UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________

FORM 10-Q

______________________________________________________________

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-37875

_____________________________________________________________

FB FINANCIAL CORPORATION

(Exact name of Registrant as specified in its Charter)

______________________________________________________________

Tennessee	62-1216058
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
211 Commerce Street, Suite 300 Nashville, Tennessee	37201
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (615) 564-1212

____________________________________________________________

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ý

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ý

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 ý 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 ý 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	ý
Non-accelerated filer	¨	Small reporting company	¨
Emerging growth company	ý

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. ý

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ý

As of June 28, 2019, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the Registrant’s common stock held by non-affiliates of the registrant was $621.8 million, based on the closing sales price of $36.60 per share as reported on the New York Stock Exchange.

The number of shares of Registrant’s Common Stock outstanding as of May 5, 2020 was 32,081,793.

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of exchange on which registered
Common Stock, Par Value $1.00 Per Share	FBK	New York Stock Exchange

1

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019	3
	Consolidated Statements of Income (Unaudited) for the three months ended March 31, 2020 and 2019	4
	Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2020 and 2019	5
	Consolidated Statements of Changes in Shareholders' Equity (Unaudited) for the three months ended March 31, 2020 and 2019	6
	Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2020 and 2019	7
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	47
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	80
Item 4.	Controls and Procedures	82
PART II.	OTHER INFORMATION
Item1.	Legal Proceedings	82
Item 1A.	Risk Factors	82
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	84
Item 5.	Other information	84
Item 6.	Exhibits	84
Signatures		86

2

PART I - FINANCIAL INFORMATION

ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS

FB Financial Corporation and subsidiaries

Consolidated balance sheets

(Amounts are in thousands except share and per share amounts)

	March 31,		December 31,
	2020 (Unaudited)		2019
ASSETS
Cash and due from banks	$	26,841	$	48,806
Federal funds sold	59,199		131,119
Interest-bearing deposits in financial institutions	339,054		52,756
Cash and cash equivalents	425,094		232,681
Investments:
Available-for-sale debt securities, at fair value	764,217		688,381
Equity securities, at fair value	3,358		3,295
Federal Home Loan Bank stock, at cost	16,445		15,976
Loans held for sale, at fair value	325,304		262,518
Loans	4,568,038		4,409,642
Less: allowance for credit losses	89,141		31,139
Net loans	4,478,897		4,378,503
Premises and equipment, net	100,406		90,131
Other real estate owned, net	17,072		18,939
Operating lease right-of-use assets	31,628		32,539
Interest receivable	19,644		17,083
Mortgage servicing rights, at fair value	62,581		75,521
Goodwill	174,859		169,051
Core deposit and other intangibles, net	18,876		17,589
Other assets	217,306		122,714
Total assets	$	6,655,687	$	6,124,921
LIABILITIES
Deposits
Noninterest-bearing	$	1,335,799	$	1,208,175
Interest-bearing checking	1,139,462		1,014,875
Money market and savings	1,667,374		1,520,035
Customer time deposits	1,213,934		1,171,502
Brokered and internet time deposits	20,363		20,351
Total deposits	5,376,932		4,934,938
Borrowings	327,822		304,675
Operating lease liabilities	34,572		35,525
Accrued expenses and other liabilities	134,031		87,454
Total liabilities	5,873,357		5,362,592
SHAREHOLDERS' EQUITY
Common stock, $1 par value per share; 75,000,000 shares authorized; 32,067,356 and 31,034,315 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	32,067		31,034
Additional paid-in capital	460,938		425,633
Retained earnings	266,385		293,524
Accumulated other comprehensive income, net	22,940		12,138
Total shareholders' equity	782,330		762,329
Total liabilities and shareholders' equity	$	6,655,687	$	6,124,921

See accompanying notes to consolidated financial statements.

3

FB Financial Corporation and subsidiaries

Consolidated statements of income

(Unaudited)

(Amounts are in thousands except share and per share amounts)

	Three Months Ended March 31,
	2020			2019
Interest income:
Interest and fees on loans	$	63,754		$	60,448
Interest on securities
Taxable	3,056			3,569
Tax-exempt	1,433			1,144
Other	1,431			772
Total interest income	69,674			65,933
Interest expense:
Deposits	12,168			11,855
Borrowings	1,257			1,062
Total interest expense	13,425			12,917
Net interest income	56,249			53,016
Provision for credit losses	27,964			1,391
Provision for credit losses on unfunded commitments	1,601			—
Net interest income after provisions for credit losses	26,684			51,625
Noninterest income:
Mortgage banking income	32,745			21,021
Service charges on deposit accounts	2,563			2,079
ATM and interchange fees	3,134			2,656
Investment services and trust income	1,697			1,295
Gain from securities, net	63			43
Gain (loss) on sales or write-downs of other real estate owned	51			(39		)
(Loss) gain from other assets	(328		)	191
Other income	2,775			1,793
Total noninterest income	42,700			29,039
Noninterest expenses:
Salaries, commissions and employee benefits	43,622			33,697
Occupancy and equipment expense	4,178			3,730
Legal and professional fees	1,558			1,725
Data processing	2,453			2,384
Merger costs	3,050			621
Amortization of core deposit and other intangibles	1,203			729
Advertising	2,389			2,737
Other expense	10,106			9,478
Total noninterest expense	68,559			55,101
Income before income taxes	825			25,563
Income tax expense	80			5,975
Net income	$	745		$	19,588
Earnings per common share
Basic	$	0.02		$	0.63
Fully diluted	0.02			0.62

See accompanying notes to consolidated financial statements.

4

FB Financial Corporation and subsidiaries

Consolidated statements of comprehensive income  

(Unaudited)

(Amounts are in thousands)

	Three Months Ended March 31,
	2020			2019
Net income	$	745		$	19,588
Other comprehensive income, net of tax:
Net change in unrealized gain in available-for-sale securities, net of taxes of $4,275 and $2,752	12,094			7,778
Reclassification adjustment for loss on sale of securities included in net income, net of taxes of $0 and $2	—			4
Net change in unrealized loss in hedging activities, net of taxes of $403 and $116	(1,145		)	(331		)
Reclassification adjustment for gain on hedging activities, net of taxes of $52 and $33	(147		)	(94		)
Total other comprehensive income, net of tax	10,802			7,357
Comprehensive income	$	11,547		$	26,945

See accompanying notes to consolidated financial statements.

