MEETING THE
CHALLENGE
| 2 0 2 0 A N N U A L R E P O R T
MEETING THE
CHALLENGE
The vision for our Company is to deliver trusted
solutions to our customers, to provide a great
place to work for our associates, to invest in our
communities and to provide superior, long-term
returns for our shareholders. With those goals in
mind, FirstBank delivered an outstanding 2020.
While much of the rest of the world stood still
due to the pandemic, FirstBank improved its
customer experience, remained a great place
to work and delivered peer-leading returns, all
while laying strong building blocks for the future.
We’ve always understood that excellent
customer service is our top priority. This
year provided more opportunity to serve our
customers than ever. We provided comfort
in uncertain times by originating $315 million
in Paycheck Protection Program loans while
allowing for deferred payments on $1.6 billion
in loans. With customer activity increasingly
shifting toward digital transactions, we improved
our customer experience by implementing new
consumer online and mobile banking platforms.
As a result of these actions, our reputation with
our customers has never been stronger.
While we’ve always stressed working
collaboratively, effective teamwork and
communication became even more imperative
as many associates performed their jobs
remotely. The willingness of these talented
individuals to embrace innovation and
adaptation was key to our success in 2020.
That’s why our decision not to implement any
COVID-related layoffs or pay reductions was an
easy one. These actions are representative of
a workplace culture that American Banker has
selected as one of the country’s best.
And finally, we achieved outstanding profitability
metrics. Led by a record year from our mortgage
operation, our team delivered record-setting
adjusted profitability metrics. As a result of this
profitability, we generated significant capital that
will serve to support future growth.
Leaving 2020, we are very proud of what our
team accomplished in the past year. However,
we are focused on the future and are extremely
excited to build on the foundation that we
have laid.
20202020
A Y E A R U N L I K E A N Y O T H E R
To our shareholders, customers and associates:
As we entered 2020, we were very optimistic about the
economic prospects for 2020 and 2021. These were
prospects that we were studying closely given that
we were deep into consideration of our soon-to-be-
announced Franklin Financial Network, Inc., (“Franklin”)
merger. And, as we came to our final decisions on the
Franklin merger in January of last year, we were confident
that we had considered every angle, and that our
decisions would positively impact FB Financial’s future.
Little did we know then that, on top of the challenges we
had planned to undertake, which included the Franklin
merger, the Farmers National Bank of Scottsville (“Farmers
National”) systems conversion, and the conversion of our
consumer online banking and mobile banking platforms,
we would face natural disasters and a global pandemic as
well. However, as our team met some of the most difficult
tests of their careers, they delivered, and our Company
emerged from those challenges having achieved record
adjusted profitability while laying a foundation for an even
more exceptional future.
The challenges we faced
On top of the executional challenges involved in providing
our customers with trusted solutions, maintaining a strong
corporate culture for our associates and delivering peer-
leading shareholder returns, 2020 provided unique
hurdles to overcome. In January, we announced the
pending merger with Franklin, the largest merger in the
Company’s history. In February, we closed on the Farmers
National merger, expanding our footprint into Kentucky.
In March, tornadoes tore through Nashville and middle
Tennessee, leaving tens of thousands without power and
destroying homes and businesses across our footprint.
Two weeks later, the world shut down as the reach and
danger of COVID-19 became fully understood, and our
associates learned to work in a remote environment.
The government response to the pandemic led to a
zero interest rate environment as well as the CARES Act,
and in April, our team made decisions on how we would
approach our clients who needed assistance while also
determining how to best serve our customers through
the Paycheck Protection Program (“PPP”). In May through
October, our operations team was tasked with three
significant systems conversions in an entirely remote
environment.
It was an eventful year, to say the least.
This provisioning came despite having only 22 basis points
of net charge-offs to average loans during the year. On top
of the financial results, the combinations with Franklin and
Farmers National paired with other strategic hires made over
the course of the year have made our pool of relationship
managers deeper and more talented than it has ever been.
And we are well-positioned for those relationship managers to
go out and win new business, as we now rank in the top 10 in
deposit market share in the Nashville, Knoxville, Chattanooga
and Bowling Green MSAs and have maintained our strong
positions in our community markets.
The path forward
With those outstanding results, we have laid a foundation
that should provide for a very bright future. Moving into 2021,
our team is focused on strengthening and building on that
foundation to ensure that we can execute on the opportunities
that lie ahead. We are focused on continuing the cultural
integration of the legacy FirstBank, Franklin and Farmers
National associates, and we look forward to being able to
solidify that culture with face-to-face gatherings as vaccines
become ever more available. While our research provides us
with strong service scores relative to our primary competitors,
we are challenging our customer experience using input from
customers, relationship managers and operational managers
to ensure that our service is second-to-none. We feel that we
have a local delivery model that is infinitely scalable, and we
are focused on investing in our enterprise risk management
and management reporting to continue to support that growth.
And finally, with the dynamic economies across our footprint
and our strong base of relationship managers, we are focused
on capturing organic growth and expanding market share.
As a result of our accomplishments in 2020, FB Financial
is well-positioned to have a successful 2021 and 2022.
We are eager and excited about both our immediate and
long-term opportunities. We thank each of you for your
continued partnership and trust, and for your confidence in
our strategic vision.
Stuart C. McWhorter
Chairman of the Board
Christopher T. Holmes
President and CEO
The response and the determination
We are proud to say that our team excelled through each
challenge as our associates saw opportunities to make
significant differences in the lives of their customers, their
communities and their fellow associates. When the tornadoes
struck, our relationship managers came to the aid of our
affected customers, and our markets hosted food trucks to
provide hot meals for those in need across our impacted
communities. When the pandemic came weeks later, and
the fear of the economic impact hit our customer base, our
relationship managers proactively reached out to assure them
that we were their partners through these difficult times. This
outreach resulted in over $1.6 billion in loans being granted
payment deferrals. As the details of PPP became available, a
dedicated task force was assembled and worked around the
clock to determine how we would deliver that lifeline funding
to our customers. By the end of Round 1 of the program, over
300 associates had been involved, and we had delivered
$315 million in PPP loans to our customer base. Our operations
team successfully completed three major conversions in the
Farmers National core system conversion, the Franklin core
system conversion, and the online and mobile banking system
conversion in a remote environment. Meanwhile, our mortgage
team worked tirelessly to capitalize on the zero interest
rate environment, and delivered over $100 million in total
pre-tax contribution for the year, which was over four times
their prior record.
We also were able to make some significant moves in our
executive team as we ushered our Company into the future.
Travis Edmondson, previously CEO of Clayton Bank & Trust
and East Regional President at FirstBank, was named our
Chief Banking Officer in April. Michael Mettee, previously
CFO of our banking division and with FirstBank since
2012, stepped into the Corporate CFO role and excelled,
proving himself on an interim basis prior to being named the
permanent CFO in November. After being the Company’s
most significant investor and Executive Chairman of the
Board, Jim Ayers stepped away from his role in December
and was succeeded by Stuart McWhorter. Stuart has proved
more than capable of filling the Chairman’s seat, and we look
forward to his continued leadership.
The results
As a result of our associates’ serving our customers and each
other, FB Financial delivered record adjusted return metrics
in 2020. We grew from $6.1 billion in assets at the end of
2019 to $11.2 billion in assets over the course of 2020 while
maintaining strong tangible capital levels and growing our total
risk-based capital ratio by 280 basis points. Our mortgage
team produced a record year that helped us to grow tangible
book value per share by 17.1% to $21.73 in 2020. This growth
came while provisioning $108 million for credit losses and
increasing our allowance for credit losses to loans held for
investment to 2.41%, which is among the highest in the industry.
2020 FINANCIAL SNAPSHOT
♦ Record revenues of $567.5 million,
♦ Total deposits of $9.5 billion, a 91.7%
a 57% increase over 2019
increase over 2019
♦ Record adjusted efficiency ratio of
♦ Net charge-offs as a percentage of average
59.2%*, an improvement of 620 basis
points from 2019
♦ Consolidated assets of $11.2 billion,
an 83% increase over 2019
loans held for investment of 0.22%
♦ Strong capital base with a tangible equity
to tangible assets ratio of 9.4%* and well-
capitalized for all regulatory ratios
♦ Loans held for investment of $7.1 billion,
♦ Increased tangible book value per share
a 60.6% increase over 2019
by 17.1% over 2019 to $21.73*
$7,082
$9,458
$4,410
$3,668
$3,167
$1,849
$4,935
$4,172
$3,664
$2,672
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
LOANS HELD FOR INVESTMENT ($mm)
4-YEAR CAGR 40%
TOTAL DEPOSITS ($mm)
4-YEAR CAGR 37%
$2,274
$1,208
$21.73
$18.55
$17.02
$14.56
$11.58
$888
$949
$697
2016
2017
2018
2019
2020
NON-INTEREST-BEARING DEPOSITS ($mm)
4-YEAR CAGR 34%
2016
2017
2018
2019
2020
TANGIBLE BOOK VALUE PER SHARE*
4-YEAR CAGR 17%
*See Annual Report on Form 10-K for the year ended December 31, 2020, for discussion and reconciliation of non-GAAP measure.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________
FORM 10-K
______________________________________________________________
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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
( State or other jurisdiction of
incorporation or organization)
211 Commerce Street, Suite 300
Nashville, Tennessee
(Address of principal executive offices)
62-1216058
(I.R.S. Employer
Identification No.)
37201
(Zip Code)
Registrant’s telephone number, including area code: (615) 564-1212
____________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, Par Value $1.00 Per Share
Trading Symbol
FBK
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐
☐
☒
Accelerated filer
Small reporting company
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2020, 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 $445.7 million, based on the closing sales price of $24.77 per share as reported on the New York Stock Exchange.
The number of shares of Registrant’s Common Stock outstanding as of March 5, 2021 was 47,307,688.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement relating to the Annual Meeting of Shareholders, which will be filed within 120 days after December 31, 2019, are
incorporated by reference into Part III of this Annual Report on Form 10-K.
1
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Directors Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Page
4
23
34
34
34
34
35
38
42
81
86
157
157
157
158
158
158
158
158
159
162
163
2
In this Annual Report on Form 10-K (this “Annual Report”), references to “we,” “our,” “us,” “FB Financial,” or “the
Company” refer to FB Financial Corporation, a Tennessee corporation, and our wholly owned banking subsidiary,
FirstBank, a Tennessee state chartered bank, unless otherwise indicated or the context otherwise requires. References to
“Bank” or “FirstBank” refer to FirstBank, our wholly owned banking subsidiary.
Cautionary note regarding forward-looking statements
This Annual Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered
by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. You can
find many of these statements by looking for words such as "anticipates," "expects," "believes," "estimates," "intends" and
"forecast" and words or phrases of similar meaning. We make forward-looking statements regarding our liquidity position;
projected sources of funds; the effects of the COVID-19 pandemic and actions taken in response thereto; our securities
portfolio; loan sales; adequacy of our allowance for loan and lease losses and reserve for unfunded commitments; impaired
loans and future losses; litigation; dividends; fair values of certain assets and liabilities, including mortgage servicing rights
values; tax rates; the effect of accounting pronouncements; and strategic initiatives and the timing, benefits, costs and
synergies of future acquisition, disposition and other growth opportunities.
These forward-looking statements are not historical facts, and are based upon current expectations, estimates and/or
projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by
their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not
be regarded as a representation by us or any other person that such expectations, estimates and/or projections will be
achieved. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance
and are subject to risks, assumptions and uncertainties that are difficult to predict and that are beyond our control. Although
we believe that the expectations reflected in these forward-looking statements are reasonable as of the date of this Annual
Report, actual results may prove to be materially different from the results expressed or implied by the forward-looking
statements. There are or will be important factors that could cause our actual results to differ materially from those indicated
in these forward-looking statements, including, but not limited to, the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
current and future economic conditions, including the effects of declines in housing and commercial real estate
prices, high unemployment rates, and a continued slowdown in economic growth in the local or regional economies
in which we operate and/or the U.S. economy generally;
the effects of the COVID-19 pandemic, including the magnitude and duration of the pandemic and its impact on
general economic and financial market conditions and on our business and our customers' business, results of
operations, asset quality and financial condition, as well as the efficacy, distribution, and public adoption of vaccines;
changes in government interest rate policies and its impact on our business, net interest margin, and mortgage
operations;
our ability to effectively manage problem credits;
the risk that the cost savings and any revenue synergies from the merger with Franklin Financial Network, Inc. (the
“merger”) or another acquisition may not be realized or may take longer than anticipated to be realized;
disruption from the merger with customer, supplier, or employee relationships;
the risks related to the integrations of the combined businesses following the merger;
the diversion of management time on issues related to the merger;
the ability of FB Financial to effectively manage the larger and more complex operations of the combined company
following the merger;
the risks associated with FB Financial’s pursuit of future acquisitions;
reputational risk and the reaction of the parties’ respective customers to the merger;
FB Financial’s ability to successfully execute its various business strategies;
the impact of the recent change in the U.S. presidential administration and Congress and any resulting impact on
economic policy, capital markets, federal regulation, and the response to the COVD-19 pandemic; and
general competitive, economic, political, and market conditions.
The foregoing factors should not be construed as exhaustive and should be read in conjunction with the sections entitled
“Risk factors” and “Management’s discussion and analysis of financial condition and results of operations” included in this
Annual Report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying
assumptions prove to be incorrect, actual results may differ materially from our forward-looking statements. Accordingly, you
should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of
the date of this Annual Report, and we do not undertake any obligation to publicly update or review any forward-looking
statement, whether as a result of new information, future developments or otherwise, except as required by law. New risks
and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will
affect us.
3
ITEM - 1. Business
PART I
In this annual report, the terms "we," "our," "ours," "us," "FB Financial," and "the Company" refer to FB Financial
Corporation, a Tennessee corporation, and our consolidated banking subsidiary, FirstBank, a Tennessee state chartered
bank, unless the context indicates that we refer only to the parent company, FB Financial Corporation. The terms
"FirstBank" or "the Bank" refer to our wholly owned subsidiary and Tennessee banking corporation.
Overview
FB Financial Corporation is a bank holding company designated as a financial holding company. We are headquartered in
Nashville, Tennessee. Our wholly owned bank subsidiary, FirstBank, is the third largest Tennessee-headquartered bank,
based on total assets. FirstBank provides a comprehensive suite of commercial and consumer banking services to clients
in select markets primarily in Tennessee, North Alabama, Southern Kentucky, and North Georgia. As of December 31,
2020, our footprint included 81 full-service bank branches and several other limited service banking, ATM and mortgage
loan production locations serving the Tennessee metropolitan markets of Nashville, Chattanooga, Knoxville, Memphis,
and Jackson in addition to the metropolitan markets of Huntsville and Florence, Alabama and Bowling Green, Kentucky.
The Bank also operates in 16 community markets. The Company also provides mortgage banking services utilizing its
bank branch network and mortgage banking offices located throughout the southeastern United States in addition to its
national internet delivery channel. As of December 31, 2020, we had total assets of $11.21 billion, loans held for
investment of $7.08 billion, total deposits of $9.46 billion, and total shareholders’ equity of $1.29 billion.
Throughout our history, we have steadfastly maintained a community banking approach of personalized relationship-
based service, which is delivered locally through experienced bankers in each market. As we have grown, maintaining this
relationship-based approach utilizing local, talented and experienced bankers in each market has been an integral
component of our success. Our bankers utilize their local knowledge and relationships to deliver timely solutions to our
clients. We empower these bankers by giving them local decision making authority supplemented by appropriate risk
management. In our experience, business owners and operators prefer to deal with decision makers, and our banking
model is built to place the decision maker as close to the client as possible. We have designed our operations, technology,
and centralized risk oversight processes to specifically support our operating model. We deploy this operating model
universally in each of our markets, regardless of size. We believe we have a competitive advantage in our markets versus
both smaller community banks and larger regional and national banks. Our robust offering of products, services and
capabilities differentiate us from community banks and our significant local market knowledge, client service level and the
speed with which we are able to make decisions and deliver our services to customers differentiate us from larger regional
and national banks.
We seek to leverage our operating model by focusing on profitable growth opportunities across our footprint, focused
primarily on both high-growth metropolitan markets and stable community markets. As a result, we are able to strategically
deploy our capital across our markets to take advantage of those opportunities that we believe provide the greatest
certainty of profitable growth and highest returns.
Our operating model is executed by a talented management team lead by our Chief Executive Officer, Christopher T.
Holmes. Mr. Holmes, a 30-year banking veteran originally from Lexington, Tennessee, joined the Bank in 2010 as Chief
Banking Officer and was appointed Chief Executive Officer and President in 2013. Mr. Holmes has an extensive
background in both metropolitan and community banking gained from his time at community banks and larger public
financial institutions. Mr. Holmes has assembled a highly effective management team, blending members that have a long
history with FirstBank and members that have significant banking experience at other in-market banks.
Our history
Originally chartered in 1906, we are one of the longest continually operating banks in Tennessee. While our deep
community roots go back over 100 years, our growth trajectory changed in 1984 when Tennessee businessman James W.
Ayers, our Vice Chairman and Founder, acquired Farmers State Bank with an associate. In 1988, we purchased the
assets of First National Bank of Lexington, Tennessee and changed our name to FirstBank, forming the foundation of our
current franchise. In 1990, Mr. Ayers became our sole shareholder and remained our sole shareholder until our initial
public offering in September 2016. Under Mr. Ayers’ ownership, we grew from a community bank with only $14 million in
assets in 1984 to the third largest bank headquartered in Tennessee, based on total assets of $11.21 billion at
December 31, 2020.
4
From 1984 to 2001, we operated as a community bank growing organically and through small acquisitions in community
markets in West Tennessee. In 2001, our strategy evolved from serving purely community markets to include a modest
presence in metropolitan markets, expanding our reach and enhancing our growth. We entered Nashville and Memphis in
2001 by opening a branch in each of those markets. In 2004 and 2008, we opened our first branches in Knoxville and
Chattanooga, respectively. Although we experienced some growth in each metropolitan market, it did not become a major
strategic focus until we implemented our current strategy in the Nashville metropolitan statistical area (“MSA”) in 2012.
The successful implementation of this strategy, along with strategic key acquisitions, resulted in growing Nashville into our
largest market with 50% of our total deposits as of June 30, 2020. Additionally, we expanded into the Huntsville, Alabama
MSA in 2014 by opening a branch in Huntsville and loan production office in Florence, Alabama, which was converted to a
full service branch in 2019. During 2020, we expanded into the Bowling Green, Kentucky MSA with our acquisition of FNB
Financial Corp. in addition to increasing our Nashville MSA market share through our acquisition of Franklin Financial
Network, Inc. As a result of this evolution and focus on continuous organic growth, we operate a balanced business model
that serves a diverse customer base in both metropolitan and community markets.
Mergers and acquisitions
On September 18, 2015, the Bank completed its acquisition of Northwest Georgia Bank (“NWGB”), a bank headquartered
in Ringgold, Georgia, pursuant to the Agreement and Plan of Merger dated April 27, 2015 by and between the Bank and
NWGB. The Company acquired NWGB in a $1.5 million cash purchase. NWGB was merged with and into the Bank, with
the Bank as the surviving entity. As of September 18, 2015, the estimated fair value of loans acquired and deposits
assumed as a result of the merger was $78.6 million and $246.2 million, respectively.
On July 31, 2017, the Bank completed its merger with Clayton Bank and Trust (“CBT”) and American City Bank (“ACB”
and together with CBT, the “Clayton Banks”), pursuant to the Stock Purchase Agreement with Clayton HC, Inc., a
Tennessee corporation (“Seller”), and James L. Clayton, the majority shareholder of Seller, dated February 8, 2017, as
amended on May 26, 2017, with a purchase price of approximately $236.5 million. The Company issued 1,521,200 shares
of common stock and paid cash of $184.2 million to purchase all of the outstanding shares of the Clayton Banks. At
closing, the Clayton Banks merged with and into FirstBank, with FirstBank continuing as the surviving banking entity. As of
July 31, 2017, the estimated fair value of loans acquired and deposits assumed as a result of the merger was $1,059.7
million and $979.5 million, respectively.
On April 5, 2019, the Bank acquired 11 Tennessee and three Georgia branch locations from Atlantic Capital Bank, N.A.,
further increasing market share in existing markets and expanding the Company's footprint into new locations. Under the
terms of the agreement, the Bank assumed $588.9 million in deposits for a premium of 6.25% and acquired $374.4 million
in loans at 99.32% of principal outstanding.
On February 14, 2020, the Company acquired 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 four branches and
expanded the Company's footprint into Kentucky. Under the terms of the agreement, the Company acquired total assets of
$258.2 million, loans of $182.2 million and assumed total deposits of $209.5 million. Farmers National shareholders
received 954,797 shares of the Company's common stock as consideration in connection with the merger, in addition to
$15.0 million in cash consideration.
On August 15, 2020, the Company completed its largest merger to date with Franklin Financial Network, Inc. and its
wholly owned subsidiaries, with FB Financial Corporation continuing as the surviving entity. Under the terms of the
agreement, the Company acquired total assets of $3.63 billion, loans of $2.79 billion and assumed total deposits of $3.12
billion in a transaction valued at $477.8 million, which included the issuance of 15,058,181 shares of the Company's
common stock. The transaction added a new subsidiary to the Company, FirstBank Risk Management ("FBRM"), which
provides risk management services to the Company in the form of enhanced insurance coverages. It also added a new
subsidiary to the Bank, FirstBank Investments of Tennessee, Inc. ("FBIT"), which provides investment services to the
Bank. FBIT has a wholly owned subsidiary, FirstBank Investments of Nevada, Inc. ("FBIN") to provide investment services
to FBIT. FBIN has a controlling interest in a subsidiary, FirstBank Preferred Capital, Inc. ("FBPC"), which serves as a real
estate investment trust ("REIT"), to allow the Bank to sell real estate loans to the REIT to obtain a tax benefit.
See Note 2, “Mergers and acquisitions” in the notes to the consolidated financial statements for further details regarding
the terms and conditions of these acquisitions.
5
Our markets
Our market footprint is the southeastern United States, centered around Tennessee, and includes portions of North
Alabama, North Georgia and Kentucky.
Top Metropolitan Markets
Top Community Markets1
Market
Nashville
Chattanooga
Knoxville
Jackson
Bowling Green
Memphis
Huntsville
Market
Rank
Branches
(#)
Deposits
($mm)
Deposit
Market
Share
Percent of
Total
Deposits
Market
Market
Rank
Branches
(#)
Deposits
($mm)
Deposit
Market
Share
Percent
of Total
Deposits
6
5
9
3
7
30
20
24
4,766
8
6
7
5
4
1
740
526
450
226
183
63
5.9 %
6.1 %
2.6 %
50.4 % Lexington
7.8 % Parsons
5.6 % Tullahoma
12.2 %
4.8 % Huntingdon
6.3 %
0.5 %
0.6 %
2.4 % Paris
1.9 % Camden
0.7 % Smithville
1
1
3
2
3
2
3
6
1
2
5
2
2
1
332
155
151
142
129
117
112
53.8 %
45.7 %
13.4 %
24.2 %
16.4 %
17.4 %
24.1 %
3.7 %
1.7 %
1.7 %
1.6 %
1.4 %
1.3 %
1.2 %
Note: Market data as of June 30, 2020 and is presented on a pro forma basis for pending and completed acquisitions as of January 15, 2021. Size of
bubble represents size of company deposits in a given market.
Source: Company data and S&P Global Market Intelligence; 1Statistics based on county data.
Market characteristics and mix.
Metropolitan markets. Our metropolitan markets are generally characterized by attractive demographics and strong
economies and offer substantial opportunity for future growth. We compete in these markets with national and regional
banks that currently have the largest market share positions and with community banks primarily focused only on a
particular geographic area or business niche. We believe we are well positioned to grow our market penetration among
our target clients of small to medium sized businesses as well as large corporate businesses and the consumer base
working and living in these metropolitan markets. In our experience, such clients demand the product sophistication of a
larger bank, but prefer the customer service, relationship focus and local connectivity of a community bank. We believe
that our size, product suite and operating model offer us a competitive advantage in these markets versus our smaller
competitors, many of which are focused only on specific counties or industries. Our operating model driven by local talent
with strong community ties and local authority serves as a key competitive advantage over our larger competitors. We
believe that, as a result, we are well positioned to leverage our existing franchise to expand our market share in our
markets.
Community markets. Our community markets tend to be more stable throughout various economic cycles, with primarily
retail and small business customer opportunities and more limited competition. We believe this leads to an attractive
profitability profile and more granular loan and deposit portfolios. Our community markets are standalone markets and not
suburbs of larger markets. We primarily compete in these markets with community banks that generally have less than $1
billion in total assets. Our strategy is to compete against these smaller community banks by providing a broader and more
sophisticated set of products and capabilities while still maintaining our local service model. We believe these markets are
6
being deemphasized by national and regional banks which provides us with opportunities to hire talented bankers in these
communities and maintain or grow market share in these community markets.
Our core client profile across our footprint includes small businesses, corporate clients and owners, and investors of
commercial real estate. We target business clients with substantial operating history that have annual revenues of up to
$250 million. Our typical business client would keep business deposit accounts with us, and we would look to provide
banking services to the owners and employees of the business as well. We also have an active consumer lending
business that includes deposit products, mortgages, home equity lines and small consumer finance loans. We
continuously strive to build deeper relationships by actively cross-selling incremental products to meet the banking needs
of our clients.
The following tables show our deposit market share ranking among banks in Tennessee as of June 30, 2020 (the most
recent date where such information is publicly available). Of the 10 largest banks in the state based on total deposits, five
are national or regional banks, which we believe provides us with significant opportunities to gain market share from these
banks.
Top 10 banks in Tennessee:
Rank Company name
1
First Horizon National Corp. (TN)
2
3
4
5
6
7
8
9
Regions Financial Corp. (AL)
Pinnacle Financial Partners (TN)
Truist Financial Corp. (NC)
Bank of America Corporation (NC)
FB Financial Corp (TN)
U.S. Bancorp (MN)
Fifth Third Bancorp (OH)
Wilson Bank Holding Co. (TN)
10
CapStar Financial Hlgs Inc. (TN)
Headquarters
Memphis, TN
Birmingham, AL
Nashville, TN
Charlotte, NC
Charlotte, NC
Nashville, TN
Minneapolis, MN
Cincinnati, OH
Lebanon, TN
Nashville, TN
Branches
(#)
164
Total
deposits
($bn)
31.2
210
50
145
59
77
69
39
28
22
22.2
18.6
16.9
16.8
8.3
4.0
4.0
2.8
2.6
Deposit
market
share
(%)
16.2
11.5
9.7
8.8
8.7
4.3
2.1
2.1
1.4
1.3
Source: S&P Global Market Intelligence and Company reports as of June 30, 2020; total assets as of December 31, 2020, adjusted for pending and
completed acquisitions as of January 15, 2021.
Our business strategy
Our overall business strategy is comprised of the following core strategies.
Enhance market penetration in metropolitan markets. In recent years, we have successfully grown our franchise in
the Nashville MSA by executing our community bank growth strategy. The strategy is centered on the following: recruiting
the best bankers and empowering them with local authority; developing branch density; building brand awareness and
growing our business and consumer banking presence; and expanding our product offering and capabilities. These
strategies coupled with our personalized, relationship-based client service have contributed significantly to our success.
Additionally, we believe that our scale, resources and sophisticated range of products provides us with a competitive
advantage over the smaller community banks in the Nashville MSA and our other MSAs. As a result of these competitive
advantages and growth strategies, the Nashville MSA has become our largest market. With approximately 5.9% market
share, based on pro forma deposits as of June 30, 2020, we intend to continue to efficiently increase our market
penetration through organic growth and strategic acquisitions.
Based on market and competitive similarities, we believe our growth strategies are transferable to our other metropolitan
markets. We implemented these strategies with a focus on the Chattanooga and Knoxville MSAs. Our acquisitions of
Northwest Georgia Bank, the Clayton Banks, and the branches from Atlantic Capital Bank have accelerated our growth
and profitability in the Chattanooga and Knoxville MSAs, and we have continued to build momentum in these markets.
Pursue opportunistic acquisitions. While most of our growth has been organic, we have completed 13 acquisitions in
the past 25 years. We pursue acquisitions that enhance market penetration, possess strong core deposits, are accretive
to earnings per share while minimizing tangible book value dilution, and meet our internal return targets. We believe that
numerous small to mid-sized banks or branch networks will be available for acquisition throughout our footprint as well as
in attractive contiguous markets in the coming years due to industry trends, such as compliance and operational
challenges, regulatory pressure, management succession issues and shareholder liquidity needs. In Tennessee alone,
there are approximately 125 banks with total assets of less than $5 billion, and in the contiguous states of Alabama,
7
Georgia, Kentucky, North Carolina, South Carolina and Virginia, there are over 475 banks under $5 billion in assets. We
believe that we are positioned as a natural consolidator because of our financial strength, reputation and operating model.
Improve efficiency by leveraging technology and consolidating operations. We have invested significantly in our
bankers, infrastructure and technology in recent years, which we believe has created a scalable platform that will support
future growth across all of our markets. Our bankers and branches, especially in the metropolitan markets, continue to
scale in size, and we believe there is capacity to grow our business without adding significantly to our branch network. We
plan to continue to invest, as needed, in our technology and business infrastructure to support our future growth and
increase operating efficiencies. We intend to leverage these investments to consolidate and centralize our operations and
support functions while protecting our decentralized client service model.
Seize opportunities to expand noninterest income. While our primary focus is on capturing opportunities in our core
banking business, we have successfully seized opportunities to grow our noninterest income. We have a strong mortgage
platform with both a traditional retail delivery channel as well as an online Consumer Direct channel. Additionally, we have
successfully expanded our fee-based business to include more robust treasury management, trust and investment
services and capital markets revenue streams. We intend to continue emphasizing these business lines which we believe
serve as strong customer acquisition channels and provide us with a range of cross-selling opportunities, while making
our business stronger and more profitable.
Risk management
General
Our operating model demands a strong risk culture built to address multiple areas of risk, including credit risk, interest rate
risk, liquidity risk, price risk, compliance risk, information security/ cyber risk, third-party risk, operational risk, strategic risk
and reputational risk. Our risk culture is supported by investments in the right people and technologies to protect our
business. Our board of directors, through its risk committee, is ultimately responsible for overseeing risk management of
the Company. We have a Chief Risk Officer who oversees risk management across our business (including the Bank).
Our board, Chief Executive Officer and Chief Risk Officer are supported by the heads of other functional areas at the
Bank, including credit, legal, IT, audit, compliance, capital markets, credit review, information security and physical
security. Our comprehensive risk management framework is designed to complement our core strategy of empowering
our experienced, local bankers with local-decision making to better serve our clients.
Our credit policies support our goal of maintaining sound credit quality standards while achieving balance sheet growth,
earnings growth, appropriate liquidity and other key objectives. We maintain a risk management infrastructure that
includes local authority, centralized policymaking and a strong system of checks and balances under the direction of our
Chief Credit Officer. The fundamental principles of our credit policy and procedures are to maintain credit quality
standards, which enhance our long-term value to our clients, associates, shareholders and communities. Our loan policies
provide our bankers with a sufficient degree of flexibility to permit them to deliver responsive and effective lending
solutions to our clients while maintaining appropriate credit quality. Furthermore, our bankers and associates are hired for
the long-term and they are incented to focus on long-term credit quality. Since lending represents credit risk exposure, the
board of directors and its duly appointed committees seek to ensure that the Bank maintains appropriate credit quality
standards. We have established management oversight committees to administer the loan portfolio and monitor credit
risk. These committees include our audit committee and credit committee, and they meet at least quarterly to review the
lending activities.
Credit concentration
Diversification of risk is a key factor in prudent asset management. Our loan portfolio is balanced between our
metropolitan and community markets and by type, thereby diversifying our loan concentration. Our granular loan portfolio
reflects a balanced mix of consumer and commercial clients across these markets that we think provides a natural hedge
to industry and market cycles. In addition, risk from concentration is actively managed by management and reviewed by
the board of directors of the Bank, and exposures relating to borrower, industry and commercial real estate categories are
tracked and measured against policy limits. These limits are reviewed as part of our periodic review of the credit policy.
Loan concentration levels are monitored by the Chief Credit Officer and reported to the board of directors.
Loan approval process
The loan approval process at the Bank is characterized by local authority supported by a risk control environment that
provides for prompt and thorough underwriting of loans. Our localized decision making is reinforced through a centralized
review process supported by technology that monitors credits to ensure compliance with our credit policies. Our loan
approval method is based on a hierarchy of individual lending authorities for new credits and renewals granted to our
individual bankers, market presidents, credit officers, senior management and credit committee. The board of directors
establishes the maximum lending limits at each level and our senior management team sets individual authorities within
these maximum limits to each individual based on demonstrated experience and expertise, and are periodically reviewed
8
and updated. We believe that the ability to have individual loan authority up to specified levels based on experience and
track record coupled with appropriate approval limits for our market presidents and credit officers allows us to provide
prompt and appropriate responses to our clients while still allowing for the appropriate level of oversight.
As a relationship-oriented lender, rather than transaction-oriented lender, substantially all of our loans are made to
borrowers or relationships located or operating in our market area. This provides us with a better understanding of their
business, creditworthiness and the economic conditions in their market and industry. Furthermore, our associates are held
accountable for all of their decisions, which effectively aligns their incentives to reflect appropriate risk management.
In considering loans, we follow the underwriting principles set forth in our credit policy with a primary focus on the
following factors:
•
•
•
•
•
A relationship with our clients that provides us with a thorough understanding of their financial condition
and ability to repay the loan;
verification that the primary and secondary sources of repayment are adequate in relation to the amount
of the loan;
adherence to appropriate loan to value guidelines for real estate secured loans;
targeted levels of diversification for the loan portfolio, both as to type of borrower and type of collateral;
and
proper documentation of loans, including perfected liens on collateral.
As part of the approval process for any given loan, we seek to minimize risk in a variety of ways, including the following:
•
•
•
•
•
analysis of the borrower's and/or guarantor's financial condition, cash flow, liquidity, and leverage;
assessment of the project's operating history, operating projections, location and condition;
review of appraisals, title commitment and environmental reports;
consideration of the management's experience and financial strength of the principals of the borrower;
and
understanding economic trends and industry conditions.
The board of directors reviews and approves any amendments to the credit policy, monitors loan portfolio trends and
credit trends, and reviews and approves loan transactions that exceed management thresholds as set forth in our credit
policy. Loan pricing is established in conjunction with the loan approval process based on pricing guidelines for loans that
are set by the Bank’s senior management. We believe that our loan approval process provides for thorough internal
controls, underwriting, and decision making.
Lending limits
The Bank is limited in the amount it can loan in the aggregate to a single borrower or related borrowers by the amount of
our regulatory capital. Tennessee’s legal lending limit is a safety and soundness measure intended to prevent one person
or a relatively small and economically related group of persons from borrowing an unduly large amount of bank funds. It is
also intended to safeguard bank’s depositors by diversifying the risk of loan losses among a relatively large number of
creditworthy borrowers engaged in various types of businesses. Generally, under Tennessee law, loans and extensions of
credit to a borrower may not exceed 15% of our bank’s Tier 1 capital, plus an additional 10% of the bank’s Tier 1 capital,
with approval of the bank’s board. Further, the Bank may elect to conform to similar standards applicable to national banks
under federal law, in lieu of Tennessee law. Because the federal law and Tennessee state law standards are determined
as a percentage of the Bank’s capital, these state and federal limits both increase or decrease as the Bank’s capital
increases or decreases. Based upon the capitalization of the Bank at December 31, 2020, the Bank’s legal lending limits
were approximately $171.4 million (15%) and $285.6 million (25%). The Bank may seek to sell participations in our larger
loans to other financial institutions, which will allow us to manage the risk involved in these loans and to meet the lending
needs of our clients requiring extensions of credit in excess of these limits.
In addition to these legally imposed lending limits, we also employ appropriate limits on our overall loan portfolio and
requirements with respect to certain types of lending and individual lending relationships. For example, we have lending
limits related to maximum borrower, industry and certain types of commercial real estate exposures.
Enterprise risk management
We maintain an enterprise risk management program that helps us to identify, manage, monitor and control potential risks
that may affect us, including credit risk, interest rate risk, liquidity risk, price risk, compliance risk, operational risk,
information security/ cyber risk, third-party risk, strategic risk and reputational risk. Our operating model demands a strong
risk culture built to address the multiple areas of risk we face, and our risk management strategy is supported by
significant investments in the right people and technologies to protect the organization.
Our comprehensive risk management framework and risk identification is a continuous process and occurs at both the
transaction level and the portfolio level. While our local bankers and associates support our day-to-day risk practices,
9
management seeks to identify interdependencies and correlations across portfolios and lines of business that may amplify
risk exposure through a thorough centralized review process. Risk measurement helps us to control and monitor risk
levels and is based on the sophistication of the risk measurement tools used to reflect the complexity and levels of
assumed risk. We monitor risks and ensure compliance with our risk policies by timely reviewing risk positions and
exceptions, investing in the technology to monitor credits, requiring senior management authority sign-off on larger credit
requests and granting credit authority to bankers and officers based on demonstrated experience and expertise. This
monitoring process ensures that management’s decisions are implemented for all geographies, products and legal
entities.
We control risks through limits that are communicated through policies, standards, procedures and processes that define
responsibility and authority. Such limits serve as a means to control exposures to the various risks associated with our
activities, and are meaningful management tools that can be adjusted if conditions or risk tolerances change. In addition,
we maintain a process to authorize exceptions or changes to risk limits when warranted. These risk management
practices help to ensure effective reporting, compliance with all laws, rules and regulations, avoid damage to our
reputation and related consequences, and attain our strategic goals while avoiding pitfalls and surprises along the way.
The board of directors approves policies that set operational standards and risk limits, and any changes require approval
by the Bank’s board of directors. Management is responsible for the implementation, integrity and maintenance of our risk
management systems ensuring the directives are implemented and administered in compliance with the approved policy.
Our Chief Risk Officer supervises the overall management of our risk management program, reports to management and
yet also retains independent access to the board of directors.
Credit risk management
Credit risk management is a key component of our risk management program. We employ consistent analysis and
underwriting to examine credit information and prepare underwriting documentation. We monitor and approve exceptions
to our credit policies as required, and we also track and address technical exceptions.
Each loan officer has the primary responsibility for appropriately risk rating each commercial loan that is made. In addition,
our credit administration department is responsible for the ongoing monitoring of loan portfolio performance through the
review of ongoing financial reports, loan officer reports, audit reviews and exception reporting and concentration analysis.
This monitoring process also includes an ongoing review of loan risk ratings and management of our allowance for credit
losses. We have a Chief Credit Officer responsible for maintaining the integrity of our portfolio within the parameters of the
credit policy. We utilize a risk grading system that enables management to differentiate individual loan quality and forecast
future profitability and portfolio loss potential.
We assign a credit risk rating at the time a commercial loan is made and adjust it as conditions warrant. Portfolio
monitoring systems allow management to proactively assess risk and make decisions that will minimize the impact of
negative developments. Successful credit management is achieved by lenders consistently meeting with clients and
reviewing their financial conditions regularly. This enables both the recognition of future opportunities and potential
weaknesses early.
The board of directors supports a strong loan review program and is committed to its effectiveness as part of the
independent process of assessing our lending activities. We have communicated to our credit and lending staff that the
identification of emerging problem loans begins with the lending personnel knowing their client and, supported by credit
personnel, actively monitoring their client relationships. The loan review process is meant to augment this active
management of client relationships and to provide an independent and broad-based look into our lending activities. We
believe that our strong client relationships support our ability to identify potential deterioration of our credits at an early
stage enabling us to address these issues early on to minimize potential losses.
We maintain a robust loan review function by utilizing an internal loan review team as well as third-party loan review firms.
All reports from internal and external loan review are made available directly to the board of directors or designated board
committee to ensure independence and objectivity. The examinations performed by the loan review department are based
on risk assessments of individual loan commitments within our loan portfolio over a period of time. At the conclusion of
each review, the loan review department provides management and the board of directors with a report that summarizes
the findings of the review. At a minimum, the report addresses risk rating accuracy, compliance with regulations and
policies, loan documentation accuracy, the timely receipt of financial statements, and any additional material issues.
We monitor the levels of such delinquencies for any negative or adverse trends. From time to time, we may modify loans
to extend the term or make other concessions to help a borrower with a deteriorating financial condition stay current on
their loan and to avoid foreclosure. We generally do not forgive principal or interest on loans or modify the interest rates
on loans to rates that are below market rates. We believe that we are well reserved for losses resulting from our non-
performing assets.
10
Liquidity and interest rate risk management
Our liquidity planning framework is focused on ensuring the lowest cost of funding available and planning for
unpredictable funding circumstances. To achieve these objectives, we utilize a simple funding and capital structure
consisting primarily of deposits and common equity. We remain continually focused on growing our noninterest-bearing
and other low-cost core deposits while replacing higher cost funding sources, including wholesale time deposits and other
borrowed debt, to fund our balance sheet growth. The following chart shows our overall funding structure as of
December 31, 2020.
Funding structure as of December 31, 2020
In addition, we monitor our liquidity risk by adopting policies to define potential liquidity problems, reviewing and
maintaining an updated liquidity contingency plan and providing a prudent capital structure consistent with our credit
standing and plans for strategic growth.
Our interest rate risk management system is overseen by our board of directors, who has the authority to approve
acceptable rate risk levels. Our board of directors has established the Asset/Liability Committee to ensure appropriate risk
appetite by requiring:
•
•
•
•
quarterly testing of interest rate risk exposure;
proactive risk identification and measurement;
quarterly risk presentations by senior management; and
independent review of the risk management process.
Competition
We conduct our core banking operations primarily in Tennessee and compete in the commercial banking industry solely
through our wholly owned banking subsidiary, FirstBank. The banking industry is highly competitive, and we experience
competition in our market areas from many other financial institutions. We compete with commercial banks, credit unions,
savings institutions, mortgage banking firms, online mortgage lenders, online deposit banks, digital banking platforms,
consumer finance companies, securities brokerage firms, insurance companies, money market funds and other mutual
funds, as well as super-regional, national and international financial institutions that operate offices in our market areas
and elsewhere. In addition, a number of out-of-state financial intermediaries have opened production offices, or otherwise
solicit deposits, in our market areas. Increased competition in our markets may result in reduced loans and deposits, as
well as reduced net interest margin and profitability. Furthermore, the Tennessee market has grown increasingly
competitive in recent years with a number of banks entering this market, with a primary focus on the state’s metropolitan
markets. We believe this trend will continue as banks look to gain a foothold in these growing markets. This trend will
result in greater competition primarily in our metropolitan markets. However, we firmly believe that our market position and
client-focused operating model enhances our ability to attract and retain clients.
11
Customer deposits 85.7%Brokered & internet time depo…0.6%Equity capital (no AOCIincluded) 11.5%Other debt 0.2%Sub debt 1.7%Customer repurchaseagreements 0.3% See “Our markets” in this section above for a further discussion of the markets we compete in and the competitive
landscape in these markets.
Human capital
At FB Financial, we value our associates, because our associates are FirstBank. They do the work; they serve our
communities and they build relationships with our customers. As of December 31, 2020, we had 1,852 full-time equivalent
employees with an average tenure of over 6.26 years of service. We pride ourselves on our culture, which is underpinned
by our mission of "Helping People Build a Better Future." At FirstBank, our vision is to:
•
•
•
•
Deliver trusted solutions to our customers
Provide a great place to work for our associates
Invest in our communities
Provide superior long-term returns for our shareholders
We pride ourselves in our values, which we aspire to live by every day:
• One Team, One Bank
Do The Right Thing
•
Commitment to Excellence
•
Exist For the Customer
•
Treat People With Respect
•
Enjoy Life
•
Providing a great place to work includes our commitment to diversity, equity, and inclusion. In 2020, we chartered an
internal Diversity Council to begin work in 2021 and nearly 20% of our newly hired associates were representative of
minority groups. FirstBank was recognized by the Mortgage Bankers Association with the 2020 Diversity and Inclusion
Residential Leadership Award.
In 2020, FirstBank was once again awarded as one of Tennessee’s top workplaces by The Tennessean. FirstBank meets
high standards for a healthy workplace culture as ranked by its own employees. We have also been named as one of the
Best Banks to Work For in America by American Banker Magazine.
We are committed to attracting and retaining the best talent in our markets. We provide competitive compensation and
benefits that meet the needs of our employees, including market-competitive pay, healthcare benefits, equity incentives,
and an employee stock purchase plan. We also provide meaningful training and development opportunities designed to
train our next generation of leaders and provide them opportunities for advancement within the Company.
The COVID-19 pandemic allowed us the opportunity to demonstrate our commitment to the health and safety of our
associates, customers, and communities. The pandemic presented challenges in protecting customers and associates
while remaining available to serve customer needs. FirstBank rose to the occasion through insight, communication and
swift action. The Company's Emergency Management Committee (EMC) is a board-appointed committee comprised of
senior managers charged with making critical decisions during emergencies or disasters.
Throughout the lockdown period, our CEO sent daily communication to all associates to inform them on the Company’s
actions and provide transparency and encouragement. We adjusted our branch lobby hours and usage and encouraged
associates to work remotely where possible during the pandemic. We are proud to say there were no job eliminations as
a result of the COVID-19 pandemic and we implemented a special pay code to maintain full pay for associates unable to
work due to possible exposure.
Information technology systems
In 2020, significant technology efforts were undertaken to ensure the company could continue to operate with a large
remote workforce in response to the pandemic. Hundreds of additional laptop computers were deployed, and systems
supporting secure remote access were enhanced to support this unprecedented requirement. Also, investments were
made in technology to support the PPP program, allowing the bank to make over 3,000 loans, protecting pay for over
37,000 of our customers' employees.
Significant technology investments were made in 2020 to support the conversion of the two acquired banks to our
operating systems, allowing us to onboard over 61,000 Customers with over 100,000 Accounts, 300 Associates, and 14
branches. Also, in support of enhanced Customer Experience, a major conversion effort was completed to implement a
new personal online and mobile banking platform, supporting over 65,000 retail customers. We implemented a robust
contact center solution, to provide resilient, scalable support for all banking customers, and launched new customer-facing
online mortgage origination platforms in both our online and traditional retail mortgage channels, while continuing to refine
systems and processes to support the record activity from all lines of business.
Looking forward, we plan to continue making investments in our technology platforms to further enhance our scalability,
resiliency, and efficiency and customer experience. In addition to continuing to enhance our network infrastructure and
underlying support technologies, expansion of data warehouse reporting capabilities, and implementation of workflow and
process automation technologies are planned to support more streamlined and consistent business processes, all of
which support our continued growth.
12
Supervision and regulation
The following is a general summary of the material aspects of certain statutes and regulations applicable to us and the
Bank. These summary descriptions are not complete, and you should refer to the full text of the statutes, regulations, and
corresponding guidance for more information. These statutes and regulations are subject to change, and additional
statutes, regulations, and corresponding guidance may be adopted. We are unable to predict these future changes or the
effects, if any, that these changes could have on our business, revenues, and financial results.
General
As a registered bank holding company, we are subject to regulation, supervision, and examination by the Board of
Governors of the Federal Reserve System, or Federal Reserve, under the Bank Holding Company Act of 1956, as
amended (the “BHCA”). In addition, as a Tennessee state-chartered bank that is not a member of the Federal Reserve
System, the Bank is subject to primary regulation, supervision, and examination by the FDIC and the Bank’s state banking
regulator, the Tennessee Department of Financial Institutions, or TDFI. Supervision, regulation, and examination of the
Bank by the bank regulatory agencies are intended primarily for the protection of consumers, bank depositors and the
Deposit Insurance Fund of the FDIC, rather than holders of our capital stock.
Coronavirus Disease 2019 ("COVID-19") and related relief programs
The Coronavirus Aid, Relief and Economic Security ("CARES") Act, enacted on March 27, 2020, by the US Government to
counteract the sudden economic hardship caused by the COVID-19 health pandemic included the creation of the
Paycheck Protection Program (“PPP”). The PPP, a nearly $670 billion program, as amended, was designed to aid small-
and medium-sized businesses through federally guaranteed loans distributed through banks, for which the Company
participated as a lender. These loans were intended to provide for payroll and other operating costs, helping recipient
businesses remain viable and retain employees.
On December 27, 2020, the President signed into law omnibus federal spending and economic stimulus legislation titled
the Consolidated Appropriations Act ("CAA") that included the Economic Aid to Hard-Hit Small Businesses, Nonprofits,
and Venues Act (the “HHSB Act”). Among other things, the HHSB Act renewed the PPP, allocating $284.45 billion for both
new first time PPP loans under the existing PPP and the expansion of existing PPP loans for certain qualified, existing
PPP borrowers. In addition to extending and amending the PPP, the HHSB Act also creates a new grant program for
“shuttered venue operators.” As a participating lender in the PPP, the Company continues to monitor legislative,
regulatory, and supervisory developments related thereto, including the most recent changes implemented by the HHSB
Act.
On March 22, 2020, a statement was issued by our banking regulators and titled the “Interagency Statement on Loan
Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” (the
“Interagency Statement”) that encourages financial institutions to work prudently with borrowers who are or may be unable
to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act
further stipulated that a qualified loan modification was exempt by law from classification as a troubled debt restructuring
(“TDR”), from the period beginning March 1, 2020 until the earlier of December 31, 2020, or the date that is 60 days after
the date on which the national emergency concerning the COVID-19 pandemic is terminated. Section 541 of the CAA
extends this relief to the earlier of January 1, 2022 or 60 days after the national emergency termination date. The
Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with
Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection
considerations. We have remained steadfast in working with customers impacted the pandemic,offering assistance
including offering short-term deferrals of principal and interest payments to borrowers who are not otherwise past due.
Temporary Regulatory Capital Relief Related to Impact of CECL
Concurrent with enactment of the CARES Act, in March 2020, the OCC, the Board of Governors of the Federal Reserve
System, and the FDIC published an interim final rule to delay the estimated impact on regulatory capital stemming from
the implementation of CECL, the provisions of which became final on September 30, 2020. The final rule maintains the
three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of
CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a
three-year transition period (five-year transition option). The Company has adopted the capital transition relief over the
permissible five-year period.
13
The Dodd-Frank Act
As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or Dodd-Frank Act, the regulatory
framework under which the Company operates has changed. The Dodd-Frank Act brought about a significant overhaul of
many aspects of the regulation of the financial services industry, addressing issues including, among others, systemic risk,
capital adequacy, deposit insurance assessments, consumer financial protection, interchange fees, lending limits,
mortgage lending practices, registration of investment advisers and changes among the bank regulatory agencies. In
particular, portions of the Dodd-Frank Act that affected us and the Bank include, but are not limited to:
•
The Consumer Financial Protection Bureau ("CFPB"). The CFPB is a federal regulatory body with broad
authority to regulate the offering and provision of consumer financial products and services and supervisory
authority over banks with more than $10 billion in assets. Any new regulatory requirements promulgated by the
CFPB or modifications in the interpretations of existing regulations could require changes to FirstBank's business.
The Dodd-Frank Act also gives the CFPB broad data collecting powers for fair lending for both small business and
mortgage loans, as well as extensive authority to prevent unfair, deceptive, and abusive practices. The Company
passed $10 billion in asset size during the year ended December 31, 2020 and as such, we anticipate an increase
to our overall regulatory compliance costs.
• Mortgage lending activities. The Dodd-Frank Act imposed new duties on mortgage lenders, including a duty to
determine the borrower's ability to repay the loan, and imposed a requirement on mortgage securitizers to retain a
minimum level of economic interest in securitized pools of certain mortgage types.
•
•
Executive compensation and corporate governance. The Dodd-Frank Act requires public companies to
include, at least once every three years, a separate non-binding “say on pay” vote in their proxy statement by
which shareholders may vote on the compensation of the public company’s named executive officers. In addition,
if such public companies are involved in a merger, acquisition, or consolidation, or if they propose to sell or
dispose of all or substantially all of their assets, shareholders have a right to an advisory vote on any golden
parachute arrangements in connection with such transaction (frequently referred to as “say-on-golden parachute”
vote). Beginning in 2021, we will be subject to the say-on-pay and say-on-golden-parachute requirements and
other corporate governance rules, such as the requirement for an independent compensation committee and the
requirement for all exchange-traded companies to adopt clawback policies for incentive compensation paid to
executive officers in the event of accounting restatements based on material non-compliance with financial
reporting requirements.
Interchange Fees. The Dodd-Frank Act included provisions (known as the "Durbin Amendment"), which restrict
interchange fees to those which are "reasonable and proportionate" for certain debit card issuers and limits the
ability of networks and issuers to restrict debit card transaction routing. In the final rules, interchange fees for debit
card transactions were capped at $0.21 plus five basis points (plus $0.01 for fraud loss) in order to be eligible for
a safe harbor such that the fee is conclusively determined to be reasonable and proportionate. The interchange
fee restrictions contained in the Durbin Amendment, and the rules promulgated thereunder, only apply to debit
card issuers with $10 billion or more in total consolidated assets. On December 2, 2020, the Federal Register
issued "Temporary Asset Thresholds" interim final rule, giving relief to institutions that may have experienced
temporary balance sheet growth above one or more regulatory thresholds. FirstBank has been granted relief
under this rule and as such, will not be subject to the interchange fee restrictions during 2021.
Holding company regulation
As a regulated bank holding company, we are subject to various laws and regulations that affect our business. These laws
and regulations, among other matters, prescribe minimum capital requirements, limit transactions with affiliates, impose
limitations on the business activities in which we can engage, limit the dividend or distributions that the Bank can pay to
us, restrict the ability of institutions to guarantee our debt, and impose certain specific accounting requirements on us that
may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than generally
accepted accounting principles, among other things.
