the periods presented:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017
Basic earnings per share calculation:
Net income	$	21,377		$	8,388	$	63,196		$	29,380
Dividends paid on and undistributed earnings allocated to participating securities		(114	)		—		(337	)		—
Earnings attributable to common shareholders	$	21,263		$	8,388	$	62,859		$	29,380
Weighted-average basic shares outstanding		30,692,668			30,004,952		30,661,852			26,649,942
Basic earnings per share	$	0.69		$	0.28	$	2.05		$	1.10
Diluted earnings per share calculation:
Earnings attributable to common shareholders	$	21,263		$	8,388	$	62,859		$	29,380
Weighted-average basic shares outstanding		30,692,668			30,004,952		30,661,852			26,649,942
Weighted-average diluted shares contingently issuable		646,960			599,585		636,802			548,431
Weighted-average diluted shares outstanding		31,339,628			30,604,537		31,298,654			27,198,373
Diluted earnings per share	$	0.68		$	0.27	$	2.01		$	1.08

Recently Adopted Accounting Principles

Recently adopted accounting principles:

Except as set forth below, the Company did not adopt any new accounting policies that were not disclosed in the Company’s 2017 audited consolidated financial statements included on Form 10-K.

On January 1, 2018, the Company adopted the following newly issued accounting standards:

In May 2014, the FASB issued an update to Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”. The Company adopted this guidance on January 1, 2018 and all subsequent amendments to the ASU (collectively, “ASC 606”) which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Company’s revenues come from interest income and other sources, including loans, leases, securities and derivatives that are outside the scope of ASC 606. The Company’s services that fall within the scope of ASC 606 are presented within Noninterest income and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scope of ASC 606 include deposit service charges on deposits, interchange income, investment services and trust income, and the sale of OREO, all within the Banking Segment. The Company has evaluated the effect of this updated on these fee-based income streams and concluded that adoption did not result in a change to the accounting for any of the in-scope revenue streams; as such, no cumulative effect adjustment was recorded.

The following is a summary of the implementation considerations for the revenue streams that fall within the scope of Topic 606:

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Service charges on deposits, investment services and trust income, and interchange fees — Fees from these services are either transaction based, for which the performance obligations are satisfied when the individual transaction is processed, or set periodic service charges, for which the performance obligations are satisfied over the period the service is provided. Transaction based fees are recognized at the time the transaction is processed, and periodic service charges are recognized over the service period. The adoption of Topic 606 had no impact on the Company's revenue recognition practice for these services.

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Gains on sales of other real estate — ASU 2014-09 creates Topic 610-20, under which a gain on sale should be recognized when a contract for sale exists and control of the asset has been transferred to the buyer. Topic 606 list several criteria which must exist to conclude that a contract for sale exists, including a determination that the institution will collect substantially all of the consideration to which it is entitled. This presents a key difference between the current and new guidance related to the recognition of the gain when the institution finances the sale of the property. Rather than basing recognition on the amount of the buyer's initial investment, which was the primary consideration under prior guidance, the analysis is now based on various factors including not only the loan to value, but also the credit quality of the borrower, the structure of the loan, and any other factors that may affect collectability. While these differences may affect the decision to recognize or defer gains on sales of other real estate in circumstances where the Company has financed the sale, these amounts have not been material to its financial statements.

In January 2016, the FASB released ASU 2016-01, “Recognition and Measurement of Financial Assets and Liabilities.” The main provisions of the update are to eliminate the available for sale classification of accounting for equity securities and adjust the fair value disclosures for financial instruments carried at amortized cost such that the disclosed fair values represent an exit price as opposed to an entry price. The provisions of this update will require that equity securities be carried at fair market value on the balance sheet and any periodic changes in value will be adjustments to the income statement. A practical expedient is provided for equity securities without a readily determinable fair value such that these securities can be carried at cost less any impairment. Results for reporting periods beginning after January 1, 2018 are presented under this method while prior period disclosures are presented under legacy GAAP. On January 1, 2018, the Company recorded a net loss in beginning retained earnings of $109 in connection with this transition.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments (Topic 230).” ASU 2016-15 provides guidance related to certain cash flow issues in order to reduce the current and potential future diversity in practice. This adoption did not have an impact on our financial statements.

In May 2017, the FASB issued ASU 2017-09, “Stock Compensation - Scope of Modification Accounting (Topic 718): Scope of Modification Accounting.” The amendments in this ASU provide guidance on when changes to the terms or conditions of a share-based payment award are to be accounted for as modifications. Under ASU 2017-09, entities are not required to apply modification accounting to a share-based payment award when the award’s fair value, vesting conditions, and classification as an entity or a liability instrument remain the same after the change. ASU 2017-09 is effective for all entities beginning after December 15, 2017 including interim periods within the fiscal year. The adoption of this update on January 1, 2018 did not have a significant impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities.” The amendments in this ASU make more financial and non-financial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. There was no impact to the Company’s financial statements or disclosures as a result of this early adoption as of January 1, 2018.

Newly issued not yet effective accounting standards:

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The update will require lessees to recognize right-of-use assets and lease liabilities for all leases not considered short term leases. The provisions of the update also include (a) defining direct costs to only include those incremental costs that would not have been incurred if the lease had not been entered into, (b) circumstances under which the transfer contract in a sale-leaseback transaction should be accounted for as the sale of an asset by the seller-lessee and the purchase of an asset by the buyer-lessor, and (c) additional disclosure requirements. The provisions of this update become effective for interim and annual periods beginning after December 15, 2018. Management has formed a cross-functional team to plan and execute the adoption of this standard and is currently in the process of reviewing lease documents and related policies. Based on leases outstanding at September 30, 2018, the Company will record an increase to assets and liabilities upon adoption. Adoption of the standard is not expected to have a material impact on the income statement. Management will continue to evaluate decisions to enter, modify or renew leases through the implementation date.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as, the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will become effective for interim and annual periods beginning after December 15, 2019. Management has established a CECL implementation working group, which includes the appropriate members of management to evaluate the impact the adoption of this ASU will have on the Company’s financial statements and disclosure and determine the most appropriate method of implementing the amendments in this ASU as well as selection of software and vendor assistance needed to implement the amendments. Management will continue to evaluate the impact this ASU will have on the Company’s financial statements through its effective date.

In March 2017, the FASB issued ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount, which continue to be amortized to maturity. Public business entities must prospectively apply the amendments in this ASU to annual periods beginning after December 15, 2018, including interim periods. The adoption of this update will not have an impact on the Company’s consolidated financial statements.

In June 2018, FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Consistent with the accounting for employee share-based payment awards, nonemployee share-based payment awards will be measured at grant-date fair value of the equity instruments obligated to be issued when the good has been delivered or the service rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied. This ASU is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company does not expect adoption of this standard to have a significant impact on the consolidated financial statements of the company

In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements. This update is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. The new disclosure guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact this change will have on its consolidated financial statements and disclosures.