5

FB Financial Corporation and subsidiaries

Consolidated statements of changes in shareholders’ equity

(Unaudited)

(Amounts are in thousands except per share amounts)

	Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive income, net			Total shareholders' equity
Balance at December 31, 2018	$	30,725	$	424,146		$	221,213		$	(4,227	)	$	671,857
Cumulative effect of change in accounting principle	—		—			(1,309		)	—			(1,309		)
Balance at January 1, 2019	30,725		424,146			219,904			(4,227		)	670,548
Net income	—		—			19,588			—			19,588
Other comprehensive income, net of taxes	—		—			—			7,357			7,357
Stock based compensation expense	3		1,635			—			—			1,638
Restricted stock units vested and distributed, net of shares withheld	114		(2,487		)	—			—			(2,373		)
Shares issued under employee stock purchase program	11		353			—			—			364
Dividends declared ($0.08 per share)	—		—			(2,545		)	—			(2,545		)
Balance at March 31, 2019	$	30,853	$	423,647		$	236,947		$	3,130		$	694,577
Balance at December 31, 2019	$	31,034	$	425,633		$	293,524		$	12,138		$	762,329
Cumulative effect of change in accounting principle (See Note 1)	—		—			(25,018		)	—			(25,018		)
Balance at January 1, 2020	31,034		425,633			268,506			12,138			737,311
Net income	—		—			745			—			745
Other comprehensive income, net of taxes	—		—			—			10,802			10,802
Common stock issued in connection with acquisition of FNB Financial Corp., net of registration costs (See Note 2)	955		33,892			—			—			34,847
Stock based compensation expense	5		1,878			—			—			1,883
Restricted stock units vested and distributed, net of shares withheld	61		(899		)	—			—			(838		)
Shares issued under employee stock purchase program	12		434			—			—			446
Dividends declared ($0.09 per share)	—		—			(2,866		)	—			(2,866		)
Balance at March 31, 2020	$	32,067	$	460,938		$	266,385		$	22,940		$	782,330

See accompanying notes to consolidated financial statements.

6

FB Financial Corporation and subsidiaries

Consolidated statements of cash flows

(Unaudited)

(Amounts are in thousands)

	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net income	$	745		$	19,588
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	1,612			1,172
Amortization of core deposit and other intangibles	1,203			729
Capitalization of mortgage servicing rights	(7,796		)	(8,720		)
Net change in fair value of mortgage servicing rights	20,736			4,358
Stock-based compensation expense	1,883			1,638
Provision for credit losses	27,964			1,391
Provision for credit losses on unfunded commitments	1,601			—
Provision for mortgage loan repurchases	372			59
Accretion of yield on purchased loans	(1,578		)	(1,831		)
Accretion of discounts and amortization of premiums on securities, net	906			614
Gain from securities, net	(63		)	(43		)
Originations of loans held for sale	(1,097,672		)	(932,125		)
Repurchases of loans held for sale	—			(5,957		)
Proceeds from sale of loans held for sale	1,070,137			986,454
Gain on sale and change in fair value of loans held for sale	(33,595		)	(18,151		)
Net (gain) loss or write-downs of other real estate owned	(51		)	39
Loss (gain) on other assets	328			(191		)
Provision for deferred income taxes	(8,088		)	(4,219		)
Changes in:
Operating leases	(42		)	—
Other assets and interest receivable	(119,820		)	(22,511		)
Accrued expenses and other liabilities	39,520			10,133
Net cash (used in) provided by operating activities	(101,698		)	32,427
Cash flows from investing activities:
Activity in available-for-sale securities:
Sales	—			1,758
Maturities, prepayments and calls	27,657			20,814
Purchases	(29,632		)	(24,196		)
Net change in loans	52,701			(118,358		)
Proceeds from sale of mortgage servicing rights	—			29,160
Purchases of premises and equipment	(3,014		)	(911		)
Proceeds from the sale of premises and equipment	—			284
Proceeds from the sale of other real estate owned	1,442			716
Net cash paid in business combination (See Note 2)	(4,227		)	—
Net cash provided by (used) in investing activities	44,927			(90,733		)
Cash flows from financing activities:
Net increase in demand deposits	272,566			107,959
Net (decrease) increase in time deposits	(40,107		)	23,515
Net increase in securities sold under agreements to repurchase and federal funds purchased	4,955			21,614
Payments on FHLB advances	—			(20,212		)
Proceeds from other borrowings	15,000			—
Share based compensation witholding payment	(838		)	(2,373		)
Net proceeds from sale of common stock	446			364
Dividends paid	(2,838		)	(2,503		)
Net cash provided by financing activities	249,184			128,364
Net change in cash and cash equivalents	192,413			70,058
Cash and cash equivalents at beginning of the period	232,681			125,356
Cash and cash equivalents at end of the period	$	425,094		$	195,414
Supplemental cash flow information:
Interest paid	$	10,997		$	10,820
Taxes paid	105			77
Supplemental noncash disclosures:
Transfers from loans to other real estate owned	$	365		$	1,106
Transfers from other real estate owned to premises and equipment	841			—
Loans provided for sales of other real estate owned	—			166
Transfers from loans to loans held for sale	3,101			—
Transfers from loans held for sale to loans	1,445			540
Stock consideration paid in business combination	35,041			—
Trade date payable - securities	8,273			2,524
Dividends declared not paid on restricted stock units	28			84
Decrease to retained earnings for adoption of new accounting standards (See Note 1)	25,018			(1,309		)
Right-of-use assets obtained in exchange for operating lease liabilities	480			33,819

See accompanying notes to consolidated financial statements.

7

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Note (1)—Basis of presentation:

(Amounts are in thousands)

Overview and presentation

FB Financial Corporation (the “Company”) is a bank holding company headquartered in Nashville, Tennessee. The Company operates through its wholly-owned subsidiary, FirstBank (the "Bank"), with 73 full-service branches throughout Tennessee, north Alabama, Kentucky and north Georgia, and a national mortgage business with office locations across the Southeast, which primarily originates loans to be sold in the secondary market.

The unaudited consolidated financial statements, including the notes thereto, have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) interim reporting requirements and general banking industry guidelines, and therefore, do not include all information and notes included in the annual consolidated financial statements in conformity with GAAP. These interim consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K.

The unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.