Financial holding company status
FB Financial has elected to be treated as a financial holding company, which allows us to engage in a broader range of
activities than would otherwise be permissible for a bank holding company, including activities such as securities
underwriting, insurance underwriting, and merchant banking. To qualify as a financial holding company, a bank holding
company must be well-capitalized and well-managed, as those terms are used by the Federal Reserve. In addition, each
subsidiary bank of a bank holding company must also be well-capitalized and well-managed and be rated at least
"satisfactory" under the CRA. A bank holding company that does not qualify, or has not chosen, to become a financial
holding company must limit its activities to traditional banking activities and those non-banking activities the Federal
Reserve has deemed to be permissible because they are closely related to the business of banking.
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Permitted activities
Under the BHCA, as amended, a bank holding company is generally permitted to engage in, or acquire direct or indirect
control of more than five percent of any class of the voting shares of any company that is not a bank or bank holding
company and that is engaged in, the following activities (in each case, subject to certain conditions and restrictions and
prior approval of the Federal Reserve):
•
•
•
banking or managing or controlling banks:
furnishing services to or performing services for our subsidiaries:
any activity that the Federal Reserve determines by regulation or order to be so closely related to banking
as to be a proper incident to the business of banking, including:
factoring accounts receivable;
▪
▪ making, acquiring, brokering or servicing loans and related activities;
▪
▪
▪
▪
▪
▪
▪
▪
leasing personal or real property;
operating a nonbank depository institution, such as a savings association;
performing trust company functions;
conducting financial and investment advisory activities;
underwriting and dealing in government obligations and money market instruments;
providing specified management consulting and counseling activities;
performing selected data processing services and support services;
acting as agent or broker in selling credit life insurance and other types of insurance in connection
with credit transactions;
performing selected insurance underwriting activities;
providing certain community development activities (such as making investments in projects
designed primarily to promote community welfare); and
issuing and selling money orders and similar consumer-type payment instruments.
▪
▪
▪
While the Federal Reserve has found these activities in the past acceptable for other bank holding companies, the Federal
Reserve may not allow us to conduct any or all of these activities, which are reviewed by the Federal Reserve on a case
by case basis upon application by a bank holding company.
The Federal Reserve has the authority to order a bank holding company or its subsidiaries to terminate any of these
activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank
holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness or
stability of it or any of its bank subsidiaries.
Acquisitions subject to prior regulatory approval
The BHCA requires the prior approval of the Federal Reserve for a bank holding company to acquire substantially all the
assets of a bank or to acquire direct or indirect ownership or control of more than 5% of any class of the voting shares of
any bank, bank holding company, savings and loan holding company or savings association, or to increase any such non-
majority ownership or control of any bank, bank holding company, savings and loan holding company or savings
association, or to merge or consolidate with any bank holding company.
Under the BHCA, if “well capitalized” and “well managed”, as defined under the BHCA and implementing regulations, we
or any other bank holding company located in Tennessee may purchase a bank located outside of Tennessee.
Conversely, a well-capitalized and well-managed bank holding company located outside of Tennessee may purchase a
bank located inside Tennessee. In each case, however, restrictions may be placed on the acquisition of a bank that has
only been in existence for a limited amount of time or will result in concentrations of deposits exceeding limits specified by
statute. For example, Tennessee law currently prohibits a bank holding company from acquiring control of a Tennessee-
based financial institution until the target financial institution has been in operation for at least three years.
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Bank holding company obligations to bank subsidiaries
Under current law and Federal Reserve policy, a bank holding company is expected to act as a source of financial and
managerial strength to its depository institution subsidiaries and to maintain resources adequate to support such
subsidiaries, which could require us to commit resources to support the Bank in situations where additional investments in
a bank may not otherwise be warranted. These situations include guaranteeing the compliance of an “undercapitalized”
bank with its obligations under a capital restoration plan, as described further under “Bank regulation: Capitalization levels
and prompt corrective action” below. As a result of these obligations, a bank holding company may be required to
contribute additional capital to its subsidiaries in the form of capital notes or other instruments that qualify as capital under
regulatory rules. Any such loan from a holding company to a subsidiary bank is likely to be unsecured and subordinated to
the bank’s depositors and perhaps to other creditors of the bank. If we were to enter bankruptcy or become subject to the
orderly liquidation process established by the Dodd-Frank Act, any commitment by us to a federal bank regulatory agency
to maintain the capital of the Bank would be assumed by the bankruptcy trustee or the FDIC, as appropriate, and entitled
to a priority of payment.
Restrictions on bank holding company dividends.
The Federal Reserve’s policy regarding dividends is that a bank holding company should not declare or pay a cash
dividend that would impose undue pressure on the capital of any bank subsidiary or would be funded only through
borrowing or other arrangements that might adversely affect a bank holding company’s financial position. As a general
matter, the Federal Reserve has indicated that the board of directors of a bank holding company should consult with the
Federal Reserve and eliminate, defer or significantly reduce the bank holding company’s dividends if:
•
•
•
its net income available to shareholders for the past four quarters, net of dividends previously paid during
that period, is not sufficient to fully fund the dividends;
its prospective rate of earnings retention is not consistent with its capital needs and overall current and
prospective financial condition; or
it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
Should an insured depository institution controlled by a bank holding company be “significantly undercapitalized” under
the applicable federal bank capital ratios, or if the bank subsidiary is “undercapitalized” and has failed to submit an
acceptable capital restoration plan or has materially failed to implement such a plan, federal banking regulators (in the
case of the Bank, the FDIC) may choose to require prior Federal Reserve approval for any capital distribution by the bank
holding company. For more information, see “Bank regulation: Capitalization levels and prompt corrective action.”
In addition, since our legal entity is separate and distinct from the Bank and does not conduct stand-alone operations, our
ability to pay dividends depends on the ability of the Bank to pay dividends to us, which is also subject to regulatory
restrictions as described below in “Bank regulation: Bank dividends.”
Under Tennessee law, we are not permitted to pay cash dividends if, after giving effect to such payment, we would not be
able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum
of our total liabilities plus any amounts needed to satisfy any preferential rights if we were dissolving. In addition, in
deciding whether or not to declare a dividend of any particular size, our board of directors must consider our current and
prospective capital, liquidity, and other needs.
U.S. Basel III capital rules
In July 2013, federal banking regulators, including the Federal Reserve and the FDIC, adopted the U.S. Basel Capital
Rules implementing many aspects of the Basel III Capital Standards. The requirements in the U.S. Basel III Capital Rules
were fully phased-in as of January 1, 2019. Specifically, the rules impose the following minimum capital requirements
applicable to us and the Bank:
•
•
•
•
•
a common equity Tier 1 risk-based capital ratio of 4.5%;
a Tier 1 risk-based capital ratio of 6%;
a total risk-based capital ratio of 8%;
a leverage ratio of 4%; and
a supplementary leverage ratio of 3%, resulting in a leverage ratio requirement of 7%.
Under the U.S. Basel III Capital Rules, Tier 1 Capital is defined to include two components: common equity Tier 1 Capital
and additional Tier 1 Capital. The highest form of capital, Common Equity Tier 1 Capital ("CET1 Capital"), consists solely
of common stock plus related surplus, retained earnings, accumulated other comprehensive income, minority interests in
the equity accounts of consolidated subsidiaries and noncumulative perpetual preferred stock (and related surplus).
The rules permit bank holding companies with less than $15.0 billion in total consolidated assets, to continue to include
trust-preferred securities and cumulative perpetual preferred stock issued before May 19, 2010, in Tier 1 Capital, but not in
16
CET1 Capital, subject to certain restrictions. Tier 2 Capital consists of instruments that currently qualify in Tier 2 Capital
plus instruments that the rule has disqualified from Tier 1 Capital treatment.
In addition, in order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered
banking organization must maintain a capital conservation buffer on top of its minimum risk-based capital requirements.
This buffer must consist solely of Tier 1 Common Equity, but the buffer applies to all three risk-based measurements
(CET1 Capital, Tier 1 Capital and total capital). The capital conservation buffer consists of an additional amount of
common equity equal to 2.5% of risk-weighted assets.
The U.S. Basel III Capital Standards require certain deductions from or adjustments to capital. As a result, deductions
from CET1 Capital are required for goodwill (net of associated deferred tax liabilities); intangible assets such as non-
mortgage servicing assets and purchased credit card relationships (net of associated deferred tax liabilities); deferred tax
assets that arise from net operating loss and tax credit carryforwards (net of any related valuation allowances and net of
deferred tax liabilities); any gain on sale in connection with a securitization exposure; any defined benefit pension fund net
asset (net of any associated deferred tax liabilities) held by a bank holding company; the aggregate amount of outstanding
equity investments (including retained earnings) in financial subsidiaries; and identified losses. Other deductions are
required from different levels of capital. The U.S. Basel III Capital Rules also increase the risk weight for certain assets,
meaning that more capital must be held against such assets. For example, commercial real estate loans that do not meet
certain underwriting requirements must be risk-weighted at 150% rather than the current 100%.
Additionally, the U.S. Basel III Capital Standards provide for the deduction of three categories of assets: (i) deferred tax
assets arising from temporary differences that cannot be realized through net operating loss carrybacks (net of related
valuation allowances and of deferred tax liabilities), (ii) mortgage servicing assets (net of associated deferred tax liabilities)
and (iii) investments in more than 10% of the issued and outstanding common stock of unconsolidated financial
institutions (net of associated deferred tax liabilities). The joint agencies issued the Regulatory Capital: Simplifications to
the Capital Rule Pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (Capital
Simplifications Final Rule) on July 22, 2019. Under the Capital Simplifications Final Rule, non-advanced approaches
banking organizations are subject to simpler regulatory capital requirements for the three categories of assets discussed
above. There is a 25% CET1 Capital deduction threshold for all three categories combined.
Accumulated other comprehensive income, or AOCI, is presumptively included in CET1 Capital and often would operate
to reduce this category of capital. The U.S. Basel III Capital Rules provided a one-time opportunity at the end of the first
quarter of 2015 for covered banking organizations to opt out of much of this treatment of AOCI, which we elected. The
rules also have the effect of increasing capital requirements by increasing the risk weights on certain assets, including
high volatility commercial real estate, mortgage servicing rights not includable in CET1 Capital, equity exposures, and
claims on securities firms, which are used in the denominator of the three risk-based capital ratios.
The U.S. Basel III Capital Rules also make important changes to the “prompt corrective action” framework discussed
below in “Bank regulation: Capitalization levels and prompt corrective action.”
Restrictions on affiliate transactions
See “Bank regulation: Restrictions on transactions with affiliates” below.
Change in control
We are a bank holding company regulated by the Federal Reserve. Subject to certain exceptions, the Change in Bank
Control Act, or (“CIBCA”), and its implementing regulations require that any individual or company acquiring “control” of a
bank or bank holding company, either directly or indirectly, give the Federal Reserve 60 days’ prior written notice of the
proposed acquisition. If within that time period the Federal Reserve has not issued a notice disapproving the proposed
acquisition, extended the period for an additional period up to 90 days or requested additional information, the acquisition
may proceed. An acquisition may be made before expiration of the disapproval period if the Federal Reserve issues
written notice that it intends not to disapprove the acquisition. Acquisition of 25 percent or more of any class of voting
securities constitutes control, and it is generally presumed for purposes of the CIBCA that the acquisition of 10 percent or
more of any class of voting securities would constitute the acquisition of control, although such a presumption of control
may be rebutted.
Also, under the CIBCA, the shareholdings of individuals and companies that are deemed to be “acting in concert” would
be aggregated for purposes of determining whether such holders “control” a bank or bank holding company. “Acting in
concert” under the CIBCA generally means knowing participation in a joint activity or parallel action towards the common
goal of acquiring control of a bank or a bank holding company, whether or not pursuant to an express agreement. The
manner in which this definition is applied in individual circumstances can vary and cannot always be predicted with
certainty. Many factors can lead to a rebuttable presumption of acting in concert, including where: (i) the shareholders are
commonly controlled or managed; (ii) the shareholders are parties to an oral or written agreement or understanding
17
regarding the acquisition, voting or transfer of control of voting securities of a bank or bank holding company; (iii) the
shareholders are immediate family members; or (iv) both a shareholder and a controlling shareholder, partner, trustee or
management official of such shareholder own equity in the bank or bank holding company.
Furthermore, under the BHCA and its implementing regulations, and subject to certain exceptions, any company would be
required to obtain Federal Reserve approval prior to obtaining control of a bank or bank holding company. The Federal
Reserve issued a final rule in 2019, effective April 1, 2020, which established tiered presumptions of control as detailed in
the table below. The final rule provides clarity for circumstances where a company acquires less than 25% of any class of
voting securities; control continues to exist in circumstances where a company directly or indirectly owns, controls or has
power to vote 25% or more of any class of voting securities or control in any manner the election of a majority of the
directors or trustees of the other company. There is a presumption of non-control for any holder of less than 5% of any
class of voting securities, assuming none of the generally applicable presumptions are triggered.
Summary of Tiered Presumptions
(Presumption triggered if any relationship exceeds the amount on the table)
Less than 5% voting
securities
5-9.99% voting
securities
10-14.99% voting
securities
15-24.99% voting
securities
Directors serving on both boards Less than half
Less than a quarter
Less than a quarter
Less than a quarter
Director service as Board Chair NA
Director service on Board
Committees
Business Relationships
Business terms
NA
NA
NA
NA
NA
NA
No director
representative is chair
of the board
A quarter or less of a
committee with power
to bind the company
A quarter or less of a
committee with power
to bind the company
First company accounts
for less than 10% of
revenue or expenses of
second company
First company accounts
for less than 5% of
revenue or expenses of
second company
First company accounts
for less than 2% of
revenue or expenses of
second company
NA
Market terms
Market terms
Officer/employee interlocks
NA
No more than 1
interlock, never CEO
No more than 1
interlock, never CEO
No interlocks
Contractual Powers
No management
agreements
No rights that
significantly restrict
discretion
No rights that
significantly restrict
discretion
No rights that
significantly restrict
discretion
Proxy contests (directors)
NA
NA
No soliciting proxies to
replace more than a
quarter of total directors
of second company
No soliciting proxies to
replace more than a
quarter of total directors
of second company
Total equity
Less than one third of
the second company
Less than one third of
the second company
Less than one third of
the second company
Less than one quarter
of the second company
In addition, in 2008 the Federal Reserve issued a policy statement on equity investments in banks and bank holding
companies, which sets out circumstances under which a minority investor would not be deemed to control a bank or bank
holding company for purposes of the BHCA. Among other things, the 2008 policy statement permits a minority investor to
hold up to 24.9% (or 33.3% under certain circumstances) of the total equity (voting and non-voting combined) and have at
least one representative on the company’s board of directors (with two directors permitted under certain circumstances).
This policy statement remains in effect to the extent not superseded by the final rule.
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Compensation and risk management
In 2010, the federal banking agencies issued guidance to regulated banks and bank holding companies intended to
ensure that incentive compensation arrangements at financial organizations take into account risk and are consistent with
safe and sound practices. The guidance is based on three “key principles” calling for incentive compensation plans to:
appropriately balance risks and rewards; be compatible with effective controls and risk management; and be backed up by
strong corporate governance. Further, in 2016 the federal banking regulators re-proposed rules that would prohibit
incentive compensation arrangements that would encourage inappropriate risks by providing excessive compensation or
that could lead to a material financial loss, and include certain prescribed standards for governance and risk management
for incentive compensation for institutions.
Bank regulation
The Bank is a banking institution that is chartered by and headquartered in the State of Tennessee, and it is subject to
supervision and regulation by the TDFI and the FDIC. The TDFI and FDIC supervise and regulate all areas of the Bank’s
operations including, without limitation, the making of loans, the issuance of securities, the conduct of the Bank’s
corporate affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and the establishment or
closing of banking offices. The FDIC is the Bank’s primary federal regulatory agency, which periodically examines the
Bank’s operations and financial condition and compliance with federal consumer protection laws. In addition, the Bank’s
deposit accounts are insured by the FDIC to the maximum extent permitted by law, and the FDIC has certain enforcement
powers over the Bank.
As a state-chartered banking institution in the State of Tennessee, the Bank is empowered by statute, subject to the
limitations contained in those statutes, to take and pay interest on deposits, to make loans on residential and other real
estate, to make consumer and commercial loans, to invest, with certain limitations, in equity securities and in debt
obligations of banks and corporations and to provide various other banking services for the benefit of the Bank’s clients.
Various state consumer laws and regulations also affect the operations of the Bank, including state usury laws, consumer
credit and equal credit opportunity laws, and fair credit reporting. In addition, the Federal Deposit Insurance Corporation
Improvement Act of 1991, or FDICIA, generally prohibits insured state chartered institutions from conducting activities as
principal that are not permitted for national banks. The Bank is also subject to various requirements and restrictions under
federal and state law, including but not limited to requirements to maintain reserves against deposits, lending limits,
limitations on branching activities, limitations on the types of investments that may be made, activities that may be
engaged in, and types of services that may be offered. Various consumer laws and regulations also affect the operations
of the Bank. Also, the Bank and certain of its subsidiaries are prohibited from engaging in certain tying arrangements in
connection with extensions of credit, leases or sales of property, or furnishing products or services.
Capital adequacy
See “Holding company regulation: U.S. Basel III capital rules.”
Capitalization levels and prompt corrective action
Federal law and regulations establish a capital-based regulatory scheme designed to promote early intervention for
troubled banks and require the FDIC to choose the least expensive resolution of bank failures. The capital-based
regulatory framework contains five categories of regulatory capital requirements, including “well capitalized,” “adequately
capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” A well-capitalized insured
depository institution is one (i) having a total risk-based capital ratio of 10 percent or greater, (ii) having a Tier 1 risk-based
capital ratio of 8 percent or greater, (iii) having a CET1 capital ratio of 6.5 percent or greater, (iv) having a leverage capital
ratio of 5 percent or greater and (v) that is not subject to any order or written directive to meet and maintain a specific
capital level for any capital measure.
Generally, a financial institution must be “well capitalized” before the Federal Reserve will approve an application by a
bank holding company to acquire a bank or merge with a bank holding company, and the FDIC applies the same
requirement in approving bank merger applications.
An institution that fails to remain well-capitalized becomes subject to a series of restrictions that increase in severity as its
capital condition weakens. Such restrictions may include a prohibition on capital distributions, restrictions on asset growth
or restrictions on the ability to receive regulatory approval of applications.
As of December 31, 2020, the Bank had sufficient capital to qualify as “well capitalized” under the requirements contained
in the applicable regulations, policies and directives pertaining to capital adequacy, and it is unaware of any material
violation or alleged material violation of these regulations, policies or directives. Rapid growth, poor loan portfolio
performance, or poor earnings performance, or a combination of these factors, could change the Bank’s capital position in
a relatively short period of time, making additional capital infusions necessary.
19
It should be noted that the minimum ratios referred to above in this section are merely guidelines, and the bank regulators
possess the discretionary authority to require higher capital ratios.
Bank reserves
The Federal Reserve imposes reserve requirements on certain types of deposits and other liabilities of depository
institutions. The Federal Reserve Board determined to reduce the reserve requirement ratios to zero percent effective
March 26, 2020 in light of the shift to an ample reserves regime. The interim final rule was adopted as a final rule without
change in February 2021.
Bank dividends
The FDIC prohibits any distribution that would result in the bank being “undercapitalized” (<4% leverage ratio, <4.5%
CET1 Risk-Based ratio, <6% Tier 1 Risk-Based ratio, or <8% Total Risk-Based ratio). Tennessee law places restrictions
on the declaration of dividends by state chartered banks to their shareholders, including, but not limited to, that the board
of directors of a Tennessee-chartered bank may only make a dividend from the surplus profits arising from the business of
the bank, and may not declare dividends in any calendar year that exceeds the total of its retained net income of that year
combined with its retained net income of the preceding two (2) years without the prior approval of the TDFI commissioner.
Furthermore, the FDIC and the TDFI also have authority to prohibit the payment of dividends by a Tennessee bank when
it determines such payment to be an unsafe and unsound banking practice.
Insurance of accounts and other assessments
The Bank pays deposit insurance assessments to the Deposit Insurance Fund, which is determined through a risk-based
assessment system. The Bank’s deposit accounts are currently insured by the Deposit Insurance Fund, generally up to a
maximum of $250,000 per separately insured depositor. The Bank pays assessments to the FDIC for such deposit
insurance. Under the current assessment system, the FDIC assigns an institution to a risk category based on the
institution’s most recent supervisory and capital evaluations, which are designed to measure risk. Under the FDIA, the
FDIC may terminate a bank’s deposit insurance upon a finding that the institution has engaged in unsafe and unsound
practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule,
order, agreement or condition imposed by the FDIC. Under the Dodd-Frank Act, the FDIC has adopted regulations that
base deposit insurance assessments on total assets less capital rather than deposit liabilities and include off-balance
sheet liabilities of institutions and their affiliates in risk-based assessments. After an institution's average assets exceed
$10 billion over four quarters, the assessment rate increases compared to institutions at lower average asset levels. In
addition, for larger institutions, the FDIC uses a performance score and a loss-severity score that are used to calculate an
initial assessment rate. In calculating these scores, the FDIC uses a bank’s capital level and supervisory ratings and
certain financial measures to assess an institution’s ability to withstand asset-related stress and funding-related stress.
The FDIC has the ability to make discretionary adjustments to the total score based upon significant risk factors that are
not adequately captured in the calculations.
Restrictions on transactions with affiliates
The Bank is subject to sections 23A and 23B of the Federal Reserve Act, or FRA, and the Federal Reserve’s Regulation
W, as made applicable to state nonmember banks by section 18(j) of the FDIA. An affiliate of a bank is any company or
entity that controls, is controlled by or is under common control with the Bank, and, in our case, includes, among others,
the Company as well as our Vice Chairman, James W. Ayers and the companies he controls. Accordingly, transactions
between the Bank, on the one hand, and the Company or Mr. Ayers or any of his affiliates, on the other hand, will be
subject to a number of restrictions, including restrictions relating to extensions of credit, contracts, leases and purchases
or sale of assets. Such restrictions and limitations prevent the Company or Mr. Ayers or his affiliates from borrowing from
the Bank unless the loans are secured by specified collateral of designated amounts. Furthermore, such secured loans by
the Bank to the Company or Mr. Ayers and his affiliates are limited, individually, to ten percent (10%) of the Bank’s capital
and surplus, and such secured loans are limited in the aggregate to twenty percent (20%) of the Bank’s capital and
surplus.
All such transactions must be on terms that are no less favorable to the Bank than those that would be available from
nonaffiliated third parties. Federal Reserve policies also forbid the payment by bank subsidiaries of management fees
which are unreasonable in amount or exceed the fair market value of the services rendered or, if no market exists, actual
costs plus a reasonable profit.
Loans to insiders
Loans to executive officers, directors or to any person who directly or indirectly, or acting through or in concert with one or
more persons, owns, controls or has the power to vote more than 10% of any class of voting securities of a bank, which
the Bank refers to as “10% Shareholders,” or to any political or campaign committee the funds or services of which will
20
benefit those executive officers, directors, or 10% Shareholders or which is controlled by those executive officers,
directors or 10% Shareholders, are subject to Sections 22(g) and 22(h) of the FRA and their corresponding regulations,
which are commonly referred to as Regulation O. Among other things, these loans must be made on terms substantially
the same as those prevailing on transactions made to unaffiliated individuals and certain extensions of credit to those
persons must first be approved in advance by a disinterested majority of the entire board of directors. Regulation O
prohibits loans to any of those individuals where the aggregate amount exceeds an amount equal to 15% of an
institution’s unimpaired capital and surplus plus an additional 10% of unimpaired capital and surplus in the case of loans
that are fully secured by readily marketable collateral, or when the aggregate amount on all of the extensions of credit
outstanding to all of these persons would exceed the Bank’s unimpaired capital and unimpaired surplus. Section 22(g)
identifies limited circumstances in which the Bank is permitted to extend credit to executive officers.
Community Reinvestment Act
The Community Reinvestment Act, or CRA, and its corresponding regulations are intended to encourage banks to help
meet the credit needs of their service areas, including low and moderate-income neighborhoods, consistent with safe and
sound operations. These regulations provide for regulatory assessment of a bank’s record in meeting the credit needs of
its service area. Federal banking agencies are required to make public a rating of a bank’s performance under the CRA.
The federal banking agencies consider a bank’s CRA rating when a bank submits an application to establish banking
centers, merge, or acquire the assets and assume the liabilities of another bank. In the case of a bank holding company,
the CRA performance record of all banks involved in the merger or acquisition are reviewed in connection with the filing of
an application to acquire ownership or control of shares or assets of a bank or to merge with any other financial holding
company. An unsatisfactory record can substantially delay, block or impose conditions on the transaction. The Bank
received a satisfactory rating on its most recent CRA assessment.
In December 2019, the FDIC and the Office of the Comptroller of the Currency (“OCC”) jointly proposed rules that would
significantly change existing CRA regulations. The proposed rules are intended to increase bank activity in low- and
moderate-income communities where there is significant need for credit, more responsible lending, greater access to
banking services, and improvements to critical infrastructure. The proposals change four key areas: (i) clarifying what
activities qualify for CRA credit; (ii) updating where activities count for CRA credit; (iii) providing a more transparent and
objective method for measuring CRA performance; and (iv) revising CRA-related data collection, record keeping, and
reporting. However, the Federal Reserve Board did not join in that proposed rulemaking. In May 2020, the OCC issued its
final CRA rule, effective October 1, 2020. The FDIC has not finalized the revisions to its proposed CRA rule. In September
2020, the Federal Reserve Board issued an Advance Notice of Proposed Rulemaking (“ANPR”) that invites public
comment on an approach to modernize the regulations that implement the CRA by strengthening, clarifying, and tailoring
them to reflect the current banking landscape and better meet the core purpose of the CRA. The ANPR seeks feedback
on ways to evaluate how banks meet the needs of low- and moderate-income communities and address inequities in
credit access. As such, we will continue to evaluate the impact of any changes to the regulations implementing the CRA
and their impact to our financial condition, results of operations, and/or liquidity, which cannot be predicted at this time.
Anti-money laundering and economic sanctions
The USA PATRIOT Act provides the federal government with additional powers to address terrorist threats through
enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-
money laundering requirements. By way of amendments to the BSA, the USA PATRIOT Act imposed new requirements
that obligate financial institutions, such as banks, to take certain steps to control the risks associated with money
laundering and terrorist financing.
Among other requirements, the USA PATRIOT Act and implementing regulations require banks to establish anti-money
laundering programs that include, at a minimum:
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internal policies, procedures and controls designed to implement and maintain the bank's compliance with
all of the requirements of the USE PATRIOT Act, the BSA and related laws and regulations;
systems and procedures for monitoring and reporting of suspicious transactions and activities;
designated compliance officer;
employee training;
an independent audit function to test the anti-money laundering program;
procedures to verify the identity of each client upon the opening of accounts; and
heightened due diligence policies, procedures and controls applicable to certain foreign accounts and
relationships.
Additionally, the USA PATRIOT Act requires each financial institution to develop a customer identification program (“CIP”)
as part of the Bank’s anti-money laundering program. The key components of the CIP are identification, verification,
government list comparison, notice and record retention. The purpose of the CIP is to enable the financial institution to
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determine the true identity and anticipated account activity of each client. To make this determination, among other things,
the financial institution must collect certain information from clients at the time they enter into the client relationship with
the financial institution. This information must be verified within a reasonable time through documentary and non-
documentary methods. Furthermore, all clients must be screened against any CIP-related government lists of known or
suspected terrorists. Financial institutions are also required to comply with various reporting and recordkeeping
requirements. The Federal Reserve and the FDIC consider an applicant’s effectiveness in combating money laundering,
among other factors, in connection with an application to approve a bank merger or acquisition of control of a bank or
bank holding company.
Likewise, the U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC, is responsible for helping to
ensure that United States entities do not engage in transactions with the subjects of U.S. sanctions, as defined by various
Executive Orders and Acts of Congress. Currently, OFAC administers and enforces comprehensive U.S. economic
sanctions programs against certain specified countries/regions. In addition to the country/region-wide sanctions programs,
OFAC also administers complete embargoes against individuals and entities identified on OFAC’s list of Specially
Designated Nationals and Blocked Persons (“SDN List”). The SDN List includes thousands of parties that are located in
many jurisdictions throughout the world, including in the United States and Europe. The Bank is responsible for
determining whether any potential and/or existing clients appear on the SDN List or are owned or controlled by a person
on the SDN List. If any client appears on the SDN List or is owned or controlled by a person or entity on the SDN List,
such client’s account must be placed on hold and a blocking or rejection report, as appropriate and if required, must be
filed within 10 business days with OFAC. In addition, if a client is a citizen of, has provided an address in, or is organized
under the laws of any country or region for which OFAC maintains a comprehensive sanctions program, the Bank must
take certain actions with respect to such clients as dictated under the relevant OFAC sanctions program. The Bank must
maintain compliance with OFAC by implementing appropriate policies and procedures and by establishing a
recordkeeping system that is reasonably appropriate to administer the Bank’s compliance program. The Bank has
adopted policies, procedures and controls to comply with the BSA, the USA PATRIOT Act and OFAC regulations.
Regulatory enforcement authority
Federal and state banking laws grant substantial enforcement powers to federal and state banking regulators. This
enforcement authority includes, among other things, the ability to assess civil money penalties, to issue consent or
removal orders and to initiate injunctive actions against banking organizations and “institution-affiliated parties,” such as
management, employees and agents. In general, these enforcement actions may be initiated for violations of laws,
regulations and orders of regulatory authorities, or unsafe or unsound practices. Other actions or inactions, including filing
false, misleading or untimely reports with regulatory authorities, may provide the basis for enforcement action. When
issued by a banking regulator, consent and similar orders may, among other things, require affirmative action to correct
any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees
against loss. A bank may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts,
or take other actions determined to be appropriate by the ordering regulatory agency.
Federal Home Loan Bank system
The Bank is a member of the Federal Home Loan Bank of Cincinnati, which is one of 11 regional Federal Home Loan
Banks (“FHLBs”). Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded
primarily from funds deposited by member institutions and proceeds from the sale of consolidated obligations of the FHLB
system. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board
of directors of the FHLB.
As a member of the FHLB of Cincinnati, the Bank is required to own capital stock in the FHLB in an amount generally at
least equal to 0.20% (or 20 basis points) of the Bank’s total assets at the end of each calendar year, plus 4.5% of its
outstanding advances (borrowings) from the FHLB of Cincinnati under the activity-based stock ownership requirement.
These requirements are subject to adjustment from time to time. On December 31, 2020, the Bank was in compliance with
this requirement.
Privacy and data security
Under the GLBA, federal banking regulators adopted rules limiting the ability of banks and other financial institutions to
disclose nonpublic information about consumers to nonaffiliated third parties. The rules require disclosure of privacy
policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information
to nonaffiliated third parties. The GLBA also directed federal regulators, including the FDIC, to prescribe standards for the
security of consumer information. The Bank is subject to such standards, as well as standards for notifying clients in the
event of a security breach.
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Consumer laws and regulations
The Bank is also subject to other federal and state consumer laws and regulations that are designed to protect consumers
in transactions with banks. While the list set forth below is not exhaustive, these laws and regulations include the Truth in
Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Check
Clearing for the 21st Century Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Equal Credit
Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Fair and Accurate Transactions Act, the
Servicemembers Civil Relief Act, the Military Lending Act, the Mortgage Disclosure Improvement Act, and the Real Estate
Settlement Procedures Act, among others. These laws and regulations mandate certain disclosure requirements and
regulate the manner in which financial institutions must deal with consumers when offering consumer financial products
and services.
The CFPB may issue regulations that impact products and services offered by us or the Bank. The regulations could
reduce the fees that we receive, alter the way we provide our products and services, or expose us to greater risk of private
litigation or regulatory enforcement action.
Future legislative developments
Various legislative acts are from time to time introduced in Congress and the Tennessee legislature. This legislation may
change banking statutes and the environment in which we operate in substantial and unpredictable ways. We cannot
determine the ultimate effect that potential legislation, if enacted, or implementing regulations and interpretations with
respect thereto, would have on our financial condition or results of operations.
Available Information
Our website address is www.firstbankonline.com. we file or furnish to the SEC Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and annual reports to shareholders, and from
time to time, amendments to these documents and other documents called for by the SEC. The reports and other
documents filed with or furnished to the SEC are available to investors on or through our website at https://
investors.firstbankonline.com under the heading “Stock & Filings” and then under “SEC Filings.” These reports are
available on our website free of charge as soon as reasonably practicable after we electronically file them with the SEC.
In addition to our website, the SEC maintains an internet site that contains our reports, proxy and information statements
and other information we file electronically with the SEC at https://www.sec.gov.
ITEM 1A - Risk Factors
Our operations and financial results are subject to various risks and uncertainties, including, but not limited to, the material
risks described below. Many of these risks are beyond our control although efforts are made to manage those risks while
simultaneously optimizing operational and financial results. The occurrence of any of the following risks, as well as risks
of which we are currently unaware or currently deem immaterial, could materially and adversely affect our assets,
business, cash flows, condition (financial or otherwise), liquidity, prospects, results of operations and the trading price of
our common stock. It is impossible to predict or identify all such factors and, as a result, you should not consider the
following factors to be a complete discussion of the risks, uncertainties and assumptions that could materially and
adversely affect our assets, business, cash flows, condition (financial or otherwise), liquidity, prospects, results of
operations and the trading price of our common stock.
In addition, certain statements in the following risk factors constitute forward-looking statements. Please refer to the
section entitled “Cautionary note regarding forward-looking statements” beginning on page 2 of this Annual Report.
COVID-19 RISK
The COVID-19 pandemic (“COVID-19”) had, and is likely to continue to have, an adverse impact, possibly
materially, on our business, results of operations, and financial condition.
The COVID-19 pandemic has created economic and financial disruptions in the economy, changed customer behaviors,
disrupted supply chains, created volatility in equity markets, created significant volatility and disruption in financial
markets, and increased unemployment levels. While the development and distribution of vaccines are occurring at a rapid
pace, it is not yet known whether the vaccines will be widely adopted or known effective against the various strains of the
virus. The pandemic has resulted in temporary closures of many businesses and the implementation of social distancing
requirements in many of the communities we serve. As a result, the demand for our products and services has been
significantly impacted, which could adversely affect our revenue. The pandemic continues to result in the recognition of
credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain
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closed, unemployment levels rise or regional economic conditions worsen. In response to the pandemic, we have initiated
relief programs designed to support our customers and communities including payment deferral programs, deferral-related
and other fee waivers, and other expanded assistance for customers.
Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively,
including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. The
increase in the number of employees working remotely throughout the economy also subjects us, our customers, and our
vendors to additional cybersecurity risk as cybercriminals attempt to exploit vulnerabilities, compromise business emails,
and generate phishing attacks during this time.
In response to the pandemic, the Federal Reserve reduced the benchmark federal funds rate to a target range of 0% to
0.25%, and the yields on 10 and 30-year treasury notes declined to historic lows. Various bond buying programs have
also been implemented in order to stabilize the financial system and reduce volatility in key debt markets. The
effectiveness of these efforts is uncertain, and we cannot predict future developments, including how long the outbreak
and related restrictions will last, which geographical regions may be particularly affected, or what other government
responses may occur.
Future governmental actions may require additional types of customer-related responses that could negatively impact our
financial results. We could be required to take capital actions in response to the pandemic, including reducing dividends
and eliminating stock repurchases. The extent to which the pandemic continues to impact our business, results of
operations, and financial condition will depend on future developments, which are highly uncertain and cannot be
predicted, including the scope and duration of the pandemic; efficacy of vaccines; actions taken by governmental
authorities and other third parties in response to the pandemic; the effect on our customers, counterparties, employees
and third party service providers; and the effect on economies and markets. To the extent that the pandemic continues to
adversely affect our business and financial performance, it may also have the effect of heightening many of the other
risks.
CREDIT RISK
The majority of our assets are loans, which if not repaid would result in losses to the Bank.
Making any loan involves various risks, including risks inherent in dealing with individual borrowers, risks of nonpayment,
risks resulting from uncertainties as to the future value of collateral and cash flows available to service debt, and risks
resulting from changes in economic and market conditions. Our credit risk approval and monitoring procedures may fail to
identify or reduce these credit risks, and they cannot completely eliminate all credit risks related to our loan portfolio. If the
overall economic climate, including employment rates, real estate markets, interest rates and general economic growth, in
the United States, generally, or Tennessee (particularly the Nashville MSA), specifically, experiences material disruption,
our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease in value or become
illiquid, and the levels of nonperforming loans, charge-offs and delinquencies could rise and require additional provisions
for loan losses, which would cause our net income and return on equity to decrease.
We maintain an allowance for credit losses, which is a reserve established through a provision for credit losses charged to
expense, which represents the portion of the loan's amortized cost basis that we do 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. In addition, we record a reserve for unfunded commitments,
considering the same items included in the allowance for credit losses with the addition of expected funding.
Management’s determination of the appropriateness of the allowance and reserve for unfunded commitments is based on
periodic evaluation of the loan portfolio, lending-related commitments and other relevant factors, including macroeconomic
forecasts and historical loss rates. Deterioration in economic conditions affecting borrowers, new information regarding
existing loans, identification of additional problem loans and other factors, both within and outside of our control, may
require an increase in the allowance for credit losses and/or the reserve for unfunded commitments. The model is
sensitive to changes in macroeconomic forecasts and incorporates management judgement. If we are required to
materially increase our level of allowance for credit losses for any reason, such increase could adversely affect our
business, financial condition and results of operations.
The application of the purchase method of accounting in our acquisitions (and any future acquisitions) also will affect our
allowance for credit losses. We are 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. We initially measure the amortized
cost of a purchase credit deteriorated loan by adding the acquisition date estimate of expected credit losses to the loan's
purchase price (i.e. the "gross up" approach). If we have underestimated credit losses at recognition, we will incur
additional expense in our provision for credit losses to maintain an appropriate level of allowance for credit losses on
those loans.
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In addition, bank regulatory agencies periodically review our allowance for credit losses and may require an increase in
the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of
management. Furthermore, if charge-offs in future periods exceed the allowance for credit losses, we will need additional
provisions to increase the allowance for credit losses. Any increases in the allowance for credit losses will result in a
decrease in net income and capital, and may have a material adverse effect on our business, financial condition and
results of operations.
Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes in the
economy affecting real estate values and liquidity could impair the value of collateral securing our real estate
loans and result in loan and other losses.
As of December 31, 2020, approximately 77.9% of our loan portfolio was comprised of loans with real estate as a primary
or secondary component of collateral. This includes collateral consisting of income producing and residential construction
properties, which properties tend to be more sensitive to general economic conditions and downturns in real estate
markets. As a result, adverse developments affecting real estate values in our market areas could increase the credit risk
associated with our real estate loan portfolio. Adverse changes affecting real estate values and the liquidity of real estate
in one or more of our markets could increase the credit risk associated with our loan portfolio and could result in losses
that would adversely affect credit quality and our financial condition or results of operations. These adverse changes could
significantly impair the value of property pledged as collateral to secure the loans and affect our ability to sell the collateral
upon foreclosure without a loss or additional losses. If real estate values decline, it is also more likely that we would be
required to increase our allowance for credit losses. Thus, declines in the value of real estate collateral could adversely
affect our financial condition, results of operations or cash flows.
We are subject to lending concentration risks.
As of December 31, 2020, the following loan types accounted for the stated percentages of our loan portfolio: commercial
real estate (both owner-occupied and non-owner occupied) - 36%; commercial and industrial - 19%; and construction -
17%. These loans expose us to greater credit risk than loans secured by other types of collateral because the collateral
securing these loans is typically more difficult to liquidate. Additionally, these types of loans also often involve larger loan
balances to a single borrower or groups of related borrowers. These higher credit risks are further heightened when the
loans are concentrated in a small number of larger borrowers leading to relationship exposure.
Non-owner occupied commercial real estate loans may be affected to a greater extent than residential loans by adverse
conditions in real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans
depends on successful development of their properties. These loans also involve greater risk because they generally are
not fully amortizing over the loan period, and therefore have a balloon payment due at maturity. A borrower’s ability to
make a balloon payment typically will depend on being able to either refinance the loan or sell the underlying property in a
timely manner. In addition, banking regulators have been giving commercial real estate lending greater scrutiny, and may
require banks with higher levels of commercial real estate loans to implement improved underwriting, internal controls, risk
management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital
levels as a result of commercial real estate lending growth and exposures.
Commercial and industrial loans and owner-occupied commercial real estate loans are typically based on the borrowers’
ability to repay the loans from the cash flow of their businesses. These loans may involve greater risk because the
availability of funds to repay each loan depends substantially on the success of the business itself. In addition, the assets
securing the loans depreciate over time, are difficult to appraise and liquidate, and fluctuate in value based on the success
of the business.
Risk of loss on a construction loan depends largely upon whether our initial estimate of the property’s value at completion
of construction or development equals or exceeds the cost of the property construction or development (including
interest), the availability of permanent take-out financing and the builder’s ability to sell the property. During the
construction or development phase, a number of factors can result in delays and cost overruns. If estimates of value are
inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient
to ensure full repayment when completed through a permanent loan or by foreclosure on collateral.
Commercial real estate loans, commercial and industrial loans, and construction loans are more susceptible to a risk of
loss during a downturn in the business cycle due to the vulnerability of these sectors during a downturn. Our underwriting,
review and monitoring cannot eliminate all of the risks related to these loans. We also make both secured and unsecured
loans to our commercial customers. Unsecured loans generally involve a higher degree of risk of loss than secured loans
because, without collateral, repayment is wholly dependent upon the success of the borrowers’ businesses. Because of
this lack of collateral, we are limited in our ability to collect on defaulted unsecured loans. Further, the collateral that
secures our secured commercial and industrial loans typically includes inventory, accounts receivable and equipment,
which usually have a value that is insufficient to satisfy the loan without a loss if the business does not succeed. Our loan
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concentration in these sectors and their higher credit risk could lead to increased losses on these loans, which could have
a material adverse effect on our financial condition, results of operations or cash flows.
MARKET AND INTEREST RATE RISK
Difficult or volatile market conditions in the national financial markets, the U.S. economy generally, or the state of
Tennessee in particular may adversely affect our lending activity or other businesses, as well as our financial
condition.
Our business and financial performance are vulnerable to weak economic conditions in the financial markets and
economic conditions generally or specifically in the state of Tennessee, the principal market in which we conduct
business. A deterioration in economic conditions in our primary market areas could result in increased loan delinquencies,
foreclosures, and write-downs of asset values, lower demand for our products and services, reduced low cost or
noninterest-bearing deposits, and intangible asset impairment. Additionally, difficult market conditions may lead to a
deterioration in the value of the collateral for loans made by us, especially real estate, which could reduce our customers'
ability to repay outstanding loans and reduce the value of assets associated with our existing loans. Additional issues
surrounding weakening economic conditions and volatile markets that could adversely impact us include increased
industry regulation and downward pressures on our stock price.
We conduct our banking operations primarily in Tennessee. As of December 31, 2020, approximately 76% of our loans
and approximately 81% of our deposits were made to borrowers or received from depositors who live and/or primarily
conduct business in Tennessee. Therefore, our success will depend in large part upon the general economic conditions in
this area. This geographic concentration imposes risks from lack of geographic diversification, as adverse economic
developments in Tennessee (including the Nashville MSA, our largest market), among other things, could affect the
volume of loan originations, increase the level of nonperforming assets, increase the rate of foreclosure losses on loans,
reduce the value of our loans and loan servicing portfolio, reduce the value of the collateral securing our loans and reduce
the amount of our deposits.
Any regional or local economic downturn that affects Tennessee or existing or prospective borrowers, depositors or
property values in this area may affect us and our profitability more significantly and more adversely than our competitors
whose operations are less geographically concentrated.
Changes in interest rates could have an adverse impact on our results of operations and financial condition.
Our earnings and financial condition are dependent to a large degree upon net interest income, which is the difference, or
spread, between interest earned on loans, securities and other interest-earning assets and interest paid on deposits,
borrowings and other interest-bearing liabilities. When market rates of interest change, the interest we receive on our
assets and the interest we pay on our liabilities may fluctuate. This may cause decreases in our spread and may
adversely affect our earnings and financial condition. Interest rates are highly sensitive to many factors including, without
limitation: the rate of inflation; economic conditions; federal monetary policies; and stability of domestic and foreign
markets.
Although we have implemented procedures we believe will reduce the potential effects of changes in interest rates on our
net interest income, these procedures may not always be successful. Accordingly, changes in levels of market interest
rates could materially and adversely affect our net interest income and our net interest margin, asset quality, loan and
lease origination volume, liquidity or overall profitability. Additionally, changes in interest rates can adversely impact the
origination of mortgage loans held for sale and resulting mortgage banking revenues.
A transition away from LIBOR as a reference rate for financial contracts could negatively affect our income and
expenses and the value of various financial contracts.
In November 2020, the ICE Benchmark Administration, the London Interbank Offered Rate administrator, announced its
intention to continue LIBOR until June 30, 2023. The Financial Conduct Authority announced support for this
development, signaling an extension from its prior communication that it would no longer require panel banks to submit
rates for LIBOR after 2021. The Alternative Reference Rates Committee was convened in the U.S. to explore alternative
reference rates and supporting processes. The ARRC is made up of financial and capital market institutions, is convened
by the Federal Reserve Board and the Federal Reserve Bank of New York, and includes participation by various
regulators. The ARRC identified a potential successor rate to LIBOR in the Secured Overnight Financing Rate and crafted
the Paced Transition Plan to facilitate the transition. However, there are conceptual and technical differences between
LIBOR and SOFR.
We have a significant number of loans, derivative contracts and other financial instruments with attributes that are either
directly or indirectly dependent on LIBOR. We have not yet determined the optimal replacement reference rate(s) that will
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ultimately replace LIBOR in current contracts maturing after LIBOR cessation. We have introduced SOFR as an option for
use in our variable or adjustable rate credit products going forward. We have organized an internal transition program to
identify system, operational, and contractual impacts, assess our risks, manage the transition, facilitate communication
with our customers, and monitor the program progress.
The retirement of LIBOR is a significant shift in the industry. The transition will change our market risk profiles, requiring
changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to
adequately manage this transition process with our customers could adversely impact our reputation. Although we are
currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the
transition could have a material adverse effect on our business, financial condition and results of operations.
The performance of our investment securities portfolio is subject to fluctuation due to changes in interest rates
and market conditions, including credit deterioration of the issuers of individual securities.
Changes in interest rates may negatively affect both the returns on and fair value of our investment securities. Interest
rate volatility can reduce unrealized gains or increase unrealized losses in our portfolio. Interest rates are highly sensitive
to many factors including monetary policies, domestic and international economic and political issues, and other factors
beyond our control. Additionally, actual investment income and cash flows from investment securities that carry
prepayment risk, such as mortgage-backed securities and callable securities, may materially differ from those anticipated
at the time of investment or subsequently as a result of changes in interest rates and market conditions. These
occurrences could have a material adverse effect on our net interest income or our results of operations.
We may be materially and adversely affected by the creditworthiness and liquidity of other financial institutions.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have
exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the
financial services industry, including commercial banks, brokers and dealers, investment banks and other institutional
customers. Many of these transactions expose us to credit risk in the event of a default by, or questions or concerns about
the creditworthiness of, a counterparty or client, or concerns about the financial services industry generally. In addition,
our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not
sufficient to recover the full amount of the credit or derivative exposure due to us. Any such losses could have a material
adverse effect on us.
LIQUIDITY RISK
A lack of liquidity could adversely affect our operations and jeopardize our business, financial condition or
results of operations.
We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and
investment securities to ensure that we have adequate liquidity to fund our operations. In addition to our traditional funding
sources, we also may borrow funds from third-party lenders or issue equity or debt securities to investors. Our access to
funding sources in amounts adequate to finance or capitalize our activities, or on terms that are acceptable to us, could be
impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in
the financial markets or negative views and expectations about the prospects for the financial services industry. Any
decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses,
pay dividends to our shareholders, or to fulfill obligations such as repaying our borrowings or meeting deposit withdrawal
demands, any of which could have a material adverse impact on our liquidity, business, financial condition or results of
operations.
MORTGAGE BANKING RISK
Our mortgage revenue is cyclical and is sensitive to the level of interest rates, changes in economic conditions,
decreased economic activity, and slowdowns in the housing market.
We may not be able to grow our mortgage business at the same rate of growth achieved in recent years or even grow our
mortgage business at all. The success of our mortgage segment is dependent upon our ability to originate loans and sell
them to investors, in each case at or near current volumes. Loan production levels are sensitive to changes in the level of
interest rates and changes in economic conditions. Mortgage production, especially refinancing activity, declines in rising
interest rate environments. Our mortgage origination volume could be materially and adversely affected by rising interest
rates. Moreover, when interest rates increase, there can be no assurance that our mortgage production will continue at
current levels. Further, over half of our mortgage volume is through our consumer direct internet delivery channel, which
targets national customers. As a result, loan originations through this channel are particularly susceptible to the interest
rate environment and the national housing market.
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Because we sell a substantial portion of the mortgage loans we originate, the profitability of our mortgage banking
business also depends in large part on our ability to aggregate a high volume of loans and sell them in the secondary
market at a gain. In fact, when rates rise, we expect increasing industry-wide competitive pressures related to changing
market conditions to reduce pricing margins and mortgage revenues generally. If our level of mortgage production
declines, our continued profitability will depend upon our ability to reduce our costs commensurate with the reduction of
revenue from our mortgage operations. If we are unable to do so, our continued profitability may be materially and
adversely affected.
In 2020, we sold nearly all of the $6.65 billion of mortgage loans held for sale that we closed. When mortgage loans are
sold, whether as whole loans or pursuant to a securitization, we are required to make customary representations and
warranties to purchasers, guarantors and insurers about the mortgage loans and the manner in which they were
originated. We may be required to repurchase or substitute mortgage loans, or indemnify buyers against losses, in the
event we breach certain representations or warranties in connection with the sale of such loans. If repurchase and
indemnity demands increase, such demands are valid claims and are in excess of our provision for potential losses, our
liquidity, results of operations or financial condition may be materially and adversely affected.
The value of our mortgage servicing rights asset is subjective by nature and may be vulnerable to inaccuracies
or other events outside our control.
The value of our mortgage servicing rights asset can fluctuate. Particularly, the asset could decrease in value if prepay
speeds, delinquency rates, or the cost to service increases or overall values decrease causing a lack of liquidity of MSRs
in the market. Similarly, the value may decrease if interest rates decrease or change in a non-parallel manner or are
otherwise volatile. All of which are mostly out of FirstBank’s control. We must use estimates, assumptions and judgments
when valuing this asset. An inaccurate valuation, or changes to the valuation due to factors outside of our control, could
negatively impact our ability to realize the full value of this asset. As a result, our balance sheet may not precisely
represent the fair market value of this and other financial assets.
We are dependent on U.S. government‑sponsored entities and government agencies, and any changes in these
entities, their current roles or the leadership at such entities or their regulators could materially and adversely
affect our business, financial condition, liquidity and results of operations.
Our ability to generate revenues through mortgage loan sales depends on programs administered by GSEs, such as
Fannie Mae and Freddie Mac, government agencies, including Ginnie Mae, and others that facilitate the issuance of
mortgage‑backed securities (“MBS”), in the secondary market. Presently, almost all of the newly originated loans that we
originate directly with borrowers qualify under existing standards for inclusion in MBS issued by Fannie Mae or Freddie
Mac or guaranteed by Ginnie Mae. A number of legislative proposals have been introduced in recent years that would
wind down or phase out the GSEs. It is not possible to predict the scope and nature of the actions that the U.S.
government, will ultimately take with respect to the GSEs. Any changes in laws and regulations affecting the relationship
between Fannie Mae and Freddie Mac and their regulators or the U.S. federal government, and any changes in
leadership at these entities, could adversely affect our business and prospects. Any discontinuation of, or significant
reduction in, the operation of Fannie Mae or Freddie Mac or any significant adverse change in their capital structure,
financial condition, activity levels in the primary or secondary mortgage markets or in underwriting criteria could materially
and adversely affect our business, financial condition, liquidity and results of operations.
Elimination of the traditional roles of Fannie Mae and Freddie Mac, or any changes to the nature or extent of the
guarantees provided by Fannie Mae and Freddie Mac or the fees, terms and guidelines that govern our selling and
servicing relationships with them, could also materially and adversely affect our ability to sell and securitize loans through
our loan production segment, and the performance, liquidity and market value of our investments. Moreover, any changes
to the nature of the GSEs or their guarantee obligations could redefine what constitutes an Agency MBS and could have
broad adverse implications for the market and our business, financial condition, liquidity and results of operations.
Decreased residential mortgage origination volume and pricing decisions of competitors may adversely affect
our profitability.
Our mortgage operation originates, sells and services residential mortgage loans. Changes in interest rates, housing
prices, applicable government regulations and pricing decisions by our loan competitors may adversely affect demand for
our residential mortgage loan products, the revenue realized on the sale of loans, the revenues received from servicing
such loans for others and, ultimately, reduce our net income. New regulations, increased regulatory reviews, and/or
changes in the structure of the secondary mortgage markets which we utilize to sell mortgage loans may increase costs
and make it more difficult to operate a residential mortgage origination business. Our revenue from the mortgage banking
28
business was $255.3 million in 2020. This revenue could significantly decline in future periods if interest rates were to rise
and the other risks highlighted in this paragraph were realized, which may adversely affect our profitability.