The COVID-19 health pandemic that appeared in the United States in the beginning of 2020 has created a crisis that has resulted in volatility in financial markets, unprecedented job losses, disruption in consumer and commercial behavior and unprecedented action taken by governments in the United States and globally. All industries, municipalities and consumers have been impacted to some degree, including the markets that we serve. In an attempt to “flatten the curve”, commerce has virtually come to a halt, businesses not deemed essential have closed and individuals have been asked to restrict their movements, observe social distancing and shelter in place. These actions have resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses that have led 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. The duration and potential financial impact is currently unknown, however if these conditions are sustained, it may impact borrowers' ability to repay loans, which could cause material adverse effect on the Company's business operations and lead to valuation impairments on the Company's intangible assets, loans, investments, mortgage servicing rights, and derivative instruments. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and the reported results of operations for the periods then ended. Actual results could differ significantly from those estimates.

Certain prior period amounts have been reclassified to conform to the current period presentation without any impact on the reported amounts of net income or shareholders’ equity.

The Company continues to qualify as an emerging growth company as defined by the "Jumpstart Our Business Startups Act" ("JOBS Act").

Subsequent events

The Company has evaluated, for consideration of recognition or disclosure, subsequent events that occurred through the date of issuance of these financial statements. The Company has determined that there were no subsequent events other than described below that occurred after March 31, 2020, but prior to the issuance of these financial statements that would have a material impact on the Company’s consolidated financial statements.

On March 13, 2020, the Coronavirus Disease 2019 (COVID-19) Emergency Declaration was issued leading to the Coronavirus Aid, Relief and Economic Security (CARES) Act,which was enacted on March 27, 2020. The CARES Act includes the Paycheck Protection Program (“PPP”), a nearly $350 billion program designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. These loans are intended to guarantee eight weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay bills. As of May 1, 2020, the Company had processed $325,803 of PPP loans through the SBA. Additionally, the Company has introduced a payment deferral program for commercial and consumer customers to assist during these unprecedented times. These payment deferrals to are for initial terms of up to ninety-days with some having an option to extend further. Subsequent to March 31, 2020 through May 1, 2020, the Company had deferred loans with principal balances totaling $791,253 that are not considered to be troubled debt restructurings.

8

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Earnings per share

Basic earnings per common share ("EPS") excludes dilution and is computed by dividing earnings attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS includes the dilutive effect of additional potential common shares issuable under the restricted stock units granted but not yet vested and distributable. Diluted EPS is computed by dividing earnings attributable to common shareholders by the weighted average number of common shares outstanding for the period, plus an incremental number of common-equivalent shares computed using the treasury stock method.

Unvested share-based payment awards, which include the right to receive non-forfeitable dividends or dividend equivalents, are considered to participate with common shareholders in undistributed earnings for purposes of computing EPS. Companies that have such participating securities are required to calculate basic and diluted EPS using the two-class method. Certain restricted stock awards granted by the Company include non-forfeitable dividend equivalents and are considered participating securities. Calculations of EPS under the two-class method (i) exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities and (ii) exclude from the denominator the dilutive impact of the participating securities.

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

	Three Months Ended March 31,
	2020			2019
Basic earnings per common share calculation:
Net income	$	745		$	19,588
Dividends paid on and undistributed earnings allocated to participating securities	—			(105		)
Earnings attributable to common shareholders	$	745		$	19,483
Weighted-average basic shares outstanding	31,257,739			30,786,684
Basic earnings per common share	$	0.02		$	0.63
Diluted earnings per common share:
Earnings attributable to common shareholders	$	745		$	19,483
Weighted-average basic shares outstanding	31,257,739			30,786,684
Weighted-average diluted shares contingently issuable	476,373		(1)	562,514
Weighted-average diluted shares outstanding	31,734,112			31,349,198
Diluted earnings per common share	$	0.02		$	0.62

(1) Excludes 153,545 restricted stock units outstanding considered to be antidilutive.

Recently adopted accounting policies:

The Company modified or adopted the following accounting policies during the three months ended March 31, 2020 primarily as a result of the implementation of ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” ("CECL"):

Investment securities:

Debt securities are classified as held to maturity and carried at amortized cost, excluding accrued interest, when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available-for-sale when they might be sold before maturity. Available-for-sale debt securities are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of applicable taxes. Beginning January 1, 2020, unrealized losses resulting from credit losses for available-for-sale debt securities are recognized in earnings as a provision for credit losses. Unrealized losses that do not result from credit losses are excluded from earnings and reported as accumulated other comprehensive income, net of applicable taxes, which is included in equity. Accrued interest receivable is separated from other components of amortized cost and presented separately on the consolidated balance sheet.

Equity securities with readily determinable market values are carried at fair value on the balance sheet with any periodic changes in value made through adjustments to the statement of income. Equity securities without readily determinable market values are carried at cost less impairment and included in other assets on the balance sheet.

9

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Interest income includes the amortization and accretion of purchase premium and discount. Premiums and discounts on securities are amortized on the level-yield method anticipating prepayments based upon the prior three month average monthly prepayments when available. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

The Company evaluates available-for-sale securities for expected credit losses at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. For securities in an unrealized loss position, consideration is given to the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.

When credit losses are expected to occur, the amount of the expected credit loss recognized in earnings depends on the Company's intention to sell the security or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, the expected credit loss recognized in earnings is equal to the entire difference between its amortized cost basis and its fair value at the date it was determined to be impaired due to credit losses or other factors. The previous amortized cost basis less the impairment recognized in earnings becomes the new amortized cost basis of the investment.

However, if the Company does not intend to sell the security and it is not more likely than not to be required to sell the security before recovery of its amortized cost basis, the difference between the amortized cost and the fair value is separated into the amount representing the credit loss and the amount related to all other factors. If the Company determines a decline in fair value below the amortized cost basis of an available-for-sale investment security has resulted from credit related factors, beginning January 1, 2020 with the adoption of CECL, the Company records a credit loss through an allowance for credit losses. The allowance for credit losses is limited by the amount that the fair value is less than amortized cost. The amount of the allowance for credit losses is determined based on the present value of cash flows expected to be collected and is recognized as a charge to earnings. The amount of the impairment related to other, non-credit related, factors is recognized in other comprehensive income, net of applicable taxes.

The Company did not record any provision for credit losses for its available-for-sale debt securities during the three months ended March 31, 2020 as the majority of the investment portfolio is government guaranteed and declines in fair value below amortized cost were determined to be non-credit related.

Loans:

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at the principal amount outstanding less any purchase accounting discount net of any accretion recognized to date. Interest on loans is recognized as income by using the simple interest method on daily balances of the principal amount outstanding plus any accretion of purchase accounting discounts. Accrued interest receivable is separated from other components of amortized cost and presented separately on the consolidated balance sheet.

Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest is discontinued on loans past due 90 days or more unless the credit is well secured and in the process of collection. Also, a loan may be placed on nonaccrual status prior to becoming past due 90 days if management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of principal or interest is doubtful. The decision to place a loan on nonaccrual status prior to becoming past due 90 days is based on an evaluation of the borrower’s financial condition, collateral liquidation value, economic and business conditions and other factors that affect the borrower’s ability to pay. When a loan is placed on nonaccrual status, the accrued but unpaid interest is charged against current period operations through a reversal of interest income. Thereafter, interest on nonaccrual loans is recognized only as received if future collection of principal is probable. If the collectibility of outstanding principal is doubtful, interest received is applied as a reduction of principal. A loan may be restored to accrual status when principal and interest are no longer past due or it otherwise becomes both well secured and collectability is reasonably assured. The nonaccrual policy results in timely reversal of accrued interest receivable, so an allowance for credit losses is not required on accrued interest receivable.

10

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Allowance for credit losses:

The allowance for credit losses represents the portion of the loan's amortized cost basis that the Company does not expect to collect due to credit losses over the loan's life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions considering macroeconomic forecasts. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for credit losses is based on the loan's amortized cost basis, excluding accrued interest receivable, as the Company promptly charges off uncollectible accrued interest receivable. Management’s determination of the appropriateness of the allowance is based on periodic evaluation of the loan portfolio, lending-related commitments and other relevant factors, including macroeconomic forecasts and historical loss rates. In future quarters, the Company may update information and forecasts that may cause significant changes in the estimate in those future quarters.

As of January 1, 2020, the Company’s policy for the allowance for credit losses changed with the adoption of CECL. As permitted, the new guidance was implemented using a modified retrospective approach with the impact of the initial adoption being recorded through retained earnings at January 1, 2020, with no restatement of prior periods. Prior to adopting CECL, the Company calculated the allowance using an incurred loss approach. Beginning January 1, 2020, the Company calculates the allowance using a lifetime expected credit loss approach as described in the previous paragraph. See Note 4 for additional details related to the Company's specific calculation methodology.

The allowance for credit losses is the Company’s best estimate. Actual losses may differ from the March 31, 2020 allowance for credit loss as the CECL estimate is sensitive to economic forecasts and management judgment. There have been no changes to portfolio segments as described in the accounting policies within the Company's Annual Report on Form 10-K.

Business combinations and accounting for loans purchased with credit deterioration:

Business combinations are accounted for by applying the acquisition method in accordance with ASC 805, “Business Combinations” (“ASC 805”). Under the acquisition method, identifiable assets acquired and liabilities assumed and any non-controlling interest in the acquiree at the acquisition date are measured at their fair values as of that date. Any excess of the purchase price over fair value of net assets acquired is recorded as goodwill. To the extent the fair value of net assets acquired, including any other identifiable intangible assets, exceed the purchase price, a bargain purchase gain is recognized. Results of operations of acquired entities are included in the Consolidated Statements of Income from the date of acquisition.

Beginning January 1, 2020, loans acquired in business combinations with evidence of more-than-insignificant credit deterioration since origination are considered to be Purchased Credit Deteriorated ("PCD"). The Company developed multiple criteria to assess the presence of more–than–insignificant credit deterioration in acquired loans, mainly focused on changes in credit quality and payment status. While general criteria have been established, each acquisition will vary in its specific facts and circumstances and the Company will apply judgment around PCD identification for each individual acquisition based on their unique portfolio mix and risks identified.

The Company adopted ASC 326 using the prospective transition approach for loans previously classified as purchased credit impaired ("PCI") and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption and all PCI loans were transitioned to PCD loans upon adoption. Under PCD accounting,the amount of expected credit losses as of the acquisition date is added to the purchase price of the PCD loan. This establishes the amortized cost basis of the PCD loan. The difference between the unpaid principal balance of the PCD loan and the amortized cost basis of the PCD loan as of the acquisition date is the non-credit discount. Interest income for a PCD loan is recognized by accreting the amortized cost basis of the PCD loan to its contractual cash flows. The discount related to estimated credit losses on acquisition recorded as an allowance for credit losses will not be accreted into interest income. Only the noncredit-related discount will be accreted into interest income and subsequent adjustments to expected credit losses will flow through the provision for credit losses on the income statement.

Off-balance sheet financial instruments:

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded, unless considered derivatives.

For loan commitments that are not accounted for as derivatives and when the obligation is not unconditionally cancelable by the Company, the Company applies the CECL methodology to estimate the expected credit loss on off-balance-sheet

11

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

commitments. The estimate of expected credit losses for off-balance-sheet credit commitments is recognized as a liability. When the loan is funded, an allowance for expected credit losses is estimated for that loan using the CECL methodology, and the liability for off-balance-sheet commitments is reduced. When applying the CECL methodology to estimate the expected credit loss, the Company considers the likelihood that funding will occur, the contractual period of exposure to credit loss, the risk of loss, historical loss experience, and current conditions along with expectations of future economic conditions.

Recently adopted accounting standards:

Except as set forth below, the Company did not adopt any new accounting standards that were not disclosed in the Company's 2019 audited consolidated financial statements included on Form 10-K.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 and its subsequent amendments issued by the FASB, which requires the measurement of all current expected credit losses for financial assets (including off-balance sheet credit exposures) held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Additionally, the update requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. The new methodology requires institutions to calculate all probable and estimable losses that are expected to be incurred through the financial asset's entire life through a provision for credit losses, including certain loans obtained as a result of any acquisition. For available-for-sale debt securities that have experienced a deterioration in credit, Topic 326 requires an allowance for credit losses to be recognized, instead of a direct write-down, which was previously required under the other-than-temporary impairment ("OTTI") model. Topic 326 eliminates the concept of “other-than-temporary” impairment and instead focuses on determining whether any impairment is a result of a credit loss or other factors. As a result, the standard says the Company may not use the length of time a debt security has been in an unrealized loss position as a factor, either by itself or in combination with other factors, to conclude that a credit loss does not exist, as the Company was previously allowed under the OTTI model.