We may incur costs, liabilities, fines and other sanctions if we fail to satisfy our mortgage loan servicing
obligations.
We act as servicer for approximately $9.79 billion of mortgage loans owned by third parties as of December 31, 2020. As
a servicer for those loans, we have certain contractual obligations to third parties. If we commit a material breach of our
obligations as servicer, we may be subject to termination if the breach is not cured within a specified period of time
following notice, causing us to lose servicing income. For certain investors and/or transactions, we may be contractually
obligated to repurchase a mortgage loan or reimburse the investor for credit losses incurred on the loan as a remedy for
origination errors with respect to the loan. If we have increased repurchase obligations because of claims that we did not
satisfy our obligations as a servicer, or if we have increased loss severity on such repurchases, we may have a significant
reduction to net servicing income within our mortgage banking noninterest income. In addition, we may be subject to fines
and other sanctions imposed by federal or state regulators as a result of actual or perceived deficiencies in our foreclosure
practices. Any of these actions may harm our reputation or negatively affect our residential lending or servicing business
and, as a result, our profitability.
LEGAL, REGULATORY AND COMPLIANCE RISK
We are subject to significant government regulation and supervision.
FB Financial Corporation and FirstBank are subject to extensive federal and state regulation and supervision by the FDIC,
Tennessee Department of Financial Institution, the Federal Reserve Board, CFPB, among others, the primary focus of
which is to protect customers, depositors, the deposit insurance fund and the safety and soundness of the banking system
as a whole, and not shareholders. The quantity and scope of applicable federal and state regulations may place banks at
a competitive disadvantage compared to less regulated competitors such as financial technology companies, finance
companies, credit unions, mortgage banking companies and leasing companies. These laws and regulations apply to
almost every aspect of our business, and affect our lending practices and procedures, capital structure, investment
activities, deposit gathering activities, our services and products, risk management practices, dividend policy and growth,
including through acquisitions.
Legislation and regulation with respect to our industry has increased in recent years, and we expect that supervision and
regulation will continue to expand in scope and complexity. Changes to statutes, regulations or regulatory policies,
including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and
unpredictable ways, and could subject us to additional costs, restrict our growth, limit the services and products we may
offer or limit the pricing of banking services and products. In addition, establishing systems and processes to achieve
compliance with laws and regulation increases our costs and could limit our ability to pursue business opportunities.
If we receive less than satisfactory results on regulatory examinations, we could be subject to damage to our reputation,
significant fines and penalties, requirements to increase compliance and risk management activities and related costs and
restriction on acquisitions, new locations, new lines of business, or continued growth. Future changes in federal and state
banking could adversely affect our operating results and ability to continue to compete effectively. For example, the Dodd-
Frank Act and related regulations subject us to additional restrictions, oversight and reporting obligations, which have
significantly increased costs. And over the last several years, state and federal regulators have focused on enhanced risk
management practices, mortgage law and regulation, compliance with the Bank Secrecy Act and anti-money laundering
laws, data integrity and security, use of service providers, and fair lending and other consumer protection issues, which
has increased our need to build additional processes and infrastructure. Government agencies charged with adopting and
interpreting laws, rules and regulations, may do so in an unforeseen manner, including in ways that potentially expand the
reach of the laws, rules or regulations more than initially contemplated or currently anticipated. We cannot predict the
substance or impact of pending or future legislation or regulation, or the application thereof. Compliance with such current
and potential regulation and scrutiny could significantly increase our costs, impede the efficiency of our internal business
processes, require us to increase our regulatory capital and limit our ability to pursue business opportunities in an efficient
manner. Our success depends on our ability to maintain compliance with both existing and new laws and regulations.
Applicable laws and regulations restrict both the ability of the Bank to pay dividends to us and our ability to pay
dividends to our shareholders.
The Company and the Bank are subject to various regulatory restrictions relating to the payment of dividends. In addition,
the Federal Reserve has the authority to prohibit bank holding companies from engaging in unsafe or unsound practices
in conducting their business. These federal and state laws, regulations and policies are described in greater detail in
“Business: Supervision and regulation: Bank regulation: Bank dividends” and “Business: Supervision and regulation:
Holding company regulation: Restriction on bank holding company dividends,” and generally consider previous results
and net income, capital needs, asset quality, existence of enforcement or remediation proceedings, and overall financial
29
condition in determining whether a dividend payment is appropriate. For the foreseeable future, the majority, if not all, of
our revenue will be from any dividends paid to us by the Bank. Accordingly, our ability to pay dividends also depends on
the ability of the Bank to pay dividends to us. Further, the present and future dividend policy of the Bank is subject to the
discretion of its board of directors. We cannot guarantee that we or the Bank will be permitted by financial condition or
applicable regulatory restrictions to pay dividends, that the board of directors of the Bank will elect to pay dividends to us,
or the timing or amount of any dividend actually paid. See “Dividend policy.” If we do not pay dividends, market
perceptions of our common stock may be adversely affected, which could in turn create downward pressure on our stock
price.
As the parent company of FirstBank, the Federal Reserve may require us to commit capital resources to support
the Bank.
The Federal Reserve requires us to act as a source of strength to the Bank and to commit capital and financial resources
to support the Bank. This support may be required at times when we might otherwise determine not to provide it. In
addition, if we commit to a federal bank regulator that we will maintain the capital of the Bank, whether in response to the
Federal Reserve’s invoking its source-of-strength authority or in response to other regulatory measures, that commitment
will be assumed by a bankruptcy trustee and, as a result, the Bank will be entitled to priority payment in respect of that
commitment, ahead of our other creditors. Thus, any borrowing that must be done by us in order to support the Bank may
adversely impact our cash flow, financial condition, results of operations or prospects.
Our financial condition may be affected negatively by the costs of litigation.
We may be involved from time to time in a variety of litigation, investigations or similar matters arising out of our business.
From time to time, and particularly during periods of economic stress, customers may make claims or otherwise take legal
action pertaining to performance of our responsibilities. These claims are often referred to as “lender liability” claims.
Whether customer claims and legal action related to the performance of our responsibilities are founded or unfounded, if
such claims and legal actions are not resolved in a favorable manner, they may result in significant financial liability and/or
adversely affect our market perception, products and services, as well as potentially affecting customer demand for those
products and services. In many cases, we may seek reimbursement from our insurance carriers to cover such costs and
expenses. These claims, as well as supervisory and enforcement actions by our regulators could involve large monetary
claims, capital directives, regulatory agreements and directives and significant defense costs. The outcome of any such
cases or actions is uncertain. Substantial legal liability or significant regulatory action against us could have material
adverse financial effects or cause significant reputational harm to us, which in turn could seriously harm our business
prospects. Our insurance may not cover all claims that may be asserted against us, and any claims asserted against us,
regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any
litigation or investigation significantly exceed our insurance coverage, they could have a material adverse effect on our
business, financial condition or results of operations.
TECHNOLOGY AND OPERATIONAL RISKS
We rely on third party vendors to provide services that are integral to the operation of our business.
We depend on many third-party service providers that are integral to the operation of our business. These vendors service
our mortgage loan business, provide critical core systems processing services, essential web hosting and other internet
systems, and deposit processing services. If any of these service providers fail to perform servicing duties or perform
those duties inadequately, we could experience a temporary interruption in our business, sustain credit losses on our
loans or incur additional costs to obtain a replacement servicer. There can be no assurance that a replacement servicer
could be retained in a timely manner or at a similar cost.
We cannot be sure that we will be able to maintain these relationships on favorable terms. In addition, some of our data
processing services are provided by companies associated with our competitors. The loss of these vendor relationships
could disrupt the services we provide to our customers and cause us to incur significant expense in connection with
replacing these services. If these third-party service providers experience difficulties, or terminate their services, and we
are unable to replace them with other service providers, particularly on a timely basis, our operations could be interrupted.
If an interruption were to continue for a significant period of time, our business, financial condition or results of operations
could be adversely affected, perhaps materially. Even if we are able to replace third-party service providers, it may be at a
higher cost to us, which could adversely affect our business, financial condition or results of operations. If we experienced
issues with our mortgage servicing provider, our servicing rights could be terminated or we may be required to repurchase
mortgage loans or reimburse investors as a result of such failures of our third-party service providers, any of which could
adversely affect our reputation, results of operations or financial condition.
Additionally, we utilize many vendors that provide services to support our operations, including the storage and processing
of sensitive consumer and business customer data. A cyber security breach of a vendor's system may result in theft and/
or unavailability of our data or disruption of business processes. In most cases, we will remain primarily liable to our
30
customers for losses arising from a breach of a vendor's data security system. We rely on our outsourced service
providers to implement and maintain prudent cyber security controls. We have procedures in place to assess a vendor's
cyber security controls prior to establishing a contractual relationship and to periodically review assessments of those
control systems. However, these procedures are not infallible, and a vendor's system can be breached despite the
procedures we employ.
If these third-party service providers experience difficulties, or terminate their services, and we are unable to replace them
with other service providers, particularly on a timely basis, our operations could be interrupted. If an interruption were to
continue for a significant period of time, our business, financial condition or results of operations could be adversely
affected, perhaps materially. Even if we are able to replace third-party service providers, it may be at a higher cost to us,
which could adversely affect our business, financial condition or results of operations.
Our risk management framework may not be effective in mitigating risks and/or losses to us.
Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage
the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance
risks. Our framework also includes financial or other modeling methodologies that involve management assumptions and
judgment. Our risk management framework may not be effective under all circumstances and may not adequately mitigate
any risk or loss to us. If our framework is not effective, we could suffer unexpected losses and our business, financial
condition, results of operations or prospects could be materially and adversely affected.
System failure or breaches of our network security, including as a result of cyber-attacks or data security
breaches, could subject us to increased operating costs as well as litigation and other liabilities.
The computer systems and network infrastructure we, and our vendors, use may be vulnerable to physical theft, fire,
power loss, telecommunications failure or a similar catastrophic event, as well as security breaches, denial of service
attacks, viruses, ransomware, and other disruptive problems caused by cyber criminals. Any damage or failure that
causes breakdowns or disruptions in our client relationship management, general ledger, deposit, loan and other systems
could damage our reputation, result in a loss of client business, subject us to additional regulatory scrutiny, or expose us
to civil litigation and possible financial liability, any of which could have a material adverse effect on us.
Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and
transmitted through our computer systems and network infrastructure. Information security risks have generally increased
in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications
technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers,
nation state supported organizations, terrorists, and other external parties. Our operations rely on the secure processing,
transmission and storage of confidential information in our computer systems and networks. Although we believe we have
robust information security procedures and controls, our technologies, systems, vendors, networks, and our customers’
devices may become the target of cyber-attacks or information security breaches that could result in the unauthorized
release, gathering, monitoring, misuse, unavailability, loss or destruction of our or our customers’ confidential, proprietary
and other information, or otherwise disrupt our or our customers’ business operations. As cyber threats continue to evolve,
we may be required to expend significant additional resources to continue to modify or enhance our protective measures
or to investigate and remediate any information security vulnerabilities.
We are under continuous threat of loss due to cyber-attacks, especially as we continue to expand client capabilities to
utilize internet and other remote channels to transact business. The occurrence of any cyber-attack or information security
breach could result in significant potential liabilities to customers and other third parties, reputational damage, the
disruption of our operations and regulatory concerns, all of which could materially and adversely affect our business,
financial condition or results of operations.
The financial services industry is undergoing rapid technological changes and we may not have the resources to
implement new technology to stay current with these changes.
The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-
driven products and services. In addition to better serving customers, the effective use of technology increases efficiency
and enables financial institutions to reduce costs. Our future success will depend in part upon our ability to address the
needs of our customers by using technology to provide products and services that will satisfy client demands for
convenience as well as to provide secure electronic environments as we continue to grow and expand our market area.
Many of our larger competitors have substantially greater resources to invest, and have invested significantly more than
us, in technological improvements. As a result, they may be able to offer additional or more convenient products
compared to those that we will be able to provide, which would put us at a competitive disadvantage. Accordingly, we may
not be able to effectively implement new technology-driven products and services or be successful in marketing such
products and services to our customers, which could impair our growth and profitability.
31
We are subject to certain operational risks, including, but not limited to, client or employee fraud.
Employee errors and employee and client misconduct could subject us to financial losses or regulatory sanctions and
seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us,
improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always
possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may
not be effective in all cases. Employee errors could also subject us to financial claims for negligence. We maintain a
system of internal controls and insurance coverage to mitigate against these operational risks. If our internal controls fail
to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could
have a material adverse effect on our business, financial condition or results of operations.
In addition, we rely heavily upon information supplied by third parties, including the information contained in credit
applications, property appraisals, title information, equipment pricing and valuation and employment and income
documentation, in deciding which loans we will originate, as well as the terms of those loans. If any of the information
upon which we rely is misrepresented, either fraudulently or inadvertently, and the misrepresentation is not detected prior
to asset funding, the value of the asset may be significantly lower than expected, or we may fund a loan that we would not
have funded or on terms we would not have extended.
Catastrophic events and disasters could negatively affect our local economies or disrupt our operations or result
in other consequences which could have an adverse impact on our financial results or condition.
A significant portion of our business is located in the Southeast and includes areas which are susceptible to weather-
related events such as tornadoes, floods, droughts, and fires. Such events can disrupt our operations, cause damage to
our properties, and negatively affect the local economies in which we operate. The severity and impact of future natural
disasters such as earthquakes, fires, hurricanes, tornadoes, droughts, floods, and other weather-related events are
difficult to predict. While we maintain insurance covering many of these weather-related events, there is no insurance
against the disruption that such a catastrophic event could cause in the markets that we serve, the resulting adverse
impact on our borrowers’ ability to timely repay their loans, and/or the value of any collateral held by us.
In addition, geopolitical matters, including international trade disputes, political unrest, the emergence of widespread
health emergencies or pandemics, cyber attacks or campaigns, and slow growth in the global economy, as well as acts of
terrorism, war, and other violence could result in disruptions in the financial markets or the markets that we serve. These
negative events could have a material adverse effect on our results of operations or financial condition and may affect our
ability to access capital.
STRATEGIC AND OTHER BUSINESS RISKS
Our strategy of pursuing acquisitions exposes us to risk.
We intend to continue pursuing a strategy that includes acquisitions, which involves significant operational, strategic, and
regulatory risks. Acquisitions may disrupt our business and dilute stockholder value, and integrating acquired companies
may be more difficult, costly, or time-consuming than we expect.
The market for acquisition targets is highly competitive, which may adversely affect our ability to find acquisition
candidates that fit our strategy and standards. Our ability to compete in acquiring target institutions will depend on our
available financial resources to fund the acquisitions, including the amount of cash and cash equivalents we have and the
liquidity and market price of our common stock. In addition, increased competition may also drive up the acquisition
consideration that we will be required to pay in order to successfully capitalize on attractive acquisition opportunities. To
the extent that we are unable to find suitable acquisition targets, an important component of our growth strategy may not
be realized.
Acquisitions of financial institutions also involve operational risks and uncertainties, such as unknown or contingent
liabilities with no available manner of recourse, exposure to unexpected problems such as asset quality, the retention of
key employees and customers, and other issues that could negatively affect our business. We may not be able to
complete future acquisitions or, if completed, we may not be able to successfully integrate the operations, technology
platforms, management, products and services of the entities that we acquire or to realize our attempts to eliminate
redundancies. The integration process may also require significant time and attention from our management that would
otherwise be directed toward servicing existing business and developing new business. Failure to successfully integrate
the entities we acquire into our existing operations in a timely manner may increase our operating costs significantly and
adversely affect our business, financial condition and results of operations. Further, acquisitions typically involve the
payment of a premium over book and market values and, therefore, some dilution of our tangible book value and net
income per common share may occur in connection with any future acquisition, and the carrying amount of any goodwill
that we currently maintain or may acquire may be subject to impairment in future periods.
32
If we continue to grow, we will face risks arising from our increased size. If we do not manage such growth effectively, we
may be unable to realize the benefit from the investments in technology, infrastructure and personnel that we have made
to support our expansion. In addition, we may incur higher costs and realize less revenue growth than we expect, which
would reduce our earnings and diminish our future prospects, and we may not be able to continue to implement our
business strategy and successfully conduct our operations. Risks associated with failing to maintain effective financial and
operational controls as we grow, such as maintaining appropriate loan underwriting procedures, information technology
systems, determining adequate allowances for loan losses and complying with regulatory accounting requirements,
including increased loan losses, reduced earnings and potential regulatory penalties and restrictions on growth, all could
have a negative effect on our business, financial condition and results of operations.
Our pursuit of acquisitions may disrupt our business, and any equity that we issue as merger consideration may have the
effect of diluting the value of your investment. In addition, we may fail to realize some or all of the anticipated benefits of
completed acquisitions. We anticipate that the integration of businesses that we may acquire in the future will be a time-
consuming and expensive process, even if the integration process is effectively planned and implemented. If difficulties
arise with respect to the integration process, the economic benefits expected to result from acquisitions might not occur.
As with any merger of financial institutions, there also may be business disruptions that cause us to lose customers or
cause customers to move their business to other financial institutions. Failure to successfully integrate businesses that we
acquire could have an adverse effect on our profitability, return on equity, return on assets, or our ability to implement our
strategy, any of which in turn could have a material adverse effect on our business, financial condition, and results of
operations.
We may not be able to complete future financial institution acquisitions.
From time to time, we evaluate and engage in the acquisition of other banking organizations. We must satisfy a number of
meaningful conditions before we can complete an acquisition of another bank or bank holding company, including federal
and state bank regulatory approvals. The process for obtaining required regulatory approvals can be time-consuming and
unpredictable and is subject to numerous regulatory and policy factors, a number of which are beyond our control. We
may fail to pursue or to complete strategic and competitively significant acquisition opportunities as a result of the
perceived difficulty or impossibility of obtaining required regulatory approvals in a timely manner or at all.
We have a shareholder who owns a significant portion of our stock and that shareholders' interests in our
business may be different than our other shareholders.
Mr. Ayers, our Vice Chairman and Founder, currently owns approximately 29% of our common stock. Further, Mr. Ayers
has the right under the shareholder's agreement, by and between the Company and Mr. Ayers and entered into in
connection with the Company's initial public offering, to designate up to 20% of our directors and at least one member of
the nominating and corporate governance and compensation committees of our board of directors for so long as permitted
under applicable law. So long as Mr. Ayers continues to own a significant portion of our common stock, he will have the
ability to influence the vote in any election of directors and will have the ability to significantly influence a vote regarding a
transaction that requires shareholder approval regardless of whether others believe the transaction is in our best interests.
In any of these matters, the interests of Mr. Ayers may differ from or conflict with the interests of our other shareholders.
Moreover, this concentration of stock ownership may also adversely affect the trading price of our common stock to the
extent investors perceive disadvantages in owning stock of a company with a significant shareholder.
We could be required to write down goodwill and other intangible assets.
At December 31, 2020, our goodwill and other identifiable intangible assets were $265.0 million. Under current accounting
standards, if we determine goodwill or intangible assets are impaired because, for example, the acquired business does
not meet projected revenue targets or certain key employees leave, we are required to write down the carrying value of
these assets. We conduct a review at least annually to determine whether goodwill is impaired. Our goodwill impairment
evaluation indicated no impairment of goodwill for our reporting segments. We cannot provide assurance, however, that
we will not be required to take an impairment charge in the future. Any impairment charge would have an adverse effect
on our shareholders' equity and financial results and could cause a decline in our stock price.
We face strong competition from financial services companies and other companies that offer banking services.
We conduct our banking operations primarily in Tennessee, with our largest market being the Nashville MSA, which is a
highly competitive banking market. Many of our competitors offer the same, or a wider variety of, banking services within
our market areas, and we compete with them for the same customers. These competitors include banks with nationwide
operations, regional banks and community banks. In many instances these national and regional banks have greater
resources than we do, and the smaller community banks may have stronger ties in local markets than we do, which may
put us at a competitive disadvantage. We also face competition from many other types of financial institutions, including
thrift institutions, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other
internet-based companies offering financial services which enjoy fewer regulatory constraints and some may have lower
33
cost structures. In addition, a number of out-of-state financial institutions have opened offices and solicit deposits in our
market areas. Increased competition in our markets may result in reduced loans and deposits, as well as reduced net
interest margin and profitability. If we are unable to attract and retain banking customers, we may be unable to continue to
grow our loan and deposit portfolios, and our business, financial condition or results of operations may be adversely
affected.
Further, a number of larger banks have recently entered the Nashville MSA, and we believe this trend will continue as
banks look to gain a foothold in this growing market. This trend will likely result in greater competition in, and may impair
our ability to grow our share of our largest market.
ITEM 1B - Unresolved Staff Comments
None.
ITEM 2 - Properties
Our principal executive offices and FirstBank’s main office are located at 211 Commerce Street, Suite 300, Nashville,
Tennessee 37201. As of December 31, 2020, we operated 81 full-service bank branches and nine limited service branch
locations throughout our geographic market areas as well as 23 mortgage offices throughout the southeastern United
States. We have banking locations in the Tennessee metropolitan markets of Nashville, Chattanooga, Knoxville, Memphis,
and Jackson in addition to the metropolitan markets of Huntsville and Florence, Alabama and Bowling Green, Kentucky.
We also operate in 16 community markets throughout our footprint. See “ITEM 1. Business – Our Markets” for more detail.
We own 52 of these banking locations and lease our other banking locations, nearly all of our mortgage offices and our
principal executive office. We believe that our offices and banking locations are in good condition, are suitable to our
needs and, for the most part, are relatively new or refurbished. Additionally, we continue to upgrade our properties to
make them more energy efficient and protect the environment.
ITEM 3 - Legal Proceedings
Various legal proceedings to which FB Financial Corporation or a subsidiary of FB Financial Corporation is party arise
from time to time in the normal course of business. As of the date hereof, there are no material pending legal proceedings
to which FB Financial Corporation or any of its subsidiaries is a party or of which any of its or its subsidiaries' assets or
properties are subject.
ITEM 4 - Mine Safety Disclosures
Not applicable.
34
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Market Information and Holders of Record
FB Financial Corporation's common stock is traded on the New York Stock Exchange under the symbol "FBK" and has
traded on that market since September 16, 2016.
The Company had approximately 1,962 stockholders of record as of March 5, 2021. A substantially greater number of
holders of FBK common stock are "street name" or beneficial holders, whose shares of record are held by banks, brokers,
and other financial institutions.
Stock Performance Graph
The performance graph and table below compares the cumulative total stockholder return on the common stock of the
Company with the cumulative total return on the equity securities included in the Standard & Poor’s 500 Index (S&P 500),
which reflects overall stock market performance and the S&P 500 Bank Industry Group, which is a GICS Level 2 industry
group consisting of 19 regional and national publicly traded banks. The graph assumes an initial $100 investment on
September 16, 2016 (the date of our initial public offering) through December 31, 2020. Data for the S&P 500 and S&P
500 Bank Industry Group assumes reinvestment of dividends. Returns are shown on a total return basis. The performance
graph represents past performance and should not be considered to be an indication of future performance. The
information in this paragraph and the following stock performance graph shall not be deemed to be “soliciting material” or
to be “filed” with the SEC or subject to Regulation 14A or 14C, other than as provided in Item 201 of Regulation S-K, or to
the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically request that such information be
treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act or the Exchange
Act.
35
Total Return PerformanceFB Financial CorporationS&P 500 Total Return IndexS&P 500 Bank Total Return Index09/16/1612/29/1712/31/1812/31/1912/31/2080.0090.00100.00110.00120.00130.00140.00150.00160.00170.00180.00190.00200.00210.00220.00230.00
9/16/2016
12/29/2017
12/31/2018
12/31/2019
12/31/2020
FB Financial Corporation
109.21
221.00
185.25
211.28
187.74
Index
S&P 500 Total Return Index
99.62
127.79
122.18
160.65
190.21
S&P 500 Bank Total Return Index
98.77
158.91
132.79
186.75
161.06
Source: S&P Global Market Intelligence
Dividends
During the second quarter of 2018, our board of directors declared a dividend to shareholders of record for the first time
as a public company and has done so for each subsequent quarter since. Our dividend declarations have also been
applicable to outstanding restricted stock units, for which related cash distributions are made on the vesting dates of the
underlying units.
The following table shows the dividends that have been declared on our common stock with respect to the periods
indicated below. Per share amounts are presented to the nearest cent.
(dollars in thousands, except per share data)
Quarterly period
2020:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Amount
per share
Total cash
dividend
$
0.09 $
0.09
0.09
0.09
2,866
2,962
4,336
4,338
Subsequent to December 31, 2020, our board of directors declared a dividend of $0.11 per share to shareholders of
record as of February 8, 2021 and payable on February 22, 2021.
Any future determination or changes relating to our dividend policy will be made by our board of directors and will depend
on a number of factors, including general and economic conditions, industry standards, our financial condition and
operating results, our available cash and current and anticipated cash needs, capital requirements, banking regulations,
contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our shareholders
or by the Bank to us, and such other factors as our board of directors may deem relevant.
As a bank holding company, any dividends paid by us are subject to various federal and state regulatory limitations and
also may be subject to the ability of the Bank to make distributions or pay dividends to us. The Bank is also subject to
various legal, regulatory and other restrictions on its ability to pay dividends and make other distributions and payments to
us. Our ability to pay dividends is limited by minimum capital and other requirements prescribed by law and regulation.
Furthermore, we are generally prohibited under Tennessee corporate law from making a distribution to a shareholder to
the extent that, at the time of the distribution, after giving effect to the distribution, we would not be able to pay our debts
as they become due in the usual course of business or our total assets would be less than the sum of its total liabilities
plus (unless the charter permits otherwise) the amount that would be needed, if we were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of any shareholders who may have preferential rights
superior to those receiving the distribution. In addition, financing arrangements that we may enter into in the future may
include restrictive covenants that may limit our ability to pay dividends.
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Stock Repurchase Program
(a)
Total number of
shares purchased
(b)
Average price paid
per share
(c)
Total number of
shares purchased as
part of publicly
announced plans or
programs
(d)
Maximum number (or
approximate dollar
value) of shares that
may yet be purchased
under the plans or
programs
—
—
—
—
—
—
—
—
— $
—
—
—
25,000,000
25,000,000
25,000,000
25,000,000
Period
October 1 - October 31
November 1 - November 30
December 1 - December 31
Total
The Company's board of directors approved a repurchase plan for up to $25 million of Company common stock for the
year ended December 31, 2020. The Company purchased no shares pursuant this plan. On February 18, 2021, the board
of directors approved a repurchase plan for up to $100 million of Company common stock. This repurchase plan expires
March 31, 2022, and purchases will be conducted pursuant to a written plan intended to comply with Rule 10b-18
promulgated under the Exchange Act.
Sale of Equity Securities
The Company did not sell any unregistered equity securities during 2020.
37
ITEM 6 - Selected Financial Data
The following selected historical consolidated financial data of the Company should be read in conjunction with, and are
qualified by reference to, “Management’s discussion and analysis of financial condition and results of operations” and the
consolidated financial statements and notes thereto included elsewhere herein. Our historical results for any prior period
are not necessarily indicative of results to be expected in any future period.
(Dollars in thousands, except per share data)
Statement of Income Data
Total interest income
Total interest expense
Net interest income
Provisions for credit losses
Total noninterest income
Total noninterest expense
Income before income taxes
Income tax expense(4)
Net income applicable to noncontrolling interest
Net income applicable to FB Financial Corporation
Net income(4)
2020
2019
2018
2017
2016
As of or for the year ended December 31,
$ 314,644
$ 282,537
$ 239,571
$ 169,613
$ 120,494
48,986
265,658
107,967
301,855
377,085
82,461
18,832
8
56,501
226,036
7,053
135,397
244,841
109,539
25,725
—
35,503
204,068
5,398
130,642
223,458
105,854
25,618
—
16,342
153,271
9,544
110,950
(950)
(1,479)
141,581
222,317
73,485
21,087
—
144,685
194,790
62,324
21,733
—
$
$
63,621
63,629
$
$
83,814
83,814
$
$
80,236
80,236
$
$
52,398
52,398
$
$
40,591
40,591
Net interest income (tax—equivalent basis)
$ 268,497
$ 227,930
$ 205,668
$ 156,094
$ 113,311
Per Common Share
Basic net income(4)
Diluted net income(4)
Book value(1)
Tangible book value(5)
Cash dividends declared
Selected Balance Sheet Data
Cash and cash equivalents
Loans held for investment
Allowance for credit losses
Loans held for sale
Investment securities, at fair value
Other real estate owned, net
Total assets
Customer deposits
$
1.69
1.67
27.35
21.73
0.36
$
2.70
2.65
24.56
18.55
0.32
$
2.60
2.55
21.87
17.02
0.20
$
1.90
1.86
19.54
14.56
—
$
2.12
2.10
13.71
11.58
4.03
$ 1,317,898
$ 232,681
$ 125,356
$ 119,751
$ 136,327
7,082,959
4,409,642
3,667,511
3,166,911
1,848,784
(170,389)
899,173
1,176,991
12,111
(31,139)
(28,932)
(24,041)
(21,747)
262,518
691,676
18,939
278,815
658,805
12,643
526,185
543,992
16,442
507,442
582,183
7,403
11,207,330
6,124,921
5,136,764
4,727,713
3,276,881
9,396,478
4,914,587
4,068,610
3,578,694
2,670,031
Brokered and internet time deposits
61,559
20,351
103,107
85,701
1,531
Total deposits
Borrowings
Total common shareholders' equity
Selected Ratios
Return on average:
Assets(2)
Shareholders' equity(2)
Tangible common equity(5)
Average shareholders' equity to average assets
Net interest margin (tax-equivalent basis)
Efficiency ratio
Adjusted efficiency ratio (tax-equivalent basis)(5)
Loans held for investment to deposit ratio
Yield on interest-earning assets
Cost of interest-bearing liabilities
Cost of total deposits
9,458,037
4,934,938
4,171,717
3,664,395
2,671,562
238,324
1,291,289
304,675
762,329
227,776
671,857
347,595
596,729
216,453
330,498
0.75 %
6.58 %
8.54 %
11.5 %
3.46 %
66.4 %
59.2 %
74.9 %
4.09 %
0.94 %
0.62 %
1.45 %
11.6 %
15.4 %
12.5 %
4.34 %
67.7 %
65.4 %
89.4 %
5.42 %
1.48 %
1.10 %
1.66 %
12.7 %
16.7 %
13.0 %
4.66 %
66.8 %
65.8 %
87.9 %
5.47 %
1.11 %
0.76 %
1.37 %
11.2 %
14.0 %
12.2 %
4.46 %
75.4 %
68.1 %
86.4 %
4.93 %
0.66 %
0.42 %
1.35 %
14.7 %
17.6 %
9.20 %
4.10 %
76.2 %
70.6 %
69.2 %
4.45 %
0.48 %
0.29 %
38
2020
2019
As of or for the year ended December 31,
2017
2016
2018
Credit Quality Ratios
Allowance for credit losses as a percentage of loans held for
investment(6)
Allowance for credit losses to nonperforming loans(6)
Nonperforming loans to loans, net of unearned income
Capital Ratios (Company)
Total common shareholders' equity to assets
Tier 1 capital (to average assets)
Tier 1 capital (to risk-weighted assets(3)
Total capital (to risk-weighted assets)(3)
Tangible common equity to tangible assets(5)
Common Equity Tier 1 (to risk-weighted assets) (CET1)(3)
Capital Ratios (Bank)
Total common Shareholders' equity to assets
Tier 1 capital (to average assets)
Tier 1 capital (to risk-weighted assets)(3)
Total capital to (risk-weighted assets)(3)
Common Equity Tier 1 (to risk-weighted assets) (CET1)(3)
2.41 %
264.3 %
0.91 %
0.71 %
117.0 %
0.60 %
0.79 %
173.0 %
0.46 %
0.76 %
238.1 %
0.32 %
1.18 %
216.2 %
0.54 %
11.5 %
10.0 %
12.0 %
15.0 %
9.38 %
11.7 %
12.3 %
10.5 %
12.6 %
14.9 %
12.6 %
12.4 %
10.1 %
11.6 %
12.2 %
9.69 %
11.1 %
12.8 %
9.90 %
11.5 %
12.1 %
11.5 %
13.1 %
11.4 %
12.4 %
13.0 %
10.5 %
11.7 %
13.2 %
10.9 %
11.9 %
12.5 %
11.9 %
12.6 %
10.5 %
11.4 %
12.0 %
9.70 %
10.7 %
12.6 %
9.80 %
10.7 %
11.3 %
10.7 %
10.1 %
10.1 %
12.2 %
13.0 %
8.70 %
11.0 %
9.90 %
9.00 %
10.9 %
11.7 %
10.9 %
(1)
Book value per share equals our total shareholders’ equity as of the date presented divided by the number of shares of our common stock outstanding as of the date
presented. The number of shares of our common stock outstanding was 47,220,743, 31,034,315, 30,724,532, 30,535,517, and 24,107,660 as of December 31, 2020,
2019, 2018, 2017 and 2016, respectively.
(2) We have calculated our return on average assets and return on average equity for a period by dividing net income for that period by our average assets and average
equity, as the case may be, for that period. We calculate our average assets and average equity for a period by dividing the sum of our total asset balance or total
stockholder’s equity balance, as the case may be, as of the close of business on each day in the relevant period and dividing by the number of days in the period.
(3) We calculate our risk-weighted assets using the standardized method of the Basel III Framework.
(4) During the third quarter of 2016, we became a C corporation in conjunction with our initial public offering. As such, we did not pay federal income taxes for the full year of
2016. The following presents pro forma net income and pro forma net income per share using a pro forma provision for federal income tax using a combined effective
income tax rate of 36.75% for the year ended December 31, 2016 and adjusting our historical net income to give effect to the pro forma provision for U.S. federal income
tax. For the year ended December 31, 2016, pro forma provision for income tax was $22.9 million, pro forma net income was $39.4 million, pro forma net income per
common share-basic was $2.06, and pro forma net income per common share-diluted was $2.04.
These measures are not measures recognized under generally accepted accounting principles (United States) (“GAAP”), and are therefore considered to be non-GAAP
financial measures. See “GAAP reconciliation and management explanation of non-GAAP financial measures” for a reconciliation of these measures to their most
comparable GAAP measures.
Excludes reserve for credit losses on unfunded commitments of $13.4 million recorded in accrued expenses and other liabilities at December 31, 2020.
(6)
(5)
GAAP reconciliation and management explanation of non-GAAP financial measures
We identify certain financial measures discussed in this Report as being "non-GAAP financial measures." The non-GAAP
financial measures presented in this Report are adjusted efficiency ratio (tax equivalent basis), tangible book value per
common share, tangible common equity to tangible assets and return on average tangible common equity.
In accordance with the SEC's rules, we classify a financial measure as being a non-GAAP financial measure if that
financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including
amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and
presented in accordance with GAAP as in effect from time to time in the United States in our statements of income,
balance sheets or statements of cash flows.
The non-GAAP financial measures that we discuss in this Report should not be considered in isolation or as a substitute
for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner
in which we calculate the non-GAAP financial measures that we discuss in our selected historical consolidated financial
data may differ from that of other companies reporting measures with similar names. You should understand how such
other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial
measures we have discussed in our selected historical consolidated financial data when comparing such non-GAAP
financial measures. The following reconciliation tables provide a more detailed analysis of these, and reconciliation for,
each of non-GAAP financial measures.
Adjusted efficiency ratio (tax equivalent basis)
The adjusted efficiency ratio (tax equivalent basis) is a non-GAAP measure that excludes certain gains (losses), merger
and offering-related expenses and other selected items. Our management uses this measure in its analysis of our
performance. Our management believes this measure provides a greater understanding of ongoing operations and
enhances comparability of results with prior periods, as well as demonstrates the effects of significant gains and
charges. The most directly comparable financial measure calculated in accordance with GAAP is the efficiency ratio.
39
The following table presents, as of the dates set forth below, a reconciliation of our adjusted efficiency ratio (tax-equivalent
basis) to our efficiency ratio:
(dollars in thousands)
Adjusted efficiency ratio (tax-equivalent basis)
Total noninterest expense
Less vesting of one time equity grants
Less variable compensation charge related to
cash settled equity awards previously issued
2020
2019
2018
2017
2016
Year Ended December 31,
$ 377,085
—
$ 244,841
—
$ 223,458
—
$ 222,317
—
$ 194,790
2,960
—
—
—
635
1,254
Less merger and conversion, and
mortgage restructuring expenses
Less FHLB prepayment penalties
Less impairment and loss on sale of mortgage servicing
rights
Adjusted noninterest expense
Net interest income (tax-equivalent basis)
Total noninterest income
34,879
6,838
—
$ 335,368
$ 268,497
301,855
Less gain on change in fair value on commercial loans held
7,380
—
2,265
—
19,034
—
3,268
—
—
$ 237,461
$ 227,930
135,397
—
$ 221,193
$ 205,668
130,642
249
$ 202,399
$ 156,094
141,581
9,125
$ 178,183
$ 113,311
144,685
for sale and cash life insurance benefit
Less (loss) gain on sales of other real estate
Less (loss) gain on other assets
Less gain (loss) on securities
Adjusted noninterest income
Adjusted operating revenue
Efficiency ratio (GAAP)
Adjusted efficiency ratio (tax-equivalent basis)
3,943
(1,491)
(90)
1,631
$ 297,862
$ 566,359
—
545
(104)
57
$ 134,899
$ 362,829
—
(99)
328
(116)
$ 130,529
$ 336,197
—
774
(664)
285
$ 141,186
$ 297,280
—
1,282
(103)
4,407
$ 139,099
$ 252,410
66.4 %
59.2 %
67.7 %
65.4 %
66.8 %
65.8 %
75.4 %
68.1 %
76.2 %
70.6 %
Tangible book value per common share and tangible common equity to tangible assets
Tangible book value per common share and tangible common equity to tangible assets are non-GAAP measures that
exclude the impact of goodwill and other intangibles used by the Company’s management to evaluate capital
adequacy. Because intangible assets such as goodwill and other intangibles vary extensively from company to company,
we believe that the presentation of this information allows investors to more easily compare the Company’s capital
position to other companies. The most directly comparable financial measure calculated in accordance with GAAP is
book value per common share and our total shareholders’ equity to total assets.
The following table presents, as of the dates set forth below, tangible common equity compared with total shareholders’
equity, tangible book value per common share compared with our book value per common share and common equity to
tangible assets compared to total shareholders’ equity to total assets:
(dollars in thousands, except share and
per share data)
Tangible Assets
Total assets
Adjustments:
Goodwill
Core deposit and other intangibles
Tangible assets
Tangible Common Equity
Total common shareholders' equity
Adjustments:
Goodwill
Core deposit and other intangibles
Tangible common equity
Common shares outstanding
Book value per common share
Tangible book value per common share
Total common shareholders' equity to total assets
Tangible common equity to tangible assets
As of December 31,
2020
2019
2018
2017
2016
$ 11,207,330,000.00
$ 6,124,921 $ 5,136,764 $ 4,727,713 $ 3,276,881
(46,867)
(137,190)
(242,561)
(22,426)
(4,563)
(11,628)
$ 10,942,343 $ 5,938,281 $ 4,987,946 $ 4,575,621 $ 3,225,451
(169,051)
(17,589)
(137,190)
(14,902)
$ 1,291,289 $ 762,329
$ 671,857
$ 596,729
$ 330,498
(169,051)
(242,561)
(22,426)
(17,589)
$ 1,026,302 $ 575,689
47,220,743
$ 27.35
$ 21.73
31,034,315
$ 24.56
$ 18.55
(137,190)
(11,628)
$ 523,039
30,724,532
$ 21.87
$ 17.02
(137,190)
(14,902)
$ 444,637
30,535,517
$ 19.54
$ 14.56
(46,867)
(4,563)
$ 279,068
24,107,660
$ 13.71
$ 11.58
11.5 %
9.38 %
12.4 %
9.69 %
13.1 %
10.5 %
12.6 %
9.72 %
10.1 %
8.70 %
40
Return on average tangible common equity
Return on average tangible common equity is a non-GAAP measure that uses average shareholders' equity and excludes
the impact of goodwill and other intangibles. This measurement is also used by the Company's management to evaluate
capital adequacy. The following table presents, as of the dates set forth below, reconciliations of total average tangible
common equity to average shareholders' equity and return on average tangible common equity to return on average
shareholders equity:
Year Ended December 31,
(dollars in thousands)
2020
2019
2018
2017
2016
Return on average tangible common equity
Total average shareholders' equity
$ 966,336
$ 723,494
$ 629,922
$ 466,219
$ 276,587
Average goodwill
Average intangibles, net
(199,104)
(160,587)
(137,190)
(84,997)
(46,867)
(22,659)
(17,236)
(12,815)
(8,047)
(5,353)
Average tangible common equity
$ 744,573
$ 545,671
$ 479,917
$ 373,175
$ 224,367
Net income applicable to FB Financial Corporation
$ 63,621
$ 83,814
$ 80,236
$ 52,398
$ 40,591
Return on average shareholders' equity
Return on average tangible common equity
6.58 %
8.54 %
11.6 %
15.4 %
12.7 %
16.7 %
11.2 %
14.0 %
14.7 %
17.6 %
41
ITEM 7 — Management's discussion and analysis of financial condition and results of operations
Overall Objective
The following is a discussion of our financial condition at December 31, 2020 and December 31, 2019, and our results of
operations for the years ended December 31, 2020 and 2019, and should be read in conjunction with our audited
consolidated financial statements included elsewhere herein. The purpose of this discussion is to focus on information
about our financial condition and results of operations which is not otherwise apparent from our consolidated financial
statements. This discussion and analysis contains forward-looking statements that are subject to certain risks and
uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate.
Certain risks, uncertainties and other factors, including those set forth in the "Cautionary note regarding forward-looking
statements" and Risk Factors" sections of this Annual Report, may cause actual results to differ materially from those
projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no
obligation to update any of these forward-looking statements.
Discussion and analysis of our financial condition and results of operations for the years ended December 31, 2019 and
2018 are included in the respective sections within "Part II. Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of operations" of our Annual Report filed on Form 10-K with the SEC for the year ended December
31, 2019.
Overview
We are a financial holding company headquartered in Nashville, Tennessee. We operate primarily through our wholly
owned bank subsidiary, FirstBank, the third largest bank headquartered in Tennessee, based on total assets. FirstBank
provides a comprehensive suite of commercial and consumer banking services to clients in select markets in Tennessee,
North Alabama, Southern Kentucky, and North Georgia. As of December 31, 2020, our footprint included 81 full-service
branches serving the following Tennessee Metropolitan Statistical Areas (“MSAs”): Nashville, Chattanooga (including
North Georgia), Knoxville, Memphis, and Jackson in addition to Bowling Green, Kentucky and Florence and Huntsville,
Alabama. We also provide banking services to 16 community markets throughout Tennessee and North Georgia.
FirstBank also provides mortgage banking services utilizing its bank branch network and mortgage banking offices
strategically located throughout the southeastern United States in addition to a national internet delivery channel. As of
December 31, 2020, we had total assets of $11.21 billion, loans held for investment of $7.08 billion, total deposits of $9.46
billion, and total shareholders’ equity of $1.29 billion.
We operate through two segments, Banking and Mortgage. We generate most of our revenue in our Banking segment
from interest on loans and investments, loan-related fees, mortgage originations from mortgage offices within our banking
footprint, trust and investment services and deposit-related fees. Our primary source of funding for our loans is customer
deposits, and, to a lesser extent, unsecured credit lines, Federal Home Loan Bank (“FHLB”) advances, brokered and
internet deposits, and other borrowings. We generate most of our revenue in our Mortgage segment from origination fees
and gains on sales in the secondary market of mortgage loans that we originate from our mortgage offices outside our
Banking footprint and through our online ConsumerDirect channel, as well as from mortgage servicing revenues.
Developments in 2020
Mergers and acquisitions
Franklin Financial Network, Inc.
On August 15, 2020, the Company completed its previously announced merger with Franklin Financial Network, Inc
("Franklin"), and its wholly owned subsidiaries, with FB Financial Corporation continuing as the surviving entity. Under the
terms of the agreement, the Company acquired total assets of $3.63 billion, loans of $2.79 billion and assumed total
deposits of $3.12 billion. Total loans acquired included a non-strategic institutional portfolio with a fair value of $326.2
million the Company classified as held for sale. Franklin common shareholders received 15,058,181 shares of the
Company's common stock, net of the equivalent value of 44,311 shares withheld on certain Franklin employee equity
awards that vested upon change in control, as consideration in connection with the merger, in addition to $31.3 million in
cash consideration. The Company also issued replacement restricted stock units to replace those initially granted by
Franklin in 2020 that did not vest upon change in control, with a total fair value of $0.7 million attributed to pre-combination
service. Based on the closing price of the Company's common stock on the New York Stock Exchange of $29.52 on
August 15, 2020, the merger consideration represented approximately $477.8 million in aggregate consideration.
42
The merger resulted in goodwill of $67.2 million being recorded based on the fair value of total assets acquired and
liabilities assumed in the transaction.
The transaction added a new subsidiary to the Company, FirstBank Risk Management ("FBRM"), which provides risk
management services to the Company in the form of enhanced insurance coverages. It also added a new subsidiary to
the Bank, FirstBank Investments of Tennessee, Inc. ("FBIT"), which provides investment services to the Bank. FBIT has a
wholly owned subsidiary, FirstBank Investments of Nevada, Inc. ("FBIN") to provide investment services to FBIT. FBIN
has a controlling interest in a subsidiary, FirstBank Preferred Capital, Inc. ("FBPC"), which serves as a real estate
investment trust ("REIT"), to allow the Bank to sell real estate loans to the REIT to obtain a tax benefit.
FNB Financial Corp. merger
On 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
Company acquired total assets of $258.2 million, loans of $182.2 million and deposits of $209.5 million. The consideration
is valued at approximately $50.0 million based on 954,797 shares of the Company's common stock (utilizing the
Company's market price of $36.70 on February 14, 2020) and $15.0 million in cash consideration. The acquisition resulted
in $6.3 million of goodwill.
COVID-19 and the CARES Act
During 2020, the COVID-19 health pandemic created a crisis resulting in volatility in financial markets, sudden,
unprecedented job losses, and disruption in consumer and commercial behavior, resulting in governments in the United
States and globally to intervene with varying levels of direct monetary support and fiscal stimulus packages. All industries,
municipalities and consumers have been impacted by the health crisis to some degree, including the markets that we
serve. In attempts to “flatten the curve”, businesses not deemed essential were closed or constrained to capacity
limitations, individuals were asked to restrict their movements, observe social distancing and shelter in place. These
actions resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses, leading
to a loss of revenues and a rapid increase in unemployment, widening of credit spreads, dislocation of bond markets,
disruption of global supply chains and changes in consumer spending behavior. As certain restrictions began lifting and
more businesses were allowed to open their doors in late 2020, we began to experience a slow improvement in
commerce through much of our footprint. Despite the pickup in economic activity late in the year, there is uncertainty
regarding the long term effects on the global economy which could have an adverse impact on the Company.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law. The CARES
Act includes the Paycheck Protection Program ("PPP"), a nearly $670 billion program, as amended, designed to aid small-
and medium-sized businesses through federally guaranteed loans distributed through banks. These loans are intended to
guarantee up to 24 weeks of payroll and other costs, including rent and other operating costs, to help those businesses
remain viable and allow their workers to continue paying bills. Over the course of 2020, we originated over 2,900 PPP
loans, with $314,678 in total balances through the US Small Business Administration ("SBA"). The SBA began accepting
PPP forgiveness applications in the last quarter of 2020, which decreased total balances to $212,645 as of December 31,
2020. Balances will continue to decline throughout 2021 as the SBA continues accepting forgiveness applications.
On December 27, 2020, the President signed into law omnibus federal spending and economic stimulus legislation titled
the Consolidated Appropriations Act ("CAA") that included the Economic Aid to Hard-Hit Small Businesses, Nonprofits,
and Venues Act (the “HHSB Act”). Among other things, the HHSB Act renewed the PPP, allocating $284.45 billion for both
new first time PPP loans under the existing PPP and the expansion of existing PPP loans for certain qualified, existing
PPP borrowers. In addition to extending and amending the PPP, the HHSB Act also creates a new grant program for
“shuttered venue operators.” As a participating lender in the PPP, the Company continues to monitor legislative,
regulatory, and supervisory developments related thereto, including the most recent changes implemented by the HHSB
Act.
On March 22, 2020, a statement was issued by our banking regulators and titled the “Interagency Statement on Loan
Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” (the
“Interagency Statement”) that encourages financial institutions to work prudently with borrowers who are or may be unable
to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act
further stipulated that a qualified loan modification was exempt by law from classification as a troubled debt restructuring
(“TDR”), from the period beginning March 1, 2020 until the earlier of December 31, 2020, or the date that is 60 days after
the date on which the national emergency concerning the COVID-19 pandemic is terminated. Section 541 of the CAA
43
extends this relief to the earlier of January 1, 2022 or 60 days after the national emergency termination date. The
Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with
Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection
considerations.
We have numerous customers that have experienced financial distress, as a direct result of COVID-19, and in response
we introduced a payment deferral program to assist during these unprecedented times. The total amortized cost of loans
deferred during 2020 that were no longer in deferral status was $1.40 billion as of December 31, 2020. We had a recorded
investment in loans remaining on Company-sponsored deferred payment programs totaling $202.5 million as of
December 31, 2020 , representing approximately 2.9% of our loans held for investment. Of the loans granted deferrals,
these modifications typically range between sixty to ninety days and were not considered TDRs under the interagency
regulatory guidance or the CARES Act. Additionally, we service mortgages on behalf of Fannie Mae, Freddie Mac and
Ginnie Mae, and as of December 31, 2020 approximately 6% of customers serviced on behalf of the aforementioned
companies have received forbearance assistance. COVID-19 is expected to continue to influence commerce worldwide
and the magnitude to which our financial results will be impacted is uncertain at this time.
Key factors affecting our business
Interest rates
Net interest income is the largest contributor to our net income and is the difference between the interest and fees
earned on interest-earning assets (primarily loans and investment securities) and the interest expense incurred in
connection with interest-bearing liabilities (primarily deposits and borrowings). The level of net interest income is
primarily a function of the average balance of interest-earning assets, the average balance of interest-bearing liabilities
and the spread between the contractual yield on such assets and the contractual cost of such liabilities. These factors
are influenced by both the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are
impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy
of the Federal Reserve Board and market interest rates.
The cost of our deposits and short-term wholesale borrowings is largely based on short-term interest rates, which are
primarily driven by the Federal Reserve Board’s actions. The yields generated by our loans and securities are typically
driven by short-term and long-term interest rates, which are set by the market and are, at times, heavily influenced by the
Federal Reserve Board’s actions. The level of net interest income is therefore influenced by movements in such interest
rates and the pace at which such movements occur.
As a result of the COVID-19 pandemic discussed above, interest rates fell to historic lows during the year ended
December 31, 2020. On March 3, 2020, the Federal Open Market Committee (‘‘FOMC’’) reduced the target federal funds
rate by 50 basis points to a range of 1.00% to 1.25%. On March 15, 2020 the Federal Reserve announced it would revive
its quantitative easing program to provide liquidity to the U.S. treasury and mortgage markets by committing to buy $500
billion of U.S. Treasuries and $200 billion of agency mortgage backed securities. On March 16, 2020, the FOMC further
reduced the target federal funds rate by an additional 100 basis points to a range of 0.00% to 0.25%. On March 23, 2020
the Federal Reserve modified its quantitative easing program initiative to an unlimited purchase program that is expected
to exceed the monetary policy support provided during the financial crisis over 10 years ago. These actions could have
significant adverse effects on the earnings, financial condition and results of operations of the Company.
For additional information regarding our interest rate risks factors and management, see “Business: Risk management:
Liquidity and interest rate risk management” and “Risk factors: Risks related to our business.”
Credit trends
We focus on originating quality loans and have established loan approval policies and procedures to assist us in
upholding the overall credit quality of our loan portfolio. However, credit trends in the markets in which we operate and in
our loan portfolio can materially impact our financial condition and performance and are primarily driven by the economic
conditions in our markets.
During 2020, our percentage of total nonperforming loans to loans held for investment increased to 0.91% as of
December 31, 2020, from 0.60% at December 31, 2019. Our loans classified as substandard and doubtful increased to
1.87% of loans held for investment as of December 31, 2020, compared to 1.82% as of December 31, 2019. Our
nonperforming assets as of December 31, 2020 were $84.2 million, or 0.75% of total assets, increasing from $47.1 million,
or 0.77% of assets as of December 31, 2019.
44
Our provision for credit losses on loans held for investment and unfunded commitments during the year ended
December 31, 2020 was $108.0 million under the current expected credit loss methodology compared with $7.1 million
under the previous incurred loss model. Our provision was comprised of $94.6 million related to provision for credit losses
on loans held for investment and $13.4 million related to provision for unfunded commitments during the year ended
December 31, 2020. This increase was greatly impacted by negative economic forecasts in our loss rate allowance for
credit losses model promulgated by the adverse impacts of COVID-19. Economic forecasts slowly improved in the last
half of 2020, however we believe the true impact of the pandemic on our loan portfolio could lag beyond the economic
turnaround as borrower assistance programs are exhausted. While we continue to be sensitive to credit quality risks in our
commercial real estate, commercial and industrial, and construction loan portfolios due to our concentration of loans in
these categories, we believe our portfolio is well balanced overall. Although we have not experienced significant credit
losses to date, we continue to closely monitor industries that present elevated risk of adverse impact. As of December 31,
2020, loans within these industries we consider "of concern" amounted to approximately 23.8% of our total loans held for
investment. Additional detail summarizing our exposure to industries "of concern" is further discussed under the "Financial
Condition" subheading within this management's discussion and analysis.