ASU 2016-13 eliminates the existing guidance for PCI loans, but requires an allowance for purchased financial assets with more than insignificant deterioration since origination to be determined in a manner similar to that of other financial assets measured at amortized cost; however, the initial allowance will be added to the purchase price rather than recorded as provision expense referred herein as the PCD asset gross-up approach. The Company applied the new PCD asset gross-up approach at transition to all assets that were accounted for as PCI prior to adoption. Any change in the allowance for credit losses for these assets as a result of applying the new guidance is accounted for as an adjustment to the asset’s amortized cost basis and not as a cumulative-effect adjustment to beginning retained earnings. Additionally, ASU 2016-13 requires additional disclosures related to loans and debt securities. See Note 3, “Investment securities” and Note 4, “Loans and allowance for credit losses” for these disclosures.

The Company formed a cross–functional working group to oversee the adoption of CECL at the effective date. The working group developed a project plan focused on understanding the new standard, researching issues, identifying data needs for modeling inputs, technology requirements, modeling considerations, and ensuring overarching governance was achieved for each objective and milestone. The key data driver for each model was identified, populated, and internally validated. The Company also completed data and model validation testing. The Company has performed model sensitivity analysis, developed a framework for qualitative adjustments, created supporting analytics, and executed the enhanced governance and approval process. Internal controls related to the CECL process were finalized prior to adoption.

ASU 2016-13 was adopted effective January 1, 2020 using a modified retrospective approach with no adjustments to prior period comparative financial statements. Upon adoption, the Company recorded a cumulative effective adjustment to decrease retained earnings by $25,018, with corresponding adjustments to the allowance for credit losses on loans and unfunded commitments in addition to recording a deferred tax asset on its consolidated balance sheet. As of that date, the Company also recorded a cumulative effective adjustment to gross-up the amortized cost amount of its PCD loans by $558, with a corresponding adjustment to the allowance for credit losses on its consolidated balance sheet.

12

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

A summary of the impact to the consolidated balance sheet as of the adoption date is presented in the table below:

	Balance before adoption of ASC 326			Cumulative effective adjustment to adopt ASC 326			Impact of the adjustment to adopt ASC 326	Balance at January 1, 2020 (post ASC 326 adoption)
ASSETS:
Loans	$	4,409,642		$	558		Increase	$	4,410,200
Allowance for credit losses	(31,139		)	(31,446		)	Increase	(62,585		)
Total impact to assets				$	(30,888	)	Net decrease
LIABILITIES AND EQUITY:
Allowance for credit losses on unfunded commitments	$	—		$	2,947		Increase	$	2,947
Net deferred tax liability	20,490			(8,817		)	Decrease	11,673
Retained earnings	293,524			(25,018		)	Decrease	268,506
Total impact to liabilities and equity				$	(30,888	)	Net decrease

In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company elected the five-year capital transition relief option.

In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates step two from the goodwill impairment test. Instead, an entity may perform only step one of its quantitative goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and then recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Entities have the option to perform a qualitative assessment for a reporting unit to determine if the quantitative step one impairment test is necessary. ASU 2017-04 became effective for the Company on January 1, 2020. The adoption of this standard did not have any impact on the Company's consolidated financial statements or disclosures.

In August 2018, the FASB issued "Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements." This update is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. The update became effective on January 1, 2020 and did not have an impact on the Company's consolidated financial statements or disclosures.

In March 2019, FASB issued ASU 2019-01, "Leases (Topic 842): Codification Improvements", which aligns the guidance for fair value of the underlying assets by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value in Topic 820, Fair Value Measurement should be applied. ASU No. 2019-01 also requires lessors within the scope of Topic 942, "Financial Services—Depository and Lending", to present all “principal payments received under leases” within investing activities. The adoption of this standard on January 1, 2020 did not have a material impact on the Company's consolidated financial statements or disclosures.

13

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

In April 2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments". The amendments related to Topic 326 address accrued interest, transfers between classifications or categories for loans and debt securities, recoveries, vintage disclosures, and contractual extensions and renewal options and became effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The improvements and clarifications related to Topic 815 address partial-term fair value hedges of interest-rate risk, amortization, and disclosure of fair value hedge basis adjustments and consideration of hedged contractually specified interest rates under the hypothetical method and became effective for the annual reporting period beginning January 1, 2020. The amendments related to Topic 825 contain various improvements to ASU 2016-01, including scope; held-to-maturity debt securities fair value disclosures; and remeasurement of equity securities at historical exchange rates and became effective as of January 1, 2020. The amendments in this update did not have a material impact on the financial statements.

Newly issued not yet effective accounting standards:

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

Note (2)—Mergers and acquisitions:

Franklin Financial Network, Inc.

On January 21, 2020, the Company entered into a definitive merger agreement with Franklin Financial Network, Inc ("Franklin"), pursuant to which Franklin will be merged with and and into the Company. Franklin has 15 branches and approximately $3.79 billion in total assets, $2.86 billion in loans, and $3.14 billion in deposits as of March 31, 2020. According to the terms of the merger agreement, Franklin shareholders will receive 0.9650 shares of FB Financial Corporation's common stock and $2.00 in cash for each share of Franklin stock. Based on the Company's closing price on the New York Stock Exchange of $38.23 per share as of January 21, 2020, the implied transaction value is approximately $602,000. The merger is expected to close in the third quarter of 2020 and is subject to regulatory approvals, approval by the Company's and Franklin's shareholders and other customary closing conditions.

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 five branches and expanded the Company's footprint into Kentucky. Under the terms of the agreement, the Company acquired total assets of $258,190, loans of $182,171 and assumed total deposits of $209,535. Farmers National shareholders received 954,797 shares of the company's common stock as consideration in connection with the merger, in addition to $15,001 in cash consideration. Based on the closing price of the Company's common stock on the New York Stock Exchange of $36.70 on February 14, 2020, the merger consideration represented approximately $50,042 in aggregate consideration.

The acquisition of Farmers National was accounted for in accordance with FASB ASC Topic 805 "Business Combinations." Accordingly, the assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition date. The Company is finalizing the fair value of acquired assets and liabilities assumed and as such, purchase accounting is not yet complete. Goodwill of $5,808 recorded in connection with the transaction resulted from the ongoing business contribution of Farmers National and anticipated synergies arising from the combination of certain operational areas of the Company. The goodwill is not deductible for income tax purposes. Goodwill is included in the Banking segment as substantially all of the operations resulting from the acquisition of Farmers National are in alignment with the Company's core banking business.

14

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The Company incurred $594 in merger expenses during the three months ended March 31, 2020 in connection with this transaction. These expenses are primarily comprised of professional services, employee-related costs and integration costs.

The following tables present the preliminary fair values of assets acquired and liabilities assumed as of the February 14, 2020 acquisition date and an allocation of the consideration to net assets acquired:

	As of February 14, 2020
	As Recorded by FB Financial Corporation
Assets
Cash and cash equivalents	$	10,774
Securities	50,594
Loans, net of fair value adjustments	182,171
Allowance for credit losses on PCD loans	(669		)
Premises and equipment	8,021
Core deposit intangible	2,490
Other assets	4,809
Total assets	$	258,190
Liabilities
Deposits
Noninterest-bearing	$	63,531
Interest-bearing checking	26,451
Money market and savings	37,002
Customer time deposits	82,551
Total deposits	209,535
Borrowings	3,192
Accrued expenses and other liabilities	1,229
Total liabilities	213,956
Total net assets acquired	$	44,234

Consideration:
Net shares issued	954,797
Purchase price per share on February 14, 2020	$	36.70
Value of stock consideration			$	35,041
Cash consideration paid			15,001
Total purchase price			$	50,042
FV of net assets acquired			44,234
Goodwill resulting from merger			$	5,808

Under CECL, the Company is required to determine whether purchased loans held for investment have experienced more-than-insignificant deterioration in credit quality since origination. Loans that have experienced this level of deterioration in credit quality are subject to special accounting at initial recognition and measurement. The company initially measures the amortized cost of a PCD loan by adding the acquisition date estimate of expected credit losses to the loan's purchase price (i.e. the "gross up" approach). There is no provision for credit loss recognized upon acquisition of a PCD loan because the initial allowance is established through the gross-up.

The Company determined that 10.1% of the FNB loan portfolio had more-than-insignificant deterioration in credit quality since origination. These were primarily delinquent loans as of February 14, 2020, or loans that FNB has classified as nonaccrual or TDR prior to the Company's acquisition.

15

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

	March 31
	2020
Purchased credit-deteriorated loans
Principal balance	$	18,964
Allowance for credit losses at acquisition	(669		)
Net premium attributable to other factors	63
Loans purchased credit-deteriorated fair value	$	18,358

Loans recognized through the acquisition of FNB that have not experienced more-than-insignificant credit deterioration since origination are initially recognized at the purchase price. Expected credit losses are measured under CECL through the provision for credit losses. The Company recognized $2,885 in the income statement at acquisition related to estimated credit losses on non-PCD loans.

The following unaudited pro forma condensed consolidated financial information presents the results of operations for the three months ended March 31, 2020 and 2019 as though the merger had been completed as of January 1, 2019. The unaudited estimated pro forma information combines the historical results of Farmers National with the Company’s historical consolidated results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the periods presented. Merger expenses are reflected in the periods they were incurred. The pro forma information is not indicative of what would have occurred had the acquisition taken place on January 1, 2019 and does not include the effect of all cost-saving or revenue-enhancing strategies.

	Three months ended March 31,
	2020		2019
Net interest income	$	57,477	$	55,585
Total revenues	$	100,440	$	85,019
Net income	$	1,181	$	19,599

Note (3)—Investment securities:

The following table summarizes the amortized cost, allowance for credit losses and fair value of the available-for-sale debt securities and the corresponding amounts of unrealized gains and losses recognized in accumulated other comprehensive income at March 31, 2020 and December 31, 2019:

	March 31, 2020
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Allowance for credit losses for investments		Fair Value
Investment Securities
Available-for-sale debt securities
U.S. government agency securities	$	3,007	$	30	$	—		$	—	$	3,037
Mortgage-backed securities - residential	481,651		18,028		(21		)	—		499,658
Municipals, tax exempt	226,026		10,010		(359		)	—		235,677
Treasury securities	24,488		372		—			—		24,860
Corporate securities	1,000		—		(15		)	—		985
Total	$	736,172	$	28,440	$	(395	)	$	—	$	764,217

16

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

	December 31, 2019
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair Value
Investment Securities
Available-for-sale debt securities
Mortgage-backed securities - residential	$	487,101	$	5,236	$	(1,661	)	$	490,676
Municipals, tax exempt	181,178		8,287		(230		)	189,235
Treasury securities	7,426		22		—			7,448
Corporate securities	1,000		22		—			1,022
Total	$	676,705	$	13,567	$	(1,891	)	$	688,381

The components of amortized cost for debt securities on the consolidated balance sheet excludes accrued interest receivable since the Company elected to present accrued interest receivable separately on the consolidated balance sheets. As of March 31, 2020 and December 31, 2019, total accrued interest receivable on debt securities was $3,218 and $2,843, respectively.

As of March 31, 2020 and December 31, 2019, the Company had $3,358 and $3,295 in marketable equity securities recorded at fair value, respectively.

Securities pledged at March 31, 2020 and December 31, 2019 had carrying amounts of $411,276 and $373,674, respectively, and were pledged to secure a Federal Reserve Bank line of credit, public deposits and repurchase agreements.

There were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders' equity during any period presented.

At March 31, 2020 and December 31, 2019, there were $8,273 and $0, respectively, in trade date payables that related to purchases settled after period end.

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2020 and December 31, 2019 are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgage underlying the security may be called or repaid without any penalties. Therefore, mortgage-backed securities are not included in the maturity categories in the following maturity summary.

	March 31,				December 31,
	2020				2019
	Available-for-sale				Available-for-sale
	Amortized cost		Fair value		Amortized cost		Fair value
Due in one year or less	$	17,075	$	17,168	$	1,148	$	1,152
Due in one to five years	36,509		36,740		11,553		11,676
Due in five to ten years	27,580		28,112		18,287		18,887
Due in over ten years	173,357		182,539		158,616		165,990
	254,521		264,559		189,604		197,705
Mortgage-backed securities - residential	481,651		499,658		487,101		490,676
Total debt securities	$	736,172	$	764,217	$	676,705	$	688,381

Sales and other dispositions of available-for-sale securities were as follows:

	Three Months Ended March 31,
	2020		2019
Proceeds from sales	$	—	$	1,758
Proceeds from maturities, prepayments and calls	27,657		20,814
Gross realized gains	—		1
Gross realized losses	—		7

Additionally, net gains on the change in fair value of equity securities of $63 and $49 were recognized in the three months ended March 31, 2020 and 2019, respectively.