For additional information regarding credit quality risk factors for our Company, see “Business: Risk management: Credit
risk management” and “Risk factors: Credit Risks.”
Competition
Our profitability and growth are affected by the highly competitive nature of the financial services industry. We compete
with commercial banks, savings banks, credit unions, non-bank financial services companies, online mortgage
providers, internet banks and other financial institutions operating within the areas we serve, particularly with national
and regional banks that often have more resources than we do to invest in growth and technology and community banks
with strong local ties, all of which target the same clients we do. Recently, we have seen increased competitive
pressures on loan rates. Continued loan pricing pressure may continue to affect our financial results in the future.
For additional information, see “Business: Our markets,” “Business: Competition” and “Risk factors: Risks related to
our business.”
Regulatory trends and changes in laws
We are subject to extensive regulation and supervision, which continue to evolve as the legal and regulatory framework
governing our operations continues to change. The current operating environment also has heightened supervisory
expectations in areas such as consumer compliance, the Bank Secrecy Act and anti-money laundering compliance, risk
management and internal audit. As a result of our increase in asset size above $10 billion and these heightened
expectations, we expect to incur additional costs for additional compliance, risk management and audit personnel or
professional fees associated with advisors and consultants.
As described further under “Business: Supervision and regulation,” we are subject to a variety of laws and regulations,
including the Dodd-Frank Act.
See also “Risk factors: Legal, regulatory and compliance risk”.
Overview of recent financial performance
Results of operations
Year ended December 31, 2020 compared to the year ended December 31, 2019
Our net income decreased during the year ended December 31, 2020 to $63.6 million from $83.8 million for the year
ended December 31, 2019. Diluted earnings per common share was $1.67 and $2.65 for the years ended December 31,
2020 and 2019, respectively. Our net income represented a ROAA of 0.75% and 1.45% for the years ended
December 31, 2020 and 2019, respectively, and a ROAE of 6.58% and 11.6% for the same periods. Our ratio of ROATCE
for the years ended December 31, 2020 and 2019 was 8.54% and 15.4%, respectively.
These results were significantly impacted by the economic forecasts incorporated in our CECL loss rate model, leading
our provision for credit losses on loans held for investment and unfunded loan commitments increased to $108.0 million
for the year ended December 31, 2020 compared with $7.1 million for the year ended December 31, 2019. Our results
were also impacted by an increase in merger expenses that totaled $34.9 million relating to our acquisitions of Franklin
45
and Farmers National during year ended December 31, 2020 compared with merger expenses of $5.4 million for the year
ended December 31, 2019 related to our acquisition of the Branches.
During the year ended December 31, 2020, net interest income before provision for credit losses increased to $265.7
million compared with $226.0 million in the year ended December 31, 2019.
Our net interest margin, on a tax-equivalent basis, decreased to 3.46% for the year ended December 31, 2020 as
compared to 4.34% for the year ended December 31, 2019, influenced by declining interest rates during the current
period.
Noninterest income for the year ended December 31, 2020 increased by $166.5 million to $301.9 million, up from $135.4
million for prior year period. The increase in noninterest income was primarily driven by an increase in mortgage banking
income of $154.4 million to $255.3 million.
Noninterest expense increased to $377.1 million for the year ended December 31, 2020, compared with $244.8 million for
the year ended December 31, 2019. The increase in noninterest expense is reflective of the increase in mortgage
commissions stemming from elevated business activity, as well as the impact of our acquisitions and integration activities,
including increases in salaries, commissions and personnel-related costs from the incremental head count.
Year ended December 31, 2019 compared to Year ended December 31, 2018
Our net income increased by 4.46% in 2019 to $83.8 million from $80.2 million in 2018. Pre-tax net income increased by
$3.7 million, or 3.48%, from $105.9 million for the year ended December 31, 2018 to $109.5 million for the year ended
December 31, 2019. Diluted earnings per common share was $2.65 and $2.55 for the years ended December 31, 2019
and 2018, respectively. Our net income represented a return on average assets, or ROAA, of 1.45% and 1.66% in 2019
and 2018, respectively, and a return on average shareholders’ equity, or ROAE, of 11.6% and 12.7% in 2019 and 2018,
respectively. Our ratio of return on average tangible common equity ("ROATCE") for the years ended December 31, 2019
and 2018 was 15.4% and 16.7%, respectively.
During the year ended December 31, 2019, net interest income before provision for loan losses increased to $226.0
million compared to $204.1 million in the year ended December 31, 2018, which was attributable to an increase in interest
income and expense, primarily driven by loan and deposit growth driven by declining interest rates and our growth
initiatives, including the Atlantic Capital branch acquisition.
Our net interest margin, on a tax-equivalent basis, decreased to 4.34% for the year ended December 31, 2019 as
compared to 4.66% for the year ended December 31, 2018, due primarily to the increase in cost of funds partially offset by
an increase in contractual loan yield earned on our loan portfolio.
Noninterest income for the year ended December 31, 2019 increased by $4.8 million to $135.4 million from $130.6 million
from the same period in the previous year. The increase in noninterest income was largely a result of an increase in ATM
and interchange fees related to our growth and volume of business.
Noninterest expense increased to $244.8 million for the year ended December 31, 2019 compared to $223.5 million for
the years ended December 31, 2018. The increase in noninterest expense reflects the impact of our acquisition of the
Branches, including increases in salaries, commissions and personnel-related costs and increased merger expenses.
Noninterest expense for the year ended December 31, 2019 also reflects expenses of $2.0 million related to the sale of
our wholesale mortgage origination channels comprising the third party origination ("TPO") and correspondent origination
channels (collectively referred to as "mortgage restructuring").
Financial condition
Our total assets grew by 83.0% to $11.21 billion at December 31, 2020, as compared to $6.12 billion at December 31,
2019. The increase reflects additions through acquisitions amounting to $3.63 billion and $258.2 million from Franklin and
Farmers National, respectively, which closed on August 15, 2020 and February 14, 2020, respectively. Loans held for
investment increased $2.67 billion to $7.08 billion at December 31, 2020, compared to $4.41 billion at December 31,
2019. The increase in loans held for investment for the year ended 2020 includes $2.43 billion and $182.2 million of loans
acquired from Franklin and Farmers National, respectively, as well as $212.6 million of PPP loans outstanding as part of
the CARES Act.
We grew total deposits by $4.52 billion to $9.46 billion at December 31, 2020, compared to $4.93 billion at December 31,
2019. The increase includes $3.12 billion of deposits assumed in the Franklin acquisition and $209.5 million assumed in
the Farmers National acquisition.
46
Excluding the impact of our merger and acquisition activities, as well as the PPP loans included in loans held for
investment, total assets increased 16.0%, total loans decreased 3.4%, and total deposits increased 24.2%, from
December 31, 2019 to December 31, 2020.
Business segment highlights
We operate our business in two business segments: Banking and Mortgage. See Note 21, “Segment reporting” in the
notes to our consolidated financial statements for a description of these business segments.
Banking
Income before taxes from the Banking segment decreased in the year ended December 31, 2020 to $5.9 million,
compared to $107.1 million for the year ended December 31, 2019. These results were primarily driven by the provisions
for credit losses on loans held for investment and unfunded loan commitments totaling $108.0 million during the year
ended December 31, 2020 compared to $7.1 million in the previous year. Net interest income increased $39.5 million to
$265.6 million during the year ended December 31, 2020 from $226.1 million in the same period in the prior year.
Noninterest income increased to $122.0 million in the year ended December 31, 2020 as compared to $64.9 million in the
year ended December 31, 2019. Noninterest expense increased $96.8 million, primarily due to merger and other costs
associated with our overall growth, including increased salaries, commissions and employee benefits expenses
associated with incremental headcount following our acquisitions. Results of our Banking Segment also include mortgage
retail footprint pre-tax net contribution of $26.4 million and $7.2 million in the years ended December 31, 2020 and 2019,
respectively.
Mortgage
Income before taxes from the Mortgage segment increased to $76.5 million for the year ended December 31, 2020 as
compared to $2.5 million for the year ended December 31, 2019 primarily due to increased volume driven by declining
interest rates and an increase in refinancing activity. The increase in volume contributed to noninterest income increasing
$109.4 million to $179.9 million during the year ended December 31, 2020 compared to $70.5 million for the year ended
December 31, 2019.
Noninterest expense for the years ended December 31, 2020 and 2019 was $103.4 million and $68.0 million, respectively.
This increase during the year ended December 31, 2020 is mainly attributable to a continued increase in business activity
and the result of a conducive interest rate environment for refinancing during the period, which led to an increase in
related commissions and incentives expenses.
During 2019, we made a strategic decision to sell our wholesale mortgage operations, which comprise the third party
origination ("TPO") and correspondent mortgage delivery channels. The exit of the two wholesale channels better aligns
the Mortgage segment with our strategic plan and long-term vision for the Company. This has also allowed additional
focus on our retail and Consumer Direct origination channels. In connection with the mortgage restructuring, the Company
incurred related expenses, including $0.1 million attributed to the relief of goodwill, totaling $2.0 million for the year ended
December 31, 2019, respectively.
Results of operations
Throughout the following discussion of our operating results, we present our net interest income, net interest margin and
efficiency ratio on a fully tax-equivalent basis. The fully tax-equivalent basis adjusts for the tax-favored status of net
interest income from certain loans and investments. We believe this measure to be the preferred industry measurement of
net interest income, which enhances comparability of net interest income arising from taxable and tax-exempt sources.
The adjustment to convert certain income to a tax-equivalent basis consists of dividing tax exempt income by one minus
the combined federal and blended state statutory income tax rate of 26.06% for the years ended December 31, 2020 and
2019.
Net interest income
Net interest income is the most significant component of our earnings, generally comprising over 50% of our total
revenues in a given period. Net interest income and margin are shaped by many factors, primarily the volume, term
structure and mix of earning assets, funding mechanisms, and interest rate fluctuations. Other factors include accretion
income on purchased loans, prepayment risk on mortgage and investment–related assets, and the composition and
maturity of earning assets and interest-bearing liabilities. In response to economic uncertainty related to the COVID-19
pandemic, the Federal Reserve remains committed to using all available tools to support the economy and uphold their
47
dual mandate of full employment and stable prices. The FOMC maintained the Federal Funds rate to zero lower bound,
and maintained their commitment to open-ended purchases of Treasury securities and agency mortgage-backed
securities. During the last half of 2020, the US Treasury yield curve steepened as long-term rates rose. As a result of the
spread of COVID-19, economic uncertainties have arisen that are likely to continue having a negative impact on net
interest income. Other financial impacts could occur, though such potential impacts are unknown at this time.
Year ended December 31, 2020 compared to year ended December 31, 2019
On a tax-equivalent basis, net interest income increased $40.6 million to $268.5 million in the year ended December 31,
2020 as compared to $227.9 million in the year ended December 31, 2019. The increase in tax-equivalent net interest
income in the year ended December 31, 2020 was primarily driven by an increase in loan volume influenced by the
Franklin merger, which was also impacted by a decrease in overall cost of deposits.
Interest income, on a tax-equivalent basis, was $317.5 million for the year ended December 31, 2020, compared to
$284.4 million for the year ended December 31, 2019, an increase of $33.1 million. Interest income on loans held for
investment, on a tax-equivalent basis, increased $27.4 million to $278.1 million for the year ended December 31, 2020
from $250.7 million for the year ended December 31, 2019 primarily due to increased loan volume driven by growth in
average loan balances of $1.47 billion. The growth in average loan balance reflects the addition of $182.2 million in loans
acquired from Farmers National and $2.43 billion in loans acquired in the Franklin merger. In addition, the origination of
PPP loans during the period contributed $206.8 million to the increase in average total loans held for investment.
The tax-equivalent yield on loans held for investment was 4.95%, down 109 basis points from the year ended
December 31, 2019. The decrease in yield was primarily due to the lower interest rate environment and was also
impacted by lower-yielding PPP loans originated during the period. Contractual loan interest rates yielded 4.57% in the
year ended December 31, 2020 compared with 5.50% in the year ended December 31, 2019. PPP loans contribute 14
basis points of this decline in contractual loan yield.
The components of our loan yield, a key driver to our NIM for the year ended December 31, 2020, 2019, and 2018 were
as follows:
(dollars in thousands)
Loan yield components:
Contractual interest rate on loans held for
investment (1)(2)
Origination and other loan fee income (2)
Accretion on purchased loans
Nonaccrual interest collections
Syndicated loan fee income
Total loan yield
2020
Year Ended December 31,
2018
2019
Interest
income
Average
yield
Interest
income
Average
yield
Interest
income
Average
yield
$ 256,929
15,978
3,788
1,381
—
$ 278,076
4.57 % $ 228,069
12,977
0.28 %
8,556
0.07 %
885
0.03 %
206
— %
4.95 % $ 250,693
5.50 % $ 183,116
13,093
0.31 %
7,608
0.21 %
1,375
0.02 %
351
— %
6.04 % $ 205,543
5.42 %
0.39 %
0.23 %
0.04 %
0.01 %
6.09 %
(1)
(2)
Includes tax-equivalent adjustment.
Includes $2.09 million of loan contractual interest and $3.92 million of loan fees related to PPP loans for the year ended December 31, 2020.
Accretion on purchased loans contributed 5 and 16 basis points to the NIM for the year ended December 31, 2020 and
2019, respectively. The decrease in accretion is due in part to the adoption of CECL and purchase accounting resulting
from our merger with Franklin, that contributed a net premium of $11.3 million recorded as of August 15, 2020, to be
amortized as a reduction to loan interest income. Contractual interest and origination fees on PPP loans attributed 8 basis
points to the NIM for the year ended December 31, 2020. We anticipate recognizing an estimated $2.7 million in deferred
origination fees, net of third party costs and deferred salaries, over the remaining life of the PPP loan portfolio.
Our NIM, on a tax-equivalent basis, decreased to 3.46% during the year ended December 31, 2020 from 4.34% in the
year ended December 31, 2019, driven by a declining interest rate environment and change in balance sheet mix, partially
attributable to our acquisition of Franklin during the year.
48
Interest expense was $49.0 million for the year ended December 31, 2020, a decrease of $7.5 million as compared to the
year ended December 31, 2019. The primary driver was the impact of the decrease in interest rates on deposits, resulting
in total deposit interest expense decrease of $8.7 million to $42.9 million for the year ended December 31, 2020,
compared to $51.6 million for the year ended December 31, 2019. The decrease was largely attributed to money market
deposits which decreased to $13.7 million for the year ended December 31, 2020 from $17.4 million for the year ended
December 31, 2019 and customer time deposits which decreased to $19.7 million for the year ended December 31, 2020
from $24.1 million for the year ended December 31, 2019. The average rate on money markets decreased to 0.76%,
down 66 basis points from the year ended December 31, 2019. Average money market balances increased $587.8 million
to $1,807.5 million during the year ended December 31, 2020 from $1,219.7 million for the same period in the previous
year. The decrease in interest expense on customer time deposits was primarily driven by decreased interest rates as the
average rate on customer time deposits decreased 57 basis points from 2.09% for the year ended December 31, 2019 to
1.52% for the year ended December 31, 2020. Total cost of deposits was 0.62% for the year ended December 31, 2020
compared to 1.10% for the year ended December 31, 2019.
49
Average balance sheet amounts, interest earned and yield analysis
The table below shows the average balances, income and expense and yield and rates of each of our interest-earning
assets and interest-bearing liabilities on a tax equivalent basis, if applicable, for the periods indicated.
(dollars in thousands on tax-
equivalent basis)
Interest-earning assets:
Loans (2)(4)
Loans held for sale-mortgage
Loans held for sale-commercial
Securities:
Taxable
Tax-exempt (4)
Total Securities (4)
Federal funds sold
Interest-bearing deposits with other
financial institutions
FHLB stock
Total interest earning assets (4)
Noninterest Earning Assets:
Cash and due from banks
Allowance for credit losses
Other assets (3)
Total noninterest earning assets
Total assets
Interest-bearing liabilities:
Interest bearing deposits:
Interest bearing checking
Money market deposits(8)
Savings deposits
Customer time deposits(8)
Brokered and internet time deposits(8)
Time deposits
Total interest bearing deposits
Other interest-bearing liabilities:
Securities sold under agreements to
repurchase and federal funds
purchased
Federal Home Loan Bank advances(6)
Subordinated debt(7)
Other borrowings
Total other interest-bearing
liabilities
Total interest-bearing liabilities
Noninterest bearing liabilities:
Demand deposits
Other liabilities
Total noninterest-bearing liabilities
Total liabilities
FB Financial Corporation shareholders'
equity
Noncontrolling interest
Shareholders' equity
Total liabilities and shareholders'
equity
Net interest income (tax-equivalent
basis)
Interest rate spread (tax-equivalent
basis)
Net interest margin (tax-equivalent
basis) (5)
Cost of total deposits
Average interest-earning assets to
average interest-bearing liabilities
(1) Calculated using daily averages.
Average
balances(1)
Interest
income/
expense
2020
Average
yield/
rate
Average
balances(1)
Interest
income/
expense
2019
Average
yield/
rate
Average
balances (1)
Interest
income/
expense
2018
Average
yield/
rate
Year Ended December 31,
$ 5,621,832 $ 278,076
12,699
4,166
420,791
84,580
4.95 % $ 4,149,590 $ 250,693
9,966
254,689
3.02 %
—
—
4.93 %
6.04 % $ 3,376,203 $ 205,543
15,632
352,370
3.91 %
—
—
— %
589,393
275,786
865,179
85,402
10,267
9,570
19,837
304
1.74 %
3.47 %
2.29 %
0.36 %
516,250
155,306
671,556
31,309
13,223
6,498
19,721
678
2.56 %
4.18 %
2.94 %
2.17 %
478,034
119,295
597,329
21,466
12,397
5,473
17,870
412
662,175
21,735
7,761,694
1,960
441
317,483
130,145
0.30 %
2.03 %
15,146
4.09 % 5,252,435
2,651
722
284,431
49,549
2.04 %
4.77 %
12,742
5.42 % 4,409,659
998
716
241,171
66,177
(121,033)
731,262
676,406
$ 8,438,100
51,194
(30,442)
504,485
525,237
$ 5,777,672
49,410
(25,747)
411,543
435,206
$ 4,844,865
$ 1,461,596 $ 8,875
13,707
1,807,481
274,489
232
19,656
1,289,552
43,372
389
20,045
1,332,924
42,859
4,876,490
0.61 % $ 950,219 $ 8,755
17,380
0.76 % 1,219,652
301
0.08 %
199,535
24,103
1.52 % 1,155,058
1,029
0.90 %
45,313
25,132
1.50 % 1,200,371
51,568
0.88 % 3,569,777
894,252 $
0.92 % $
1.42 % 1,027,047
178,303
0.15 %
744,834
2.09 %
2.27 %
82,113
826,947
2.09 %
1.44 % 2,926,549
6,488
10,895
272
10,409
1,472
11,881
29,536
32,912
212,705
86,944
12,939
201
1,093
4,475
358
0.61 %
0.51 %
5.15 %
2.77 %
26,400
187,509
30,930
—
291
3,004
1,638
—
1.10 %
1.60 %
5.30 %
19,528
216,011
30,930
— % $
— $
150
4,166
1,651
—
345,500
5,221,990
6,127
48,986
1.77 %
244,839
0.94 % 3,814,616
4,933
56,501
2.01 %
266,469
1.48 % 3,193,018
5,967
35,503
2,092,450
157,289
2,249,739
7,471,729
966,336
35
966,371
1,130,113
109,449
1,239,562
5,054,178
723,494
—
723,494
967,663
54,262
1,021,925
4,214,943
629,922
—
629,922
$ 8,438,100
$ 5,777,672
$ 4,844,865
$ 268,497
$ 227,930
205,668
3.94 %
4.34 %
1.10 %
137.7 %
3.15 %
3.46 %
0.62 %
148.6 %
50
6.09 %
4.44 %
— %
2.59 %
4.59 %
2.99 %
1.92 %
2.01 %
5.62 %
5.47 %
0.73 %
1.06 %
0.15 %
1.40 %
1.79 %
1.44 %
1.01 %
0.77 %
1.93 %
5.34 %
— %
2.24 %
1.11 %
4.36 %
4.66 %
0.76 %
138.1 %
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Average balances of nonaccrual loans are included in average loan balances. Loan fees of $16.0 million, $13.0 million, and $13.1 million, accretion of $3.8 million, $8.6
million, and $7.6 million, nonaccrual interest collections of $1.4 million, $0.9 million, and $1.4 million, and syndicated loan fees of $0, $0.2 million, and $0.4 million are
included in interest income for the years ended December 31, 2020, 2019, and 2018, respectively.
Includes investments in premises and equipment, other real estate owned, interest receivable, MSRs, core deposit and other intangibles, goodwill and other
miscellaneous assets.
Interest income includes the effects of taxable-equivalent adjustments using a U.S. federal income tax rate and, where applicable, state income tax to increase tax-
exempt interest income to a tax-equivalent basis. The net taxable-equivalent adjustment amounts included in the above table were $2.8 million, $1.9 million, and $1.6
million for the years ended December 31, 2020, 2019, and 2018, respectively.
The NIM is calculated by dividing annualized net interest income, on a tax-equivalent basis, by average total earning assets.
Includes $1.0 million and $0.5 million of gain accretion from other comprehensive income from previously cancelled cash flow hedge for the year ended December 31,
2020 and 2019, respectively. See additional discussion at Note 18."Derivatives."
Includes $0.4 million of accretion on subordinated debt fair value mark for the year ended December 31, 2020.
Includes $0.9 million and $0 of interest rate premium accretion on money market deposits, $2.0 million and $0 on customer time deposits and $0.4 million and
$0.1 million on brokered and internet deposits for the years ended December 31, 2020 and 2019, respectively.
Rate/volume analysis
The tables below present the components of the changes in net interest income for the the year ended December 31,
2020 and 2019. For each major category of interest-earning assets and interest-bearing liabilities, information is provided
with respect to changes due to average volumes and changes due to rates, with the changes in both volumes and rates
allocated to these two categories based on the proportionate absolute changes in each category.
Year ended December 31, 2020 compared to year ended December 31, 2019
(dollars in thousands on a tax-equivalent basis)
Interest-earning assets:
Loans (1)(2)
Loans held for sale - residential
Loans held for sale - commercial
Securities available for sale and other securities:
Taxable
Tax Exempt (2)
Federal funds sold and balances at Federal Reserve Bank
Time deposits in other financial institutions
FHLB stock
Total interest income (2)
Interest-bearing liabilities:
Interest-bearing checking
Money market deposits(5)
Savings deposits
Customer time deposits(5)
Brokered and internet time deposits(5)
Securities sold under agreements to repurchase and federal funds
purchased
Federal Home Loan Bank advances(3)
Subordinated debt(4)
Other borrowings
Total interest expense
Change in net interest income (2)
Year ended December 31, 2020 compared to
year ended December 31, 2019 due to
changes in
Volume
Rate
Total
$
72,822
5,013
4,166
1,274
4,181
193
1,575
134
89,358
3,105
4,458
63
2,050
(17)
40
129
2,883
358
13,069
$
$
(45,439)
(2,280)
—
(4,230)
(1,109)
(567)
(2,266)
(415)
(56,306)
(2,985)
(8,131)
(132)
(6,497)
(623)
(130)
(2,040)
(46)
—
(20,584)
27,383
2,733
4,166
(2,956)
3,072
(374)
(691)
(281)
33,052
120
(3,673)
(69)
(4,447)
(640)
(90)
(1,911)
2,837
358
(7,515)
$
76,289
$
(35,722)
$
40,567
(1)
(2)
(3)
(4)
(5)
Average loans are gross, including nonaccrual loans and overdrafts (before deduction of allowance for credit losses). Loan fees of $16.0 million and $13.0 million,
accretion of $3.8 million and $8.6 million, nonaccrual interest collections of $1.4 million and $0.9 million, and syndicated loan fee income of $0 and $0.2 million are
included in interest income for the year ended December 31, 2020 and 2019, respectively.
Interest income includes the effects of the tax-equivalent adjustments to increase tax-exempt interest income to a tax-equivalent basis.
Includes $1.0 million and $0.5 million of gain accretion from other comprehensive income from a previously cancelled cash flow hedge for the years ended December
31, 2020 and 2019, respectively.
Includes $0.4 million accretion on subordinated debt fair value premium for the year ended December 31, 2020.
Includes $0.9 million and $0 of interest rate premium accretion on money market deposits, $2.0 million and $0 on customer time deposits and $0.4 million and
$0.1 million on brokered and internet deposits for the years ended December 31, 2020 and 2019, respectively.
51
As discussed above, the $27.4 million increase in interest income on loans held for investment during the year ended
December 31, 2020 compared to December 31, 2019 was the primary driver of the $40.6 million increase in tax-
equivalent net interest income. The increase in loan interest income was driven by an increase in average loans held for
investment of $1.47 billion, or 35.5%, to $5.62 billion for the year ended December 31, 2020, as compared to $4.15 billion
for the year ended December 31, 2019, which was largely attributable to the acquisition of $182.2 million in loans from the
Farmers National acquisition and $2.43 billion in loans from the Franklin merger plus an increase of $206.8 million in
average PPP loans. The total decrease in interest expense of $7.5 million was primarily driven by decreases in rates on
money market and customer time deposits partially offset by increase in volume, partially related to our acquisitions.
Year Ended December 31, 2019 compared to year ended December 31, 2018
Year Ended December 31, 2019 compared to
year ended December 31, 2018
due to changes in
(dollars in thousands on a tax-equivalent basis)
Volume
Rate
Net increase
(decrease)
Interest-earning assets:
Loans(1)
Loans held for sale
Securities available for sale and other securities:
Taxable
Tax Exempt(2)
Federal funds sold and balances at Federal Reserve Bank
Time deposits in other financial institutions
FHLB stock
Total interest income(2)
Interest-bearing liabilities:
Interest bearing checking
Money market deposits
Savings deposits
Customer time deposits
Brokered and internet time deposits
Securities sold under agreements to repurchase and federal funds purchased
Federal Home Loan Bank advances
Subordinated debt
Total interest expense
Change in net interest income(2)
$
46,723
(3,822)
$
(1,573)
(1,844)
$
45,150
(5,666)
979
1,507
213
1,642
115
47,357
516
2,745
32
8,560
(836)
76
(457)
—
10,636
36,721
$
(153)
(482)
53
11
(109)
(4,097)
1,751
3,740
(3)
5,134
393
65
(705)
(13)
10,362
(14,459)
$
826
1,025
266
1,653
6
43,260
2,267
6,485
29
13,694
(443)
141
(1,162)
(13)
20,998
22,262
$
(1) Average loans are gross, including nonaccrual loans and overdrafts (before deduction of allowance for loan losses). Loan fees of $13.0 million and $13.1 million, accretion
of $8.6 million and $7.6 million, nonaccrual interest collections of $0.9 million and $1.4 million, and syndicated loan fee income of $0.2 million and $0.4 million are included in
interest income for the years ended December 31, 2019 and 2018, respectively.
(2) Interest income includes the effects of the tax-equivalent adjustments to increase tax-exempt interest income to a tax-equivalent basis.
52
Provision for credit losses
The provision for credit losses charged to operating expense is an amount which, in the judgment of management, is
necessary to maintain the allowance for credit losses ("ACL") at an appropriate level under the current expected credit
loss model. The determination of the amount of the allowance is complex and involves a high degree of judgment and
subjectivity. We adopted the expected credit loss methodology under FASB ASC Topic 326 on January 1, 2020. The
change in methodology from the previous incurred loss model in place prior to adoption requires additional inputs and the
use of reasonable and supportable economic forecasts to estimate loan losses for the entire life of the loan portfolio. As
such, the results between models are not necessarily comparable. Refer to Note 1, "Basis of presentation" in the notes to
our consolidated financial statements for a detailed discussion regarding ACL methodology.
Year ended December 31, 2020 compared to year ended December 31, 2019
Our provision for credit losses on loans held for investment for the year ended December 31, 2020 was $94.6 million as
compared to $7.1 million for the year ended December 31, 2019. The steep increase in provision for credit losses was
primarily the result of conforming the acquired loan portfolios to comply with CECL under our established framework and
governance model, as CECL requires the establishment of an allowance for credit losses for non-purchased credit
deteriorated loans be recognized through the provision for credit losses on the acquisition date. In addition to the impact
of the acquired portfolios during the year, our provision for credit losses was impacted by declining economic forecasts
resulting from the impact of COVID-19. The provision for credit losses on loans held for investment recognized in expense
in conjunction with the Farmers National acquisition on February 14, 2020 amounted to $2.9 million while the provision for
credit losses on loans held for investment recognized in expense in conjunction with the Franklin merger on August 15,
2020 amounted to $52.8 million. The remaining $38.9 million included in the provision for credit losses is reflective of
activity for both the Company's legacy non-acquired portfolios and the acquired portfolios of Farmers National and
Franklin from their respective acquisition dates through the remainder of 2020. Although the portfolio benefited from
improving economic forecasts in the last half of 2020, there is much uncertainty surrounding the impact of the COVID-19
pandemic, which may continue to lead to increased volatility in forecasted macroeconomic variables, a key input to our
calculated level of allowance for credit losses.
As of December 31, 2020, we determined that all available-for-sale debt securities that experienced a decline in fair value
below amortized cost basis were due to noncredit-related factors. Therefore, there was no provision for credit losses
recognized on available-for-sale debt securities during the year ended December 31, 2020.
In connection with the adoption of CECL on January 1, 2020, the Company estimates expected credit losses on off-
balance sheet loan commitments that are not accounted for as derivatives. When applying the CECL methodology to
estimate expected credit loss, the Company considers the likelihood that funding will occur, the contractual period of
exposure to credit loss, the risk of loss, historical loss experience, and current conditions along with expectations of future
economic conditions. As such, the Company recorded provision for credit losses on unfunded commitments of $13.4
million for the year ended December 31, 2020.
See the section captioned "Allowance for Credit Losses" for more information regarding the Company's ACL methodology.
53
Noninterest income
Our noninterest income includes gains on sales of mortgage loans, unrealized change in fair value of loans held for sale
and derivatives, fees on mortgage loan originations, loan servicing fees, hedging results, fees generated from deposit
services, investment services and trust income, gains and losses on securities, other real estate owned and other assets
and other miscellaneous noninterest income.
The following table sets forth the components of noninterest income for the periods indicated:
(dollars in thousands)
Mortgage banking income
Service charges on deposit accounts
ATM and interchange fees
Investment services and trust income
Gain (loss) from securities, net
(Loss) gain on sales or write-downs of other real estate owned
(Loss) gain from other assets
Other
Total noninterest income
2020
255,328
9,160
14,915
7,080
1,631
(1,491)
(90)
15,322
301,855
$
$
$
$
2019
100,916 $
9,479
12,161
5,244
57
545
(104)
Year Ended December 31,
2018
100,661
8,502
10,013
5,181
(116)
(99)
328
6,172
130,642
7,099
135,397 $
Year ended December 31, 2020 compared to year ended December 31, 2019
Noninterest income amounted to $301.9 million for the year ended December 31, 2020, an increase of $166.5 million, or
122.9%, as compared to $135.4 million for the year ended December 31, 2019. Changes in selected components of
noninterest income in the above table are discussed below.
Mortgage banking income primarily includes origination fees and realized gains and losses on the sale of mortgage loans,
unrealized change in fair value of mortgage loans and derivatives, and mortgage servicing fees, which includes net
change in fair value of MSRs and related derivatives. Mortgage banking income is initially driven by the recognition of
interest rate lock commitments (IRLCs) at fair value at inception of the IRLCs. This is subsequently adjusted for changes
in the overall interest rate environment offset by derivative contracts entered into to mitigate the interest rate exposure.
Upon sale of the loan, the net fair value gain is reclassified as a realized gain on sale. Mortgage banking income was
$255.3 million and $100.9 million for the years ended December 31, 2020 and 2019, respectively, representing a 153.0%
increase year-over-year.
During the year ended December 31, 2020, the Bank’s mortgage operations had sales of $6.24 billion which generated a
gain on sales margin of 3.79%. This compares to $4.55 billion and 2.12% for the year ended December 31, 2019. The
increase in gain on sales margin is a result of the mortgage restructuring in 2019, and productive market conditions in
2020. The industry benefited greatly from declining interest rates in 2020, causing a sharp increase in volume in 2020.
Mortgage banking income from gains on sale and related fair value changes increased to $267.6 million during the year
ended December 31, 2020 compared to $100.2 million for the year ended December 31, 2019. Total interest rate lock
volume increased $3,036.0 million, or 51.4%, during the year ended December 31, 2020 compared to the previous year.
The volume mix of refinances and purchases also shifted during year ended December 31, 2020 to 77.6% refinance
volume compared with 56.2% during the previous year.
Our mortgage banking business is directly impacted by the interest rate environment, regulatory environment, consumer
demand, economic conditions, and investor demand for mortgage securities. Mortgage production, especially refinance
activity, declines in rising interest rate environments. While we have not yet experienced significant slowdowns in our
mortgage production volume, our interest rate lock volume is expected to be materially and adversely impacted by rising
interest rates, and we expect to see declining refinance activity within the mortgage industry when rates rise.
Income from mortgage servicing of $22.1 million and $17.7 million for year ended December 31, 2020 and 2019,
respectively, was offset by declines in fair value of MSRs and related hedging activity of $34.4 million and $17.0 million in
the year ended December 31, 2020 and 2019, respectively.
54
The components of mortgage banking income for the year ended December 31, 2020, 2019, and 2018 were as follows:
(dollars in thousands)
Mortgage banking income:
Origination and sales of mortgage loans
Net change in fair value of loans held for sale and derivatives
Change in fair value on MSRs
Mortgage servicing income
Total mortgage banking income
Interest rate lock commitment volume by line of business:
Consumer direct
Third party origination (TPO)
Retail
Correspondent
Total
Interest rate lock commitment volume by purpose (%):
Purchase
Refinance
Mortgage sales
Mortgage sale margin
Closing volume
Outstanding principal balance of mortgage loans serviced
2020
236,382
31,192
(34,374)
22,128
255,328
5,539,862
—
3,399,174
—
8,939,036
$
$
$
$
Year Ended December 31,
2019
2018
$
$
$
$
96,710
3,518
(16,989)
17,677
100,916
2,979,811
327,373
1,605,158
990,646
5,902,988
$
$
$
$
98,075
(9,332)
(8,673)
20,591
100,661
2,685,103
860,464
1,250,136
2,325,555
7,121,258
22.4 %
77.6 %
43.8 %
56.2 %
65.7 %
34.3 %
$
6,235,149
$
4,554,962
6,154,847
3.79 %
2.12 %
1.59 %
$
$
6,650,258
9,787,657
$
$
4,540,652
6,734,496
$
$
5,958,066
6,755,114
Mortgage banking income attributable to our Banking segment from retail operations within the Bank footprint was $75.4
million and $30.4 million for the year ended December 31, 2020 and 2019, respectively, and mortgage banking income
attributable to our Mortgage segment was $179.9 million and $70.5 million for the year ended December 31, 2020 and
2019, respectively.
Other noninterest income for the year ended December 31, 2020 increased $8.2 million to $15.3 million as compared to
other noninterest income of $7.1 million for year ended December 31, 2019. This increase reflects a gain on commercial
loans held for sale of $3.2 million related to changes in fair value from Franklin acquisition date to the end of 2020.
Additionally, the increase reflect reflects increased swap fee income in addition to overall increases due to our growth and
volume of business.
Noninterest expense
Our noninterest expense includes primarily salaries and employee benefits expense, occupancy expense, legal and
professional fees, data processing expense, regulatory fees and deposit insurance assessments, advertising and
promotion and other real estate owned expense, among others. We monitor the ratio of noninterest expense to the sum of
net interest income plus noninterest income, which is commonly known as the efficiency ratio.
The following table sets forth the components of noninterest expense for the periods indicated:
(dollars in thousands)
Salaries, commissions and employee benefits
Occupancy and equipment expense
Legal and professional fees
Data processing
Merger costs
Amortization of core deposit and other intangibles
Advertising
Other expense
Total noninterest expense
2020
233,768 $
$
18,979
7,654
11,390
34,879
5,323
10,062
55,030
$
377,085 $
55
2019
152,084 $
Year Ended December 31,
2018
136,892
13,976
7,903
9,100
1,594
3,185
13,139
37,669
223,458
15,641
7,486
10,589
5,385
4,339
9,138
40,179
244,841 $
Year ended December 31, 2020 compared to year ended December 31, 2019
Noninterest expense increased by $132.2 million during the year ended December 31, 2020 to $377.1 million as
compared to $244.8 million in the year ended December 31, 2019. Changes in selected components of noninterest
expense in the above table are discussed below.
Salaries, commissions and employee benefits expense was the largest component of noninterest expenses representing
62.0% and 62.1% of total noninterest expense in the years ended December 31, 2020 and 2019, respectively. During the
year ended December 31, 2020, salaries and employee benefits expense increased $81.7 million, or 53.7%, to $233.8
million as compared to $152.1 million for the year ended December 31, 2019. This increase was mainly driven by our
increase in headcount as a result of our mergers. During the year ended December 31, 2020, FTE's increased to 1,852 as
of December 31, 2020 from 1,377 as of December 31, 2019. Also included in total salaries, commissions and employee
benefits expense was an increase of $41.8 million in commissions and incentives expenses resulting from increased
mortgage production previously discussed.
Costs resulting from our equity compensation grants during the years ended December 31, 2020 and 2019 amounted to
$10.2 million and $7.1 million, respectively. These grants comprise restricted stock units granted to all new full-time
associates each year in addition to annual performance grants, employment agreement grants and grants resulting from
acquisition. Additionally, during 2020 we began granting performance-based stock units, which resulted in $1.0 million in
expense during the year ended December 31, 2020.
Merger costs amounted to $34.9 million for the year ended December 31, 2020 compared to $5.4 million for the year
ended December 31, 2019. For the year ended December 31, 2020, merger costs consisted of $7.7 million of contract
termination costs, $5.6 million of branch closing and consolidation costs, $7.7 million of professional fees, $6.6 million of
severance and separation benefits, $4.5 million of conversion-related costs, and $2.7 million of other acquisition-related
costs. Costs during the previous year were related to our acquisition of the Branches, which closed during the second
quarter of the previous year. We anticipate to continue incurring severance and separation benefits through the first half of
2021 for certain merger-related employment agreements.
Other noninterest expense primarily includes mortgage servicing expenses, regulatory fees and deposit insurance
assessments, software license and maintenance fees and various other miscellaneous expenses. Other noninterest
expense increased $14.9 million during the year ended December 31, 2020 to $55.0 million compared to $40.2 million
during the year ended December 31, 2019. The increase reflects costs associated with our growth, including the impact of
our acquisitions, as well as a one-time prepayment penalty of $6.8 million, incurred in connection with our repayment of
$150.0 million in long-term advances and $100.0 million in 90 day fixed rate advances.
Efficiency ratio
The efficiency ratio is one measure of productivity in the banking industry. This ratio is calculated to measure the cost of
generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be
expended to generate that dollar of revenue. We calculate this ratio by dividing noninterest expense by the sum of net
interest income and noninterest income. For an adjusted efficiency ratio, we exclude certain gains, losses and expenses
we do not consider core to our business.
Our efficiency ratio was 66.4% and 67.7% for the year ended December 31, 2020 and 2019, respectively. Our adjusted
efficiency ratio, on a tax-equivalent basis, was 59.2% and 65.4% for the year ended December 31, 2020 and 2019,
respectively. See “GAAP reconciliation and management explanation of non-GAAP financial measures” in this Report for a
discussion of the adjusted efficiency ratio.
56
Return on equity and assets
The following table sets forth our ROAA, ROAE, dividend payout ratio and average shareholders’ equity to average assets
ratio for the periods indicated:
Return on average total assets
Return on average shareholders' equity
Dividend payout ratio
Average shareholders’ equity to average assets
Year Ended December 31,
2020
0.75 %
6.58 %
22.8 %
11.5 %
2019
1.45 %
11.6 %
12.2 %
12.5 %
2018
1.66 %
12.7 %
7.93 %
13.0 %
As previously discussed, during the year ended December 31, 2020, we recognized significant increases in our provision
for credit losses and merger costs, which resulted in return on average total assets of 0.75% for the year ended
December 31, 2020, as compared to 1.45% for the year ended December 31, 2019. Return on average shareholders’
equity was 6.58% for the year ended December 31, 2020, as compared to 11.6% for the year ended December 31, 2019.
Income taxes
We recorded an income tax expense of $18.8 million and $25.7 million for the years ended December 31, 2020 and 2019,
respectively. This represents effective tax rates of 22.84% and 23.48% for the years ended December 31, 2020 and 2019,
respectively. The primary differences from the enacted rates are applicable state income taxes reduced for non-taxable
income and tax credits, and additional deductions for equity-based compensation upon the distribution of restricted stock
units.
Financial condition
The following discussion of our financial condition compares balances as of December 31, 2020 with December 31, 2019.
Total assets
Our total assets were $11.21 billion at December 31, 2020, compared to total assets of $6.12 billion as of December 31,
2019. The increase was attributable to our acquisition of Farmers National, completed on February 14, 2020 and merger
with Franklin on August 15, 2020, which added assets of $258.2 million and $3.63 billion, respectively, combined with our
participation in the PPP. Additionally, the increase is partially related to the $212.6 million of outstanding PPP loans at
December 31, 2020. Additionally, we held cash and cash equivalents of $1.32 billion at December 31, 2020, an increase
of $1.09 billion during the year 2020, up from $232.7 million at December 31, 2019. As a result of the COVID-19
pandemic, we have taken appropriate measures to ensure adequate liquidity.
Loan portfolio
Our loan portfolio is our most significant earning asset, comprising 63.2% and 72.0% of our total assets as of
December 31, 2020 and December 31, 2019, respectively. Our strategy is to grow our loan portfolio by originating quality
commercial and consumer loans that comply with our credit policies and that produce revenues consistent with our
financial objectives. Our overall lending approach is primarily focused on providing credit to our customers directly rather
than purchasing loan syndications and loan participations from other banks (collectively, “participated loans”). At
December 31, 2020 and December 31, 2019, loans held for investment included approximately $206.8 million and $103.4
million, respectively, related to purchased participation loans. We believe our loan portfolio is well-balanced, which
provides us with the opportunity to grow while monitoring our loan concentrations.
57
Loans by type
The following table sets forth the balance and associated percentage of each class of financing receivable in our loan
portfolio as of the dates indicated:
(dollars in thousands)
Amount
2020
% of
total
2019
% of
total
Amount
2018
% of
total
Amount
2017
% of
total
Amount
Loan Type:
Commercial and industrial (1)
Construction
Residential real estate:
1-to-4 family
Line of credit
Multi-family
Commercial real estate:
Owner-Occupied
Non-Owner Occupied
Consumer and other
$ 1,346,122
19 % $ 1,034,036
23 % $
867,083
24 % $
715,075
23 % $
386,233
1,222,220
17 %
551,101
13 %
556,051
15 %
448,326
14 %
245,905
1,089,270
15 %
710,454
16 %
555,815
16 %
480,989
15 %
294,924
408,211
175,676
6 %
2 %
221,530
69,429
5 %
2 %
190,480
75,457
5 %
2 %
194,986
62,374
6 %
2 %
177,190
44,977
924,841
13 %
630,270
14 %
493,524
13 %
495,872
16 %
357,346
1,598,979
23 %
920,744
21 %
700,248
19 %
551,588
17 %
267,902
317,640
5 %
272,078
6 %
228,853
6 %
217,701
7 %
74,307
% of
total
21 %
13 %
16 %
10 %
2 %
19 %
15 %
4 %
As of December 31,
2016
Amount
100 %
Total loans
(1)Includes $212,645 of loans originated as part of the PPP at December 31, 2020, established by the CARES Act, in response to the COVID-19
pandemic. The PPP is administered by the SBA; loans originated as part of the PPP may be forgiven by the SBA under a set of defined rules.
100 % $ 1,848,784
100 % $ 4,409,642
100 % $ 3,166,911
100 % $ 3,667,511
$ 7,082,959
58
Loan concentrations are considered to exist when there are amounts loaned to a number of borrowers engaged in similar
activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2020 and
December 31, 2019, there were no concentrations of loans exceeding 10% of total loans other than the categories of
loans disclosed in the table above. We believe our loan portfolio is diversified relative to industry concentrations across
the various loan portfolio categories. While most industries have and are expected to continue to experience adverse
impacts as a result of COVID–19, certain industries present more risk than others. As of December 31, 2020, outstanding
loan principal balances of loans in deferral status amounted to $202.5 million. The following presents industry loan
categories considered to be “of concern” in relation to our total portfolio as of December 31, 2020.
Industry
Retail lending
Healthcare
Hotel
Other leisure
Transportation
Restaurants
Approximate
% of
total loans
Description of components
8.7 %
Includes non-owner occupied CRE, automobile, recreational vehicle and boat
dealers, gas stations and convenience stores, pharmacies and drug stores,
and sporting goods.
4.9 % Includes assisted living, nursing and continuing care, medical practices, social
assistance, mental health and substance abuse centers.
4.9 % Vast majority of hotel exposure is built around long-term successful hotel
operators and strong flags located within our banking footprint.
1.7 %
Includes marinas, recreational vehicle parks and campgrounds, fitness and
recreational sports centers, sports teams and clubs, historical sites, and
theaters.
1.6 %
Includes trucking exposure made up of truckload operators, equipment
lessors to owner/operators, and local franchisees of major national trucking
companies. Also includes air travel (no commercial airlines) and support and
to a lesser extent, consumer charter and transportation and warehousing.
2.0 % Majority made up of full service restaurants with no major concentration by
operator or brand. Also includes limited service restaurants and bars.
Banking regulators have established thresholds of less than 100% of tier 1 capital plus allowance for credit losses in
construction lending and less than 300% of tier 1 capital plus allowance for credit losses in commercial real estate lending
that management monitors as part of the risk management process. The construction concentration ratio is a percentage
of the outstanding construction and land development loans to total tier 1 capital plus allowance for credit losses. The
commercial real estate concentration ratio is a percentage of the outstanding balance of non-owner occupied commercial
real estate, multifamily, and construction and land development loans to tier 1 capital plus allowance for credit losses.
Management strives to operate within the thresholds set forth above.
When a company's ratios are in excess of one or both of these guidelines, banking regulators generally require an
increased level of monitoring in these lending areas by management.
The table below shows concentration ratios for the Bank and Company as of December 31, 2020 and December 31,
2019, which both were within the stated thresholds.
December 31, 2020
Construction
Commercial real estate
December 31, 2019
Construction
Commercial real estate
As a percentage (%) of tier 1 capital plus
allowance for credit losses
FirstBank
93.1 %
228.3 %
88.4 %
247.4 %
FB Financial
Corporation
96.9 %
237.7 %
87.0 %
243.4 %
59
Loan categories
The principal categories of our loans held for investment portfolio are discussed below:
Commercial and industrial loans. We provide a mix of variable and fixed rate commercial and industrial loans. Our
commercial and industrial loans are typically made to small and medium-sized manufacturing, wholesale, retail and
service businesses for working capital and operating needs and business expansions, including the purchase of capital
equipment and loans made to farmers relating to their operations. This category also includes loans secured by
manufactured housing receivables. Commercial and industrial loans generally include lines of credit and loans with
maturities of five years or less. This category also includes the loans we originated as part of the PPP, established by the
CARES Act. The PPP is administered by the SBA, and loans we originated as part of the PPP may be forgiven by the SBA
under a set of defined rules. These federally guaranteed loans were intended to provide up to 24 weeks of payroll and
other operating costs as a source of aid to small- and medium-sized businesses. Commercial and industrial loans are
generally made with operating cash flows as the primary source of repayment, but may also include collateralization by
inventory, accounts receivable, equipment and personal guarantees. We plan to continue to make commercial and
industrial loans an area of emphasis in our lending operations in the future. Excluding PPP loans totaling $212.6 million as
of December 31, 2020, our commercial and industrial loans comprised $1,133.5 million, or 16% of our loans held for
investment.
Commercial real estate owner-occupied loans. Our commercial real estate owner-occupied loans include loans to
finance commercial real estate owner occupied properties for various purposes including use as offices, warehouses,
production facilities, health care facilities, retail centers, restaurants, churches and agricultural based facilities.
Commercial real estate owner-occupied loans are typically repaid through the ongoing business operations of the
borrower, and hence are dependent on the success of the underlying business for repayment and are more exposed to
general economic conditions.
Commercial real estate non-owner occupied loans. Our commercial real estate non-owner occupied loans include loans
to finance commercial real estate non-owner occupied investment properties for various purposes including use as offices,
warehouses, health care facilities, hotels, mixed-use residential/commercial, manufactured housing communities, retail
centers, multifamily properties, assisted living facilities and agricultural based facilities. Commercial real estate non-owner
occupied loans are typically repaid with the funds received from the sale of the completed property or rental proceeds
from such property, and are therefore more sensitive to adverse conditions in the real estate market, which can also be
affected by general economic conditions.
Residential real estate 1-4 family mortgage loans. Our residential real estate 1-4 family mortgage loans are primarily
made with respect to and secured by single family homes, including manufactured homes with real estate, which are both
owner-occupied and investor owned. We intend to continue to make residential 1-4 family housing loans at a similar pace,
so long as housing values in our markets do not deteriorate from current prevailing levels and we are able to make such
loans consistent with our current credit and underwriting standards. First lien residential 1-4 family mortgages may be
affected by unemployment or underemployment and deteriorating market values of real estate.
Residential line of credit loans. Our residential line of credit loans are primarily revolving, open-end lines of credit
secured by 1-4 family residential properties. We intend to continue to make residential line of credit loans if housing values
in our markets do not deteriorate from current prevailing levels and we are able to make such loans consistent with our
current credit and underwriting standards. Residential line of credit loans may be affected by unemployment or
underemployment and deteriorating market values of real estate.
Multi-family residential loans. Our multi-family residential loans are primarily secured by multi-family properties, such as
apartments and condominium buildings. These loans may be affected by unemployment or underemployment and
deteriorating market values of real estate.
Construction loans. Our construction loans include commercial construction, land acquisition and land development
loans and single-family interim construction loans to small- and medium-sized businesses and individuals. These loans
are generally secured by the land or the real property being built and are made based on our assessment of the value of
the property on an as-completed basis. We expect to continue to make construction loans at a similar pace so long as
demand continues and the market for and values of such properties remain stable or continue to improve in our markets.
These loans can carry risk of repayment when projects incur cost overruns, have an increase in the price of building
materials, encounter zoning and environmental issues, or encounter other factors that may affect the completion of a
project on time and on budget. Additionally, repayment risk may be negatively impacted when the market experiences a
deterioration in the value of real estate.
60
Consumer and other loans. Consumer and other loans include consumer loans made to individuals for personal, family
and household purposes, including car, boat and other recreational vehicle loans and personal lines of credit. Consumer
loans are generally secured by vehicles and other household goods. The collateral securing consumer loans may
depreciate over time. The company seeks to minimize these risks through its underwriting standards. Other loans also
include loans to states and political subdivisions in the U.S. These loans are generally subject to the risk that the
borrowing municipality or political subdivision may lose a significant portion of its tax base or that the project for which the
loan was made may produce inadequate revenue. None of these categories of loans represents a significant portion of
our loan portfolio.
Loan maturity and sensitivities
The following tables present the contractual maturities of our loan portfolio as of December 31, 2020 and December 31,
2019. Loans with scheduled maturities are reported in the maturity category in which the payment is due. Demand loans
with no stated maturity and overdrafts are reported in the “due in 1 year or less” category. Loans that have adjustable
rates are shown as amortizing to final maturity rather than when the interest rates are next subject to change. The tables
do not include prepayment assumptions or scheduled repayments. As of December 31, 2020 and December 31, 2019, the
Company had $22.4 million and $23.1 million, respectively, in fixed-rate loans in which the Company has entered into
variable rate swap contracts.
Loan type (dollars in thousands)
Maturing in one
year or less
Maturing in one
to five years
Maturing after
five years
Total
As of December 31, 2020
Commercial and industrial
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
1-to-4 family
Line of credit
Multi-family
Construction
Consumer and other
Total ($)
Total (%)
$
225,384
$
955,847
$
164,891
$
1,346,122
114,993
134,846
78,600
27,970
6,291
613,153
29,051
1,230,288
$
453,426
770,849
361,804
82,084
74,139
384,124
77,398
3,159,671
$
356,422
693,284
648,866
298,157
95,246
224,943
211,191
2,693,000
$
924,841
1,598,979
1,089,270
408,211
175,676
1,222,220
317,640
7,082,959
17.4 %
44.6 %
38.0 %
100.0 %
$
Loan type (dollars in thousands)
Maturing in one
year or less
Maturing in one
to five years
Maturing after
five years
Total
As of December 31, 2019
Commercial and industrial
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
1-to-4 family
Line of credit
Multi-family
Construction
Consumer and other
Total ($)
Total (%)
$
396,045
$
501,693
$
136,298
$
1,034,036
97,724
109,172
63,297
7,179
1,793
241,872
38,830
955,912
$
367,072
552,333
258,570
47,629
57,602
259,942
66,016
2,110,857
$
165,474
259,239
388,587
166,722
10,034
49,287
167,232
1,342,873
$
630,270
920,744
710,454
221,530
69,429
551,101
272,078
4,409,642
21.7 %
47.9 %
30.4 %
100.0 %
$
61
For loans due after one year or more, the following tables present the sensitivities to changes in interest rates as of
December 31, 2020 and December 31, 2019.
Loan type (dollars in thousands)
As of December 31, 2020
Commercial and industrial
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
1-to-4 family
Line of credit
Multi-family
Construction
Consumer and other
Total ($)
Total (%)
Loan type (dollars in thousands)
As of December 31, 2019
Commercial and industrial
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
1-to-4 family
Line of credit
Multi-family
Construction
Consumer and other
Total ($)
Total (%)
Fixed
interest rate
Floating
interest rate
Total
$
577,567
$
543,171
$
1,120,738
534,035
609,100
809,012
4,647
86,232
182,761
267,263
3,070,617
275,813
855,033
201,658
375,594
83,153
426,306
21,326
2,782,054
$
$
809,848
1,464,133
1,010,670
380,241
169,385
609,067
288,589
5,852,671
$
52.5 %
47.5 %
100.0 %
Fixed
interest rate
Floating
interest rate
Total
$
288,666
$
349,325
$
637,991
422,684
324,951
532,409
892
49,091
93,342
215,822
1,927,857
$
109,862
486,621
114,748
213,459
18,545
215,887
17,426
1,525,873
$
532,546
811,572
647,157
214,351
67,636
309,229
233,248
3,453,730
$
55.8 %
44.2 %
100.0 %
62
The following table presents the contractual maturities of our loan portfolio segregated into fixed and floating interest rate
loans as of December 31, 2020 and December 31, 2019.
(dollars in thousands)
As of December 31, 2020
One year or less
One to five years
More than five years
Total ($)
Total (%)
(dollars in thousands)
As of December 31, 2019
One year or less
One to five years
More than five years
Total ($)
Total (%)
Fixed
interest rate
Floating
interest rate
$
$
$
$
321,315
1,906,319
1,164,298
3,391,932
47.9 %
Fixed
interest rate
381,148
1,224,977
702,880
2,309,005
52.4 %
$
$
$
$
908,973
1,253,352
1,528,702
3,691,027
52.1 %
Floating
interest rate
574,764
885,880
639,993
2,100,637
47.6 %
$
$
$
$
Total
1,230,288
3,159,671
2,693,000
7,082,959
100.0 %
Total
955,912
2,110,857
1,342,873
4,409,642
100.0 %
Of the loans shown above with floating interest rates, many have interest rate floors as follows:
Loans with interest rate floors
(dollars in thousands)
As of December 31, 2020
Loans with current rates above
floors:
1-25 bps
26-50 bps
51-75 bps
76-100 bps
101-125 bps
126-150 bps
151-200 bps
201-250 bps
251 bps and above
Total loans with current rates
above floors
Loans with current rates below
floors:
1-25 bps
26-50 bps
51-75 bps
76-100 bps
101-125 bps
126-150 bps
151-200 bps
201-250 bps
251 bps and above
Maturing
in one
year or
less
Weighted
average
level of
support
(bps)
Maturing
in one to
five years
Weighted
average
level of
support
(bps)
Weighted
average
level of
support
(bps)
Maturing
after five
years
Weighted
average
level of
support
(bps)
Total
$ 69,504
4,765
480
3,158
394
55
106
—
1,295
20.49 $ 139,196
3,673
50.00
4,603
74.98
2,194
100.00
121.69
555
11,810
150.00
2,762
174.56
717
—
689
373.11
16.18 $ 82,042
28,933
43.38
56,774
74.65
15,744
85.52
20,047
109.97
15,057
140.71
20,209
171.60
9,438
243.21
6,335
284.60
21.08 $ 290,742
37,371
46.41
61,857
67.11
21,096
96.65
20,996
116.35
26,922
144.89
23,077
177.38
10,155
228.83
8,319
294.21
18.59
46.57
67.73
95.99
116.28
143.07
176.68
229.85
305.69
$ 79,757
32.25 $ 166,199
33.16 $ 254,579
80.63 $ 500,535
57.16
$ 86,217
64,281
99,110
82,053
49,771
46,392
62,612
13,548
13,094
17.18 $ 153,278
75,638
48.58
74.60
68,972
94.70 119,093
35,162
52,318
75,178
34,997
47,324
123.70
143.67
179.04
225.57
386.87
4.23 $ 26,069
80,009
43.29
71.02
88,894
88.57 114,187
121.94 122,862
138.73 155,184
176.50 171,605
226.31 128,757
65,360
288.85
20.09 $ 265,564
47.35 219,928
64.89 256,976
91.08 315,333
119.13 207,795
139.69 253,894
171.76 309,395
225.65 177,302
297.38 125,778
9.99
46.32
70.28
91.07
120.70
140.22
174.39
225.77
303.49
Total loans with current rates
below floors
$ 517,078
81.44 $ 661,960
89.26 $ 952,927
123.13 $ 2,131,965
102.26
63
Asset quality
In order to operate with a sound risk profile, we focus on originating loans that we believe to be of high quality. We have
established loan approval policies and procedures to assist us in maintaining the overall quality of our loan portfolio. When
delinquencies in our loans exist, we rigorously monitor the levels of such delinquencies for any negative or adverse
trends. From time to time, we may modify loans to extend the term or make other concessions, including extensions or
interest rate modifications, to help a borrower with a deteriorating financial condition stay current on their loan and to avoid
foreclosure. Furthermore, we are committed to collecting on all of our loans, which can result in us carrying higher
nonperforming assets. We believe this practice leads to higher recoveries in the long-term.
Nonperforming assets
Our nonperforming assets consist of nonperforming loans, other real estate owned and other miscellaneous non-earning
assets. Nonperforming loans are those on which the accrual of interest has stopped, as well as loans that are
contractually 90 days past due on which interest continues to accrue. Generally, the accrual of interest is discontinued
when the full collection of principal or interest is in doubt or when the payment of principal or interest has been
contractually 90 days past due, unless the obligation is both well secured and in the process of collection. In our loan
review process, we seek to identify and proactively address nonperforming loans.
As of December 31, 2020 and December 31, 2019, we had $84.2 million and $47.1 million, respectively, in nonperforming
assets. As of December 31, 2020 and December 31, 2019, other real estate owned included $5.7 million and $9.0 million,
respectively, of excess land and facilities held for sale resulting from our acquisitions. Other nonperforming assets,
including other repossessed non-real estate, as of December 31, 2020 and December 31, 2019 amounted to $1.2 million
and $1.6 million, respectively.
We had net interest recoveries on nonperforming assets previously charged off of $1.4 million and $0.9 million for the
years ended December 31, 2020 and 2019, respectively.
At December 31, 2020 and December 31, 2019, there were $151.2 million and $51.7 million of delinquent GNMA loans
that had previously been sold; however, we determined there not to be a more-than-trivial benefit of rebooking based on
an analysis of interest rates and an assessment of potential reputational risk associated with these loans. As such, these
were not recorded on our balance sheets as of December 31, 2020 or December 31, 2019.
64
The following table provides details of our nonperforming assets, the ratio of such loans and other nonperforming assets
to total assets, and certain other related information as of the dates presented:
(dollars in thousands)
Loan Type
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Multi-family mortgage
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total nonperforming loans held for investment
Loans held for sale
Other real estate owned
Other
Total nonperforming assets
$
2020
2019
2018
2017
2016
As of December 31,
$
16,335
4,626
$
16,393
1,996
57
7,948
12,471
4,630
64,456
6,489
12,111
1,170
84,226
$
5,878
1,129
7,297
828
—
1,793
7,880
1,800
26,605
—
18,939
1,580
47,124
$
$
503
283
$
623
541
3,441
1,761
—
2,620
6,962
1,156
16,726
397
12,643
1,637
31,403
3,504
833
—
2,940
1,371
285
10,097
43,355
16,442
2,369
72,263
$
$
$
1,424
271
2,986
1,034
—
2,007
2,251
85
10,058
—
7,403
1,654
19,115
Total nonperforming loans held for investment as a
percentage of total loans held for investment
Total nonperforming assets as a percentage of
total assets
Total accruing loans over 90 days delinquent as a
percentage of total assets
Loans restructured as troubled debt restructurings
Troubled debt restructurings as a percentage
of total loans held for investment
0.91 %
0.60 %
0.46 %
0.32 %
0.54 %
0.75 %
0.77 %
0.61 %
1.53 %
0.58 %
0.12 %
0.09 %
0.06 %
0.04 %
0.04 %
$
15,988
$
12,206
$
6,794
$
8,604
$
8,802
0.23 %
0.28 %
0.19 %
0.27 %
0.48 %
We have evaluated our nonperforming loans held for investment and believe all nonperforming loans have been
adequately reserved for in the allowance for credit losses at December 31, 2020. Management also continually monitors
past due loans for potential credit quality deterioration. Loans not considered nonperforming include loans 30-89 days
past due amounting to $27.0 million at December 31, 2020 as compared to $18.5 million at December 31, 2019. Periods
prior to our adoption of CECL on January 1, 2020 exclude purchased credit impaired ("PCI") loans from nonperforming
totals while the current period includes PCD loans at their contractual number of days past due. Loans in deferral status
are considered current.
Other real estate owned consists of properties acquired through foreclosure or acceptance of a deed in lieu of foreclosure
in addition to excess facilities held for sale. These properties are carried at the lower of cost or fair value based on
appraised value less estimated selling costs. Losses arising at the time of foreclosure of properties are charged against
the allowance for credit losses. Reductions in the carrying value subsequent to foreclosure are charged to earnings and
are included in “Gain on sales or write-downs of other real estate owned” in the accompanying consolidated statements of
income. During the year ended December 31, 2020, other real estate owned included write-downs and partial liquidations
of $1.8 million, which combined with gains on sales of other real estate, resulted in net losses of $1.5 million. During the
year ended December 31, 2019, other real estate owned included write-downs and partial liquidations of $0.5 million,
which combined with net gains on sales of other real estate owned, resulted in a net gain $0.5 million.
65
Non-TDR Loan Modifications due to COVID-19
During the year ended December 31, 2020, we offered financial relief in the form of a payment deferral program to those
experiencing financial hardships related to the COVID-19 pandemic. These modifications were consistent with the
"Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected
by the Coronavirus" and the CARES Act and did not qualify as TDRs. As of December 31, 2020, the total amortized cost
of loans deferred during 2020 that were no longer in deferral status amounted to $1.40 billion. As of December 31, 2020,
recorded balances in total loans remaining in deferral status under this program amounted to $202.5 million. The payment
deferrals program differs from forbearance, in that all deferred payments are not normally due at the end of the deferral
period. Instead, the payment due date is advanced to a future time period. Generally, interest continues to accrue on
loans during the deferral period, unless the loan is on nonaccrual. The vast majority of our loans in deferral status are
considered performing loans, and we anticipate collecting on these balances. We remain proactive in monitoring our loans
in deferral status by reaching out to our borrowers with payment deferrals to determine their financial capacity and
whether additional payment deferrals or other loan modifications are necessary.
Classified loans
We categorize 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. We analyze loans that share similar risk characteristics collectively and loans that
do not share similar risk characteristics are evaluated individually. See Note 5, “Loans and allowance for credit losses” in
the notes to our consolidated financial statements for a description of these risk categories.
The following tables set forth information related to the credit quality of our loan portfolio as of the dates presented.
Loan type (dollars in thousands)
As of December 31, 2020
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Multi-family mortgage
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total loans
Pass
Watch
Substandard
Doubtful(1)
Total
$
1,238,409 $
1,178,821
68,367 $
34,684
39,146 $
8,703
200 $
12
1,346,122
1,222,220
1,025,911
396,348
175,619
39,182
6,511
—
23,591
4,756
57
586
596
—
1,089,270
408,211
175,676
828,223
1,448,084
294,801
6,586,216 $
$
70,059
130,100
15,617
364,520 $
26,559
20,795
5,466
129,073 $
—
—
1,756
3,150 $
924,841
1,598,979
317,640
7,082,959
(1) This category was added in 2020. Loans considered "Doubtful" were included as part of the "Substandard" risk category prior to January 1, 2020.
66
Loan type (dollars in thousands)
As of December 31, 2019
Loans, excluding purchased credit impaired loans
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Multi-family mortgage
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total loans, excluding purchased credit impaired loans
Purchased credit impaired loans
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Multi-family mortgage
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total purchased credit impaired loans
Total loans
Allowance for credit losses
Pass
Watch
Substandard
Total
$
946,247 $
541,201
66,910 $
19,195 $
4,790
2,226
1,032,352
548,217
666,177
218,086
69,366
11,380
1,343
63
576,737
876,670
248,632
4,143,116 $
30,379
24,342
3,304
142,511 $
13,559
2,028
—
17,263
9,535
3,057
66,863 $
691,116
221,457
69,429
624,379
910,547
254,993
4,352,490
— $
—
1,224 $
2,681
460 $
203
—
—
—
15,091
—
—
—
—
—
— $
4,143,116 $
4,535
6,617
13,521
43,669 $
186,180 $
4,247
73
—
1,356
3,580
3,564
13,483 $
80,346 $
1,684
2,884
19,338
73
—
5,891
10,197
17,085
57,152
4,409,642
$
$
$
$
As of January 1, 2020, our policy for the allowance changed with the adoption of CECL to a lifetime expected credit loss
approach. 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 adoption, we calculated the allowance using an incurred loss approach.
The allowance for credit losses represents the portion of the loan's amortized cost basis that we do 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 we believe 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 we promptly charge off uncollectible accrued interest receivable. We determine the appropriateness of the
allowance through periodic evaluation of the loan portfolio, lending-related commitments and other relevant factors,
including macroeconomic forecasts and historical loss rates. In future quarters, we may update information and forecasts
that may cause significant changes in the estimate in those future quarters. See "Critical accounting policies - Allowance
for credit losses" for additional information regarding our methodology.
The change in accounting estimate as a result of our adoption of CECL increased the ACL as of January 1, 2020 to $62.6
million from the allowance for loan losses as of December 31, 2019 of $31.1 million. Upon adoption, we recorded a
cumulative effect adjustment to decrease retained earnings by $25.0 million, with corresponding adjustments to the
allowance for credit losses on loans and unfunded commitments in addition to recording a deferred tax asset on our
consolidated balance sheet. Included in our transition adjustment as of January 1, 2020 was the cumulative effect
adjustment to gross-up the amortized cost amount of purchased credit deteriorated ("PCD") loans by $0.6 million.
The allowance for credit losses was $170.4 million and $31.1 million and represented 2.41% and 0.71% of loans held for
investment at December 31, 2020 and December 31, 2019, respectively. Excluding PPP loans with a recorded investment
totaling $212.6 million, our ACL as a percentage of total loans held for investment would have been 7 basis points higher
67
as of December 31, 2020. PPP loans are federally guaranteed as part of the CARES Act, provided PPP loan recipients
receive loan forgiveness under the SBA regulations. As such, there is minimal credit risk associated with these loans.
Additionally, charge-offs increased to $15,305 as of December 31, 2020. This increase was primarily attributable to a
single relationship with a charge-off of $9,932.
In addition, we evaluated for changes in reasonable and supportable forecasts of macroeconomic variables during the
year ended December 31, 2020, primarily due to the impact of the COVID-19 pandemic, which resulted in projected credit
deterioration requiring us to recognize significant increases in the ACL. Specifically, we performed additional qualitative
evaluations for certain categories within our loan portfolio, in line with our established qualitative framework, weighting the
impact of the current economic outlook, status of federal government stimulus programs, and other considerations, in
order to identify specific industries or borrowers seeing credit improvement or deterioration specific to the COVID-19
pandemic. We also increased the ACL by $82.1 million of which $77.7 million related to loans acquired on August 15,
2020, as part of the Franklin acquisition and $4.5 million related to loans acquired on February 14, 2020, as part of the
Farmers National acquisition. Outside of the impact of Franklin on the provision for credit losses, the remaining loan
portfolio benefited from improved economic forecasts, seen for the first time in 2020, reflective of the resumption of more
normalized commercial activity within our markets. See Note 2, "Mergers and acquisitions" in the notes to our
consolidated financial statements for additional details related to PCD loans.
The allowance for credit losses on unfunded commitments increased to $16.4 million at December 31, 2020, and the
deferred tax asset related to the ACL increased to $48.4 million at December 31, 2020, compared to $8.1 million at
December 31, 2019.
The OCC, the Board of Governors of the Federal Reserve System, and the FDIC (collectively, "the Agencies") initially
provided an option within the regulatory capital framework to limit the initial regulatory "day one" adverse impact by
allowing a three-year phase in period for said impact. In March 2020, the Agencies subsequently announced an interim
final rule, which became final on September 30, 2020, to delay the estimated impact on regulatory capital stemming from
the implementation of CECL. The final rule maintains the three-year transition option in the previous rule and provides
banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss
methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). We
elected the five-year capital transition relief option.
The following table presents the allocation of the allowance for credit losses by loan category as well as the ratio of loans
by loan category compared to the total loan portfolio as of the dates indicated:
(dollars in thousands)
Amount
Loans Amount
Loans Amount
2020
% of
2019
% of
2018
As of December 31,
2016
2017
% of
loans Amount
% of
loans Amount
% of
loans
Loan Type:
Commercial and industrial $ 14,748
58,477
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Multi-family mortgage
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total allowance
4,849
44,147
11,240
$ 170,389
19,220
10,534
7,174
19 % $ 4,805
17 % 10,194
23 % $ 5,348
13 % 9,729
24 % $ 4,461
15 % 7,135
15 % 3,112
752
544
6 %
2 %
16 % 3,428
811
566
5 %
2 %
16 % 3,197
944
434
5 %
2 %
23 % $ 5,309
14 % 4,940
15 % 3,197
6 % 1,613
2 %
504
13 % 4,109
23 % 4,621
5 % 3,002
100 % $ 31,139
14 % 3,132
21 % 4,149
6 % 1,769
100 % $ 28,932
13 % 3,558
19 % 2,817
6 % 1,495
100 % $ 24,041
16 % 3,302
17 % 2,019
7 %
863
100 % $ 21,747
21 %
13 %
16 %
10 %
2 %
19 %
15 %
4 %
100 %
68
The following table summarizes activity in our allowance for credit losses during the periods indicated:
(dollars in thousands)
Allowance for credit losses at beginning of period
2020
2019
2018
$ 31,139
$ 28,932
$ 24,041
Year Ended December 31,
2017
$ 21,747
2016
$ 24,460
Impact of adopting ASC 326 on non-purchased credit deteriorated loans
Impact of adopting ASC 326 on purchased credit deteriorated loans
30,888
558
—
—
Charge-offs:
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Multi-family mortgage
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total charge-offs
Recoveries:
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Multi-family mortgage
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total recoveries
Net recoveries (charge-offs)
Provision for credit losses
Initial allowance on loans purchased with credit deterioration
Adjustments for transfers to loans HFS
Allowance for credit losses at the end of period
(11,735)
(2,930)
(18)
—
(403)
(22)
—
(304)
(711)
(220)
(309)
—
—
(12)
(898)
(29)
(138)
(36)
—
(91)
—
(584)
(27)
(200)
(276)
—
(288)
—
(562)
(2)
(224)
(132)
—
(249)
(527)
(2,112)
(2,481)
(1,613)
(1,152)
(1,154)
$ (15,305)
$
(5,952)
$
(2,805)
$
(2,527)
$
(2,850)
$ 1,712
$
205
122
125
—
83
—
756
136
11
79
138
—
108
—
634
$
390
1,164
171
178
—
143
51
550
1,894
1,084
159
395
—
61
1,646
532
524
216
127
174
—
140
195
240
$ 3,003
$ 1,106
$ 2,647
$ 5,771
$ 1,616
(12,302)
94,606
25,500
—
(4,846)
7,053
—
—
(158)
5,398
—
(349)
3,244
(950)
—
—
(1,234)
(1,479)
—
—
$ 170,389
$ 31,139
$ 28,932
$ 24,041
$ 21,747
Ratio of net charge-offs during the period to average loans outstanding
during the period
Allowance for credit losses as a percentage of loans at end of period
Allowance for credit losses as a percentage of nonperforming loans at end
of period
(0.22) %
2.41 %
(0.12) %
0.71 %
— %
0.79 %
0.13 %
0.76 %
(0.07) %
1.18 %
264.3 %
117.0 %
173.0 %
238.1 %
216.2 %
69
Loans held for sale
Commercial loans held for sale
On August 15, 2020, the Company acquired a portfolio of commercial loans, including shared national credits and
institutional healthcare loans, as part of the Franklin transaction that the Company has elected to account for as held for
sale. The loans had an acquisition date fair value of $326.2 million, which declined to $215.4 million at December 31,
2020. The decrease is primarily attributable to loans within the portfolio being paid off through external refinancing. This
decrease is also partially offset by a change in fair value after acquisition amounting to a gain of $3.2 million, which is
included in 'other noninterest income' on the consolidated statement of income.
Mortgage loans held for sale
Mortgage loans held for sale were $683.8 million at December 31, 2020 compared to $262.5 million at December 31,
2019. Interest rate lock volume for the years ended December 31, 2020 and 2019, totaled $8.94 billion and $5.90 billion,
respectively. Generally, mortgage volume increases in lower interest rate environments and robust housing markets and
decreases in rising interest rate environments and slower housing markets. The increase in interest rate lock volume for
the year ended December 31, 2020, reflects the increased volume in our retail and ConsumerDirect channels, which
benefited from the lower interest rate environment when compared to the previous year. Interest rate lock commitments in
the pipeline were $1.19 billion at December 31, 2020 compared with $453.2 million at December 31, 2019.
Mortgage loans to be sold are sold either on a “best efforts” basis or under a mandatory delivery sales agreement. Under
a “best efforts” sales agreement, residential real estate originations are locked in at a contractual rate with third party
private investors or directly with government sponsored agencies, and we are obligated to sell the mortgages to such
investors only if the mortgages are closed and funded. The risk we assume is conditioned upon loan underwriting and
market conditions in the national mortgage market. Under a mandatory delivery sales agreement, we commit to deliver a
certain principal amount of mortgage loans to an investor at a specified price and delivery date. Penalties are paid to the
investor if we fail to satisfy the contract. Gains and losses are realized at the time consideration is received and all other
criteria for sales treatment have been met. These loans are typically sold within fifteen to twenty-five days after the loan is
funded, depending on the economic environment and competition in the market. Although loan fees and some interest
income are derived from mortgage loans held for sale, the main source of income is gains from the sale of these loans in
the secondary market.
Deposits
Deposits represent the Bank’s primary source of funds. We continue to focus on growing core customer deposits through
our relationship driven banking philosophy, community-focused marketing programs, and initiatives such as the
development of our treasury management services.
Total deposits were $9.46 billion and $4.93 billion as of December 31, 2020 and December 31, 2019, respectively.
Noninterest-bearing deposits at December 31, 2020 and December 31, 2019 were $2.27 billion and $1.21 billion,
respectively, while interest-bearing deposits were $7.18 billion and $3.73 billion at December 31, 2020 and December 31,
2019, respectively. The 91.7% increase in total deposits from December 31, 2019 is partially attributed to merger and
acquisition activity, including growth of $209.5 million in deposits assumed from Farmers National in the first quarter of
2020, and $3.12 billion in deposits assumed from the Franklin merger in the third quarter of 2020. We've also continued
focus on core customer deposit growth, and increased escrow deposits that our third party servicing provider, Cenlar,
transferred to the Bank.
Brokered and internet time deposits at December 31, 2020 increased by $41.2 million to $61.6 million compared with
$20.4 million at December 31, 2019. This increase was the result of assuming Franklin's brokered and internet time
deposits, totaling $107.5 million at August 15, 2020; this balance has declined since acquisition through continued overall
balance sheet management as we continue to replace brokered and internet time deposits with less costly funding
sources.
Included in noninterest-bearing deposits are certain mortgage escrow and related customer deposits that our third-party
servicing provider, Cenlar, transfers to the Bank which totaled $148.0 million and $92.6 million at December 31, 2020 and
December 31, 2019, respectively. Additionally, our deposits from municipal and governmental entities (i.e. "public
deposits") totaled $1,677.2 million at December 31, 2020, compared to $463.1 million at December 31, 2019.
70
Our deposit base also includes certain commercial and high net worth individuals that periodically place deposits with the
Bank for short periods of time and can cause fluctuations from period to period in the overall level of customer deposits
outstanding. These fluctuations may include certain deposits from related parties as disclosed within Note 25, "Related
party transactions" in the notes to our consolidated financial statements included in this Report. Management continues to
focus on growing noninterest-bearing deposits while allowing more costly funding sources to mature, repricing downward
in our current lower interest rate conditions.
Average deposit balances by type, together with the average rates per period are reflected in the average balance sheet
amounts, interest paid and rate analysis tables included in this management's discussion and analysis under the
subheading "Results of operations" discussion.
The following table sets forth the distribution by type of our deposit accounts for the dates indicated:
(dollars in thousands)
Amount
% of total
deposits
Average
rate
Amount
% of total
deposits
Average
rate
Amount
% of total
deposits
Average
rate
2020
2019
As of December 31,
2018
Deposit Type
Noninterest-bearing demand
Interest-bearing demand
Money market
Savings deposits
Customer time deposits
Brokered and internet time
deposits
Total deposits
Customer Time Deposits
0.00-0.50%
0.51-1.00%
1.01-1.50%
1.51-2.00%
2.01-2.50%
Above 2.50%
$ 2,274,103
2,491,765
2,902,230
352,685
1,375,695
61,559
24%
26%
30%
4%
15%
1%
—% $ 1,208,175
0.61%
1,014,875
0.76%
1,306,913
0.08%
213,122
1.52%
1,171,502
0.90%
20,351
25%
21%
26%
4%
24%
—%
—% $ 949,135
0.92%
863,706
1.42%
1,064,191
0.15%
174,940
2.09%
1,016,638
2.27%
103,107
23%
21%
26%
4%
24%
2%
$ 9,458,037
100%
0.62% $ 4,934,938
100%
1.10% $ 4,171,717
100%
—%
0.73%
1.06%
0.15%
1.40%
1.79%
0.76%
$ 454,429
253,883
155,755
169,414
159,699
182,515
34%
18%
11%
12%
12%
13%
$ 18,919
140,682
55,557
338,997
312,528
304,819
1%
12%
5%
29%
27%
26%
$ 34,696
196,032
124,007
60,286
260,173
341,444
3%
19%
12%
6%
26%
34%
Total customer time deposits
$ 1,375,695
100%
$ 1,171,502
100%
$ 1,016,638
100%
Brokered and Internet Time
Deposits
0.00-0.50%
0.51-1.00%
1.01-1.50%
1.51-2.00%
2.01-2.50%
Above 2.50%
$
—
—
5,660
42,311
5,312
8,276
—%
—%
9%
69%
9%
13%
$
—
—
8,453
9,368
2,182
348
—%
—%
42%
46%
11%
1%
Total brokered and internet time
deposits
Total time deposits
61,559
100%
20,351
100%
$ 1,437,254
$ 1,191,853
$
787
548
21,211
15,204
63,167
2,190
103,107
$1,119,745
1%
1%
21%
15%
60%
2%
100%
71
The following table sets forth our time deposits segmented by months to maturity and deposit amount as of December 31,
2020 and December 31, 2019:
(dollars in thousands)
Months to maturity:
Three or less
Over Three to Six
Over Six to Twelve
Over Twelve
Total
(dollars in thousands)
Months to maturity:
Three or less
Over Three to Six
Over Six to Twelve
Over Twelve
Total
Investment portfolio
As of December 31, 2020
Time deposits
of $100 and
greater
Time deposits
of less
than $100
203,202 $
228,585
255,486
254,672
941,945 $
123,080 $
106,223
132,240
133,766
495,309 $
Total
326,282
334,808
387,726
388,438
1,437,254
As of December 31, 2019
Time deposits
of $100 and
greater
Time deposits
of less
than $100
126,604 $
110,617
295,412
239,828
772,461 $
66,520 $
68,031
147,724
137,117
419,392 $
Total
193,124
178,648
443,136
376,945
1,191,853
$
$
$
$
Our investment portfolio objectives include maximizing total return after other primary objectives are achieved such as, but
not limited to, providing liquidity, capital preservation, and pledging collateral for various types of borrowings. The
investment objectives guide the portfolio allocation among securities types, maturities, and other attributes.
The following table shows the carrying value of our total securities available for sale by investment type and the relative
percentage of each investment type for the dates indicated:
(dollars in thousands)
U.S. government agency securities
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
States and political subdivisions
U.S. Treasury securities
Corporate securities
Total securities available for sale
Carrying
value % of total
Carrying
2020
Carrying
value % of total
$
2,003
773,336
21,588
356,329
16,628
2,516
$ 1,172,400
—% $
67%
2 %
30%
1%
—%
—
477,312
13,364
189,235
7,448
1,022
100% $ 688,381
2019
As of December 31,
2018
2 %
—% $
69%
989
498,275
10,305
138,887
7,242
—
100% $ 655,698
value % of total
—%
76%
2 %
21%
1%
—%
100%
28%
1%
—%
The fair value of our available-for-sale debt securities portfolio at December 31, 2020 was $1,172.4 million compared to
$688.4 million at December 31, 2019. During the years ended December 31, 2020 and 2019, we purchased $425.0
million (excluding those acquired from Farmers National and merged from Franklin) and $151.4 million in investment
securities, respectively. The trade value of securities sold was $146.5 million during the year ended December 31, 2020.
The trade value of securities sold during the year ended December 31, 2019 totaled $24.5 million, respectively. Maturities
and calls of securities totaled $220.5 million and $113.0 million, respectively. As of December 31, 2020 and December 31,
2019, net unrealized gains of $34.6 million and $11.7 million, respectively, were unrealized on available-for-sale debt
securities.
As of December 31, 2020 and 2019, the Company had $4.6 million and $3.3 million, respectively, in equity securities
recorded at fair value that primarily consisted of mutual funds. The change in the fair value of equity securities resulted in
a net gain of $296.5 thousand and $148.0 thousand during the years ended December 31, 2020 and 2019, respectively.
72
The following table sets forth the fair value, scheduled maturities and weighted average yields for our investment portfolio
as of the dates indicated below:
(dollars in thousands)
Fair value
2020
As of December 31,
2019
% of total
investment
securities
Weighted
average
yield (1)
Fair value
% of total
investment
securities
Weighted
average
yield (1)
Treasury securities:
Maturing within one year
Maturing in one to five years
Maturing in five to ten years
Maturing after ten years
Total Treasury securities
Government agency securities:
Maturing within one year
Maturing in one to five years
Maturing in five to ten years
Maturing after ten years
Total government agency securities
States and municipal subdivisions:
Maturing within one year
Maturing in one to five years
Maturing in five to ten years
Maturing after ten years
Total obligations of state and municipal
subdivisions
Residential and commercial mortgage backed
securities guaranteed by FNMA, GNMA and
FHLMC:
Maturing within one year
Maturing in one to five years
Maturing in five to ten years
Maturing after ten years
Total residential and commercial mortgage
backed securities guaranteed by FNMA,
GNMA and FHLMC
Corporate securities:
Maturing within one year
Maturing in one to five years
Maturing in five to ten years
Maturing after ten years
Total Corporate securities
Total investment securities
(1)
Yields on a tax-equivalent basis.
$
16,628
—
—
—
16,628
—
—
2,003
—
2,003
19,034
24,184
37,313
275,798
1.4 %
— %
— %
— %
1.4 %
— %
— %
0.2 %
— %
0.2 %
1.6 %
2.1 %
3.2 %
23.5 %
1.57 % $
— %
— %
— %
—
7,448
—
—
1.57 %
7,448
— %
— %
2.64 %
— %
2.64 %
1.07 %
2.06 %
2.76 %
—
—
—
—
—
1,152
4,228
17,865
3.12 %
165,990
— %
1.1 %
— %
— %
1.1 %
— %
— %
— %
— %
— %
0.2 %
0.6 %
2.6 %
24.1 %
— %
1.76 %
— %
— %
1.76 %
— %
— %
— %
— %
— %
5.11 %
4.60 %
3.96 %
3.84 %
356,329
30.4 %
3.07 %
189,235
27.5 %
3.88 %
—
2,975
30,596
761,353
— %
0.3 %
2.6 %
64.9 %
— %
3.12 %
2.47 %
—
496
24,316
1.45 %
465,864
— %
0.1 %
3.5 %
67.7 %
— %
1.83 %
3.16 %
2.36 %
794,924
67.8 %
1.50 %
490,676
71.3 %
2.40 %
—
500
2,016
—
2,516
— %
— %
0.2 %
— %
0.2 %
— %
5.00 %
4.19 %
— %
4.35 %
—
—
1,022
—
1,022
— %
— %
0.1 %
— %
0.1 %
$ 1,172,400
100.0 %
2.29 % $
688,381
100.0 %
— %
— %
4.13 %
— %
4.13 %
2.94 %
73
The following table summarizes the amortized cost of debt securities classified as available-for-sale and their approximate
fair values as of the dates shown:
(dollars in thousands)
Securities available for sale
As of December 31, 2020
U.S. government agency securities
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
States and political subdivisions
U.S. Treasury securities
Corporate securities
As of December 31, 2019
US Government agency securities
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
States and political subdivisions
U.S. Treasury securities
Corporate securities
Borrowed funds
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
$
2,000 $
760,099
20,226
336,543
16,480
2,500
$ 1,137,848 $
$
$
— $
474,144
12,957
181,178
7,426
1,000
676,705 $
3 $
14,040
1,362
19,806
148
17
35,376 $
— $
4,829
407
8,287
22
22
13,567 $
— $
(803)
—
(20)
—
(1)
2,003
773,336
21,588
356,329
16,628
2,516
(824) $ 1,172,400
— $
(1,661)
—
(230)
—
—
(1,891) $
—
477,312
13,364
189,235
7,448
1,022
688,381
Deposits and investment securities available for sale are the primary source of funds for our lending activities and general
business purposes. However, we may also obtain advances from the FHLB, purchase federal funds and engage in
overnight borrowing from the Federal Reserve, correspondent banks, or enter into client repurchase agreements. We also
use these sources of funds as part of our asset liability management process to control our long-term interest rate risk
exposure, even if it may increase our short-term cost of funds.
Our level of short-term borrowing can fluctuate on a daily basis depending on funding needs and the source of funds to
satisfy those needs, in addition to the overall interest rate environment and cost of public funds. Borrowings can include
securities sold under agreements to repurchase, lines of credit, advances from the FHLB, federal funds, and subordinated
debt.
The following table sets forth our total borrowings segmented by years to maturity as of December 31, 2020:
(dollars in thousands)
Maturing Within:
December 31, 2021
December 31, 2022
December 31, 2023
December 31, 2024
December 31, 2025
Thereafter
Total
Amount
% of total
December 31, 2020
Weighted average
interest rate (%)
$
$
47,199
—
—
—
—
189,527
236,726
20 %
— %
— %
— %
— %
80 %
100 %
0.92 %
— %
— %
— %
— %
5.08 %
4.27 %
Securities sold under agreements to repurchase
We enter into agreements with certain customers to sell certain securities under agreements to repurchase the security
the following day. These agreements are made to provide customers with comprehensive treasury management programs
a short-term return for their excess funds. Securities sold under agreements to repurchase totaled $32.2 million and $23.7
million at December 31, 2020 and 2019, respectively.
74
The Bank maintains lines with certain correspondent banks that provide borrowing capacity in the form of federal funds
purchased in the aggregate amount of $335.0 million and $305.0 million as of December 31, 2020 and 2019. There were
no borrowings against the line at December 31, 2020 or December 31, 2019.
Federal Home Loan Bank advances
As a member of the FHLB Cincinnati, the Bank receives advances from the FHLB pursuant to the terms of various
agreements that assist in funding its mortgage and loan portfolio balance sheet. Under the agreements, we pledge
qualifying residential mortgages of $1,248.9 million and qualifying commercial mortgages of $1,532.7 million as collateral
securing a line of credit with a total borrowing capacity of $1,276.1 million as of December 31, 2020. As of December 31,
2019, we pledged qualifying residential mortgages of $413.0 million and qualifying commercial mortgages of $545.5
million as collateral securing a line of credit with a total borrowing capacity of $760.6 million.
There were no borrowings against the line as of December 31, 2020, while borrowings against the line totaled $250.0
million as of December 31, 2019, respectively. There were no FHLB advances as of December 31, 2020, while FHLB
advances as of December 31, 2019 includes two long-term advances with putable features totaling $150.0 million. These
two long-term advances of $100.0 million and $50.0 million carry maximum final terms of 10 years and 7 years,
respectively. However, the FHLB owns the option to cancel the advances after one year and quarterly thereafter at
predetermined fixed rates of 1.24% and 1.37%, respectively These putable advances were paid off in the fourth quarter of
2020 at a penalty of $4.5 million and $2.3 million, respectively. There were no overnight cash management advances
(CMAs) outstanding as of December 31, 2020 or December 31, 2019. Letters of credit with FHLB of $100.0 million and
$75.0 million were pledged to secure public funds that required collateral as of December 31, 2020 and 2019,
respectively. As of December 31, 2020 and 2019, no 90-day fixed-rate advances were included in total FHLB advances.
The maximum amount of FHLB borrowing outstanding at any month end was $250.0 million for the years ended
December 31, 2020 and 2019. The weighted average interest rate on FHLB borrowings was 0.00% and 1.51% at
December 31, 2020 and 2019, respectively.
Additionally, the Bank maintains a line with the Federal Reserve Bank through the Borrower-in-Custody program. As of
December 31, 2020 and 2019, $2.46 billion and $1.41 billion of qualifying loans and $0.0 million and $5.0 million of
investment securities were pledged to the Federal Reserve Bank, securing a line of credit of $1,695.6 million and $1,013.2
million, respectively.
Subordinated debt
We have two wholly-owned subsidiaries that are statutory business trusts (“Trusts”). The Trusts were created for the sole
purpose of issuing 30-year capital trust preferred securities to fund the purchase of junior subordinated debentures issued
by the Company. As of December 31, 2020 and 2019, our $0.9 million investment in the Trusts was included in other
assets in the accompanying consolidated balance sheets, and our $30.0 million obligation is reflected as junior
subordinated debt, respectively. The junior subordinated debt bears interest at floating interest rates based on a spread
over 3-month LIBOR plus 315 basis points (3.40% and 5.10% at December 31, 2020 and 2019, respectively) for the
$21.7 million debenture and 3-month LIBOR plus 325 basis points (3.50% and 5.19% at December 31, 2020 and 2019,
respectively) for the remaining $9.3 million. The $9.3 million debenture may be redeemed prior to the 2033 maturity date
upon the occurrence of a special event, and the $21.7 million debenture may be redeemed prior to 2033 at our option.
Additionally, during the third quarter of 2020, we placed $100.0 million of ten year fixed-to-floating rate subordinated notes,
maturing September 1, 2030. This subordinated note instrument pays interest semi-annually in arrears based on a 4.5%
fixed annual interest rate for the first five years of the notes. For years six through ten, the interest rate resets on a
quarterly basis, and will be based on the 3-month Secured Overnight Financing Rate plus a spread of 439 basis points.
We are entitled to redeem the notes in whole or in part on any interest payment date on or after September 1, 2025. The
Company has classified the issuance, net of unamortized issuance costs of $1,772, as Tier 2 capital at December 31,
2020.
We also assumed two issues of subordinated debt, totaling $60,000, as part of the Franklin merger. The notes, issued in
2016, feature $40,000 of 6.875% fixed-to-floating rate subordinated notes due March 30, 2026 ("March 2026
Subordinated Notes"), and $20,000 of 7% fixed-to-floating rate subordinated notes due July 1, 2026 ("July 2026
Subordinated Notes"). Upon acquisition, we recorded a $0.8 million fair value premium adjustment, and during 2020, we
recognized $0.4 million of amortization expense. Both note issuances currently pay interest semi-annually, and will begin
resetting interest rates on a quarterly basis after March 30, 2021 and July 1, 2021. For years six through ten, interest for
the March 2026 Subordinated Notes will based on the 3-month LIBOR plus 5.636% and interest for the July 2026
Subordinated Notes will be based on the 3-month LIBOR plus 6.04%. We are entitled to redeem in whole or in part after
75
the respective fifth anniversary of each note issuance. Subsequent to December 31, 2020, we issued an irrevocable
notice to the holders of the issuance that we intend to exercise our rights to redeem the $40.0 million note in full during the
first quarter of 2021. We classified the entire $60,000 in subordinated notes as Tier 2 capital at December 31, 2020.
Other borrowings
During the year ended December 31, 2020, we initiated a credit line in the amount of $20.0 million (1.75% + 1 month
LIBOR in effect 2 business days prior to reprice date) and borrowed $15.0 million against the line to fund the cash
consideration paid in connection with the Farmers National transaction. An additional $5.0 million remains available for the
Company to draw. This line of credit has a term of one year and matured subsequent to December 31, 2020 on
February 21, 2021.
Liquidity and capital resources
Bank liquidity management
We are expected to maintain adequate liquidity at the Bank to meet the cash flow requirements of clients who may be
either depositors wishing to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet
their credit needs. Our Liquidity and Interest Rate Risk Policy is intended to cause the Bank to maintain adequate liquidity
and, therefore, enhance our ability to raise funds to support asset growth, meet deposit withdrawals and lending needs,
maintain reserve requirements and otherwise sustain our operations. We accomplish this through management of the
maturities of our interest-earning assets and interest-bearing liabilities. We believe that our present position is adequate to
meet our current and future liquidity needs.
We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet
all of our short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs
of clients, while maintaining an appropriate balance between assets and liabilities to meet the return on investment
objectives of our shareholders. We also monitor our liquidity requirements in light of interest rate trends, changes in the
economy and the scheduled maturity and interest rate sensitivity of the investment and loan portfolios and deposits.
As a result of the COVID-19 pandemic, we have taken steps to ensure adequate liquidity and access to funding sources.
To date, we have not seen significant pressure on liquidity or sources of funding as a result of COVID-19 and have
maintained higher than typical levels of liquidity in cash and cash equivalents to allow for flexibility.
As part of our liquidity management strategy, we also focus on minimizing our costs of liquidity and attempt to decrease
these costs by growing our noninterest-bearing and other low-cost deposits, while replacing higher cost funding sources
including time deposits and borrowed funds. While we do not control the types of deposit instruments our clients choose,
we do influence those choices with the rates and the deposit specials we offer.
Our investment portfolio is another alternative for meeting liquidity needs. These assets generally have readily available
markets that offer conversions to cash as needed. Securities within our investment portfolio are also used to secure
certain deposit types and short-term borrowings. At December 31, 2020 and 2019, securities with a carrying value of
$804.8 million and $373.7 million, respectively, were pledged to secure government, public, trust and other deposits and
as collateral for short-term borrowings, letters of credit and derivative instruments. Additionally, we have a FHLB letter of
credit to secure public funds totaling $100.0 million and $75.0 million at December 31, 2020 and 2019, respectively.
Additional sources of liquidity include federal funds purchased, FHLB borrowings, and lines of credit. Interest is charged at
the prevailing market rate on federal funds purchased and FHLB advances. Funds and advances obtained from the FHLB
are used primarily to meet day to day liquidity needs, particularly when the cost of such borrowing compares favorably to
the rates that we would be required to pay to attract deposits. There were no outstanding overnight cash management
advances ("CMAs") at December 31, 2020 and 2019. At December 31, 2020 and 2019, the balance of our outstanding
additional long-term advances with the FHLB were $0.0 million and $150.0 million, respectively. The remaining balance
available with the FHLB was $1,176.1 million and $435.6 million at December 31, 2020 and 2019, respectively. We also
maintain lines of credit with other commercial banks totaling $335.0 million and $305.0 million as of December 31, 2020
and 2019, respectively. These are unsecured, uncommitted lines of credit typically maturing at various times within the
next twelve months. There were no borrowings against the lines at December 31, 2020 and at December 31, 2019.
76
Holding company liquidity management
The Company is a corporation separate and apart from the Bank and, therefore, it must provide for its own liquidity. The
Company’s main source of funding is dividends declared and paid to it by the Bank. Statutory and regulatory limitations
exist that affect the ability of the Bank to pay dividends to the Company. Management believes that these limitations will
not impact the Company’s ability to meet its ongoing short-term cash obligations. For additional information regarding
dividend restrictions, see the “Item 1. Business - Supervision and regulation,” "Item 1A. Risk Factors - Risks related to our
business" and " Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities - Dividend Policy," each of which is set forth in our Annual Report.
Due to state banking laws, the Bank may not declare dividends in any calendar year in an amount exceeding the total of
its net income for that year combined with its retained net income of the preceding two years, without the prior approval of
the Tennessee Department of Financial Institutions ("TDFI"). Based upon this regulation, as of December 31, 2020 and
2019, $185.7 million and $223.7 million of the Bank’s retained earnings were available for the payment of dividends
without such prior approval. In addition, dividends paid by the Bank to the Company would be prohibited if the effect
thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. During the year
ended December 31, 2020, there were $48.8 million in cash dividends approved by the board for payment from the Bank
to the holding company in addition to an asset dividend of an equity security amounting to $1.0 million. None of these
required approval from the TDFI. Subsequent to December 31, 2020, the board approved a dividend from the Bank to the
holding company for $75.0 million that did not require approval from the TDFI. No dividends from the Bank to the
Company were paid during the year ended December 31, 2019.
During the year ended December 31, 2020, the Company declared and paid dividends of 0.36 per share, or $14.5 million,
respectively. During the year ended December 31, 2019, the Company declared and paid dividends of $0.32 per share,
or $10.2 million, respectively. Subsequent to December 31, 2020, the Company declared a quarterly dividend in the
amount of $0.11 per share, payable on February 22, 2021, to stockholders of record as of February 8, 2021.
The Company is party to a registration rights agreement with its former majority shareholder entered into in connection
with the 2016 IPO, under which the Company is responsible for payment of expenses (other than underwriting discounts
and commissions) relating to sales to the public by the shareholder of shares of the Company's common stock beneficially
owned by him. Such expenses include registration fees, legal and accounting fees, and printing costs payable by the
Company and expensed when incurred. No such expenses were incurred during the years ended December 31, 2020
and 2019.
During the year ended December 31, 2020, the Company obtained a line of credit for $20.0 million, of which $15.0 million
was borrowed to fund the cash consideration paid in connection with the Farmers National acquisition.
Capital management and regulatory capital requirements
Our capital management consists of providing adequate equity to support our current and future operations. We are
subject to various regulatory capital requirements administered by state and federal banking agencies, including the TDFI,
Federal Reserve and the FDIC. Failure to meet minimum capital requirements may prompt certain actions by regulators
that, if undertaken, could have a direct material adverse effect on our financial condition and results of operations.
77
The Federal Reserve and the FDIC have issued guidelines governing the levels of capital that banks must maintain.
Those guidelines specify capital tiers, which include the classifications set forth in the following table. As of December 31,
2020 and 2019, we exceeded all capital ratio requirements under prompt corrective action and other regulatory
requirements, as detailed in the table below:
(dollars in thousands)
December 31, 2020
Total capital (to risk weighted assets)
FB Financial Corporation
FirstBank
Tier 1 capital (to risk weighted assets)
FB Financial Corporation
FirstBank
Tier 1 Capital (to average assets)
FB Financial Corporation
FirstBank
Common Equity Tier 1 (CET1)
FB Financial Corporation
FirstBank
December 31, 2019
Total capital (to risk weighted assets)
FB Financial Corporation
FirstBank
Tier 1 capital (to risk weighted assets)
FB Financial Corporation
FirstBank
Tier 1 Capital (to average assets)
FB Financial Corporation
FirstBank
Common Equity Tier 1 (CET1)
FB Financial Corporation
FirstBank
Amount
Actual
Ratio
(%)
Required for capital
adequacy purposes (1)
Ratio
(%)
Amount
To be well
capitalized under
prompt corrective
action provision
Ratio
(%)
Amount
$ 1,358,897
$ 1,353,279
15.0 % $ 952,736
14.9 % $ 951,327
10.5 %
10.5 % $
N/A
906,026
$ 1,090,364
$ 1,142,548
12.0 % $ 771,262
12.6 % $ 770,122
8.5 %
8.5 % $
N/A
724,820
$ 1,090,364
$ 1,142,548
10.0 % $ 435,064
10.5 % $ 435,279
4.0 %
4.0 % $
N/A
544,098
$ 1,060,364
$ 1,142,548
11.7 % $ 635,157
12.6 % $ 634,218
7.0 %
7.0 % $
N/A
588,917
$ 633,549
$ 623,432
12.2 % $ 545,268
12.1 % $ 540,995
10.5 %
10.5 % $
N/A
515,233
$ 602,410
$ 592,293
11.6 % $ 441,421
11.5 % $ 437,782
8.5 %
8.5 % $
N/A
412,030
$ 602,410
$ 592,293
10.1 % $ 238,578
9.9 % $ 239,310
4.0 %
4.0 % $
N/A
299,138
$ 572,410
$ 592,293
11.1 % $ 360,979
11.5 % $ 360,526
7.0 %
7.0 % $
N/A
334,774
N/A
10.0 %
N/A
8.0 %
N/A
5.0 %
N/A
6.5 %
N/A
10.0 %
N/A
8.0 %
N/A
5.0 %
N/A
6.5 %
(1) Minimum ratios presented exclude the capital conservation buffer.
U.S. Basel III measures capital strength in three tiers and incorporates risk-adjusted assets to determine the risk-based
capital ratios. Our CET1 capital primarily includes shareholders' equity less certain deductions for goodwill and other
intangibles, net of taxes, net unrealized gains (losses) on AFS securities and derivative instruments, net of tax. Tier 1
capital is primarily comprised of common equity Tier 1 capital and included junior subordinated debentures with a carrying
value of $30.0 million as of December 31, 2020 and 2019. Tier 2 capital components include a portion of the allowance for
credit losses in excess of Tier 1 statutory limits and our remaining combined trust preferred security debt issuances.
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, which became final on
September 30, 2020, to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The
final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two
years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory
capital, followed by a three-year transition period (five-year transition option). The Company adopted the capital transition
relief over the permissible five-year period.
78
Capital Expenditures
As of December 31, 2020, we have not committed to enter any material capital expenditures over the next twelve months.
Shareholders’ equity
Our total shareholders’ equity was $1,291.4 million at December 31, 2020 and $762.3 million, at December 31, 2019.
Book value per share was $27.35 at December 31, 2020 and $24.56 at December 31, 2019. The growth in shareholders’
equity during 2020 was primarily attributable to increases in additional paid-in capital and common stock; a result of our
acquisitive growth strategy through the merger with Franklin and the acquisition of Farmers National. Other changes in
shareholders' equity were driven by earnings retention and changes in accumulated other comprehensive income,
partially offset by a cumulative effective adjustment of $25.0 million on January 1, 2020 for the adoption of ASU 2016-13
and to a lesser extent, declared dividends and activity related to equity-based compensation.
Off-balance sheet arrangements
In the normal course of business, we enter into various transactions, which in accordance with GAAP, are not included as
part of our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers.
These transactions include commitments to extend credit, standby and commercial letters of credit, and commitments to
purchase loans, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts
recognized in the consolidated balance sheets. For further information, see Note 17, "Commitments and contingencies" in
the notes to the consolidated financial statements included elsewhere in this Report.
Contractual obligations
The following table presents, as of December 31, 2020, our significant fixed and determinable contractual obligations to
third parties by payment date (excluding interest). These contractual obligations are discussed in more detail within in the
Notes to Consolidated Financial Statements contained in this Annual Report.
(dollars in thousands)
Operating Leases
Finance lease
Time Deposits
Securities sold under agreements to repurchase
Subordinated Debt
Other borrowings
Total
As of December 31, 2020 payments due in:
Less than
1 year
8,042 $
$
1 to 3 years
3 to 5 years
13,995 $
10,597 $
115
234
1,048,816
321,343
32,199
—
15,000
—
—
—
241
67,043
—
—
—
More than
5 years
34,053 $ 66,687
Total
1,225
1,815
52
1,437,254
—
32,199
189,527
189,527
—
15,000
$
1,104,172 $
335,572 $
77,881 $
224,857 $ 1,742,482
79
Critical accounting policies
Our financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and
general practices within the banking industry. Within our financial statements, certain financial information contain
approximate measurements of financial effects of transactions and impacts at the consolidated balance sheet dates and
our results of operations for the reporting periods. We monitor the status of proposed and newly issued accounting
standards to evaluate the impact on our financial condition and results of operations. Our accounting policies, including
the impact of newly issued accounting standards and subsequent adoptions, are discussed in further detail in "Part II-
Item 8. Financial Statements and Supplementary Data - Note 1. Basis of Presentation" of this Report.
Allowance for credit losses
The allowance for credit losses represents the portion of the loan's amortized cost basis that we do 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 we promptly charge 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,
we may update information and forecasts that may cause significant changes in the estimate in those future quarters.
As of January 1, 2020, our 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, we
calculated the allowance using an incurred loss approach.
Our methodology to determine the overall appropriateness of the allowance for credit losses includes the use of lifetime
loss rate models. The quantitative models require tailored 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.
We utilize probability-weighted forecasts, which consider multiple macroeconomic variables from a third-party vendor that
are applicable to the type of loan. The choice and weighting of the economic forecast scenarios, macroeconomic
variables, and the reasonable and supportable period at the macroeconomic variable-level are reviewed and approved by
the forecast governance committee based on expectations of future economic conditions.
We consider the need to qualitatively adjust our 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 our
estimate of expected credit losses. We review 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. We consider 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 other relevant staff;
available relevant information sources that contradict our own forecast; effects of changes in prepayment expectations or
other factors affecting assessments of loan contractual term; industry conditions; and effects of changes in credit
concentrations.
The allowance for credit losses is our best estimate. Actual losses may differ from the December 31, 2020 allowance for
credit loss as the CECL estimate is sensitive to economic forecasts and management judgment.