17

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

The following tables show gross unrealized losses for which an allowance for credit losses has not been recorded at March 31, 2020 and December 31, 2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

	March 31, 2020
	Less than 12 months					12 months or more				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized loss
Mortgage-backed securities - residential	$	1,481	$	(21	)	$	—	$	—	$	1,481	$	(21	)
Municipals, tax exempt	39,482		(359		)	—		—		39,482		(359		)
Corporate securities	985		(15		)	—		—		985		(15		)
Total	$	41,948	$	(395	)	$	—	$	—	$	41,948	$	(395	)

	December 31, 2019
	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized loss
Mortgage-backed securities - residential	$	47,641	$	(164	)	$	175,730	$	(1,497	)	$	223,371	$	(1,661	)
Municipals, tax exempt	15,433		(230		)	—		—			15,433		(230		)
Treasury securities	—		—			—		—			—		—
Total	$	63,074	$	(394	)	$	175,730	$	(1,497	)	$	238,804	$	(1,891	)

As of March 31, 2020 and December 31, 2019, the Company’s securities portfolio consisted of 440 and 365 securities, 62 and 58 of which were in an unrealized loss position, respectively.

As of March 31, 2020, Company evaluated available-for-sale debt securities with unrealized losses for expected credit loss and recorded no allowance for credit loss as the majority of the investment portfolio is 100% government guaranteed, are highly rated by major credit rating agencies and have a long history of zero losses. As such, no provision for credit losses was recorded during the three months ended March 31, 2020.

Prior to the adoption of ASC 326, the Company evaluated available-for-sale debt securities with unrealized losses for other-than-temporary impairment ("OTTI") and recorded no OTTI for the for the three months ended March 31, 2019.

Note (4)—Loans and allowance for credit losses:

Loans outstanding at March 31, 2020 and December 31, 2019, by class of financing receivable are as follows:

	March 31,			December 31,
	2020			2019
Commercial and industrial	$	1,020,484		$	1,034,036
Construction	599,479			551,101
Residential real estate:
1-to-4 family mortgage	743,336			710,454
Residential line of credit	246,527			221,530
Multi-family mortgage	94,638			69,429
Commercial real estate:
Owner occupied	686,543			630,270
Non-owner occupied	910,822			920,744
Consumer and other	266,209			272,078
Gross loans	4,568,038			4,409,642
Less: Allowance for credit losses	(89,141		)	(31,139		)
Net loans	$	4,478,897		$	4,378,503

18

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

As of March 31, 2020 and December 31, 2019, $422,916 and $412,966, respectively, of qualifying residential mortgage loans (including loans held for sale) and $571,358 and $545,540, respectively, of qualifying commercial mortgage loans were pledged to the Federal Home Loan Bank of Cincinnati securing advances against the Bank’s line of credit. As of March 31, 2020 and December 31, 2019, $1,460,435 and $1,407,662, respectively, of qualifying loans were pledged to the Federal Reserve Bank under the Borrower-in-Custody program.

The components of amortized cost for loans on the consolidated balance sheet excludes accrued interest receivable since the Company elected to present accrued interest receivable separately on the balance sheet. As of March 31, 2020, total accrued interest receivable on loans was $16,019.

As of January 1, 2020, the Company’s policy for the allowance changed with the adoption of CECL. As permitted, the new guidance was implemented using a modified retrospective approach with the impact of the initial adoption being recorded through retained earnings at January 1, 2020, with no restatement of prior periods. Before January 1, 2020, the Company calculated the allowance on an incurred loss approach. As of January 1, 2020, the Company calculates an expected credit loss using a lifetime loss rate methodology. As a result of the difference in methodology between periods, disclosures presented below may not be comparative in nature.

The Company utilizes probability-weighted forecasts, which consider multiple macroeconomic variables from a third-party vendor that are applicable to the type of loan. The weighting of the economic forecast scenarios, macroeconomic variables, and the reasonable and supportable forecast period at the macroeconomic variable-level were reviewed and approved by the Company's forecast governance committee based on expectations of future economic conditions. Each of the Company's loss rate models incorporate forward-looking macroeconomic projections throughout the reasonable and supportable forecast period and the subsequent historical reversion at the macroeconomic variable input level. In order to estimate the life of a loan, the contractual term of the loan is adjusted for estimated prepayments based on market information and the Company’s prepayment history.

The Company's loss rate models estimate the lifetime loss rate for pools of loans by combining the calculated loss rate based on each variable within the model (including the macroeconomic variables). The lifetime loss rate for the pool is then multiplied by the loan balances to determine the expected credit losses on the pool.

The Company considers the need to qualitatively adjust its modeled quantitative expected credit loss estimate for information not already captured in the model loss estimation process. These qualitative factor adjustments may increase or decrease the Company’s estimate of expected credit losses. The Company reviews the qualitative adjustments so as to validate that information that has already been considered and included in the modeled quantitative loss estimation process is not also included in the qualitative adjustment. The Company considers the qualitative factors that are relevant to the institution as of the reporting date, which may include, but are not limited to: levels of and trends in delinquencies and performance of loans; levels of and trends in write-offs and recoveries collected; trends in volume and terms of loans; effects of any changes in reasonable and supportable economic forecasts; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and expertise; available relevant information sources that contradict the Company’s own forecast; effects of changes in prepayment expectations or other factors affecting assessments of loan contractual terms; industry conditions; and effects of changes in credit concentrations.

The quantitative models require loan data and macroeconomic variables based on the inherent credit risks in each portfolio to more accurately measure the credit risks associated with each. Each of the quantitative models pools loans with similar risk characteristics and collectively assesses the lifetime loss rate for each pool to estimate its expected credit loss.