Additional discussion can be found under the subheading "Asset quality" contained within management's discussion and
analysis and in "Part II - Item 8. Financial Statements and Supplementary Data - Note 1. Basis of Presentation" and "Part
II - Item 8. Financial Statements and Supplementary Data - Note 5. Loans and allowance for credit losses" of this Report.
80
Fair Value Measurements
A hierarchical disclosure framework associated with the level of pricing observability is utilized in measuring financial
instruments at fair value. See Note 19 "Fair Value" in the consolidated financial statements herein for additional
disclosures regarding the fair value of our assets and liabilities, including a description of the fair value hierarchy.
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 sheets.
Equity securities with readily determinable market values are carried at fair value on the balance sheet with any periodic
changes in value made through adjustments to the statement of income. Equity securities without readily determinable
market values are carried at cost less impairment and included in other assets on the consolidated balance sheets.
Interest income includes the amortization and accretion of purchase premium and discount. Premiums and discounts on
securities are amortized on the level-yield method anticipating prepayments based upon the prior three month average
monthly prepayments when available. Gains and losses on sales are recorded on the trade date and determined using
the specific identification method.
We evaluate 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 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, we consider 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 our
intention to sell the security or if it is more likely than not that we will be required to sell the security before recovery of its
amortized cost basis. If we intend to sell the security or it is more likely than not that we 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 we do 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 we determine 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, we record 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.
We did not record any provision for credit losses for its available-for-sale debt securities during the year ended
December 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.
81
Loans held for sale
Loans originated and intended for sale in the secondary market, primarily mortgage loans, are carried at fair value as
permitted under the guidance in ASC 825, “Financial Instruments” (“ASC 825”). Net gains (losses) resulting from fair value
changes of these mortgage loans are recorded in income. The amount does not reflect changes in fair values of related
derivative instruments used to hedge exposure to market-related risks associated with these mortgage loans. The change
in fair value of both mortgage loans held for sale and the related derivative instruments are recorded in “Mortgage banking
income” in the Consolidated Statements of Income. Gains and losses are recognized in Mortgage banking income on the
consolidated statements of income at the time the loan is closed. Pass through origination costs and related loan fees are
also included in “Mortgage banking income”. Other expenses are classified in the appropriate noninterest expense
accounts. Periodically, we will transfer mortgage loans originated for sale in the secondary markets into the loan portfolio
based on current market conditions, the overall secondary marketability of the loan and the status of the loan. The loans
are transferred into the portfolio at fair value at the date of transfer.
Government National Mortgage Association (GNMA) optional repurchase programs allow financial institutions to buy back
individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution
provides servicing and was the original transferor. At the servicer’s option and without GNMA’s prior authorization, the
servicer may repurchase such a delinquent loan for an amount equal to 100 percent of the remaining principal balance of
the loan. Under FASB ASC Topic 860, “Transfers and Servicing,” this buy-back option is considered a conditional option
until the delinquency criteria are met, at which time the option becomes unconditional. When we are deemed to have
regained effective control over these loans under the unconditional buy-back option, the loans can no longer be reported
as sold and must be brought back onto the balance sheet as loans held for investment, regardless of whether we intend to
exercise the buy-back option if the buyback option provides the transferor a more-than-trivial benefit. When repurchased,
after meeting certain performance criteria, the loans are transferred to loans held for sale at fair value and are able to be
repooled into a new Ginnie Mae guaranteed security.
During the year ended December 31, 2020, the Company acquired a portfolio of commercial loans, including shared
national credits and institutional healthcare loans, as part of the Franklin transaction that the Company has elected to
account for as held for sale. Changes in fair value from the acquisition date fair value are included in 'other noninterest
income' on the consolidated statement of income.
Mortgage servicing rights
The Company accounts for its mortgage servicing rights under the fair value option as permitted under ASC 860-50-35,
"Transfers and Servicing". The Company retains the right to service certain mortgage loans that it sells to secondary
market investors. The retained mortgage servicing right is initially recorded at the fair value of future net cash flows
expected to be realized for performing servicing activities. Fair value is determined using an income approach with various
assumptions including expected cash flows, prepayment speeds, market discount rates, servicing costs, and other factors.
These mortgage servicing rights are recognized as a separate asset on the date the corresponding mortgage loan is sold.
Derivative financial instruments
We enter into cash flow hedges to mitigate the exposure to variability in expected future cash flows or other types of
forecasted transactions. Changes in the fair value of the cash flow hedges, to the extent that the hedging relationship is
effective, are recorded as other comprehensive income and are subsequently recognized in earnings at the same time
that the hedged item is recognized in earnings. The ineffective portions of the changes in fair value of the hedging
instruments are immediately recognized in earnings. The assessment of the effectiveness of the hedging relationship is
evaluated under the hypothetical derivative method.
We utilize derivative instruments that are not designated as hedging instruments. The Company enters into swaps,
interest rate cap and/or floor agreements with its customers and then enters into an offsetting derivative contract position
with other financial institutions to mitigate the interest rate risk associated with these customer contracts. Because these
derivative instruments are not designated as hedging instruments, changes in the fair value of the derivative instruments
are recognized currently in earnings.
We enter into commitments to originate and purchase loans whereby the interest rate on the loan is determined prior to
funding (rate-lock commitments). Rate-lock commitments on mortgage loans that are intended to be sold are considered
to be derivatives. Accordingly, such commitments, along with any related fees received from potential borrowers, are
recorded at fair value in other assets or liabilities, with changes in fair value recorded in mortgage banking income. Fair
82
value is based on fees currently charged to enter into similar agreements, and for fixed-rate commitments, the difference
between current levels of interest rates and the committed rates is also considered.
We utilize forward loan sale contracts to mitigate the interest rate risk inherent in our mortgage loan pipeline and held-for-
sale portfolio. Forward loan sale contracts are contracts for delayed delivery of mortgage loans. We agree to deliver on a
specified future date, a specified instrument, at a specified price or yield. However, the contract may allow for cash
settlement. The credit risk inherent to us arises from the potential inability of counterparties to meet the terms of their
contracts. In the event of non-acceptance by the counterparty, we would be subject to the credit and inherent (or market)
risk of the loans retained. Such contracts are accounted for as derivatives and, along with related fees paid to investor are
recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in mortgage banking income.
Fair value is based on the estimated amounts that we would receive or pay to terminate the commitment at the reporting
date.
We utilize two methods to deliver mortgage loans sold to an investor. Under a “best efforts” sales agreement, the
Company enters into a sales agreement with an investor in the secondary market to sell the loan when an interest rate-
lock commitment is entered into with a customer, as described above. Under a “best efforts” sales agreement, the
Company is obligated to sell the mortgage loan to the investor only if the loan is closed and funded. Thus, the Company
will not incur any liability to an investor if the mortgage loan commitment in the pipeline fails to close. The Company also
utilizes “mandatory delivery” sales agreements. Under a mandatory delivery sales agreement, the Company commits to
deliver a certain principal amount of mortgage loans to an investor at a specified price and delivery date. Penalties are
paid to the investor should the Company fail to satisfy the contract. Mandatory commitments are recorded at fair value in
the Company’s Consolidated Balance Sheets. Gains and losses arising from changes in the valuation of these
commitments are recognized currently in earnings and are reflected under the line item “Other noninterest income” on the
Consolidated Statements of Income.
Business combinations and accounting for acquired loans with credit deterioration
Business combinations are accounted for by applying the acquisition method in accordance with Accounting Standards
Codification ("ASC") 805, “Business Combinations” (“ASC 805”). Under the acquisition method, identifiable assets
acquired and liabilities assumed and any non-controlling interest in the acquiree at the acquisition date are measured at
their fair values as of that date. Any excess of the purchase price over fair value of net assets acquired is recorded as
goodwill. To the extent the fair value of net assets acquired, including any other identifiable intangible assets, exceed the
purchase price, a bargain purchase gain is recognized. Results of operations of acquired entities are included in the
consolidated statements of income from the date of acquisition.
Beginning January 1, 2020, loans acquired in business combinations with evidence of more-than-insignificant credit
deterioration since origination are considered to be Purchased Credit Deteriorated ("PCD"). The Company developed
multiple criteria to assess the presence of more–than–insignificant credit deterioration in acquired loans, mainly focused
on changes in credit quality and payment status. While general criteria have been established, each acquisition will vary in
its specific facts and circumstances and the Company will apply judgment around PCD identification for each individual
acquisition based on their unique portfolio mix and risks identified.
We 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.
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
83
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 cancellable
by the Company, we apply the CECL methodology to estimate the expected credit loss on off-balance-sheet
commitments. The estimate of expected credit losses for off-balance-sheet credit commitments is recognized as a liability.
When the loan is funded, an allowance for expected credit losses is estimated for that loan using the CECL methodology,
and the liability for off-balance-sheet commitments is reduced. When applying the CECL methodology to estimate the
expected credit loss, we consider 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.
84
ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate sensitivity
Our market risk arises primarily from interest rate risk inherent in the normal course of lending and deposit-taking
activities. Management believes that our ability to successfully respond to changes in interest rates will have a significant
impact on our financial results. To that end, management actively monitors and manages our interest rate risk exposure.
The Asset Liability Management Committee (“ALCO”), which is authorized by our board of directors, monitors our interest
rate sensitivity and makes decisions relating to that process. The ALCO’s goal is to structure our asset/liability composition
to maximize net interest income while managing interest rate risk so as to minimize the adverse impact of changes in
interest rates on net interest income and capital in either a rising or declining interest rate environment. Profitability is
affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact our
earnings because the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or
on the same basis.
We monitor the impact of changes in interest rates on our net interest income and economic value of equity (“EVE”) using
rate shock analysis. Net interest income simulations measure the short-term earnings exposure from changes in market
rates of interest in a rigorous and explicit fashion. Our current financial position is combined with assumptions regarding
future business to calculate net interest income under varying hypothetical rate scenarios. EVE measures our long-term
earnings exposure from changes in market rates of interest. EVE is defined as the present value of assets minus the
present value of liabilities at a point in time. A decrease in EVE due to a specified rate change indicates a decline in the
long-term earnings capacity of the balance sheet assuming that the rate change remains in affect over the life of the
current balance sheet. For purposes of calculating EVE, a zero percent floor is assumed on discount factors.
The following analysis depicts the estimated impact on net interest income and EVE of immediate changes in interest
rates at the specified levels for the periods presented:
Change in interest rates
(in basis points)
+400
+300
+200
+100
-100
-200
Change in interest rates
(in basis points)
+400
+300
+200
+100
-100
-200
December 31,
Year 1
December 31,
2020
46.8 %
34.8 %
22.8 %
10.7 %
(3.8) %
(3.8) %
2019
8.4 %
6.4 %
4.4 %
2.2 %
(4.9) %
(8.5) %
Percentage change in:
Net interest income (1)
Year 2
December 31,
December 31,
2020
52.3 %
39.1 %
26.1 %
12.9 %
(6.8) %
(6.8) %
2019
9.7 %
7.6 %
5.4 %
2.9 %
(6.6) %
(11.6) %
Percentage change in:
Economic value of equity (2)
December 31,
December 31,
2020
40.0 %
32.8 %
24.2 %
13.2 %
(6.4) %
(6.3) %
2019
(3.8) %
(2.4) %
(1.0) %
(0.1) %
(4.7) %
(14.5) %
(1)
(2)
The percentage change represents the projected net interest income for 12 months and 24 months on a flat balance sheet in a stable interest rate environment versus
the projected net income in the various rate scenarios.
The percentage change in this column represents our EVE in a stable interest rate environment versus EVE in the various rate scenarios.
The results for the net interest income simulations as of December 31, 2020 and December 31, 2019 resulted in an asset
sensitive position. The primary influence of our asset sensitivity is the floating rate structure in many of our loans held for
investment as well as the composition of our liabilities which is primarily core deposits. Non-interest bearing deposits
continue be a strong source of funding which also increases asset sensitivity. Prepayment assumptions on loans were
adjusted for the period ending December 31, 2020 as a result of an updated prepayment study and deposit betas were
modified to better reflect historical deposit change behavior. The COVID-19 pandemic resulted in unprecedented
85
monetary stimulus from the Federal Reserve, which included, but was not limited to, a 150 basis point decrease in the
federal funds target rate. While our variable rate loan portfolio is indexed to market rates, deposits typically adjust at a
percentage of the overall movement in market rates, resulting in margin compression. Index floors in our variable rate
loans and aggressive deposit pricing should mitigate some of this pressure in the near term.
The preceding measures assume no change in the size or asset/liability compositions of the balance sheet. Thus, the
measures do not reflect the actions the ALCO may undertake in response to such changes in interest rates. The scenarios
assume instantaneous movements in interest rates in increments of 100, 200, 300 and 400 basis points. As interest rates
are adjusted over a period of time, it is our strategy to proactively change the volume and mix of our balance sheet in
order to mitigate our interest rate risk. The computation of the prospective effects of hypothetical interest rate changes
requires numerous assumptions regarding characteristics of new business and the behavior of existing positions. These
business assumptions are based upon our experience, business plans and published industry experience. Key
assumptions employed in the model include asset prepayment speeds, competitive factors, the relative price sensitivity of
certain assets and liabilities and the expected life of non-maturity deposits. Because these assumptions are inherently
uncertain, actual results may differ from simulated results.
We may utilize derivative financial instruments as part of an ongoing effort to mitigate interest rate risk exposure to interest
rate fluctuations and facilitate the needs of our customers.
The Company enters into derivative instruments that are not designated as hedging instruments to help its commercial
customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with customer
contracts, the Company enters into an offsetting derivative contract. The Company manages its credit risk, or potential risk
of default by its commercial customers through credit limit approval and monitoring procedures.
The Company has entered into interest rate swap contracts to hedge interest rate exposure on short term liabilities, as
well as interest rate swap contracts to hedge interest rate exposure on subordinated debentures. These interest rate
swaps are all accounted for as cash flow hedges, with the Company receiving a variable rate of interest and paying a fixed
rate of interest.
The Company enters into rate lock commitments and forward loan sales contracts as part of our ongoing efforts to
mitigate our interest rate risk exposure inherent in our mortgage pipeline and held for sale portfolio. Under the interest rate
lock commitments, interest rates for a mortgage loan are locked in with the client for a period of time, typically 30-90 days.
Once an interest rate lock commitment is entered into with a client, we also enter into a forward commitment to sell the
residential mortgage loan to secondary market investors. Forward loan sale contracts are contracts for delayed sale and
delivery of mortgage loans to a counter party. We agree to deliver on a specified future date, a specified instrument, at a
specified price or yield. The credit risk inherent to us arises from the potential inability of counterparties to meet the terms
of their contracts. In the event of non-acceptance by the counterparty, we would be subject to the credit and inherent (or
market) risk of the loans retained.
Additionally, the Company enters into forward commitments, options and futures contracts that are not designated as
hedging instruments, which serve as economic hedges of the change in fair value of its MSRs.
For more information about our derivative financial instruments, see Note 18, “Derivatives” in the notes to our consolidated
financial statements.
86
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Table of Contents
Management’s Assessment of Internal Controls Over Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated balance sheets
Consolidated statements of income
Consolidated statements of comprehensive income
Consolidated statements of changes in shareholders’ equity
Consolidated statements of cash flows
Notes to consolidated financial statements
Page
88
89
90
91
92
93
94
94
87
Report on Management’s Assessment of Internal Control over Financial Reporting
The management of FB Financial Corporation (the “Company”) is responsible for establishing and maintaining adequate
internal control over financial reporting. The Company's internal control system was designed to provide reasonable
assurance to the Company's management and board of directors regarding the preparation and fair presentation of the
financial statements. No matter how well designed, internal control over financial reporting has inherent limitations,
including the possibility that a control can be circumvented or overridden, and misstatements due to error or fraud may
occur and not be detected. Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation.
The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of
December 31, 2020. In making this assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
In conducting the evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2020,
the Company has excluded the operations of FNB Financial Corp. and its subsidiary and Franklin Financial Network, Inc.
and its subsidiaries as permitted by the guidance issued by the Office of the Chief Accountant of the Securities and
Exchange Commission (not to extend more than one year beyond the date of the acquisition or for more than one annual
reporting period). In conducting the evaluation of the effectiveness of its disclosure controls and procedures as of
December 31, 2020, the Company has excluded those disclosure controls and procedures of the acquired entities that
are subsumed by internal control over financial reporting. The mergers of FNB Financial Corp. and Franklin Financial
Network, Inc. were completed on February 14, 2020 and August 15, 2020, respectively. As of and for the year ended
December 31, 2020, acquired assets represented approximately 35 percent of the Company’s consolidated assets. See
"Note 2. Mergers and Acquisitions" for further discussion of the mergers and the impact on the Company’s consolidated
financial statements.
Based on this assessment management has determined that, as of December 31, 2020, the Company's internal control
over financial reporting is effective based on the specified criteria.
88
Report of Independent Registered Public Accounting Firm
Shareholders and the Board of Directors of FB Financial Corporation
Nashville, Tennessee
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of FB Financial Corporation (the "Company") as of
December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in
shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related
notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with
accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses
effective January 1, 2020 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification
No. 326, Financial Instruments – Credit Losses (ASC 326). The Company adopted the new credit loss standard using the
modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance
with previously applicable generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
/s/ Crowe LLP
We have served as the Company's auditor since 2018.
Franklin, Tennessee
March 11, 2021
89
FB Financial Corporation and subsidiaries
Consolidated balance sheets
(Amounts are in thousands except share and per share amounts)
ASSETS
Cash and due from banks
Federal funds sold
Interest-bearing deposits in financial institutions
Cash and cash equivalents
Investments:
Available-for-sale debt securities, at fair value
Equity securities, at fair value
Federal Home Loan Bank stock, at cost
Loans held for sale, at fair value
Loans
Less: allowance for credit losses
Net loans
Premises and equipment, net
Other real estate owned, net
Operating lease right-of-use assets
Interest receivable
Mortgage servicing rights, at fair value
Goodwill
Core deposit and other intangibles, net
Other assets
Total assets
LIABILITIES
Deposits
Noninterest-bearing
Interest-bearing checking
Money market and savings
Customer time deposits
Brokered and internet time deposits
Total deposits
Borrowings
Operating lease liabilities
Accrued expenses and other liabilities
Total liabilities
Commitments and contingencies (Note 17)
SHAREHOLDERS' EQUITY
Common stock, $1 par value per share; 75,000,000 shares authorized;
47,220,743 and 31,034,315 shares issued and outstanding at
December 31, 2020 and December 31, 2019, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income, net
Total FB Financial Corporation shareholders' equity
Noncontrolling interest
Total equity
Total liabilities and shareholders' equity
See the accompanying notes to the consolidated financial statements.
90
2020
December 31,
2019
$
$
$
110,991 $
121,153
1,085,754
1,317,898
1,172,400
4,591
31,232
899,173
7,082,959
170,389
6,912,570
145,115
12,111
49,537
43,603
79,997
242,561
22,426
274,116
11,207,330 $
2,274,103 $
2,491,765
3,254,915
1,375,695
61,559
9,458,037
238,324
55,187
164,400
9,915,948
47,222
898,847
317,625
27,595
1,291,289
93
1,291,382
$
11,207,330 $
48,806
131,119
52,756
232,681
688,381
3,295
15,976
262,518
4,409,642
31,139
4,378,503
90,131
18,939
32,539
17,083
75,521
169,051
17,589
122,714
6,124,921
1,208,175
1,014,875
1,520,035
1,171,502
20,351
4,934,938
304,675
35,525
87,454
5,362,592
31,034
425,633
293,524
12,138
762,329
—
762,329
6,124,921
FB Financial Corporation and subsidiaries
Consolidated statements of income
(Amounts are in thousands except share and per share amounts)
Interest income:
Interest and fees on loans
Interest on securities
Taxable
Tax-exempt
Other
Total interest income
Interest expense:
Deposits
Borrowings
Total interest expense
Net interest income
Provision for credit losses
Provision for credit losses on unfunded commitments
Net interest income after provisions for credit losses
Noninterest income:
Mortgage banking income
Service charges on deposit accounts
ATM and interchange fees
Investment services and trust income
Gain (loss) from securities, net
(Loss) gain on sales or write-downs of other real estate owned
(Loss) gain from other assets
Other income
Total noninterest income
Noninterest expenses:
Salaries, commissions and employee benefits
233,768
152,084
Occupancy and equipment expense
Legal and professional fees
Data processing
Merger costs
Amortization of core deposit and other intangibles
Advertising
Other expense
Total noninterest expense
Income before income taxes
Income tax expense
Net income applicable to FB Financial Corporation and noncontrolling
interest
Net income applicable to noncontrolling interest
Net income applicable to FB Financial Corporation
Earnings per common share
Basic
Diluted
See the accompanying notes to the consolidated financial statements.
$
$
$
91
Year Ended December 31,
2020
2019
2018
$
294,596
$
260,458 $
221,001
10,267
7,076
2,705
314,644
42,859
6,127
48,986
265,658
94,606
13,361
157,691
255,328
9,160
14,915
7,080
1,631
(1,491)
(90)
15,322
301,855
13,223
4,805
4,051
282,537
51,568
4,933
56,501
226,036
7,053
—
218,983
100,916
9,479
12,161
5,244
57
545
(104)
7,099
135,397
18,979
7,654
11,390
34,879
5,323
10,062
55,030
377,085
82,461
18,832
15,641
7,486
10,589
5,385
4,339
9,138
40,179
244,841
109,539
25,725
63,629
$
83,814 $
8
—
63,621
$
83,814 $
12,397
4,047
2,126
239,571
29,536
5,967
35,503
204,068
5,398
—
198,670
100,661
8,502
10,013
5,181
(116)
(99)
328
6,172
130,642
136,892
13,976
7,903
9,100
1,594
3,185
13,139
37,669
223,458
105,854
25,618
80,236
—
80,236
1.69
$
1.67
2.70 $
2.65
2.60
2.55
FB Financial Corporation and subsidiaries
Consolidated statements of comprehensive income
(Amounts are in thousands)
Net income
Other comprehensive income (loss), net of tax:
Net change in unrealized gain (loss) in available-for-sale
securities, net of taxes of $5,781, $6,227, and $(2,025)
Reclassification adjustment for (gain) loss on sale of securities
included in net income, net of taxes of $(348), $24, and $9
Net change in unrealized (loss) gain in hedging activities, net of
taxes of $(363), $(322), and $366
Reclassification adjustment for gain on hedging activities,
net of taxes of $(337), $(170), and $(45)
Total other comprehensive income (loss), net of tax
Comprehensive income
Comprehensive income applicable to noncontrolling interests
Year Ended December 31,
2020
2019
$
63,629 $
83,814 $
2018
80,236
18,430
17,693
(5,439)
(987)
67
44
(1,031)
(914)
1,039
(955)
(481)
15,457
79,086
8
16,365
100,179
—
(128)
(4,484)
75,752
—
Comprehensive income applicable to FB Financial Corporation
$
79,078 $
100,179 $
75,752
See the accompanying notes to the consolidated financial statements.
92
FB Financial Corporation and subsidiaries
Consolidated statements of changes in shareholders’ equity
(Amounts are in thousands except per share amounts)
Balance at January 1, 2018
$ 30,536 $ 418,596 $ 147,449 $
148 $
596,729 $
— $
596,729
Common
stock
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income, net
Total
common
shareholders'
equity
Noncontrolling
interests
Total
shareholders'
equity
Cumulative effect of change in accounting
principle
Net income
Other comprehensive income, net of
taxes
Stock based compensation expense
Restricted stock units vested and
distributed, net of shares withheld
Shares issued under employee stock
purchase program
Dividends declared ($0.20 per share)
—
—
—
17
—
—
—
7,190
143
(2,807)
(109)
80,236
—
—
—
—
1,167
—
(6,363)
109
—
(4,484)
—
—
—
—
—
80,236
(4,484)
7,207
(2,664)
1,196
(6,363)
—
—
—
—
—
—
—
—
80,236
(4,484)
7,207
(2,664)
1,196
(6,363)
Balance at December 31, 2018
$ 30,725 $ 424,146 $ 221,213 $
(4,227) $
671,857 $
— $
671,857
Cumulative effect of change in accounting
principle
—
—
(1,309)
—
(1,309)
—
(1,309)
Balance at January 1, 2019
$ 30,725 $ 424,146 $ 219,904 $
(4,227) $
670,548 $
— $
670,548
Net income
Other comprehensive income, net of
taxes
Stock based compensation expense
Restricted stock units vested and
distributed, net of shares withheld
Shares issued under employee stock
purchase program
Dividends declared ($0.32 per share)
—
83,814
—
83,814
—
7,077
274
(6,371)
—
—
—
—
781
—
(10,194)
16,365
—
—
—
—
16,365
7,089
(6,097)
804
(10,194)
Balance at December 31, 2019
$ 31,034 $ 425,633 $ 293,524 $
12,138 $
762,329 $
— $
762,329
Cumulative effect of change in
accounting principle (See Note 1)
—
—
(25,018)
—
(25,018)
—
(25,018)
Balance at January 1, 2020
$ 31,034 $ 425,633 $ 268,506 $
12,138 $
737,311 $
— $
737,311
29
—
—
—
12
23
—
—
—
Net income attributable to FB Financial
Corporation and noncontrolling interest
Other comprehensive income, net of
taxes
Common stock issued in connection
with acquisition of FNB Financial Corp.,
net of registration costs (See Note 2)
Common stock issued in connection with
acquisition of Franklin Financial
Network, Inc., net of registration costs
(See Note 2)
—
955
33,892
15,058
429,815
Stock based compensation expense
22
10,192
Restricted stock units vested and
distributed, net of shares withheld
Shares issued under employee stock
purchase program
Dividends declared ($0.36 per share)
Noncontrolling interest distribution
123
(1,633)
30
—
—
948
—
—
—
63,621
—
63,621
—
—
—
—
—
—
(14,502)
—
15,457
15,457
—
34,847
—
—
—
—
—
—
444,873
10,214
(1,510)
978
(14,502)
—
—
—
—
—
—
—
83,814
16,365
7,089
(6,097)
804
(10,194)
8
—
—
93
—
—
—
—
(8)
63,629
15,457
34,847
444,966
10,214
(1,510)
978
(14,502)
(8)
Balance at December 31, 2020
$ 47,222 $ 898,847 $ 317,625 $
27,595 $ 1,291,289 $
93 $ 1,291,382
See the accompanying notes to the consolidated financial statements.
93
FB Financial Corporation and subsidiaries
Consolidated statements of cash flows
(Amounts are in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of fixed assets
Amortization of core deposit and other intangibles
Capitalization of mortgage servicing rights
Net change in fair value of mortgage servicing rights
Stock-based compensation expense
Provision for credit losses
Provision for credit losses on unfunded commitments
Provision for mortgage loan repurchases
Accretion of yield on purchased loans
Accretion of discounts and amortization of premiums on securities, net
Gain from securities, net
Originations of loans held for sale
Repurchases of loans held for sale
Proceeds from sale of loans held for sale
Gain on sale and change in fair value of loans held for sale
Net loss (gain) or write-downs of other real estate owned
Loss (gain) on other assets
Relief of goodwill
Provision for deferred income taxes
Changes in:
Other assets and interest receivable
Accrued expenses and other liabilities
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Activity in available-for-sale securities:
Sales
Maturities, prepayments and calls
Purchases
Net change in loans
Purchases of FHLB stock
Proceeds from sale of mortgage servicing rights
Purchases of premises and equipment
Proceeds from the sale of premises and equipment
Proceeds from the sale of other real estate owned
Proceeds from the sale of other assets
Net cash received in business combinations (See Note 2)
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Net increase in demand deposits
Net decrease in time deposits
Net increase (decrease) in securities sold under agreements to repurchase
Payments on FHLB advances
Proceeds from FHLB advances
Issuance of subordinated debt, net of issuance costs
Amortization of subordinated debt issuance costs
Proceeds from other borrowings
Share based compensation withholding payments
Net proceeds from sale of common stock under employee stock purchase program
Dividends paid
Noncontrolling interest distribution
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
Supplemental cash flow information:
Interest paid
Taxes paid
Supplemental noncash disclosures:
Transfers from loans to other real estate owned
Transfers (to) from premises and equipment to other real estate owned
Loans provided for sales of other real estate owned
Transfers from loans to loans held for sale
Transfers from loans held for sale to loans
Stock consideration paid in business combination
Trade date payable - securities
Dividends declared not paid on restricted stock units
Decrease to retained earnings for adoption of new accounting standards (See Note 1)
Right-of-use assets obtained in exchange for operating lease liabilities
See the accompanying notes to the consolidated financial statements.
94
2020
Year Ended December 31,
2018
2019
$
63,629 $
83,814 $
80,236
7,009
5,323
(47,025)
47,660
10,214
94,606
13,361
2,607
(3,788)
7,382
(1,631)
(6,650,258)
—
6,487,809
(270,802)
1,491
90
—
(25,530)
(74,628)
63,194
(269,287)
146,494
220,549
(424,971)
118,414
(515)
—
(5,934)
—
6,937
—
248,447
309,421
1,519,868
(328,035)
5,262
(250,000)
—
98,228
(436)
15,000
(1,510)
978
(14,264)
(8)
1,045,083
1,085,217
232,681
$
$
$
1,317,898 $
48,679 $
20,419
2,746 $
(841)
305
11,483
55,766
480,867
—
238
25,018
2,393
5,176
4,339
(42,151)
26,299
7,089
7,053
—
362
(8,556)
3,026
(57)
(4,540,652)
(9,919)
4,662,728
(100,228)
(545)
104
100
(1,916)
(45,180)
13,019
63,905
24,498
113,018
(151,425)
(364,975)
(2,544)
29,160
(6,812)
1,275
3,860
—
171,032
(182,913)
249,348
(75,004)
(908)
—
68,235
—
—
—
(6,097)
804
(10,045)
—
226,333
107,325
125,356
232,681 $
55,051 $
25,920
5,487 $
4,290
166
7,891
12,259
—
—
149
1,309
37,916
4,334
3,185
(54,913)
2,763
7,207
5,398
—
174
(7,608)
2,768
116
(5,958,066)
(12,232)
6,260,532
(88,743)
99
(328)
—
6,359
(22,966)
(16,107)
212,208
2,742
73,066
(203,844)
(491,774)
(2,020)
39,428
(10,144)
357
4,819
869
—
(586,501)
75,906
431,416
788
(120,607)
—
—
—
—
(2,664)
1,196
(6,137)
—
379,898
5,605
119,751
125,356
31,992
24,387
2,138
—
1,019
11,888
14,732
—
2,120
226
109
—
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Note (1)—Basis of presentation:
(A) Organization and Company overview:
FB Financial Corporation (the “Company”) is a financial holding company headquartered in Nashville, Tennessee. The
consolidated financial statements include the Company and its wholly-owned subsidiaries, FirstBank (the "Bank") and
FirstBank Risk Management, Inc. The Bank operates through 81 full-service branches throughout Tennessee, southern
Kentucky, north Alabama, and north Georgia, and a national online mortgage business with office locations across the
Southeast, which primarily originates mortgage loans to be sold in the secondary market.
On August 15, 2020, the Company completed its previously announced acquisition of Franklin Financial Network, Inc.
("Franklin"). The transaction added a new subsidiary to the Company, FirstBank Risk Management ("FBRM") (formerly
known as Franklin Synergy Risk Management), which provides risk management services to the Company in the form of
enhanced insurance coverages. It also added a new subsidiary to the Bank, FirstBank Investments of Tennessee, Inc.
("FBIT"), which provides investment services to the Bank. FBIT has a wholly owned subsidiary, FirstBank Investments of
Nevada, Inc. ("FBIN") to provide investment services to FBIT. FBIN has a controlling interest in a subsidiary, FirstBank
Preferred Capital, Inc. ("FBPC"), which serves as a real estate investment trust ("REIT"), to allow the Bank to sell real
estate loans to the REIT to obtain a tax benefit. Refer to Note 2, "Mergers and acquisitions" for additional information on
this acquisition.
The Bank is subject to competition from other financial services companies and financial institutions. The Company and
the Bank are also subject to the regulations of certain federal and state agencies and undergo periodic examinations by
those regulatory authorities. See "Supervision and regulation" in part 1, item 1, for more details regarding regulatory
oversight.
The Company continues to qualify as an emerging growth company as defined by the "Jumpstart Our Business Startups
Act" ("JOBS Act").
During 2020, the COVID-19 health pandemic created a crisis resulting in volatility in financial markets, sudden,
unprecedented job losses, and disruption in consumer and commercial behavior, resulting in governments in the United
States and globally to intervene with varying levels of direct monetary support and fiscal stimulus packages. All industries,
municipalities and consumers have been impacted by the health crisis to some degree, including the markets that we
serve. In attempts to “flatten the curve”, businesses not deemed essential were closed or constrained to capacity
limitations, individuals were asked to restrict their movements, observe social distancing and shelter in place. These
actions resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses, leading
to a loss of revenues and a rapid increase in unemployment, widening of credit spreads, dislocation of bond markets,
disruption of global supply chains and changes in consumer spending behavior. As certain restrictions began lifting and
more businesses were allowed to open their doors in late 2020, we began to experience a slow improvement in
commerce through much of the Company's footprint. Despite the pickup in economic activity late in the year, there is
uncertainty regarding the long term effects on the global economy which could have an adverse impact on the Company.
(B) Basis of presentation:
The accompanying consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America and general banking industry. In preparing the financial statements,
management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet and the reported results of operations for the year then ended. Actual results could differ
significantly from those estimates. It is possible that the Company's estimate of the allowance for credit losses and
determination of impairment of goodwill could change as a result of the continued impact of the COVID-19 pandemic on
the economy. The resulting change in these estimates could be material to the Company's financial statements.
The consolidated financial statements include the accounts of the Company, the Bank, and its’ wholly-owned subsidiaries,
FirstBank Insurance, Inc., Investors Title Company, in addition to the newly acquired subsidiaries mentioned above. All
significant intercompany accounts and transactions have been eliminated in consolidation. 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.
Certain accounting policies identified below were modified during the year ended December 31, 2020. Please refer to the
Company's audited financial statements on Form 10-K filed on March 13, 2020 for accounting policies in place as of
December 31, 2019.
95
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
(C) Cash flows:
For purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand, amounts due from
banks, federal funds sold and interest earning deposits in other financial institutions with maturities of less than 90 days at
the date of purchase. These amounts are reported in the consolidated balance sheets caption “Cash and cash
equivalents.” Net cash flows are reported for loans held for investment, deposits and short-term borrowings.
(D) Cash and cash equivalents:
The Company considers all highly liquid unrestricted investments with a maturity of three months or less when purchased
to be cash equivalents.
(E) 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 sheets.
Equity securities with readily determinable market values are carried at fair value on the balance sheet with any periodic
changes in value made through adjustments to the statement of income. Equity securities without readily determinable
market values are carried at cost less impairment and included in other assets on the consolidated balance sheets.
Interest income includes the amortization and accretion of purchase premium and discount. Premiums and discounts on
securities are amortized on the level-yield method anticipating prepayments based upon the prior three month average
monthly prepayments when available. Gains and losses on sales are recorded on the trade date and determined using
the specific identification method.
The Company evaluates available-for-sale securities for expected credit losses at least on a quarterly basis, and more
frequently when economic or market concerns warrant such evaluation. For securities in an unrealized loss position,
consideration is given to the extent to which the fair value has been less than cost, the financial condition and near-term
prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company
considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond
rating agencies have occurred, and the results of reviews of the issuer’s financial condition.
When credit losses are expected to occur, the amount of the expected credit loss recognized in earnings depends on the
Company's intention to sell the security or if it is more likely than not that the Company will be required to sell the security
before recovery of its amortized cost basis. If the Company intends to sell the security or it is more likely than not that the
Company will be required to sell the security before recovery of its amortized cost basis, the expected credit loss
recognized in earnings is equal to the entire difference between its amortized cost basis and its fair value at the date it
was determined to be impaired due to credit losses or other factors. The previous amortized cost basis less the
impairment recognized in earnings becomes the new amortized cost basis of the investment.
However, if the Company does not intend to sell the security and it is not more likely than not to be required to sell the
security before recovery of its amortized cost basis, the difference between the amortized cost and the fair value is
separated into the amount representing the credit loss and the amount related to all other factors. If the Company
determines a decline in fair value below the amortized cost basis of an available-for-sale investment security has resulted
from credit related factors, beginning January 1, 2020 with the adoption of CECL, the Company records a credit loss
through an allowance for credit losses. The allowance for credit losses is limited by the amount that the fair value is less
than amortized cost. The amount of the allowance for credit losses is determined based on the present value of cash
flows expected to be collected and is recognized as a charge to earnings. The amount of the impairment related to other,
non-credit related, factors is recognized in other comprehensive income, net of applicable taxes.
The Company did not record any provision for credit losses for its available-for-sale debt securities during the year ended
December 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.
96
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
(F) Federal Home Loan Bank (FHLB) stock:
The Bank accounts for its investments in FHLB stock in accordance with FASB ASC Topic 942-325 "Financial Services-
Depository and Lending-Investments-Other." FHLB stock are equity securities that do not have a readily determinable fair
value because its ownership is restricted and lacks a market. FHLB stock is carried at cost and evaluated for impairment.
(G) Loans held for sale:
Loans originated and intended for sale in the secondary market, primarily mortgage loans, are carried at fair value as
permitted under the guidance in ASC 825, “Financial Instruments” (“ASC 825”). Net gains (losses) of $24,233, $(2,861),
and $(4,539) resulting from fair value changes of these mortgage loans were recorded in income during the years ended
December 31, 2020, 2019 and 2018, respectively. The amount does not reflect changes in fair values of related derivative
instruments used to hedge exposure to market-related risks associated with these mortgage loans. The change in fair
value of both mortgage loans held for sale and the related derivative instruments are recorded in “Mortgage banking
income” in the Consolidated Statements of Income. Gains and losses are recognized in Mortgage banking income on the
consolidated statements of income at the time the loan is closed. Pass through origination costs and related loan fees are
also included in “Mortgage banking income”.
Periodically, the Bank will transfer mortgage loans originated for sale in the secondary markets into the loan portfolio
based on current market conditions, the overall secondary marketability of the loan and the status of the loan. During the
years ended December 31, 2020, 2019, and 2018, the Bank transferred $55,766, $12,259, and $14,732, respectively, of
residential mortgage loans into its loans held for investment portfolio. The loans are transferred into the portfolio at fair
value at the date of transfer. Additionally, occasionally the Bank will transfer loans from the held for investment portfolio
into loans held for sale. At the time of the transfer, loans are marked to fair value through the allowance for credit losses
and reclassified to loans held for sale. During the year ended December 31, 2020, the Company transferred $2,116 from
the portfolio to loans held for sale. During the year ended December 31, 2018, the Company transferred $11,888 from the
portfolio to loans held for sale,resulting in an adjustment to the allowance for loan losses of $349.
Government National Mortgage Association (GNMA) optional repurchase programs allow financial institutions to buy back
individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution
provides servicing and was the original transferor. At the servicer’s option and without GNMA’s prior authorization, the
servicer may repurchase such a delinquent loan for an amount equal to 100 percent of the remaining principal balance of
the loan. Under FASB ASC Topic 860, “Transfers and Servicing,” this buy-back option is considered a conditional option
until the delinquency criteria are met, at which time the option becomes unconditional. When the Company is deemed to
have regained effective control over these loans under the unconditional buy-back option, the loans can no longer be
reported as sold and must be brought back onto the balance sheet, regardless of whether the Company intends to
exercise the buy-back option if the buyback option provides the transferor a more-than-trivial benefit. When this criteria is
met and these are repurchased, after a period of borrower performance, the loans are transferred to loans held for sale at
fair value and are able to be repooled into new Ginnie Mae guaranteed securities. During the years ended December 31,
2020 and 2019, the Company transferred $9,367 and $7,891, respectively, of these repurchased loans from loans held for
investment to loans held for sale. There was no such activity during the year ended December 21, 2018. As of
December 31, 2020, and 2019, there were $151,184 and $51,705, respectively, of delinquent GNMA loans that had
previously been sold which the Company had the option to repurchase; however, the Company determined there not to be
a "more-than-trivial benefit" based on an analysis of interest rates and assessment of potential reputational risk associated
with these loans. As such, the Company did not record these loans on the balance sheets.
During the year ended December 31, 2020 , the Company acquired a portfolio of commercial loans, including shared
national credits and institutional healthcare loans, as part of the Franklin transaction that the Company has elected to
account for as held for sale. Changes in fair value from the acquisition date fair value are included in 'other noninterest
income' on the consolidated statement of income.
(H) Loans (excluding purchased credit deteriorated 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.
97
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
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. Thereafter, interest on nonaccrual loans is
recognized only as received if future collection of principal is probable. If the collectability 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 Company continues to monitor the level of accrued interest receivable, however an allowance for credit losses was
not required as of December 31, 2020.
(I) 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 5, "Loans and allowance for credit losses" 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 December 31, 2020
allowance for credit loss as the CECL estimate is sensitive to economic forecasts and management judgment.
The following portfolio segments have been identified:
Commercial and industrial loans. The Company provides a mix of variable and fixed rate commercial and industrial loans.
Commercial and industrial loans are typically made to small- and medium-sized manufacturing, wholesale, retail and
service businesses for working capital and operating needs and business expansions, including the purchase of capital
equipment and loans made to farmers relating to their operations. This category also includes loans secured by
manufactured housing receivables. Commercial and industrial loans generally include lines of credit and loans with
maturities of five years or less. The loans are generally made with operating cash flows as the primary source of
repayment, but may also include collateralization by inventory, accounts receivable, equipment and/or personal
guarantees. The ability of the borrower to collect accounts receivable, and to turn inventory into sales are risk factors in
the repayment of the loan.
Construction loans. Construction loans include commercial construction, land acquisition and land development loans and
single-family interim construction loans to small- and medium-sized businesses and individuals. These loans are generally
secured by the land or the real property being built and are made based on our assessment of the value of the property on
an as-completed basis. We expect to continue to make construction loans at a similar pace so long as demand continues
and the market for and values of such properties remain stable or continue to improve in our markets. These loans can
carry risk of repayment when projects incur cost overruns, have an increase in the price of building materials, encounter
zoning and environmental issues, or encounter other factors that may affect the completion of a project on time and on
budget. Additionally, repayment risk may be negatively impacted when the market experiences a deterioration in the value
of real estate.
98
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Residential real estate 1-4 family mortgage loans. The Company’s residential real estate 1-4 family mortgage loans are
primarily made with respect to and secured by single family homes, which are both owner-occupied and investor owned
and include manufactured homes with real estate. The Company intends to continue to make residential 1-4 family
housing loans at a similar pace, so long as housing values in our markets do not deteriorate from current prevailing levels
and we are able to make such loans consistent with our current credit and underwriting standards. First lien residential 1-4
family mortgages may be affected by unemployment or underemployment and deteriorating market values of real estate.
Residential line of credit loans. The Company’s residential line of credit loans are primarily revolving, open-end lines of
credit secured by 1-4 residential properties. The Company intends to continue to make home equity loans if housing
values in our markets do not deteriorate from current prevailing levels and we are able to make such loans consistent with
our current credit and underwriting standards. Second lien residential 1-4 family mortgages may be affected by
unemployment or underemployment and deteriorating market values of real estate.
Multi-family residential loans. The Company’s multi-family residential loans are primarily secured by multi-family
properties, such as apartments and condominium buildings. These loans also may be affected by unemployment or
underemployment and deteriorating market values of real estate.
Commercial real estate loans. The Company’s commercial real estate owner-occupied loans include loans to finance
commercial real estate owner occupied properties for various purposes including use as offices, warehouses, production
facilities, health care facilities, retail centers, restaurants, churches and agricultural based facilities. Commercial real
estate owner-occupied loans are typically repaid through the ongoing business operations of the borrower, and hence are
dependent on the success of the underlying business for repayment and are more exposed to general economic
conditions.
Commercial real estate non-owner occupied loans. The Company’s commercial real estate non-owner occupied loans
include loans to finance commercial real estate non-owner occupied investment properties for various purposes including
use as offices, warehouses, health care facilities, hotels, mixed-use residential/commercial, manufactured housing
communities, retail centers, assisted living facilities and agricultural based facilities. Commercial real estate non-owner
occupied loans are typically repaid with the funds received from the sale of the completed property or rental proceeds
from such property, and are therefore more sensitive to adverse conditions in the real estate market, which can also
affected by general economic conditions.
Consumer and other loans. The Company’s consumer and other loans include loans to individuals for personal, family and
household purposes, including car, boat and other recreational vehicle loans, manufactured homes without real estate,
and personal lines of credit. Consumer loans are generally secured by vehicles and other household goods. The
collateral securing consumer loans may depreciate over time. The company seeks to minimize these risks through its
underwriting standards. Other loans also include loans to states and political subdivisions in the U.S. These loans are
generally subject to the risk that the borrowing municipality or political subdivision may lose a significant portion of its tax
base or that the project for which the loan was made may produce inadequate revenue.
(J) Business combinations, accounting for acquired loans with credit deterioration and off-balance sheet
financial instruments:
Business combinations are accounted for by applying the acquisition method in accordance with Accounting Standards
Codification ("ASC") 805, “Business Combinations” (“ASC 805”). Under the acquisition method, identifiable assets
acquired and liabilities assumed and any non-controlling interest in the acquiree at the acquisition date are measured at
their fair values as of that date. Any excess of the purchase price over fair value of net assets acquired is recorded as
goodwill. To the extent the fair value of net assets acquired, including any other identifiable intangible assets, exceed the
purchase price, a bargain purchase gain is recognized. Results of operations of acquired entities are included in the
consolidated statements of income from the date of acquisition.
Beginning January 1, 2020, loans acquired in business combinations with evidence of more-than-insignificant credit
deterioration since origination are considered to be Purchased Credit Deteriorated ("PCD"). The Company developed
multiple criteria to assess the presence of more–than–insignificant credit deterioration in acquired loans, mainly focused
on changes in credit quality and payment status. While general criteria have been established, each acquisition will vary in
its specific facts and circumstances and the Company will apply judgment around PCD identification for each individual
acquisition based on their unique portfolio mix and risks identified.
The Company adopted ASC 326 using the prospective transition approach for loans previously classified as purchased
credit impaired ("PCI") and accounted for under ASC 310-30. In accordance with the standard, management did not
99
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
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.
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 cancellable
by the Company, the Company applies the CECL methodology to estimate the expected credit loss on off-balance-sheet
commitments. The estimate of expected credit losses for off-balance-sheet credit commitments is recognized as a liability.
When the loan is funded, an allowance for expected credit losses is estimated for that loan using the CECL methodology,
and the liability for off-balance-sheet commitments is reduced. When applying the CECL methodology to estimate the
expected credit loss, the Company considers the likelihood that funding will occur, the contractual period of exposure to
credit loss, the risk of loss, historical loss experience, and current conditions along with expectations of future economic
conditions.
(K) Premises and equipment:
Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Provisions for
depreciation are computed principally on the straight-line method and are charged to occupancy expense over the
estimated useful lives of the assets. Maintenance agreements are amortized to expense over the period of time covered
by the agreement. Costs of major additions, replacements or improvements are capitalized while expenditures for
maintenance and repairs are charged to expense as incurred.
For financial statement purposes, the estimated useful life for premises is the lesser of the remaining useful life per third
party appraisal or forty years, for furniture and fixtures the estimated useful life is seven to ten years, for leasehold
improvements the estimated useful life is the lesser of twenty years or the term of the lease and for equipment the
estimated useful life is three to seven years.
(L) Other real estate owned:
Real estate acquired through, or in lieu of, loan foreclosure is initially recorded at fair value less the estimated cost to sell
at the date of foreclosure, which may establish a new cost basis. Other real estate owned may also include excess
facilities and properties held for sale as described in Note 8. Physical possession of residential real estate property
collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the
borrower conveys all interest in the property to satisfy the loan. After initial measurement, valuations are periodically
performed by management and the asset is carried at the lower of carrying amount or fair value less costs to sell.
Revenue and expenses from operations are included in other noninterest income and noninterest expenses. Losses due
to the valuation of the property are included in gain (loss) on sales or write-downs of other real estate owned.
(M) Leases:
The Company leases certain banking, mortgage and operations locations. Effective January 1, 2019, the Company
records leases on the balance sheet in the form of a lease liability for the present value of future minimum payments
under the lease terms and a right-of-use asset equal to the lease liability adjusted for items such as deferred or prepaid
rent, incentive liabilities, leasehold intangibles and any impairment of the right-of-use asset. In determining whether a
contract contains a lease, management conducts an analysis at lease inception to ensure an asset was specifically
identified and the Company has control of use of the asset. For contracts determined to be leases entered into after
January 1, 2019, the Company performs additional analysis to determine whether the lease should be classified as a
finance or operating lease. The Company considers a lease to be a finance lease if future minimum lease payments
amount to greater than 90% of the asset's fair value or if the lease term is equal to or greater than 75% of the asset's
100
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
estimated economic useful life. As of December 31, 2020, the Company has one finance lease that resulted from the
Franklin transaction. As of December 31, 2019, the Company did not have any leases that were determined to be finance
leases. The Company does not record leases on the consolidated balance sheets that are classified as short term (less
than one year). Additionally, the Company has not recorded equipment leases or leases in which the Company is the
lessor on the consolidated balance sheets as these are not material to the Company.
At lease inception, the Company determines the lease term by adding together the minimum lease term and all optional
renewal periods that it is reasonably certain to renew. This determination is at management's full discretion and is made
through consideration of the asset, market conditions, competition and entity based economic conditions, among other
factors. The lease term is used in the economic life test and also to calculate straight-line rent expense. The depreciable
life of leasehold improvements is limited by the estimated lease term, including renewals.
Operating leases are expensed on a straight-line basis over the life of the lease beginning when the lease commences.
Rent expense and variable lease expense are included in occupancy and equipment expense on the Company's
Consolidated statements of income. The Company's variable lease expense include rent escalators that are based on the
Consumer Price Index or market conditions and include items such as common area maintenance, utilities, parking,
property taxes, insurance and other costs associated with the lease.
There are no residual value guarantees or restrictions or covenants imposed by leases that will impact the Company's
ability to pay dividends or cause the Company to incur additional expenses. The discount rate used in determining the
lease liability is based upon incremental borrowing rates the Company could obtain for similar loans as of the date of
commencement or renewal.
(N) Mortgage servicing rights:
The Company accounts for its mortgage servicing rights under the fair value option as permitted under ASC 860-50-35,
"Transfers and Servicing". The Company retains the right to service certain mortgage loans that it sells to secondary
market investors. The retained mortgage servicing right is initially recorded at the fair value of future net cash flows
expected to be realized for performing servicing activities. Fair value is determined using an income approach with various
assumptions including expected cash flows, prepayment speeds, market discount rates, servicing costs, and other factors.
These mortgage servicing rights are recognized as a separate asset on the date the corresponding mortgage loan is sold.
Subsequent changes in fair value, including the write downs due to pay offs and paydowns, are recorded in earnings in
Mortgage banking income.
(O) Transfers of financial assets:
Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over
transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee
obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets, and the Company does not maintain effective control over the transferred assets through an
agreement to repurchase them before their maturity.
(P) Goodwill and other intangibles:
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill
impairment testing is performed annually or more frequently if events or circumstances indicate possible impairment.
Goodwill is assigned to the Company’s reporting units, Banking or Mortgage as applicable. Goodwill is evaluated for
impairment by first performing a qualitative evaluation to determine whether it is necessary to perform the quantitative
goodwill impairment test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than
not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If an entity does a qualitative
assessment and determines that it is not more likely than not the fair value of a reporting unit is less than its carrying
amount, then goodwill of the reporting unit is not considered impaired, and it is not necessary to continue to the
quantitative goodwill impairment test. If the estimated implied fair value of goodwill is less than the carrying amount, an
impairment loss would be recognized in noninterest expense to reduce the carrying amount to the estimated implied fair
value, which could be material to our operating results for any particular reporting period. The Company performed a
quantitative assessment in 2020 and determined it was more likely than not that the fair value of the reporting units
exceeded its carrying value, including goodwill. No impairment was identified through the annual assessments for
impairment performed as of December 31, 2020, 2019 or 2018.
101
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Other intangible assets consist of core deposit intangible assets arising from whole bank and branch acquisitions in
addition to both a customer trust intangible and manufactured housing loan servicing intangible. All intangible assets are
initially measured at fair value and then amortized over their estimated useful lives. See Note 9,"Goodwill and intangible
assets" for additional information on other intangibles.
(Q) Income taxes:
Income tax expense is the total of the current year income tax due and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying
amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized. As changes in tax laws or rates are enacted, deferred
tax assets and liabilities are adjusted through the provision for income taxes.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax
examination, with a tax examination being presumed to occur. The amount recognized is the amount of tax benefit that is
greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no
tax benefit is recorded.
The Company’s policy is to recognize interest and penalties on uncertain tax positions in “Income tax expense” in the
Consolidated Statements of Income. There were no amounts related to uncertain tax positions recognized for the years
ended December 31, 2020, 2019 or 2018.
(R) Long-lived assets:
Premises and equipment, core deposit intangible assets, and other long-lived assets are reviewed for impairment when
events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets
are recorded at fair value. No long-lived assets were deemed to be impaired at December 31, 2020 and 2019.
(S) Derivative financial instruments and hedging activities:
All derivative financial instruments are recorded at their fair values in other assets or other liabilities in the consolidated
balance sheets in accordance with ASC 815, “Derivatives and Hedging.” If derivative financial instruments are designated
as hedges of fair values, both the change in the fair value of the hedge and the hedged item are included in current
earnings. If derivative financial instruments are not designated as hedges, only the change in the fair value of the
derivative instrument is included in current earnings.
Cash flow hedges are utilized to mitigate the exposure to variability in expected future cash flows or other types of
forecasted transactions. For the Company’s derivatives designated as cash flow hedges, changes in the fair value of cash
flow hedges are, to the extent that the hedging relationship is effective, recorded as other comprehensive income and are
subsequently recognized in earnings at the same time that the hedged item is recognized in earnings. The ineffective
portions of the changes in fair value of the hedging instruments are immediately recognized in earnings. The assessment
of the effectiveness of the hedging relationship is evaluated under the hypothetical derivative method.
The Company also utilizes derivative instruments that are not designated as hedging instruments. The Company enters
into interest rate cap and/or floor agreements with its customers and then enters into an offsetting derivative contract
position with other financial institutions to mitigate the interest rate risk associated with these customer contracts. Because
these derivative instruments are not designated as hedging instruments, changes in the fair value of the derivative
instruments are recognized currently in earnings.
The Company also enters into commitments to originate loans whereby the interest rate on the loan is determined prior to
funding (rate-lock commitments). Rate-lock commitments on mortgage loans that are intended to be sold are considered
to be derivatives. Accordingly, such commitments, along with any related fees received from potential borrowers, are
recorded at fair value in other assets or liabilities, with changes in fair value recorded in the line item “Mortgage banking
income” on the Consolidated Statements of Income. Fair value is based on fees currently charged to enter into similar
agreements, and for fixed-rate commitments, the difference between current levels of interest rates and the committed
rates is also considered.
The Company utilizes forward loan sale contracts and forward sales of residential mortgage-backed securities to mitigate
the interest rate risk inherent in the Company’s mortgage loan pipeline and held-for-sale portfolio. Forward sale contracts
are contracts for delayed delivery of mortgage loans or a group of loans pooled as mortgage-backed securities. The
Company agrees to deliver on a specified future date, a specified instrument, at a specified price or yield. However, the
contract may allow for cash settlement. The credit risk inherent to the Company arises from the potential inability of
102
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
counterparties to meet the terms of their contracts. In the event of non-acceptance by the counterparty, the Company
would be subject to the credit and inherent (or market) risk of the loans retained. Such contracts are accounted for as
derivatives and, along with related fees paid to investor are recorded at fair value in derivative assets or liabilities, with
changes in fair value recorded in the line item “Mortgage banking income” on the Consolidated Statements of Income. Fair
value is based on the estimated amounts that the Company would receive or pay to terminate the commitment at the
reporting date.
The Company utilizes two methods to deliver mortgage loans sold to an investor. Under a “best efforts” sales agreement,
the Company enters into a sales agreement with an investor in the secondary market to sell the loan when an interest
rate-lock commitment is entered into with a customer, as described above. Under a “best efforts” sales agreement, the
Company is obligated to sell the mortgage loan to the investor only if the loan is closed and funded. Thus, the Company
will not incur any liability to an investor if the mortgage loan commitment in the pipeline fails to close. The Company also
utilizes “mandatory delivery” sales agreements. Under a mandatory delivery sales agreement, the Company commits to
deliver a certain principal amount of mortgage loans to an investor at a specified price and delivery date. Penalties are
paid to the investor should the Company fail to satisfy the contract. Mandatory commitments are recorded at fair value in
the Company’s Consolidated Balance Sheets. Gains and losses arising from changes in the valuation of these
commitments are recognized currently in earnings and are reflected under the line item “Mortgage banking income” on the
Consolidated Statements of Income.
(T) Lender risk account:
During 2018, the Company began selling qualified mortgage loans to FHLB-Cincinnati via the Mortgage Purchase
Program (“MPP”). All mortgage loans purchased from members through the MPP are held on the FHLB’s balance sheet.
FHLB does not securitize MPP loans for sale to other investors. They mitigate their credit risk exposure through their
underwriting and pool composition requirements and through the establishment of the Lender Risk Account (“LRA”) credit
enhancement. The LRA protects the FHLB against possible credit losses by setting aside a portion of the initial purchase
price into a performance based escrow account that can be used to offset possible loan losses. The LRA amount is
established as a percentage applied to the sum of the initial unpaid principal balance of each mortgage in the aggregated
pool at the time of the purchase of the mortgage as determined by the FHLB-Cincinnati and is funded by the deduction
from the proceeds of sale of each mortgage in the aggregated pool to the FHLB-Cincinnati. As of December 31, 2020 and
2019, the Company had on deposit with the FHLB-Cincinnati $12,729 and $11,225, respectively, in these
LRA’s. Additionally, as of December 31, 2020 and 2019, the Company estimated the guaranty account to be $6,183 and
$5,546, respectively. The Company bears the risk of receiving less than 100% of its LRA contribution in the event of
losses, either by the Company or other members selling mortgages in the aggregated pool. Any losses will be deducted
first from the individual LRA contribution of the institution that sold the mortgage of which the loss was incurred. If losses
incurred in the aggregated pool are greater than the member’s LRA contribution, such losses will be deducted from the
LRA contribution of other members selling mortgages in that aggregated pool. Any portion of the LRA not used to pay
losses will be released over a thirty year period and will not start until the end of five years after the initial fill-up period.
(U) Comprehensive income:
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes
unrealized gains and losses on available-for-sale securities and derivatives designated as cash flow hedges, net of taxes.
(V) Loss contingencies:
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities
when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does
not believe there are such matters that will have a material effect on the financial statements.
(W) Securities sold under agreements to repurchase:
The Company routinely sells securities to certain customers and then repurchases the securities the next business day.
Securities sold under agreements to repurchase are recorded on the consolidated balance sheets at the amount of cash
received in connection with each transaction in the line item "Borrowings". These are secured liabilities and are not
covered by the Federal Deposit Insurance Corporation ("FDIC"). See Note 14, "Borrowings" in the Notes to the
consolidated financial statements for additional details regarding securities sold under agreements to repurchase.
103
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
(X) Advertising expense:
Advertising costs, including costs related to internet mortgage marketing, lead generation, and related costs, are
expensed as incurred.
(Y) Earnings per common 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:
Basic earnings per common share calculation:
Net income applicable to FB Financial Corporation
Dividends paid on and undistributed earnings allocated to
participating securities
Earnings available to common shareholders
Weighted average basic shares outstanding
Basic earnings per common share
Diluted earnings per common share:
Earnings available to common shareholders
Weighted average basic shares outstanding
Weighted average diluted shares contingently issuable(1)
Weighted average diluted shares outstanding
2020
Year Ended December 31,
2018
2019
63,621 $
83,814 $
80,236
—
63,621 $
(447)
83,367 $
37,621,720
30,870,474
1.69 $
2.70 $
(428)
79,808
30,675,755
2.60
$
$
$
63,621
37,621,720
478,024
38,099,744
83,367
30,870,474
532,423
31,402,897
79,808
30,675,755
639,226
31,314,981
2.55
Diluted earnings per common share
$
1.67 $
2.65 $
(1) Excludes 239,813 restricted stock units outstanding considered to be antidilutive as of December 31, 2020.
(Z) Segment reporting:
The Company’s Mortgage division represents a distinct reportable segment that differs from the Company’s primary
business of Banking. Accordingly, a reconciliation of reportable segment revenues, expenses and profit to the Company’s
consolidated total has been presented in Note 21.
104
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
(AA) Stock-based compensation:
The Company grants restricted stock units ("RSUs") under compensation arrangements for the benefit of employees,
executive officers, and directors. Restricted stock unit grants are subject to time-based vesting. The total number of
restricted stock units granted represents the maximum number of restricted stock units eligible to vest based upon the
service conditions set forth in the grant agreements.
During 2020, the Company began awarding performance-based restricted stock units ("PSUs") to executives and other
officers and employees. Under the terms of the award, the number of units that will vest and convert to shares of common
stock will be based on the extent to which the Company achieves specified performance criteria during a fixed three-year
performance period.
Stock-based compensation expense is recognized in accordance with ASC 718-20, “Compensation – Stock
Compensation Awards Classified as Equity”. Expense is recognized based on the fair value of the portion of stock-based
payment awards that are ultimately expected to vest, reduced for forfeitures based on grant-date fair value. The restricted
stock unit awards and related expense are amortized over the required service period, if any. Compensation expense for
PSUs is estimated each period based on the fair value of the stock at the grant date and the most probable outcome of
the performance condition, adjusted for the passage of time within the vesting period of the awards. The reconciliation of
RSUs, PSUs, and Stock-based compensation expense is presented in Note 24.
(BB) Subsequent Events:
ASC Topic 855, "Subsequent Events", establishes general standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued. The Company evaluated all events or transactions
that occurred after December 31, 2020 through the date of the issued financial statements.
Recently adopted accounting standards:
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, “Financial Instruments - Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 and its subsequent
amendments issued by the FASB requires the measurement of all current expected credit losses for financial assets
(including off-balance sheet credit exposures) held at the reporting date based on historical experience, current
conditions, and reasonable and supportable forecasts. Additionally, the update requires enhanced disclosures related to
the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting
standards of an organization’s portfolio. The new methodology requires institutions to calculate all probable and estimable
losses that are expected to be incurred through the financial asset's entire life through a provision for credit losses,
including certain loans obtained as a result of any acquisition. For available-for-sale debt securities that have experienced
a deterioration in credit, Topic 326 requires an allowance for credit losses to be recognized, instead of a direct write-down,
which was previously required under the other-than-temporary impairment ("OTTI") model. Topic 326 eliminates the
concept of OTTI 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 4, “Investment securities” and Note 5,
“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
105
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
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 effect adjustment to gross-up the amortized cost amount of its
PCD loans by $558, with a corresponding adjustment to the allowance for credit losses on its consolidated balance sheet.
A summary of the impact to the consolidated balance sheet as of the adoption date is presented in the table below:
ASSETS:
Loans
Allowance for credit losses
Total impact to assets
LIABILITIES AND EQUITY:
Allowance for credit losses on unfunded
commitments
Net deferred tax liability
Retained earnings
Total impact to liabilities and equity
Balance before
adoption of ASC
326
Cumulative
effect
adjustment to
adopt ASC 326
Impact of the
adjustment to
adopt ASC 326
Balance at
January 1, 2020
(post ASC 326
adoption)
$
$
4,409,642
(31,139)
—
20,490
293,524
$
$
$
$
558
(31,446)
(30,888)
Increase
Increase
Net decrease
2,947
(8,817)
(25,018)
(30,888)
Increase
Decrease
Decrease
Net decrease
$
$
4,410,200
(62,585)
2,947
11,673
268,506
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, which became final on
September 30, 2020 to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The
final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two
years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory
capital, followed by a three-year transition period (five-year transition option). The Company 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
106
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
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.
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
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.
including scope; held-to-maturity debt securities
to ASU 2016-01,
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. The Company adopted the update effective January 1, 2021. The adoption of this standard did not
have a significant impact on the consolidated financial statements or disclosures.
Note (2)—Mergers and acquisitions:
The following mergers and acquisitions were accounted for pursuant to FASB ASC 805. Accordingly, the purchase price of
each acquisition was allocated to the acquired assets and liabilities assumed based on estimated fair values as of the
respective acquisition dates. The excess of the purchase price over the net assets acquired was recorded as goodwill.
Franklin Financial Network, Inc. merger
Effective August 15, 2020, the Company completed its previously announced merger with Franklin Financial Network, Inc.
and its wholly owned subsidiaries, with FB Financial Corporation continuing as the surviving entity. After consolidating
duplicative locations the merger added 10 branches and expanded the Company's footprint in middle Tennessee and the
Nashville metropolitan statistical area. Under the terms of the agreement, the Company acquired total assets of $3.63
billion, loans of $2.79 billion and assumed total deposits of $3.12 billion. Total loans acquired includes a non-strategic
institutional portfolio with a fair value of $326,206 the Company classified as held for sale. Franklin common shareholders
received 15,058,181 shares of the Company's common stock, net of the equivalent value of 44,311 shares withheld on
certain Franklin employee equity awards that vested upon change in control, as consideration in connection with the
merger, in addition to $31,330 in cash consideration. Also included in the purchase price, the Company issued
replacement restricted stock units for awards initially granted by Franklin during 2020 that did not vest upon change in
control, with a total fair value of $674 attributed to pre-combination service. Based on the closing price of the Company's
common stock on the New York Stock Exchange of $29.52 on August 15, 2020, the merger consideration represented
approximately $477,830 in aggregate consideration.
107
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Goodwill of $67,191 recorded in connection with the transaction resulted from the ongoing business contribution,
reputation, operating model and expertise of Franklin. Measurement period adjustments recorded during the fourth quarter
of 2020 amounting to $6,546 related to the finalization of valuations relating primarily to commercial loans held for sale,
deposits and premises and equipment. The goodwill is not deductible for income tax purposes. Goodwill is included in the
Banking segment as substantially all of the operations resulting from the acquisition of Franklin are in alignment with the
Company's banking business.
The Company incurred $32,364 in merger expenses during the year ended December 31, 2020 in connection with this
transaction. These expenses are primarily comprised of professional services, employee-related costs, costs associated
with branch consolidation, and integration costs.
108
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The following table presents an allocation of the consideration to net assets acquired:
Purchase Price:
Equity consideration
Franklin shares outstanding(1)
Franklin options converted to net shares
Exchange ratio to FB Financial shares
FB Financial shares to be issued as merger consideration(2)
Issuance price as of August 15, 2020
Value of FB Financial stock to be issued as merger consideration
Less: tax withholding on vested restricted stock awards, units and options(3)
Value of FB Financial stock issued
FB Financial shares issued
Franklin restricted stock units that do not vest on change in control
Replacement awards issued to Franklin employees
Fair value of replacement awards
Fair value of replacement awards attributable to pre-combination service
Cash consideration
Total Franklin shares and net shares outstanding
Cash consideration per share
Total cash to be paid to Franklin(4)
Total purchase price
Fair value of net assets acquired
Goodwill resulting from merger
15,588,337
62,906
15,651,243
0.965
15,102,492
29.52
445,826
(1,308)
444,518
15,058,181
114,915
118,776
3,506
674
15,651,243
2.00
31,330
$
$
$
$
$
$
$
$
$
477,830
410,639
67,191
(1)Franklin shares outstanding includes restricted stock awards and restricted stock units that vested upon change in control.
(2)Only factors in whole share issuance. Cash was paid in lieu of fractional shares.
(3)Represents the equivalent value of approximately 44,311 shares of FB Financial Corporation stock on August 15, 2020.
(4)Includes $28 of cash paid in lieu of fractional shares.
FNB Financial Corp. merger
Effective February 14, 2020, the Company completed its previously announced acquisition of FNB Financial Corp. and its
wholly owned subsidiary, Farmers National Bank of Scottsville (collectively, "Farmers National"). Following the acquisition,
Farmers National was merged into the Company with FB Financial Corporation continuing as the surviving entity. The
transaction added four branches and expanded the Company's footprint into Kentucky. Under the terms of the agreement,
the Company acquired total assets of $258,218, loans of $182,171 and assumed total deposits of $209,535. Farmers
National shareholders received 954,797 shares of the Company's common stock as consideration in connection with the
merger, in addition to $15,001 in cash consideration. Based on the closing price of the Company's common stock on the
New York Stock Exchange of $36.70 on February 14, 2020, the merger consideration represented approximately $50,042
in aggregate consideration.
Goodwill of $6,319 recorded in connection with the transaction resulted from the ongoing business contribution of Farmers
National and anticipated synergies arising from the combination of certain operational areas of the Company. Goodwill
resulting from this transaction is not deductible for income tax purposes. Goodwill is included in the Banking segment as
substantially all of the operations resulting from the acquisition of Farmers National are in alignment with the Company's
core banking business.
The Company incurred $2,338 in merger expenses during the year ended December 31, 2020 in connection with this
transaction. These expenses are primarily comprised of professional services, employee-related costs, and integration
costs. The following table presents the total purchase price, fair value of net assets acquired, and the goodwill as of the
acquisition date.
109
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Consideration:
Net shares issued
Purchase price per share on February 14, 2020
Value of stock consideration
Cash consideration paid
Total purchase price
Fair value of net assets acquired
Goodwill resulting from merger
Atlantic Capital Bank, N.A. Branches
954,797
36.70
$
$
$
$
35,041
15,001
50,042
43,723
6,319
On April 5, 2019, the Bank completed its branch acquisition to purchase 11 Tennessee and three Georgia branch locations
(the "Branches") from Atlantic Capital Bank, N.A., a national banking association and a wholly owned subsidiary of Atlantic
Capital Bancshares, Inc., a Georgia corporation (collectively, "Atlantic Capital") in a transaction valued at $36,790, further
increasing market share in existing markets and expanding the Company's footprint into new locations. The branch
acquisition added $588,877 in customer deposits at a premium of 6.25%, $374,966 in loans at 99.32% of principal
outstanding and $31,961 of goodwill. All of the operations of the Branches are included in the Banking segment.
Net assets acquired
The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the respective
acquisition dates:
As of August 15, 2020
As of February 14, 2020
Franklin Financial Network, Inc.
FNB Financial Corp.
ASSETS
Cash and cash equivalents
Investments
Mortgage loans held for sale, at fair value
Commercial loans held for sale, at fair value
Loans held for investment, net of fair value adjustments
Allowance for credit losses on PCD loans
Premises and equipment
Operating lease right-of-use assets
Mortgage servicing rights
Core deposit intangible
Other assets
Total assets
LIABILITIES
Deposits:
Noninterest-bearing
Interest-bearing
Money market and savings
Customer time deposits
Brokered and internet time deposits
Total deposits
Borrowings
Operating lease liabilities
Accrued expenses and other liabilities
Total liabilities assumed
Noncontrolling interests acquired
Net assets acquired
$
$
$
$
110
284,004 $
373,462
38,740
326,206
2,427,527
(24,831)
45,471
23,958
5,111
7,670
124,571
3,631,889 $
505,374 $
1,783,379
342,093
383,433
107,452
3,121,731
62,435
24,330
12,661
3,221,157
93
410,639 $
10,774
50,594
—
—
182,171
(669)
8,049
14
—
2,490
4,795
258,218
63,531
26,451
37,002
82,551
—
209,535
3,192
14
1,754
214,495
—
43,723
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Purchased credit-deteriorated loans
Under CECL, the Company is required to determine whether purchased loans held for investment have experienced
more-than-insignificant deterioration in credit quality since origination. Loans that have experienced this level of
deterioration in credit quality are subject to special accounting at initial recognition and measurement. The Company
initially measures the amortized cost of a PCD loan by adding the acquisition date estimate of expected credit losses to
the loan's purchase price (i.e. the "gross up" approach). There is no provision for credit loss recognized upon acquisition
of a PCD loan because the initial allowance is established through gross-up of the loans' amortized cost.
The Company determined that 27.9% of the Franklin loan portfolio had more-than-insignificant deterioration in credit
quality since origination as of the acquisition date. This included deterioration in credit metrics, such as delinquency,
nonaccrual status or risk ratings as well as certain loans within designated industries of concern that have been negatively
impacted by COVID-19. Additionally, it was determined that 10.1% of the Farmers National loan portfolio had more-than-
insignificant deterioration in credit quality since origination as of the February acquisition date. These were primarily
delinquent loans as of February 14, 2020, or loans that Farmers National had classified as nonaccrual or TDR prior to the
Company's acquisition.
As of August 15, 2020
As of February 14, 2020
Franklin Financial Network, Inc.
FNB Financial Corp.
Purchased credit-deteriorated loans
Principal balance
Allowance for credit losses at acquisition
Net premium attributable to other factors
Loans purchased credit-deteriorated fair value
$
$
693,999 $
(24,831)
8,810
677,978 $
18,964
(669)
63
18,358
Loans recognized through the acquisition of Franklin and Farmers National that have not experienced more-than-
insignificant credit deterioration since origination are initially recognized at the purchase price. Expected credit losses are
measured under CECL through the provision for credit losses. The Company recorded provisions for credit losses in the
amounts of $52,822 and $2,885 as of August 15, 2020 and February 14, 2020, respectively, in the income statement
related to estimated credit losses on non-PCD loans from Franklin and Farmers National, respectively. Additionally, the
Company estimates expected credit losses on off-balance sheet loan commitments that are not accounted for as
derivatives. The Company recorded an increase in provision for credit losses from unfunded commitments of $10,499 as
of August 15, 2020 related to the Franklin acquisition.
Pro forma financial information (unaudited)
The results of operations of the acquisitions have been included in the Company's consolidated financial statements
prospectively beginning on the date of each acquisition. The acquisitions have been fully integrated with the Company's
existing operations. Accordingly, post-acquisition net interest income, total revenues, and net income are not
discernible.The following unaudited pro forma condensed consolidated financial information presents the results of
operations for the year ended December 31, 2020 and 2019, respectively, as though the Franklin merger and Farmers
National acquisition had been completed as of January 1, 2019, and the Atlantic Capital acquisition had been completed
as of January 1, 2018. The unaudited estimated pro forma information combines the historical results of the mergers with
the Company’s historical consolidated results and includes certain adjustments reflecting the estimated impact of certain
fair value adjustments for the periods presented. Merger expenses are reflected in the periods they were incurred. The pro
forma information is not indicative of what would have occurred had the transactions taken place on January 1, 2019 and
January 1, 2018, and does not include the effect of cost-saving or revenue-enhancing strategies.
Net interest income
Total revenues
Net income
2020
338,092
654,374
65,135
$
$
$
$
$
$
111
Year Ended December 31,
2018
220,269
354,258
78,762
2019
348,660
504,273
99,898
$
$
$
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Note (3)—Cash and cash equivalents concentrations:
The Bank is required to maintain an average reserve balance with the Federal Reserve Bank or maintain such reserve
balance in the form of cash. The required balance was $0 and $20,881 as of December 31, 2020 and 2019. The Bank
maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Bank has not
experienced any losses in such correspondent accounts and believes it is not exposed to any significant credit risk from
cash and cash equivalents.
The Bank had cash in the form of Federal funds sold included in cash and cash equivalents of $121,153 and $131,119 as
of December 31, 2020 and 2019, respectively.
Note (4)—Investment securities:
The following tables summarize the amortized cost, allowance for credit losses and fair value of the available-for-sale debt
securities and the corresponding amounts of unrealized gains and losses recognized in accumulated other
comprehensive income at December 31, 2020 and 2019:
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Allowance for
credit losses
for investments
Fair Value
December 31, 2020
Investment Securities
Available-for-sale debt securities
U.S. government agency securities
Mortgage-backed securities - residential
$
2,000 $
3 $
760,099
14,040
Mortgage-backed securities - commercial
States and political subdivisions
U.S. Treasury securities
Corporate securities
Total
$
20,226
336,543
16,480
2,500
1,137,848 $
1,362
19,806
148
17
35,376 $
— $
(803)
—
(20)
—
(1)
(824) $
— $
—
—
—
—
—
— $
2,003
773,336
21,588
356,329
16,628
2,516
1,172,400
December 31, 2019
Investment Securities
Available-for-sale debt securities
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
States and political subdivisions
U.S. Treasury securities
Corporate securities
Total
Amortized cost
Gross unrealized
gains
Gross unrealized
losses
Fair Value
$
$
474,144 $
12,957
181,178
7,426
1,000
676,705 $
4,829 $
407
8,287
22
22
13,567 $
(1,661) $
—
(230)
—
—
(1,891) $
477,312
13,364
189,235
7,448
1,022
688,381
The components of amortized cost for debt securities on the consolidated balance sheets excludes accrued interest
receivable since the Company elected to present accrued interest receivable separately on the consolidated balance
sheets. As of December 31, 2020 and 2019, total accrued interest receivable on debt securities was $4,540 and $2,843,
respectively.
As of December 31, 2020 and 2019, the Company had $4,591 and $3,295, respectively, in marketable equity securities
recorded at fair value, respectively.
Securities pledged at December 31, 2020 and 2019 had carrying amounts of $804,821 and $373,674, respectively, and
were pledged to secure a Federal Reserve Bank line of credit, public deposits and repurchase agreements.
112
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
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 December 31, 2020 and December 31, 2019, there were no trade date payables that related to purchases settled after
period end.
The amortized cost and fair value of debt securities by contractual maturity at December 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.
December 31,
2020
Available-for-sale
December 31,
2019
Available-for-sale
Due in one year or less
Due in one to five years
Due in five to ten years
Due in over ten years
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
Total debt securities
$
Amortized cost
$
35,486 $
24,278
40,038
257,721
357,523
760,099
20,226
1,137,848 $
Fair value Amortized cost
35,662 $
24,684
41,332
275,798
377,476
773,336
21,588
1,172,400 $
1,148 $
11,553
18,287
158,616
189,604
474,144
12,957
676,705 $
Fair value
1,152
11,676
18,887
165,990
197,705
477,312
13,364
688,381
Sales and other dispositions of available-for-sale securities were as follows:
Proceeds from sales
Proceeds from maturities, prepayments and calls
Gross realized gains
Gross realized losses
$
2020
146,494 $
220,549
1,606
271
2019
24,498 $
Year Ended December 31,
2018
2,742
73,066
9
44
113,018
7
98
Additionally, net unrealized gains on equity securities of $296 and $148 were recognized in the years ended
December 31, 2020 and 2019, respectively.
113
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(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
December 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:
Less than 12 months
12 months or more
December 31, 2020
Total
U.S. government agency securities
Mortgage-backed securities - residential
States and political subdivisions
Corporate securities
Total
Mortgage-backed securities - residential
States and political subdivisions
Total
$
$
$
$
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
— $
182,012
3,184
499
185,695 $
— $
(803)
(20)
(1)
(824) $
— $
—
—
—
— $
— $
—
—
—
— $
— $
182,012
3,184
499
185,695 $
Unrealized
Loss
—
(803)
(20)
(1)
(824)
Less than 12 months
12 months or more
December 31, 2019
Total
Fair Value
47,641 $
15,433
63,074 $
Unrealized
Loss
(164) $
(230)
(394) $
Fair Value
175,730 $
—
175,730 $
Unrealized
Loss
(1,497) $
—
(1,497) $
Fair Value
223,371 $
15,433
238,804 $
Unrealized
loss
(1,661)
(230)
(1,891)
As of December 31, 2020 and December 31, 2019, the Company’s securities portfolio consisted of 514 and 365
securities, 16 and 58 of which were in an unrealized loss position, respectively.
As of December 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 was either government
guaranteed or an issuance of a government sponsored entity, was highly rated by major credit rating agencies and have a
long history of zero losses. As such, no provision for credit losses was recorded during the year ended December 31,
2020.
Prior to the adoption of ASC 326, the Company evaluated available-for-sale debt securities with unrealized losses for
OTTI and recorded no OTTI for the year ended December 31, 2019.
114
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Note (5)—Loans and allowance for credit losses:
Loans outstanding at December 31, 2020 and 2019, by class of financing receivable are as follows:
Commercial and industrial (1)
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Multi-family mortgage
Commercial real estate:
December 31,
2020
1,346,122 $
1,222,220
December 31,
2019
1,034,036
551,101
$
1,089,270
408,211
175,676
710,454
221,530
69,429
Gross loans
Consumer and other
Less: Allowance for credit losses
Owner occupied
Non-owner occupied
630,270
920,744
272,078
4,409,642
(31,139)
4,378,503
(1)Includes $212,645 of loans originated as part of the PPP at December 31, 2020, established by the CARES Act, in response to the COVID-19
pandemic. The PPP is administered by the SBA; loans originated as part of the PPP may be forgiven by the SBA under a set of defined rules. PPP loans
are federally guaranteed as part of the CARES Act, provided PPP loan recipients receive loan forgiveness under the SBA regulations. As such, there is
minimal credit risk associated with these loans.
924,841
1,598,979
317,640
7,082,959
(170,389)
6,912,570 $
Net loans
$
As of December 31, 2020 and December 31, 2019, $1,248,857 and $412,966, respectively, of qualifying residential
mortgage loans (including loans held for sale) and $1,532,749 and $545,540, respectively, of qualifying commercial
mortgage loans were pledged to the Federal Home Loan Bank of Cincinnati securing advances against the Bank’s line of
credit. Additionally, as of December 31, 2020 and December 31, 2019, $2,463,281 and $1,407,662, respectively, of
qualifying loans were pledged to the Federal Reserve Bank under the Borrower-in-Custody program.
The components of amortized cost for loans on the consolidated balance sheet excludes accrued interest receivable as
the Company elected to present accrued interest receivable separately on the balance sheet. As of December 31, 2020,
total accrued interest receivable on loans was $38,316.
Allowance for Credit Losses
As of January 1, 2020, the Company’s policy for the allowance changed with the adoption of CECL. As permitted, the new
guidance was implemented using a modified retrospective approach with the impact of the initial adoption being recorded
through retained earnings at January 1, 2020, with no restatement of prior periods. Before January 1, 2020, the Company
calculated the allowance on an incurred loss approach. As of January 1, 2020, the Company calculated an expected credit
loss using a lifetime loss rate methodology. As a result of the difference in methodology between periods, disclosures
presented below may not be comparative in nature.
The Company utilizes probability-weighted forecasts, which consider multiple macroeconomic variables from a third-party
vendor that are applicable to the type of loan. 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;
115
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
effects of any changes in reasonable and supportable economic forecasts; effects of any changes in risk selection and
underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of
lending management and expertise; available relevant information sources that contradict the Company’s own forecast;
effects of changes in prepayment expectations or other factors affecting assessments of loan contractual terms; industry
conditions; and effects of changes in credit concentrations.
The quantitative models require loan data and macroeconomic variables based on the inherent credit risks in each
portfolio to more accurately measure the credit risks associated with each. Each of the quantitative models pools loans
with similar risk characteristics and collectively assesses the lifetime loss rate for each pool to estimate its expected credit
loss.
When a loan no longer shares similar risk characteristics with other loans in any given pool, the loan is individually
assessed. The Company has determined the following circumstances in which a loan may require an individual
evaluation: collateral dependent loans; loans for which foreclosure is probable; TDRs and reasonably expected TDRs. A
loan is deemed collateral dependent when 1) the borrower is experiencing financial difficulty and 2) the repayment is
expected to be primarily through sale or operation of the collateral. The allowance for credit losses for collateral
dependent loans as well as loans where foreclosure is probable is calculated as the amount for which the loan’s amortized
cost basis exceeds fair value. Fair value is determined based on appraisals performed by qualified appraisers and
reviewed by qualified personnel. In cases where repayment is to be provided substantially through the sale of collateral,
the Company reduces the fair value by the estimated costs to sell. Loans experiencing financial difficulty for which a
concession has not yet been provided may be identified as reasonably expected TDRs.
Reasonably expected TDRs use the same methodology as TDRs. In cases where the expected credit loss can only be
captured through a discounted cash flow analysis (such as an interest rate modification for a TDR loan), the allowance is
measured by the amount which the loan’s amortized cost exceeds the discounted cash flow analysis. The allowance for
credit losses on a TDR or a reasonably expected TDR is calculated individually using a discounted cash flow
methodology, unless the loan is deemed to be collateral dependent or foreclosure is probable.
The Company’s acquisitions and changes in reasonable and supportable forecasts of macroeconomic variables, primarily
due to the impact of the COVID-19 pandemic, resulted in projected credit deterioration requiring the Company to
recognize significant increases in the provision for credit losses during the year ended December 31, 2020. Specifically,
the Company performed additional qualitative evaluations by class of financing receivable in line with the Company's
established qualitative framework, weighting the impact of the current economic outlook, status of federal government
stimulus programs, and other considerations, in order to identify specific industries or borrowers seeing credit
improvement or deterioration specific to the COVID-19 pandemic.
Loans acquired during the period from Franklin increased the allowance for credit losses by $77,653 as of the August 15,
2020 acquisition date and Farmers National increased the allowance for credit losses by $4,494 as of the February 14,
2020 acquisition date. See Note 2, "Mergers and acquisitions" for additional details related to PCD loans acquired during
the year ended December 31, 2020.
116
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The following provides the changes in the allowance for credit losses by class of financing receivable for the years ended
December 31, 2020, 2019, and 2018:
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
Year Ended December 31, 2020
Beginning balance -
December 31, 2019
Impact of adopting ASC
326 on non-purchased
credit deteriorated loans
Impact of adopting ASC
326 on purchased credit
deteriorated loans
Provision for credit losses
Recoveries of loans
previously charged-off
Loans charged off
Initial allowance on loans
purchased with
deteriorated credit quality
Ending balance -
December 31, 2020
$
4,805 $
10,194 $
3,112 $
752 $
544 $
4,109 $
4,621 $
3,002 $
31,139
5,300
1,533
7,920
3,461
340
1,879
6,822
3,633
30,888
82
13,830
1,712
(11,735)
150
40,807
205
(18)
421
6,408
122
(403)
(3)
5,649
125
(22)
—
5,506
—
—
162
184
(1,739)
17,789
(438)
6,356
558
94,606
83
(304)
—
(711)
756
3,003
(2,112)
(15,305)
754
5,606
1,640
572
784
659
15,442
43
25,500
$
14,748 $
58,477 $
19,220 $
10,534 $
7,174 $
4,849 $
44,147 $
11,240 $
170,389
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
Year Ended December 31, 2019
Beginning balance -
December 31, 2018
Provision for loan losses
Recoveries of loans
previously charged-off
Loans charged off
Ending balance -
December 31, 2019
$
5,348
$
9,729
$
3,428 $
811
$
566
$
3,132
$
4,149
$
1,769
$
28,932
2,251
136
(2,930)
454
11
—
(175)
79
(220)
112
138
(309)
(22)
—
—
869
108
—
484
3,080
7,053
—
(12)
634
(2,481)
1,106
(5,952)
$
4,805
$
10,194
$
3,112 $
752
$
544
$
4,109
$
4,621
$
3,002
$
31,139
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
Year Ended December 31, 2018
Beginning balance -
December 31, 2017
$
4,461 $
7,135 $
3,197 $
944 $
434 $
3,558 $
2,817 $
1,495 $
24,041
Provision for loan losses
1,395
1,459
547
(275)
132
(478)
1,281
1,337
5,398
Recoveries of loans
previously charged-off
Loans charged off
Adjustments for transfers
to loans HFS
Ending balance -
December 31, 2018
390
(898)
—
1,164
(29)
—
171
(138)
(349)
178
(36)
—
—
—
—
143
(91)
—
51
—
—
550
(1,613)
2,647
(2,805)
—
(349)
$
5,348 $
9,729 $
3,428 $
811 $
566 $
3,132 $
4,149 $
1,769 $
28,932
117
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The following tables provides the amount of the allowance for credit losses by class of financing receivable disaggregated
by measurement methodology as of December 31, 2020, 2019 and 2018:
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
December 31, 2020
$
373 $
95 $
— $
9 $
— $
30 $
1,531 $
1 $
2,039
13,493
54,065
17,206
10,031
6,326
4,062
33,706
10,516
149,405
882
4,317
2,014
494
848
757
8,910
723
18,945
$
14,748 $
58,477 $
19,220 $
10,534 $
7,174 $
4,849 $
44,147 $
11,240 $
170,389
Commercial
and industrial Construction
1-to-4
family
residential
mortgage
Residential
line of credi
t
Multi-family
residential
mortgage
Commercial
real estate
owner
occupied
Commercial
real estate
non-owner
occupied
Consumer
and other
Total
December 31, 2019
$
241 $
— $
8 $
9 $
— $
238 $
399 $
— $
895
4,457
10,192
2,940
107
2
164
743
—
544
—
3,853
3,909
1,933
28,571
18
313
1,069
1,673
$
4,805 $
10,194 $
3,112 $
752 $
544 $
4,109 $
4,621 $
3,002 $
31,139
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
December 31, 2018
$
3 $
— $
7 $
— $
— $
53 $
205 $
— $
268
5,247
9,677
3,205
98
52
216
811
—
566
—
3,066
3,628
1,583
27,783
13
316
186
881
$
5,348 $
9,729 $
3,428 $
811 $
566 $
3,132 $
4,149 $
1,769 $
28,932
Amount of allowance
allocated to:
Individually evaluated for
credit loss
Collectively evaluated for
credit loss
Purchased credit
deteriorated
Ending balance -
December 31, 2020
Amount of allowance
allocated to:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Acquired with deteriorated
credit quality
Ending balance -
December 31, 2019
Amount of allowance
allocated to:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Acquired with deteriorated
credit quality
Ending balance -
December 31, 2018
118
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The following table provides the amount of loans by class of financing receivable disaggregated by measurement
methodology as of December 31, 2020, 2019, and 2018:
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
December 31, 2020
$
15,578 $
4,851 $
848 $
412 $
— $
7,846 $
8,631 $
39 $
38,205
1,270,058
1,140,634
987,142
387,250
156,447
813,151
1,272,203
302,983
6,329,868
60,486
76,735
101,280
20,549
19,229
103,844
318,145
14,618
714,886
$ 1,346,122 $ 1,222,220 $ 1,089,270 $
408,211 $
175,676 $
924,841 $ 1,598,979 $ 317,640 $ 7,082,959
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
December 31, 2019
$
9,026 $
2,061 $
1,347 $
579 $
— $
2,993 $
7,755 $
49 $
23,810
1,023,326
546,156
689,769
220,878
69,429
621,386
902,792
254,944
4,328,680
1,684
2,884
19,338
73
—
5,891
10,197
17,085
57,152
$ 1,034,036 $
551,101 $
710,454 $
221,530 $
69,429 $
630,270 $
920,744 $ 272,078 $ 4,409,642
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
December 31, 2018
$
1,847 $
1,221 $
987 $
245 $
— $
2,608 $
6,735 $
73 $
13,716
863,788
549,075
535,451
190,235
75,457
484,900
677,247
208,643
3,584,796
1,448
5,755
19,377
—
—
6,016
16,266
20,137
68,999
$
867,083 $
556,051 $
555,815 $
190,480 $
75,457 $
493,524 $
700,248 $ 228,853 $ 3,667,511
Loans, net of unearned
income
Individually evaluated for
credit loss
Collectively evaluated for
credit loss
Purchased credit
deteriorated
Ending balance -
December 31, 2020
Loans, net of unearned
income
Individually evaluated
for impairment
Collectively evaluated
for impairment
Acquired with deteriorated
credit quality
Ending balance -
December 31, 2019
Loans, net of unearned
income
Individually evaluated
for impairment
Collectively evaluated
for impairment
Acquired with deteriorated
credit quality
Ending balance -
December 31, 2018
Credit Quality
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to
service their debt such as: current financial information, historical payment experience, credit documentation, public
information, and current economic trends, among other factors. The Company analyzes loans that share similar risk
characteristics collectively. Loans that do not share similar risk characteristics are evaluated individually.
The Company uses the following definitions for risk ratings:
Pass.
Loans rated Pass include those that are adequately performing and collateralized and which
management believes do not have conditions that have occurred or may occur that 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
119
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
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.
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 December 31, 2020.
Revolving loans are presented separately. Management considers the guidance in ASC 310-20 when determining whether
a modification, extension, or renewal constitutes a current period origination. Generally, current period renewals of credit
are reunderwritten at the point of renewal and considered current period originations for the purposes of the table below.
Commercial and industrial
Pass
Watch
Substandard
Doubtful
Total
Construction
Pass
Watch
Substandard
Doubtful
Total
Residential real estate:
1-to-4 family mortgage
Pass
Watch
Substandard
Doubtful
Total
Residential line of credit
Pass
Watch
Substandard
Doubtful
Total
Multi-family mortgage
Pass
Watch
Substandard
Doubtful
Total
Term Loans
Amortized Cost Basis by Origination Year
2020
2019
2018
2017
2016
Prior
As of December 31,
Revolving
Loans
Amortized
Cost Basis
Total
$ 335,519
$ 183,905
$ 64,897
$ 56,598
$ 30,641
$ 40,964
$ 525,885
$ 1,238,409
3,786
2,467
34
2,555
2,688
—
6,213
11,227
—
3,764
4,403
22
7,847
6,582
—
4,301
1,277
—
39,901
10,502
144
68,367
39,146
200
341,806
189,148
82,337
64,787
45,070
46,542
576,432
1,346,122
460,232
387,759
1,952
573
—
4,169
1,755
—
78,319
10,368
3,178
—
40,777
13,386
129
12
40,386
1,250
—
—
59,344
112,004
1,178,821
3,559
3,068
—
—
—
—
34,684
8,703
12
462,757
393,683
91,865
54,304
41,636
65,971
112,004
1,222,220
282,747
176,374
159,036
147,816
107,911
152,027
1,783
448
—
2,166
1,422
6
6,672
3,787
19
10,668
5,473
—
4,004
3,418
204
13,889
9,043
357
284,978
179,968
169,514
163,957
115,537
175,316
—
—
—
—
—
1,025,911
39,182
23,591
586
1,089,270
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
396,348
396,348
6,511
4,756
596
6,511
4,756
596
408,211
408,211
29,006
13,446
11,843
46,561
28,330
35,339
11,094
175,619
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
57.00
—
—
—
—
—
57
—
29,006
13,446
11,843
46,561
28,330
35,396
11,094
175,676
120
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Commercial real estate:
Owner occupied
Pass
Watch
Substandard
Doubtful
Total
Non-owner occupied
Pass
Watch
Substandard
Doubtful
Total
Consumer and other loans
Pass
Watch
Substandard
Doubtful
Total
Total
Pass
Watch
Substandard
Doubtful
Total
2020
2019
2018
2017
2016
Prior
Revolving
Loans
Amortized
Cost Basis
Total
133,046
174,965
95,182
8,825
44
—
5,891
1,785
—
6,646
2,423
—
89,214
21,618
6,074
—
76,539
208,013
51,264
828,223
6,101
274
—
18,561
11,226
—
2,417
4,733
—
70,059
26,559
—
141,915
182,641
104,251
116,906
82,914
237,800
58,414
924,841
166,962
222,238
324,848
193,496
264,820
237,933
37,787
1,448,084
—
—
—
8,704
2,210
—
24,464
1,502
—
27,653
25,550
—
—
—
—
42,696
17,083
—
1,033
—
—
130,100
20,795
—
166,962
233,152
350,814
221,149
290,370
297,712
38,820
1,598,979
89,625
52,725
281
96
55
911
131
434
39,420
1,893
867
567
26,172
1,497
881
280
40,980
3,049
779
156
31,063
14,816
7,974
2,044
264
12
668
—
294,801
15,617
5,466
1,756
90,057
54,201
42,747
28,830
44,964
41,345
15,496
317,640
1,497,137
1,211,412
773,545
600,634
589,607
764,683
1,149,198
6,586,216
16,627
3,628
89
24,396
9,991
440
56,256
22,984
586
78,586
16,960
314
47,801
11,053
360
90,980
43,798
621
49,874
20,659
740
364,520
129,073
3,150
$ 1,517,481 $ 1,246,239 $ 853,371
$ 696,494
$ 648,821
$ 900,082
$ 1,220,471
$ 7,082,959
121
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The following disclosures are presented in accordance with GAAP in effect prior to the adoption of CECL. The Company
has included these disclosures to address the applicable prior periods presented.
The following table shows credit quality indicators by class of financing receivable at December 31, 2019.
December 31, 2019
Loans, excluding purchased credit impaired loans
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Multi-family mortgage
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total loans, excluding purchased credit impaired loans
Purchased credit impaired loans
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Multi-family mortgage
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total purchased credit impaired loans
Total loans
Nonaccrual and Past Due Loans
Pass
Watch
Substandard
Total
$
946,247 $
541,201
66,910 $
19,195 $
4,790
2,226
1,032,352
548,217
666,177
218,086
69,366
11,380
1,343
63
576,737
876,670
248,632
4,143,116 $
30,379
24,342
3,304
142,511 $
13,559
2,028
—
17,263
9,535
3,057
66,863 $
691,116
221,457
69,429
624,379
910,547
254,993
4,352,490
— $
—
1,224 $
2,681
460 $
203
$
$
—
—
—
—
—
—
—
15,091
—
—
4,535
6,617
13,521
43,669
$
4,143,116 $
186,180 $
1,684
2,884
19,338
73
—
4,247
73
—
1,356
3,580
3,564
13,483
80,346 $
5,891
10,197
17,085
57,152
4,409,642
Nonperforming loans include loans that are no longer accruing interest (nonaccrual loans) and loans past due ninety or
more days and still accruing interest.
The following tables provide information on nonaccrual and past due loans as of December 31, 2020 and December 31,
2019. For December 31, 2019, purchased credit impaired ("PCI") loans are not included in the nonperforming disclosures
as these loans are considered to be performing, even though they may be contractually past due. This is because any
non-payment of contractual principal or interest was considered in the periodic re-estimation of expected cash flows and
was included in the 2019 loan loss provision or future period yield adjustments. Under PCD accounting, management
considers changes in the credit quality of the borrower as part of its regular estimation of expected credit losses and does
not make the same future yield adjustments as under the PCI accounting. Consequently, PCD loans that are contractually
past due or on nonaccrual status, including those formerly accounted for as PCI loans, are included in the December 31,
2020 nonperforming disclosures.
122
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The following table represents an analysis of the aging by class of financing receivable as of December 31, 2020:
December 31, 2020
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Multi-family mortgage
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total
30-89 days
past due
$
3,297 $
7,607
90 days or
more and
accruing
interest
330 $
573
Non-accrual
loans
16,005 $
Loans current
on payments
and accruing
interest
Total
1,326,490 $ 1,346,122
1,222,220
1,209,987
7,058
3,551
—
98
915
4,469
10,470
239
57
—
—
2,027
4,053
5,923
1,757
—
7,948
12,471
2,603
$
26,995 $
13,696 $
50,760 $
1,065,819
402,664
175,619
1,089,270
408,211
175,676
916,795
1,585,593
308,541
924,841
1,598,979
317,640
6,991,508 $ 7,082,959
The following tables provide the amortized cost basis of loans on non-accrual status, as well as any related allowance and
interest income, by class of financing receivable as of or for the year ended December 31, 2020:
u
End of period amortized cost
Beginning of
period non-
accrual
amortized cost
Non-accrual
with no
related
allowance
Non-accrual
with
related
allowance
Related
allowance
Year to date
Interest Income
$
5,586 $
1,254
13,960 $
3,061
2,045 $
992
383 $
131
4,585
489
2,285
9,460
1,623
$
25,282 $
3,048
854
7,172
4,566
—
32,661 $
2,875
903
776
7,905
2,603
84
31
63
1,711
147
18,099 $
2,550 $
325
69
22
72
89
215
24
816
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total
123
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The following disclosures are presented in accordance with GAAP in effect prior to the adoption of CECL. The Company
has included these disclosures to address the applicable prior periods presented.
The following table provides the period-end amounts of loans that are past due, loans not accruing interest and loans
current on payments accruing interest by category at December 31, 2019:
December 31, 2019
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Multi-family mortgage
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total
Impaired Loans
30-89
days
past due
90 days or
more and
accruing
interest
Non-
accrual
loans
Purchased
Credit
Impaired
loans
Loans current
on payments
and accruing
interest
Total
$
1,918 $
1,021
291 $
42
5,587 $
1,087
1,684 $
2,884
1,024,556 $ 1,034,036
551,101
546,067
10,738
658
63
1,375
327
2,377
3,965
412
—
—
—
833
3,332
416
—
1,793
7,880
967
19,338
73
—
5,891
10,197
17,085
673,081
219,971
69,366
710,454
221,530
69,429
621,211
902,340
250,816
630,270
920,744
272,078
$ 18,477 $
5,543 $ 21,062 $
57,152 $
4,307,408 $ 4,409,642
The following disclosures are presented in accordance with GAAP in effect prior to the adoption of CECL. The Company
has included these disclosures to address the applicable prior periods presented.
Impaired loans recognized in conformity with ASC 310 at December 31, 2019 segregated by class, were as follows:
December 31, 2019
With a related allowance recorded:
Commercial and industrial
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Commercial real estate:
Owner occupied
Non-owner occupied
Total
With no related allowance recorded:
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total
Total impaired loans
Recorded
investment
Unpaid
principal
Related
allowance
$
6,080
$
8,350
$
241
264
320
756
6,706
14,126
2,946
2,061
1,083
259
2,237
1,049
49
9,684
23,810
$
$
$
$
324
320
1,140
6,747
16,881
3,074
2,499
1,449
280
2,627
1,781
49
11,759
28,640
$
$
$
$
$
$
$
$
8
9
238
399
895
—
—
—
—
—
—
—
—
895
124
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Average recorded investment and interest income on a cash basis recognized during the years ended December 31,
2019, and 2018 on impaired loans, segregated by class, were as follows:
With a related allowance recorded:
Commercial and industrial
Residential real estate:
1-to-4 family mortgage
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total
With no related allowance recorded:
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total
Total impaired loans
Purchased Credit Impaired Loans
2019
December 31,
2018
Average
recorded
investment
Interest
income
recognized
(cash basis)
Average
recorded
investment
Interest
income
recognized
(cash basis)
$
3,349 $
474 $
335 $
121
205
13
170
658
6,196
—
10,568 $
2,088 $
1,641
963
252
2,143
1,049
61
8,197 $
18,765 $
27
109
—
624 $
201 $
167
68
1
702
2,915
—
4,122 $
1,377 $
1,255
955
123
133
—
5
575 $
1,199 $
1,862
1,313
49
7,423 $
11,545 $
$
$
$
$
9
43
2
—
175
70
74
74
15
148
7
4
418
593
The following disclosures are presented in accordance with GAAP in effect prior to the adoption of CECL. The Company
has included these disclosures to address the applicable prior periods presented.
As of December 31, 2019 and 2018, the carrying value of PCI loans accounted for under ASC 310-30 "Loans and Debt
Securities Acquired with Deteriorated Credit Quality" was $57,152 and $68,999. The following table presents changes in
the value of the accretable yield for PCI loans for the periods indicated.
Balance at the beginning of period
Additions through business combinations
Principal reductions and other reclassifications from nonaccretable difference
Accretion
Changes in expected cash flows
Balance at end of period
$
$
Year Ended December 31,
2018
(17,682)
2019
(16,587) $
(1,167)
61
7,003
(360)
(11,050) $
—
(4,047)
9,010
(3,868)
(16,587)
Included in the ending balance of the accretable yield on PCI loans at December 31, 2019 and 2018, was a purchase
accounting liquidity discount of $292 and $2,436, respectively. There was also a purchase accounting nonaccretable
credit discount of $3,537 and $4,355 related to the PCI loan portfolio at December 31, 2019 and 2018, and an accretable
credit and liquidity discount on non-PCI loans of $8,964 and $3,924 as of December 31, 2019 and $7,527 and $2,197,
respectively, as of December 31, 2018.
125
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Interest revenue, through accretion of the difference between the recorded investment of the loans and the expected cash
flows, was recognized on all PCI loans. Accretion of interest income amounting to $7,003 and $9,010 was recognized on
PCI loans during the years ended December 31, 2019 and 2018, respectively. This included both the contractual interest
income recognized and the purchase accounting contribution through accretion of the liquidity discount for changes in
estimated cash flows. The total purchase accounting contribution through accretion excluding contractual interest
collected for all purchased loans was $8,556 and $7,608 for the years ended December 31, 2019 and 2018, respectively
As of December 31, 2020 and December 31, 2019, the Company has a recorded investment in TDRs of $15,988 and
$12,206, respectively. The modifications included extensions of the maturity date and/or a stated rate of interest to one
lower than the current market rate to borrowers experiencing financial difficulty. The Company has calculated $310 and
$360 of specific reserves for those loans at December 31, 2020 and December 31, 2019, respectively. There were no
commitments to lend any additional amounts to these customers for either period end. Of these loans, $8,279 and $5,201
were classified as non-accrual loans as of December 31, 2020 and December 31, 2019, respectively.
The following tables present the financial effect of TDRs recorded during the periods indicated.
Year Ended December 31, 2020
Commercial and industrial
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Total
Year Ended December 31, 2019
Commercial and industrial
Construction
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
1-4 family mortgage
Residential line of credit
Total
Year Ended December 31, 2018
Commercial and industrial
Commercial real estate:
Owner occupied
Residential real estate:
1-4 family mortgage
Consumer and other
Total
Number of loans
Pre-modification
outstanding recorded
investment
Post-modification
outstanding recorded
investment
5 $
2,257 $
2,257 $
Charge offs
and specific
reserves
—
7
2
3
1
18 $
2,794
3,752
618
95
9,516 $
2,794
3,752 $
618
95
9,516 $
—
—
—
—
—
Number of loans
Pre-modification
outstanding
recorded investment
Post-modification
outstanding
recorded investment
3 $
2
2
1
2
2
12 $
3,204 $
1,085
1,494
1,366
175
333
7,657 $
3,204 $
1,085
1,495
1,366
175
333
7,658 $
Number of loans
Pre-modification
outstanding
recorded investment
Post-modification
outstanding
recorded investment
887 $
887 $
Charge offs
and specific
reserves
—
—
—
106
—
9
115
Charge offs
and specific
reserves
—
2 $
1
1
5
9 $
143
249
61
1,340 $
143
249
61
1,340 $
—
—
—
—
There were no loans modified as troubled debt restructurings for which there was a payment default within twelve months
following the modification during the years ended December 31, 2020, 2019, and 2018. A loan is considered to be in
payment default once it is 90 days contractually past due under the modified terms.
In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability
that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This
126
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
evaluation is performed under the Company’s internal underwriting policy. The terms of certain other loans were modified
during the years ended December 31, 2020, 2019 and 2018 that did not meet the definition of a TDR. The modification of
these loans usually involve either a modification of the terms of a loan to borrowers who are not experiencing financial
difficulties or an insignificant delay in payments.