When a loan no longer shares similar risk characteristics with other loans in any given pool, the loan is individually assessed. The Company has determined the following circumstances in which a loan may require an individual evaluation: collateral dependent loans; loans for which foreclosure is probable; troubled debt restructurings (“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

19

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

rate modification for a TDR loan), the allowance is measured by the amount which the loan’s amortized cost exceeds the discounted cash flow analysis. The allowance for credit losses on a TDR or a reasonably expected TDR is calculated individually using a discounted cash flow methodology, unless the loan is deemed to be collateral dependent or foreclosure is probable.

The Company’s changes in reasonable and supportable forecasts of macroeconomic variables, primarily due to the impact of the COVID-19 pandemic, along with projected deterioration required the Company to recognize a significant increase in provision for credit losses during the first quarter of 2020. Specifically, deterioration in the U.S. economy and labor markets including rising unemployment and forecast deterioration in the housing market data impacted the Company’s financial assets. Additionally, the acquisition of loans from Farmers National increased the allowance for credit losses by $4,494 during the quarter. See Note 2, "Mergers and acquisitions" for additional details related to PCD loans acquired on February 14, 2020.

The following provides the changes in the allowance for credit losses by class of financing receivable for the three months ended March 31, 2020and2019:

	Commercial and industrial			Construction		1-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 March 31, 2020
Beginning balance - December 31, 2019	$	4,805		$	10,194	$	3,112		$	752		$	544	$	4,109		$	4,621	$	3,002		$	31,139
Impact of adopting ASC    326 on non-purchased    credit deteriorated loans	5,300			1,533		7,920			3,461			340		1,879			6,822		3,633			30,888
Impact of adopting ASC    326 on purchased credit    deteriorated loans	82			150		421			(3		)	—		162			184		(438		)	558
Provision for credit losses	1,829			10,954		1,664			1,985			1,444		3,038			5,935		1,115			27,964
Recoveries of loans previously charged-off	88			—		24			15			—		14			—		193			334
Loans charged off	(1,234		)	—		(242		)	—			—		(209		)	—		(726		)	(2,411		)
Initial allowance on    loans purchased with    deteriorated credit quality	11			11		107			3			—		54			443		40			669
Ending balance - March 31, 2020	$	10,881		$	22,842	$	13,006		$	6,213		$	2,328	$	9,047		$	18,005	$	6,819		$	89,141

	Commercial and industrial			Construction		1-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 March 31, 2019
Beginning balance - December 31, 2018	$	5,348		$	9,729	$	3,428		$	811		$	566		$	3,132		$	4,149	$	1,769		$	28,932
Provision for credit losses	333			28		(65		)	(73		)	(27		)	(121		)	434		882			1,391
Recoveries of loans previously charged-off	12			1		13			25			—			87			—		224			362
Loans charged off	(179		)	—		(81		)	(32		)	—			—			—		(579		)	(871		)
Ending balance - March 31, 2019	$	5,514		$	9,758	$	3,295		$	731		$	539		$	3,098		$	4,583	$	2,296		$	29,814

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 table provides the amount of the allowance for credit losses by class of financing receivable for loans individually evaluated for impairment, loans collectively evaluated for impairment and loans acquired with deteriorated credit quality as of December 31, 2019 :

	December 31, 2019
	Commercial and  industrial		Construction		1-to-4 family residential mortgage		Residential line of credit		Multi- family residential mortgage		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Consumer and other		Total
Amount of allowance allocated to:
Individually evaluated for impairment	$	241	$	—	$	8	$	9	$	—	$	238	$	399	$	—	$	895
Collectively evaluated for impairment	4,457		10,192		2,940		743		544		3,853		3,909		1,933		28,571
Acquired with deteriorated credit quality	107		2		164		—		—		18		313		1,069		1,673
Ending balance - December 31, 2019	$	4,805	$	10,194	$	3,112	$	752	$	544	$	4,109	$	4,621	$	3,002	$	31,139

The following table provides the amount of loans by class of financing receivable for loans individually evaluated for impairment, loans collectively evaluated for impairment and loans acquired with deteriorated credit quality as of December 31, 2019:

	December 31, 2019
	Commercial and  industrial		Construction		1-to-4 family residential mortgage		Residential line of credit		Multi- family residential mortgage		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Consumer and other		Total
Loans, net of unearned income
Individually evaluated for impairment	$	9,026	$	2,061	$	1,347	$	579	$	—	$	2,993	$	7,755	$	49	$	23,810
Collectively evaluated for impairment	1,023,326		546,156		689,769		220,878		69,429		621,386		902,792		254,944		4,328,680
Acquired with deteriorated credit quality	1,684		2,884		19,338		73		—		5,891		10,197		17,085		57,152
Ending balance - December 31, 2019	$	1,034,036	$	551,101	$	710,454	$	221,530	$	69,429	$	630,270	$	920,744	$	272,078	$	4,409,642

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans that share similar risk characteristics collectively. Loans that do not share similar risk characteristics are evaluated individually.

The Company uses the following definitions for risk ratings:

Pass. Loans rated Pass include those that are adequately performing and collateralized and which management believes do not have conditions that have occurred or may occur which would result in the loan being downgraded into an inferior category.

Watch.    Loans rated as Watch include those that management believes have conditions that have occurred, or may occur, which could result in the loan being downgraded to an inferior category. Also included in watch are loans rated as special mention, which have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard.    Loans rated as Substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so rated have a well-defined weakness or weaknesses 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.

21

FB Financial Corporation and subsidiaries

Notes to consolidated financial statements

(Unaudited)

(Dollar amounts are in thousands, except share and per share amounts)

Doubtful. Loans classified as Doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Risk ratings are updated on an ongoing basis and are subject to change by continuous loan monitoring processes.

The following table presents the credit quality of our loan portfolio by year of origination as of March 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 table below.

As of March 31, 2020
	Term Loans
	Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial and industrial
Pass	$	29,008	$	178,014	$	82,142	$	46,942	$	38,723	$	34,087	$	502,092	$	911,008
Watch	—		10,643		29,243		6,647		5,766		4,691		32,191		89,181
Substandard	—		2,385		4,649		1,474		1,386		3,765		6,636		20,295
Doubtful	—		—		—		—		—		—		—		—
Total	29,008		191,042		116,034		55,063		45,875		42,543		540,919		1,020,484
Construction
Pass	22,601		180,870		103,731		59,843		33,080		81,213		98,582		579,920
Watch	—		529		825		10,099		769		2,877		—		15,099
Substandard	—		854		—		34		—		3,241		212		4,341
Doubtful	—		101		—