Collateral Dependent Loans
For loans for which the repayment (based on the Company's assessment) is expected to be provided substantially
through the operation or sale of collateral and the borrower is experiencing financial difficulty, the following table presents
the loans and the corresponding individually assessed allowance for credit losses by class of financing receivable.
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Multi-family mortgage
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total
December 31, 2020
Type of Collateral
Real Estate
Financial
Assets and
Equipment
— $
3,877
1,728 $
—
Individually
assessed
allowance for
credit loss
117
—
226
1,174
—
3,391
8,164
—
16,832 $
—
—
—
—
—
—
1,728 $
—
9
—
30
1,531
—
1,687
$
$
Deferrals Program included in COVID-19 Relief
On March 22, 2020, an Interagency Statement was issued by banking regulators encouraging financial institutions to work
prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of
COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by
law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of
December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19
outbreak terminates. Section 541 of the Consolidated Appropriations Act (CAA) extends this relief to the earlier of January
1, 2022 or 60 days after the national emergency termination date. The Interagency Statement was subsequently revised
in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth
the banking regulators’ views on consumer protection considerations. The following table outlines the Company's
recorded investment and percentage of loans held for investment by class of financing receivable for Company executed
deferrals that remain on deferral at December 31, 2020, in connection with Company COVID-19 relief programs. These
deferrals typically ranged from sixty to ninety days per deferral and were not considered TDRs under the interagency
regulatory guidance or the CARES Act issued in March 2020. As of December 31, 2020, the Company had a total of
$1,399,088 loans previously deferred that were no longer in deferral status.
127
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Commercial and industrial
Construction
Residential real estate:
1-to-4 family mortgage
Residential line of credit
Multi-family mortgage
Commercial real estate:
Owner occupied
Non-owner occupied
Consumer and other
Total
$
$
7,118
1,918
19,201
204
3,305
19,815
139,590
11,366
202,517
December 31, 2020
% of Loans
0.5 %
0.2 %
1.8 %
— %
1.9 %
2.1 %
8.7 %
3.6 %
2.9 %
Note (6)—Loans held for sale:
Loans held for sale are recorded at fair value, and consist primarily of residential mortgage loans originated to be sold in
the secondary market. During the year ended December 31, 2020, the Company acquired a portfolio of commercial loans,
including shared national credits and institutional healthcare loans, as part of the Franklin transaction that the Company
elected to account for as held for sale. As such, these loans are excluded from the allowance for credit losses. Instead,
the loans are recorded at fair value with subsequent changes to fair value recognized in earnings. During the year ended
December 31, 2020, the Company recorded gains of $3,228 in other noninterest income related to changes in fair value of
this portfolio. The following table summarizes loans held for sale, at fair value, as of the periods presented:
Commercial and industrial
Residential real estate:
1-4 family mortgage
Total loans held for sale, at fair value
December 31,
2020
215,403 $
December 31,
2019
—
683,770
899,173 $
262,518
262,518
$
$
Note (7)—Premises and equipment:
Premises and equipment and related accumulated depreciation as of December 31, 2020 and 2019, are as follows:
Land
Premises
Furniture and fixtures
Leasehold improvements
Equipment
Construction in process
Finance lease
Less: accumulated depreciation and amortization
Total Premises and Equipment
$
$
2020
33,151 $
108,579
26,729
18,429
16,904
1,501
1,588
206,881
(61,766)
145,115 $
2019
26,283
65,569
23,545
12,989
15,575
800
—
144,761
(54,630)
90,131
Depreciation and amortization expense was $7,009, $5,176 and $4,334 for the years ended December 31, 2020, 2019
and 2018, respectively.
128
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Note (8)—Other real estate owned
The amount reported as other real estate owned includes property acquired through foreclosure in addition to excess
facilities held for sale and is carried at fair value less estimated cost to sell the property. The following table summarizes
the other real estate owned for the year ended December 31, 2020, 2019, and 2018:
Balance at beginning of period
Transfers from loans
Transfers (to) from premises and equipment
Proceeds from sale of other real estate owned
Gain on sale of other real estate owned
Loans provided for sales of other real estate owned
Write-downs and partial liquidations
Balance at end of period
$
$
2020
18,939 $
2,746
(841)
(6,937)
354
(305)
(1,845)
12,111 $
Year Ended
December 31,
2018
16,442
2,138
—
(4,819)
271
(1,019)
(370)
12,643
2019
12,643 $
5,487
4,290
(3,860)
1,058
(166)
(513)
18,939 $
Foreclosed residential real estate properties totaled $1,890 and $4,295 as of December 31, 2020 and December 31,
2019, respectively. The recorded investment in residential mortgage loans secured by residential real estate properties for
which foreclosure proceedings are in process totaled $167 and $82 at December 31, 2020 and December 31, 2019,
respectively.
Excess land and facilities held for sale resulting from branch consolidations totaled $5,703 and $8,956 as of
December 31, 2020 and December 31, 2019, respectively.
Note (9)—Goodwill and intangible assets:
Goodwill
Balance at December 31, 2018
Addition from acquisition of Atlantic Capital branches
Relief of goodwill due to sale of TPO mortgage delivery channel
Balance at December 31, 2019
Balance at December 31, 2019
Addition from acquisition of Farmers National
Addition from acquisition of Franklin
Balance at December 31, 2020
$
$
$
$
137,190
31,961
(100)
169,051
169,051
6,319
67,191
242,561
Goodwill is tested annually, or more often if circumstances warrant, for impairment. Impairment exists when a reporting
unit's carrying value exceeds its fair value. As of December 31, 2020, the Company performed a quantitative assessment
and determined it was more likely than not that the fair value of the reporting units exceeded its carrying value, including
goodwill. As such, no impairment was indicated. The Company performed a qualitative test of goodwill for impairment as
of December 31, 2019 and determined there to be no impairment. The Company recorded $100 in relief of goodwill during
the year ended December 31, 2019, related to the sale of the TPO mortgage delivery channel. See Note 2, "Mergers &
Acquisitions" for information on the calculation of goodwill for each of our mergers and acquisitions.
129
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Core deposit and other intangibles include core deposit intangibles, customer base trust intangible and manufactured
housing servicing intangible. The composition of core deposit and other intangibles as of December 31, 2020 and
December 31, 2019 is as follows:
December 31, 2020
Core deposit intangible
Customer base trust intangible
Manufactured housing servicing intangible
Total core deposit and other intangibles
December 31, 2019
Core deposit intangible
Customer base trust intangible
Manufactured housing servicing intangible
Total core deposit and other intangibles
Core deposit and other intangibles
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
$
$
$
59,835 $
1,600
1,088
62,523 $
49,675 $
1,600
1,088
52,363 $
(38,807) $
(547)
(743)
(40,097) $
(33,861) $
(387)
(526)
(34,774) $
21,028
1,053
345
22,426
15,814
1,213
562
17,589
During the first quarter of 2020, the Company recorded $2,490 of core deposit intangibles resulting from the Farmers
National acquisition, which is being amortized over a weighted average life of approximately 4 years. During the third
quarter of 2020, the Company recorded $7,670 of core deposit intangibles resulting from the Franklin merger, which is
being amortized over a weighted average life of approximately 4 years.
The estimated aggregate future amortization expense of core deposit and other intangibles is as follows:
2021
2022
2023
2024
2025
Thereafter
Note (10)—Leases:
$
$
5,477
4,586
3,658
2,946
2,306
3,453
22,426
On January 1, 2019, the Company adopted ASU 2016-02 "Leases" (Topic 842) and all subsequent updates that modified
Topic 842. For the Company, the adoption primarily affected the accounting treatment for operating lease agreements in
which the Company is the lessee. Substantially all the leases for which the Company is the lessee are comprised of real
estate for branches, mortgage, and operations locations.
As of December 31, 2020, the Company was the lessee in 58 operating leases and 1 finance lease of certain branch,
mortgage and operations locations, of which 49 operating leases and 1 finance lease currently have remaining terms
varying from greater than one year to 35 years. Leases with initial terms of less than one year are not recorded on the
consolidated balance sheets. The Company also does not include equipment leases and leases in which the Company is
the lessor on the consolidated balance sheets as these are insignificant.
Many leases include one or more options to renew, with renewal terms that can extend the lease up to an additional 20
years or more. Certain lease agreements contain provisions to periodically adjust rental payments for inflation. Renewal
options that management is reasonably certain to renew and fixed rent escalations are included in the right-of-use
("ROU") asset and lease liability.
During the year ended December 31, 2020, the Company recorded $23,972 in ROU assets and liabilities for operating
leases assumed in the Franklin and FNB transactions. Additionally, the Company also assumed a finance lease in the
Franklin transaction amounting to $1,630 included in premises and equipment and borrowings on the consolidated
balance sheets.
During the year ended December 31, 2020, the Company entered into a lease for a new corporate headquarters building
located in downtown Nashville. The building is currently under construction and anticipated to be completed in late 2022.
130
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Upon commencement, the Company estimates recording a ROU asset and operating lease liability of approximately
$29,000 and $30,000, respectively, in connection with this lease.
Information related to the Company's leases is presented below:
Classification
2020
December 31,
2019
Right-of-use assets:
Operating leases
Finance leases
Total right-of-use assets
Lease liabilities:
Operating leases
Finance leases
Total lease liabilities
Weighted average remaining lease term (in years) -
operating
Weighted average remaining lease term (in years) - finance
Weighted average discount rate - operating
Weighted average discount rate - finance
Operating lease right-of-use
assets
Premises and equipment, net
Operating lease liabilities
Borrowings
$
$
$
$
49,537
$
1,588
51,125
$
55,187
$
1,598
56,785
$
12.2
14.4
2.65 %
1.76 %
32,539
—
32,539
35,525
—
35,525
14.1
0.0
3.44 %
— %
The components of total lease expense included in the consolidated statements of income were as follows:
Operating lease costs
Amortization of right-of-use asset
Short-term lease cost
Variable lease cost
Finance lease costs
Interest on lease liabilities
Amortization of right-of-use asset
Lease impairment
Total lease cost
Classification
Occupancy and equipment
Occupancy and equipment
Occupancy and equipment
$
Interest expense on borrowings
Occupancy and equipment
Merger costs
Year Ended
December 31,
2019
5,057
365
682
—
—
—
2020
6,228 $
456
602
11
43
2,142
$
9,482 $
6,104
The Company does not separate lease and non-lease components and instead elects to account for them as a single
lease component. Variable lease cost primarily represents variable payments such as common area maintenance, utilities,
and property taxes.
Prior to the adoption of ASU 2016-02 on January 1, 2019, lease expense and amortization of a favorable lease intangible
included in occupancy and equipment expense during the year ended December 31, 2018 amounted to $5,019 and $90,
respectively.
131
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
A maturity analysis of operating and finance lease liabilities and a reconciliation of undiscounted cash flows to the total
lease liability as of December 31, 2020 is as follows:
Lease payments due:
December 31, 2021
December 31, 2022
December 31, 2023
December 31, 2024
December 31, 2025
Thereafter
Total undiscounted future minimum lease payments
Less: imputed interest
Net lease liability
Note (11)—Mortgage servicing rights:
Operating
Leases
Finance
Leases
8,042 $
7,693
6,302
5,625
4,972
34,053
66,687
(11,500)
55,187 $
115
116
118
120
121
1,225
1,815
(217)
1,598
$
$
Changes in the Company’s mortgage servicing rights were as follows for the years ended December 31, 2020, 2019, and
2018:
Carrying value at beginning of period
Capitalization
Mortgage servicing rights acquired from Franklin, at fair value
Sales
Change in fair value:
Due to pay-offs/pay-downs
Due to change in valuation inputs or assumptions
Carrying value at end of period
$
$
2020
75,521 $
47,025
5,111
—
(27,834)
(19,826)
79,997 $
Year Ended December 31,
2018
76,107
54,913
2019
88,829
42,151
—
(29,160)
(39,428)
(16,350)
(9,949)
75,521 $
(11,062)
8,299
88,829
The following table summarizes servicing income and expense, which are included in 'Mortgage banking income' and
'Other noninterest expense', respectively, within the Mortgage segment operating results for the years ended
December 31, 2020, 2019, and 2018:
Servicing income:
Servicing income
Change in fair value of mortgage servicing rights
Change in fair value of derivative hedging instruments
Servicing income
Servicing expenses
Net servicing (loss) income (1)
(1) Excludes benefit of custodial service related noninterest-bearing deposits held by the Bank.
2020
22,128 $
(47,660)
13,286
(12,246)
7,890
(20,136) $
$
$
Year Ended December 31,
2018
2019
17,677 $
(26,299)
9,310
688
6,832
(6,144) $
20,591
(2,763)
(5,910)
11,918
7,675
4,243
132
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Data and key economic assumptions related to the Company’s mortgage servicing rights as of December 31, 2020 and
2019 are as follows:
Unpaid principal balance
Weighted-average prepayment speed (CPR)
Estimated impact on fair value of a 10% increase
Estimated impact on fair value of a 20% increase
Discount rate
Estimated impact on fair value of a 100 bp increase
Estimated impact on fair value of a 200 bp increase
Weighted-average coupon interest rate
Weighted-average servicing fee (basis points)
Weighted-average remaining maturity (in months)
$
$
$
$
$
$
$
$
$
$
2020
9,787,657
14.07%
(4,493)
(8,599)
11.49%
(2,942)
(5,674)
3.58%
28
328
December 31,
2019
6,734,496
10.05%
(2,839)
(5,474)
9.68%
(3,086)
(5,932)
4.20%
29
335
The Company hedges the mortgage servicing rights portfolio with various derivative instruments to offset changes in the
fair value of the related mortgage servicing rights. See Note 18, "Derivatives" for additional information on these hedging
instruments.-*
During the years ended December 31, 2019 and 2018, the Company sold $29,160 and $39,428, of mortgage servicing
rights on $2,034,374 and $3,181,483 of serviced mortgage loans, respectively. There was not a significant gain or loss
recognized in connection with the sales. During the year ended December 31, 2020, there were no such transactions. As
of December 31, 2020 and 2019, mortgage escrow deposits totaled to $147,957 and $92,610, respectively.
Note (12)—Other assets and other liabilities:
Included in other assets are:
Other assets
Cash surrender value on bank owned life insurance
Prepaid expenses
Software
Mortgage lending receivable
Derivatives (See Note 18)
Deferred tax asset (See Note 15)
FHLB lender risk account receivable (See Note 1)
Pledged collateral on derivative instruments
Other assets
Total other assets
Included in other liabilities are:
Other liabilities
Deferred compensation
Accrued payroll
Mortgage buyback reserve
Accrued interest
Derivatives (See Note 18)
Deferred tax liability (See Note 15)
FHLB lender risk account guaranty
Reserve for unfunded commitments
Other liabilities
Total other liabilities
133
$
$
$
$
2020
71,977 $
5,328
1,147
8,716
68,938
16,396
12,729
57,985
30,900
As of December 31,
2019
11,357
4,575
1,999
10,765
21,981
—
11,225
33,616
27,196
122,714
274,116 $
2020
2,261 $
35,827
5,928
6,772
48,242
—
6,183
16,378
42,809
As of December 31,
2019
1,718
16,517
3,529
6,465
17,933
20,490
5,546
—
15,256
87,454
164,400 $
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Unaudited)
(Dollar amounts are in thousands, except share and per share amounts)
Note (13)—Deposits:
The aggregate amount of time deposits with a minimum denomination greater than $250 was $425,227 and $343,756 at
December 31, 2020 and 2019, respectively.
At December 31, 2020, the scheduled maturities of time deposits are as follows:
Scheduled maturities of time deposits
Due on or before:
December 31, 2021
December 31, 2022
December 31, 2023
December 31, 2024
December 31, 2025
Thereafter
Total
$
$
1,048,816
204,165
117,178
44,718
22,325
52
1,437,254
At December 31, 2020 and 2019, the Company had $2,965 and $3,487, respectively, of deposit accounts in overdraft
status and thus have been reclassified to loans on the accompanying consolidated balance sheets.
Note (14)—Borrowings:
Borrowings include securities sold under agreements to repurchase, lines of credit, Federal Home Loan Bank advances,
and subordinated debt.
Securities sold under agreements to repurchase
FHLB advances
Subordinated debt
Other borrowings
$
$
December 31,
2020
32,199 $
—
189,527
16,598
Outstanding Balance
December 31,
2019
23,745
250,000
30,930
—
304,675
238,324 $
Weighted Average Interest Rate
December 31,
December 31,
2020
0.47 %
— %
5.10 %
1.88 %
2019
0.89 %
1.60 %
5.13 %
— %
Securities sold under agreements to repurchase and federal funds purchased
Securities sold under agreements to repurchase are financing arrangements that mature daily. The Company enters into
agreements with certain customers to sell certain securities under agreements to repurchase the securities the following
day. These agreements are made to provide customers with comprehensive treasury management programs and a short-
term return for their excess funds.
Information concerning securities sold under agreement to repurchase is summarized as follows:
Balance at year end
Average daily balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Weighted average interest rate at year-end
$
$
$
32,199
32,912
0.61 %
40,282
$
0.47 %
23,745
22,798
0.84 %
30,273
0.89 %
December 31, 2020
December 31, 2019
The fair value of securities pledged to secure repurchase agreements may decline. The Company manages this risk by
having a policy to pledge securities valued at 100% of the outstanding balance of repurchase agreements.
The Bank maintains lines with certain correspondent banks that provide borrowing capacity in the form of federal funds
purchased in the aggregate amount of $335,000 and $305,000 as of December 31, 2020 and 2019, respectively. There
were no borrowings against these available lines at December 31, 2020 or 2019.
134
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Federal Home Loan Bank Advances
As a member of the FHLB Cincinnati, the Bank receives advances from the FHLB pursuant to the terms of various
agreements that assist in funding its mortgage and loan portfolio production. Under these agreements, the Company
pledged qualifying loans of $2,781,606 as collateral securing a line of credit with a total borrowing capacity of $1,276,095
as of December 31, 2020. As of December 31, 2019, the Company pledged qualifying loans of $958,506 as collateral
securing a line of credit with a total borrowing capacity of $760,607. As of December 31, 2020 and 2019, letters of credit
in the amount of $100,000 and $75,000, respectively, were pledged to secure public funds that require collateralization.
Additionally, there was an additional line of $800,000 available with the FHLB for overnight borrowings as of both
December 31, 2020 and 2019; however additional collateral may be needed to draw on the line.
Borrowings against the Company's line totaled $0 and $250,000 as of December 31, 2020 and 2019, respectively. Total
borrowings as of December 31, 2019 comprised $150,000 in long-term advances and $100,000 in 90 day fixed rate
advances. The long-term advances as of December 31, 2019 contain putable features and are composed of $100,000
and $50,000 with initial contractual maturities of 10 and 7 years, respectively. The weighted average interest rate on
outstanding advances at December 31, 2019 was 1.60%. During the year ended December 31, 2020, the Company
repaid all the advances and incurred $6,838 in early termination costs.
The Company maintained a line with the Federal Reserve Bank through the Borrower-in-Custody program in 2020 and
2019. As of December 31, 2020 and 2019, $2,463,281 and $1,407,662 of qualifying loans and $0 and $4,963 of
investment securities were pledged to the Federal Reserve Bank through the Borrower-in-Custody program securing a
line of credit of $1,695,639 and $1,013,239, respectively.
Subordinated Debt
In 2003, two separate trusts formed by the Company issued $9,000 of floating rate trust preferred securities (“Trust I”) and
$21,000 of floating rate trust preferred securities (“Trust II”), respectively, as part of a pooled offering of such securities.
The Company issued junior subordinated debentures of $9,280, which included proceeds of common securities
purchased by the Company of $280, and junior subordinated debentures of $21,650, which included proceeds of common
securities of $650. Both issuances were to the trusts in exchange for the proceeds of the securities offerings, which
represent the sole asset of the trusts. Trust I pays interest quarterly based upon the 3-month LIBOR plus 3.25%. Trust II
pays interest quarterly based upon the 3-month LIBOR plus 3.15%. Rates for the two issues at December 31, 2020, were
3.50% and 3.40%, respectively. Rates for the two issues at December 31, 2019, were 5.19% and 5.10%, respectively. The
Company may redeem the first junior subordinated debenture listed, in whole or in part, on any distribution payment date
within 120 days of the occurrence of a special event, at the redemption price. The Company may redeem the second
junior subordinated debentures listed, in whole or in part, any time after June 26, 2008, on any distribution payment date,
at the redemption price. The junior subordinated debentures must be redeemed no later than 2033. The Company has
classified $30,000 of subordinated debt as Tier 1 capital at both December 31, 2020 and 2019.
Additionally, during the year ended December 31, 2020, the Company placed $100,000 of ten year fixed-to-floating rate
subordinated notes, maturing September 1, 2030. This subordinated note instrument pays interest semi-annually in
arrears based on a 4.5% fixed annual interest rate for the first five years of the notes. For years six through ten, the
interest rate resets on a quarterly basis, and will be based on the 3-month Secured Overnight Financing Rate plus a
spread of 439 basis points. The Company is entitled to redeem the notes in whole or in part on any interest payment date
on or after September 1, 2025. The Company has classified the issuance, net of unamortized issuance costs of $1,772,
as Tier 2 capital as of December 31, 2020. Under current regulatory guidelines, the instrument loses 20% of its Tier 2
capital treatment on a graded basis in the final five years prior to maturity.
The Company also assumed two issues of subordinated debt, totaling $60,000, as part of the Franklin merger. The notes,
issued in 2016, feature $40,000 of 6.875% fixed-to-floating rate subordinated notes due March 30, 2026 ("March 2026
Subordinated Notes"), and $20,000 of 7% fixed-to-floating rate subordinated notes due July 1, 2026 ("July 2026
Subordinated Notes"). Both note issuances currently pay interest semi-annually, and will begin resetting interest rates on a
quarterly basis after March 30, 2021 and July 1, 2021. For years six through ten, interest for the March 2026 Subordinated
Notes will based on the 3-month LIBOR plus 5.636%, and interest for the July 2026 Subordinated Notes will be based on
the 3-month LIBOR plus 6.04%. The Company is entitled to redeem in whole or in part after the respective fifth
anniversary of each note issuance. The Company classified the balance of $60,369, which includes an interest rate
premium of $369, as Tier 2 capital as of December 31, 2020. Subsequent to December 31, 2020, the Company issued an
irrevocable notice to the holders of the issuance declaring intention to redeem the $40.0 million note in full during the first
quarter of 2021.
135
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Other borrowings
During the year ended December 31, 2020, the Company initiated a credit line in the amount of $20.0 million (1.75% + 1
month LIBOR in effect 2 business days prior to reprice date) and borrowed $15.0 million against the line to fund the cash
consideration paid in connection with the Farmers National transaction. As of December 31, 2020, an additional $5.0
million was available for the Company to draw. This line of credit had a term of one year and matured on February 21,
2021.
Note (15)—Income taxes:
An allocation of federal and state income taxes between current and deferred portions is presented below:
Current
Deferred
Total
The following table presents a reconciliation of federal income taxes at the statutory federal rate of 21% to the Company's
effective tax rates for the year ended December 31, 2020, 2019, and 2018:
$
$
2020
44,362 $
(25,530)
18,832 $
For the Year Ended December 31,
2,018
19,259
6,359
25,618
2019
27,641 $
(1,916)
25,725 $
Federal taxes calculated at statutory rate
Increase (decrease) resulting from:
State taxes, net of federal benefit
Expense (benefit) from equity based compensation
Municipal interest income, net of interest disallowance
Bank owned life insurance
Merger costs
Other
Income tax expense, as reported
$ 17,317
3,197
153
(1,507)
(327)
289
(290)
$ 18,832
2020
21.0 % $ 23,003
For the Year Ended December 31,
2018
21.0 %
21.0 % $ 22,230
2019
4,792
3.9 %
(1,353)
0.2 %
(908)
(1.8) %
(51)
(0.4) %
66
0.4 %
(0.4) %
176
22.9 % $ 25,725
4.4 %
(1.2) %
(0.8) %
(0.1) %
0.1 %
0.1 %
4,666
(870)
(837)
(51)
141
339
23.5 % $ 25,618
4.4 %
(0.8) %
(0.8) %
— %
0.1 %
0.3 %
24.2 %
As of December 31, 2020, the Company acquired $8,346 of net operating losses from Franklin. The net operating loss
carryforwards can be used to offset taxable income in future periods and reduce income tax liabilities in those future
periods. While net operating losses are subject to certain annual utilization limits under IRC Section 382, the Company
believes the net operating losses carryforward will be realized based on the projected annual limitation and the length of
the net operating loss carryover period. The Company's determination of the realization of the net deferred tax asset is
based on its assessment of all available positive and negative evidence. The net operating loss carryforward is set to
expire as of December 31, 2030.
The Company is no longer subject to examination by taxing authorities for tax years before 2017 for federal taxes and
before 2016 for various state jurisdictions.
136
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The components of the net deferred tax assets (liabilities) at December 31, 2020 and December 31, 2019, are as follows:
December 31,
2020
December 31
2019
Deferred tax assets:
Allowance for credit losses
Operating lease liabilities
Federal net operating loss
Amortization of core deposit intangibles
Deferred compensation
Unrealized loss on debt securities
Unrealized loss on equity securities
Unrealized loss on cash flow hedges
Other
Subtotal
Deferred tax liabilities:
FHLB stock dividends
Operating leases - right of use assets
Depreciation
Amortization of core deposit intangibles
Unrealized gain on equity securities
Unrealized gain on cash flow hedges
Unrealized gain on debt securities
Mortgage servicing rights
Goodwill
Other
Subtotal
Net deferred tax assets (liabilities)
$
$
$
48,409 $
14,496
1,753
—
8,872
—
—
499
19,101
93,130
(561) $
(13,197)
(7,491)
(684)
(17)
—
(13,027)
(20,803)
(11,301)
(9,653)
(76,734)
16,396 $
8,113
9,373
—
1,386
5,231
54
60
—
2,388
26,605
(550)
(8,641)
(5,078)
—
—
(203)
(3,051)
(19,678)
(8,859)
(1,035)
(47,095)
(20,490)
Note (16)—Dividend restrictions:
Due to regulations of the Tennessee Department of Financial Institutions (“TDFI”), the Bank may not declare dividends in
any calendar year that exceeds the total of its net income of that year combined with its retained net income of the
preceding two years without the prior approval of the TDFI Commissioner. Based upon this regulation, $185,703 and
$223,730 was available for payment of dividends without such prior approval at December 31, 2020 and 2019,
respectively.
In addition, dividends paid by the Bank to the Company would be prohibited if the effect thereof would cause the Bank’s
capital to be reduced below applicable minimum capital requirements.
During the year ended December 31, 2020, there were $48,750 in cash dividends and $956 in security dividends declared
from the Bank to the Company. No cash dividends were declared from the Bank to the Company during the years ended
December 31, 2019 or 2018.
137
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Note (17)—Commitments and contingencies:
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued
to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as
conditions established in the contract are met, and usually have expiration dates.
Commitments may expire without being used. Off-balance sheet risk of credit loss exists up to the face amount of these
instruments, although material losses are not anticipated. The same credit policies are used to make such commitments
as are used for loans, including obtaining collateral at exercise of the commitment.
Commitments to extend credit, excluding interest rate lock commitments
Letters of credit
Balance at end of period
2020
2,719,996 $
67,598
2,787,594 $
December 31,
2019
1,086,173
19,569
1,105,742
$
$
As of December 31, 2020, approximately $1.07 billion of loan commitments had fixed rates and $1.65 billion had floating
rates.
In connection with the adoption of CECL on January 1, 2020, the Company estimates expected credit losses on off-
balance sheet loan commitments that are not accounted for as derivatives. When applying the CECL methodology to
estimate expected credit loss, the Company considers the likelihood that funding will occur, the contractual period of
exposure to credit loss, the risk of loss, historical loss experience, and current conditions along with expectations of future
economic conditions. As such, upon adoption the Company recorded an initial allowance for credit losses on unfunded
commitments in other liabilities amounting to $2,947. The impact net of taxes was recorded as part of the cumulative
adjustment to retained earnings of $25,018 on January 1, 2020.
The table below presents activity within the allowance for credit losses on unfunded commitments:
Balance at beginning of period
Impact of CECL adoption on provision for credit losses on unfunded commitments
Increase in provision for credit losses from unfunded commitments acquired in business combination
Provision for credit losses on unfunded commitments
Balance at end of period
For the Year Ended
December 31,
2020
—
2,947
10,499
2,932
16,378
$
$
In connection with the sale of mortgage loans to third party investors, the Bank makes usual and customary
representations and warranties as to the propriety of its origination activities. Occasionally, the investors require the Bank
to repurchase loans sold to them under the terms of the warranties. When this happens, the loans are recorded at fair
value with a corresponding charge to a valuation reserve. The total principal amount of loans repurchased (or indemnified
for) was $9,171, $6,475, and $6,646 for the years ended December 31, 2020, 2019, and 2018, respectively. The
Company has established a reserve associated with loan repurchases. This reserve is recorded in accrued expenses and
other liabilities on the consolidated balance sheets.
The following table summarizes the activity in the repurchase reserve:
Balance at beginning of period
Provision for loan repurchases or indemnifications
Recoveries on previous losses
Losses on loans repurchased or indemnified
Balance at end of period
2020
3,529 $
2,607
(208)
—
5,928 $
For the Year Ended December 31,
2018
3,386
174
3
(290)
3,273
2019
3,273 $
362
(106)
—
3,529 $
$
$
138
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Note (18)—Derivatives:
The Company utilizes derivative financial instruments as part of its ongoing efforts to manage its interest rate risk
exposure as well as the exposure for its customers. Derivative financial instruments are included in the consolidated
balance sheets line item “Other assets” or “Other liabilities” at fair value in accordance with ASC 815, “Derivatives and
Hedging.”
The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to
funding (rate-lock commitments). Under such commitments, interest rates for mortgage loans are typically locked in for
between 45 to 90 days with the customer. These interest rate lock commitments are recorded at fair value in the
Company’s consolidated balance sheets. The Company also enters into best effort or mandatory delivery forward
commitments to sell residential mortgage loans to secondary market investors. Gains and losses arising from changes in
the valuation of the rate-lock commitments and forward commitments are recognized currently in earnings and are
reflected under the line item “Mortgage banking income” on the consolidated statements of income.
The Company enters into forward commitments, futures and options contracts that are not designated as hedging
instruments as economic hedges to offset the changes in fair value of MSRs. Gains and losses associated with these
instruments are included in earnings and are reflected under the line item “Mortgage banking income” on the consolidated
statements of income.
Additionally, the Company enters into derivative instruments that are not designated as hedging instruments to help its
commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated
with customer contracts, the Company enters into an offsetting derivative contract. The Company manages its credit risk,
or potential risk of default by its commercial customers through credit limit approval and monitoring procedures.
The Company also maintains two interest rate swap agreements with notional amounts totaling $30,000 used to hedge
interest rate exposure on outstanding subordinated debentures included in long-term debt totaling $30,930. Under these
agreements, the Company receives a variable rate of interest equal to 3-month LIBOR and pays a weighted average fixed
rate of interest of 2.08%. The interest rate swap contracts, which mature in June of 2024, are designated as cash flow
hedges with the objective of reducing the variability in cash flows resulting from changes in interest rates. As of
December 31, 2020 and December 31, 2019, the fair value of these contracts resulted in liability balances of $1,909 and
$515, respectively.
In July 2017, the Company entered into three interest rate swap contracts on floating rate liabilities at the Bank level with
notional amounts of $30,000, $35,000 and $35,000 for a period of three, four and five years, respectively. These interest
rate swaps were designated as cash flow hedges with the objective of reducing the variability of cash flows associated
with $100,000 of FHLB borrowings. During the first quarter of 2018, these swaps were canceled, locking in a tax-adjusted
gain of $1,564 in other comprehensive income to be accreted over the three, four and five-year terms of the underlying
contracts. As of December 31, 2019, there was $955 remaining in the other comprehensive income to be accreted. During
the year ended December 31, 2020, the Company elected to not renew the advances associated with the legacy cash
flow hedge, and reclassified the remaining unamortized gain, from accumulated other comprehensive income to earnings.
139
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The following tables provide details on the Company’s derivative financial instruments as of the dates presented:
Not designated as hedging:
Interest rate contracts
Forward commitments
Interest rate-lock commitments
Futures contracts
Total
Not designated as hedging:
Interest rate contracts
Forward commitments
Interest rate-lock commitments
Futures contracts
Total
Designated as hedging:
Interest rate swaps
Designated as hedging:
Interest rate swaps
Notional Amount
$
$
606,878 $
1,358,328
1,191,621
375,400
3,532,227 $
Notional Amount
$
$
440,556 $
684,437
453,198
389,000
1,967,191 $
December 31, 2020
Liability
Asset
34,547 $
—
34,391
—
68,938 $
34,317
11,633
—
383
46,333
December 31, 2019
Liability
Asset
14,929 $
—
7,052
—
21,981 $
14,929
866
—
1,623
17,418
Notional Amount
December 31, 2020
Liability
Asset
$
30,000 $
— $
1,909
Notional Amount
December 31, 2019
Liability
Asset
$
30,000 $
— $
515
Gains (losses) included in the consolidated statements of income related to the Company’s derivative financial
instruments were as follows:
Not designated as hedging instruments (included in mortgage banking
income):
Interest rate lock commitments
Forward commitments
Futures contracts
Option contracts
Total
Designated as hedging:
Amount of gain reclassified from other comprehensive income and
recognized in interest expense on borrowings, net of taxes of $337,
$170, and $45
(Loss) gain included in interest expense on borrowings
Total
2020
27,339 $
(73,033)
8,151
—
(37,543) $
Year Ended December 31,
2019
2018
(2,112) $
12,170
(6,723)
(47)
3,288 $
(527)
3,864
(2,981)
(58)
298
2020
Year Ended December 31,
2018
2019
955 $
(353)
602 $
481 $
115
596 $
128
32
160
$
$
$
$
140
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The following discloses the amount included in other comprehensive income, net of tax, for derivative instruments
designated as cash flow hedges for the periods presented:
2020
Year Ended December 31,
2018
2019
Designated as hedging:
Amount of (loss) gain recognized in other comprehensive income, net of
tax $363, $322, and $366
$
(1,031) $
(914) $
1,039
Certain financial instruments, including derivatives, may be eligible for offset in the consolidated balance sheets when the
“right of offset” exists or when the instruments are subject to an enforceable master netting agreement, which includes the
right of the non-defaulting party or non-affected party to offset recognized amounts, including collateral posted with the
counterparty, to determine a net receivable or net payable upon early termination of the agreement. Certain of the
Company’s derivative instruments are subject to master netting agreements, however the Company has not elected to
offset such financial instruments in the consolidated balance sheets. The following table presents the Company's gross
derivative positions as recognized in the consolidated balance sheets as well as the net derivative positions, including
collateral pledged to the extent the application of such collateral did not reduce the net derivative liability position below
zero, had the Company elected to offset those instruments subject to an enforceable master netting agreement:
Offsetting Derivative Assets
Offsetting Derivative Liabilities
Gross amounts recognized
Gross amounts offset in the consolidated
balance sheets
Net amounts presented in the consolidated
balance sheets
Gross amounts not offset in the
consolidated balance sheets
Less: financial instruments
Less: financial collateral pledged
Net amounts
December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019
14,682
$
34,051 $
3,863 $
331 $
—
3,863
—
331
—
—
34,051
14,682
857
—
3,006 $
$
139
—
192 $
857
33,194
— $
139
14,543
—
Most derivative contracts with clients are secured by collateral. Additionally, in accordance with the interest rate
agreements with derivatives dealers, the Company may be required to post margin to these counterparties. At
December 31, 2020 and December 31, 2019, the Company had minimum collateral posting thresholds with certain
derivative counterparties and had collateral posted of $57,985 and $33,616, respectively, against its obligations under
these agreements. Cash collateral related to derivative contracts is recorded in other assets in the consolidated balance
sheets.
Note (19)—Fair value of financial instruments:
FASB ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a
liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. ASC 820-10 also establishes a framework for measuring the fair value of
assets and liabilities according to a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value
into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical
assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The hierarchy maximizes the use of
observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used
when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on
market data obtained from sources independent of the Company. Unobservable inputs are inputs that are derived from
assumptions based on management’s estimate of assumptions that market participants would use in pricing the asset or
liability based on the best information available under the circumstances.
141
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The hierarchy is broken down into the following three levels, based on the reliability of inputs:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the
measurement date.
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by
observable market data.
Level 3: Significant unobservable inputs for assets or liabilities that are derived from assumptions based on
management’s estimate of assumptions that market participants would use in pricing the assets or liabilities.
The Company records the fair values of financial assets and liabilities on a recurring and non-recurring basis using the
following methods and assumptions:
Investment securities-Investment securities are recorded at fair value on a recurring basis. Fair values for securities are
based on quoted market prices, where available. If quoted prices are not available, fair values are based on quoted
market prices of similar instruments or are determined by matrix pricing, which is a mathematical technique widely used in
the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by
relying on the pricing relationship or correlation among other benchmark quoted securities. Investment securities valued
using quoted market prices of similar instruments or that are valued using matrix pricing are classified as Level 2. When
significant inputs to the valuation are unobservable, the available-for-sale securities are classified within Level 3 of the fair
value hierarchy.
Where no active market exists for a security or other benchmark securities, fair value is estimated by the Company with
reference to discount margins for other high-risk securities.
Loans held for sale-Loans held for sale are carried at fair value. Fair value is determined using current secondary market
prices for loans with similar characteristics, that is, using Level 2 inputs.
Derivatives-The fair value of the interest rate swaps are based upon fair values provided from entities that engage in
interest rate swap activity and is based upon projected future cash flows and interest rates. Fair value of commitments is
based on fees currently charged to enter into similar agreements, and for fixed-rate commitments, the difference between
current levels of interest rates and the committed rates is also considered. These financial instruments are classified as
Level 2.
Other real estate owned (“OREO”)-OREO is comprised of commercial and residential real estate obtained in partial or
total satisfaction of loan obligations and excess land and facilities held for sale. OREO acquired in settlement of
indebtedness is recorded at the lower of the carrying amount of the loan or the fair value of the real estate less costs to
sell. Fair value is determined on a nonrecurring basis based on appraisals by qualified licensed appraisers and is adjusted
for management’s estimates of costs to sell and holding period discounts. The valuations are classified as Level 3.
Mortgage servicing rights ("MSRs")-MSRs are carried at fair value. Fair value is determined using an income approach
with various assumptions including expected cash flows, market discount rates, prepayment speeds, servicing costs, and
other factors. As such, mortgage servicing rights are considered Level 3.
Collateral dependent loans (Impaired loans prior to the adoption of ASC 326)-loans for which, based on current
information and events, the Company has determined foreclosure of the collateral is probable, or where the borrower is
experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the
operation or sale of the collateral and it is probable that the creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Collateral dependent loans are classified as Level 3.
142
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The following table contains the estimated fair values and the related carrying values of the Company's financial
instruments. Items which are not financial instruments are not included.
December 31, 2020
Financial assets:
Cash and cash equivalents
Investment securities
Loans, net
Loans held for sale
Interest receivable
Mortgage servicing rights
Derivatives
Financial liabilities:
Deposits:
Without stated maturities
With stated maturities
Securities sold under agreement to
repurchase and federal funds sold
Subordinated debt
Other borrowings
Interest payable
Derivatives
December 31, 2019
Financial assets:
Cash and cash equivalents
Investment securities
Loans, net
Loans held for sale
Interest receivable
Mortgage servicing rights
Derivatives
Financial liabilities:
Deposits:
Without stated maturities
With stated maturities
Securities sold under agreement to
repurchase and federal funds sold
Federal Home Loan Bank advances
Subordinated debt
Interest payable
Derivatives
Carrying
amount
Level 1
Level 2
Level 3
Total
Fair Value
$ 1,317,898 $ 1,317,898 $
— $
1,176,991
6,912,570
899,173
43,603
79,997
68,938
—
—
—
33
—
—
1,176,991
—
683,770
5,254
—
68,938
— $ 1,317,898
1,176,991
—
7,058,693
7,058,693
899,173
215,403
43,603
38,316
79,997
79,997
68,938
—
$ 8,020,783 $ 8,020,783 $
— $
1,437,254
—
1,446,605
— $ 8,020,783
1,446,605
—
32,199
189,527
16,598
6,772
48,242
Carrying
amount
32,199
—
—
327
—
—
—
16,598
4,210
48,242
—
192,149
—
2,235
—
32,199
192,149
16,598
6,772
48,242
Level 1
Level 2
Level 3
Total
Fair Value
$
232,681 $
691,676
4,378,503
262,518
17,083
75,521
21,981
232,681 $
—
—
—
—
—
—
— $
691,676
—
262,518
3,282
—
21,981
— $
—
4,363,903
—
13,801
75,521
—
232,681
691,676
4,363,903
262,518
17,083
75,521
21,981
$ 3,743,085 $ 3,743,085 $
— $
1,191,853
—
1,200,145
— $ 3,743,085
1,200,145
—
23,745
250,000
30,930
6,465
17,933
23,745
—
—
376
—
—
250,213
29,706
6,089
17,933
—
—
—
—
—
23,745
250,213
29,706
6,465
17,933
143
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The balances and levels of the assets measured at fair value on a recurring basis at December 31, 2020 are presented in
the following table:
December 31, 2020
Recurring valuations:
Financial assets:
Available-for-sale securities:
U.S. government agency securities
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
Municipals, tax-exempt
Treasury securities
Corporate securities
Equity securities
Total
Loans held for sale
Mortgage servicing rights
Derivatives
Financial Liabilities:
Derivatives
Quoted prices
in active
markets for
identical assets
(liabilities)
(level 1)
Significant
other
observable
inputs
(level 2)
Significant
unobservable
inputs
(level 3)
$
$
$
— $
—
—
—
—
—
—
— $
— $
—
—
2,003 $
773,336
21,588
356,329
16,628
2,516
4,591
1,176,991 $
683,770 $
—
68,938
— $
—
—
—
—
—
—
— $
215,403 $
79,997
—
Total
2,003
773,336
21,588
356,329
16,628
2,516
4,591
1,176,991
899,173
79,997
68,938
—
48,242
—
48,242
The balances and levels of the assets measured at fair value on a non-recurring basis at December 31, 2020 are
presented in the following table:
At December 31, 2020
Non-recurring valuations:
Financial assets:
Other real estate owned
Collateral dependent loans:
Commercial and industrial
Construction
Residential real estate:
1-4 family mortgage
Residential line of credit
Commercial real estate:
Non-owner occupied
Consumer and other
$
$
Total collateral dependent loans
$
Quoted prices
in active
markets for
identical assets
(liabilities
(level 1)
Significant
other
observable
inputs
(level 2)
Significant
unobservable
inputs
(level 3)
Total
— $
— $
—
—
—
—
—
— $
— $
6,662 $
6,662
— $
—
—
—
—
—
— $
1,728 $
3,877
226
1,174
3,391
8,164
18,560 $
1,728
3,877
226
1,174
3,391
8,164
18,560
144
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The balances and levels of the assets measured at fair value on a recurring basis at December 31, 2019 are presented in
the following table:
At December 31, 2019
Recurring valuations:
Financial assets:
Available-for-sale securities:
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
Municipals, tax-exempt
Treasury securities
Corporate securities
Equity securities
Total
Loans held for sale
Mortgage servicing rights
Derivatives
Financial Liabilities:
Derivatives
Quoted prices
in active
markets for
identical assets
(liabilities)
(level 1)
Significant
other
observable
inputs
(level 2)
Significant
unobservable
inputs
(level 3)
$
$
$
— $
—
—
—
—
—
— $
— $
—
—
477,312 $
13,364
189,235
7,448
1,022
3,295
691,676 $
262,518 $
—
21,981
— $
—
—
—
—
—
— $
— $
75,521
—
Total
477,312
13,364
189,235
7,448
1,022
3,295
691,676
262,518
75,521
21,981
—
17,933
—
17,933
145
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
The balances and levels of the assets measured at fair value on a non-recurring basis at December 31, 2019 are
presented in the following table:
At December 31, 2019
Non-recurring valuations:
Financial assets:
Other real estate owned
Impaired Loans (1):
Commercial and industrial
Residential real estate:
1-4 family mortgage
Residential line of credit
Commercial real estate:
Owner occupied
Non-owner occupied
Total
Quoted prices
in active
markets for
identical assets
(liabilities)
(level 1)
Significant
other observable
inputs
(level 2)
Significant
unobservable
inputs
(level 3)
Total
$
$
$
— $
— $
—
—
—
—
— $
— $
— $
—
—
—
—
— $
9,774 $
9,774
6,481 $
6,481
378
321
951
2,560
10,691 $
378
321
951
2,560
10,691
(1) Includes both impaired non-purchased loans and collateral-dependent PCI loans.
The following table presents information as of December 31, 2020 about significant unobservable inputs (Level 3) used in
the valuation of assets measured at fair value on a nonrecurring basis:
Significant
Unobservable inputs
Discount for comparable
sales
Range of
inputs
0%-30%
Financial instrument
Fair Value
Valuation technique
18,560 Valuation of collateral
Collateral dependent loans
Other real estate owned
$
$
6,662 Appraised value of property less
Discount for costs to sell
0%-15%
costs to sell
The following table presents information as of December 31, 2019 about significant unobservable inputs (Level 3) used in
the valuation of assets measured at fair value on a nonrecurring basis:
Significant
Unobservable inputs
Discount for comparable
sales
Range of
inputs
0%-30%
Financial instrument
Impaired loans (1)
Other real estate owned
$
$
Fair Value
Valuation technique
10,691 Valuation of collateral
9,774 Appraised value of property less
Discount for costs to sell
0%-15%
costs to sell
(1) Includes both impaired non-purchased loans and collateral-dependent PCI loans.
For collateral dependent loans, the ACL is measured based on the difference between the fair value of the collateral and
the amortized cost basis of the loan as of the measurement date. Fair value of the loan's collateral is determined by third-
party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of of the
collateral. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional impairment
and adjusted accordingly, based on changes in market conditions from the time of valuation and management's
knowledge of the client and client's business. Other real estate owned acquired in settlement of indebtedness is recorded
at fair value of the real estate less estimated costs to sell. Subsequently, it may be necessary to record nonrecurring fair
value adjustments for declines in fair value. Any write-downs based on the asset's fair value at the date of foreclosure are
charged to the allowance for credit losses. Appraisals for both collateral dependent loans and other real estate owned are
performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential
properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a
member of the lending administrative department reviews the assumptions and approaches utilized in the appraisal as
well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry
wide statistics.
146
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Fair value option
The Company measures mortgage loans originated for sale at fair value under the fair value option as permitted under
ASC 825. Electing to measure these assets at fair value reduces certain timing differences and more accurately matches
the changes in fair value of the loans with changes in the fair value of derivative instruments used to economically hedge
them.
Net gains of $24,233 resulting from fair value changes of mortgage loans were recorded in income during the year ended
December 31, 2020, compared to net losses of $2,861 during the year ended December 31, 2019, respectively. The
amount does not reflect changes in fair values of related derivative instruments used to hedge exposure to market-related
risks associated with these mortgage loans. The change in fair value of both loans held for sale and the related derivative
instruments are recorded in Mortgage Banking Income in the consolidated statements of income. Election of the fair value
option allows the Company to reduce the accounting volatility that would otherwise result from the asymmetry created by
accounting for the financial instruments at the lower of cost or fair value and the derivatives at fair value.
As of December 31, 2020, and 2019, there were $151,184 and $51,705, respectively, of GNMA loans previously sold that
the Company did not record on its consolidated balance sheets as the Company determined there not to be a more-than-
trivial benefit based on an analysis of interest rates and an assessment of potential reputational risk associated with these
loans.
The Company’s valuation of loans held for sale incorporates an assumption for credit risk; however, given the short-term
period that the Company holds these loans, valuation adjustments attributable to instrument-specific credit risk is nominal.
Interest income on loans held for sale measured at fair value is accrued as it is earned based on contractual rates and is
reflected in loan interest income in the consolidated statements of income.
The following table summarizes the differences between the fair value and the principal balance for loans held for sale
and nonaccrual loans measured at fair value as of December 31, 2020 and 2019:
December 31, 2020
Mortgage loans held for sale measured at fair value
Commercial loans held for sale measured at fair value
Past due loans of 90 days or more
Nonaccrual loans
December 31, 2019
Mortgage loans held for sale measured at fair value
Past due loans of 90 days or more
Nonaccrual loans
Aggregate
fair value
683,770 $
208,914
83
6,406
Aggregate
Unpaid
Principal
Balance
651,887 $
226,867
163
12,033
Difference
31,883
(17,953)
(80)
(5,627)
262,518 $
—
—
254,868 $
—
—
7,650
—
—
$
$
147
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Note (20)—Parent company financial statements:
As of December 31,
2019
2020
$
5,310 $
4,673
1,173
1,378,347
12,240
29
1,397,099 $
106,299 $
(489)
105,810
47,222
898,847
317,625
27,595
1,291,289
1,397,099 $
$
$
$
—
782,565
6,292
29
793,559
30,930
300
31,230
31,034
425,633
293,524
12,138
762,329
793,559
For the years ended December 31,
2018
2019
2020
$
$
49,706 $
217
—
1,732
51,655
3,122
1,458
283
4,863
46,792
(1,155)
47,947
15,674
63,621 $
— $
—
(16)
211
195
1,638
1,056
120
2,814
(2,619)
(683)
(1,936)
85,750
83,814 $
—
—
297
—
297
1,651
1,481
960
4,092
(3,795)
(746)
(3,049)
83,285
80,236
Balance sheet
Assets
Cash and cash equivalents(1)
Investments:
Equity securities, at fair value
Investment in subsidiaries(1)
Other assets
Goodwill
Total assets
Liabilities and shareholders' equity
Liabilities
Borrowings
Accrued expenses and other liabilities
Total liabilities
Shareholders' equity
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total shareholders' equity
Total liabilities and shareholders' equity
(1) Eliminates in Consolidation
Income Statements
Income
Dividend income from subsidiaries(1)
Gain on investments
(Loss) gain on other assets
Other income
Total income
Expenses
Interest expense
Salaries, legal and professional fees
Other noninterest expense
Total expenses
Income (loss) before income tax benefit and equity in undistributed
earnings of subsidiaries
Federal and state income tax benefit
Income (loss) before equity in undistributed earnings of subsidiaries
Equity in undistributed earnings from subsidiaries(1)
Net income
(1) Eliminates in Consolidation
148
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Statement of Cash Flows
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed income of subsidiaries
Gain on investments
Loss (gain) on other assets
Stock-based compensation expense
(Increase) decrease in other assets
Decrease in other liabilities
Net provided by (used in) operating activities
Investing Activities
Proceeds from sale of other assets
Net cash paid in business combinations (See Note 2)
Net cash (used in) provided by investing activities
Financing Activities
Accretion of interest rate premium on subordinated debt
Payment of dividends
Proceeds of other borrowings
Net proceeds from sale of common stock
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental noncash disclosures:
Dividends declared not paid on restricted stock units
Noncash dividend from Bank
Note (21)—Segment reporting:
For the years ended December 31,
2018
2019
2020
$
63,621 $
83,814 $
80,236
(15,674)
(217)
—
10,214
(9,717)
(13,363)
34,864
—
(35,505)
(35,505)
(436)
(14,264)
15,000
978
1,278
637
4,673
5,310 $
238 $
956
(85,750)
—
16
7,089
1,056
(9,711)
(3,486)
—
—
—
—
(10,045)
—
804
(9,241)
(12,727)
17,400
4,673 $
149 $
—
(83,285)
—
(297)
7,207
(441)
(7,737)
(4,317)
869
—
869
—
(6,137)
—
1,196
(4,941)
(8,389)
25,789
17,400
226
572
$
$
The Company and the Bank are engaged in the business of banking and provide a full range of financial services. The
Company determines reportable segments based on the significance of the segment’s operating results to the overall
Company, the products and services offered, customer characteristics, processes and service delivery of the segments
and the regular financial performance review and allocation of resources by the Chief Executive Officer (“CEO”), the
Company’s chief operating decision maker. The Company has identified two distinct reportable segments—Banking and
Mortgage. The Company’s primary segment is Banking, which provides a full range of deposit and lending products and
services to corporate, commercial and consumer customers. The Company offers full-service conforming residential
mortgage products, including conforming residential loans and services through the Mortgage segment utilizing mortgage
offices outside of the geographic footprint of the Banking operations. Additionally, the Mortgage segment includes the
servicing of residential mortgage loans and the packaging and securitization of loans to governmental agencies. The
residential mortgage products and services originated in our Banking footprint and related revenues and expenses are
included in our Banking segment. The Company’s mortgage division represents a distinct reportable segment which
differs from the Company’s primary business of commercial and retail banking.
The financial performance of the Mortgage segment is assessed based on results of operations reflecting direct revenues
and expenses and allocated expenses. This approach gives management a better indication of the operating performance
of the segment. When assessing the Banking segment’s financial performance, the CEO utilizes reports with indirect
revenues and expenses including but not limited to the investment portfolio, electronic delivery channels and areas that
primarily support the banking segment operations. Therefore these are included in the results of the Banking segment.
Other indirect revenue and expenses related to general administrative areas are also included in the internal financial
results reports of the Banking segment utilized by the CEO for analysis and are thus included for Banking segment
reporting. The Mortgage segment utilizes funding sources from the Banking segment in order to fund mortgage loans that
are ultimately sold on the secondary market. The Mortgage segment uses the proceeds from loan sales to repay
obligations due to the Banking segment.
149
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
During the first quarter of 2019, the Company's Board of Directors approved management's strategic plan to exit its
wholesale mortgage delivery channels. On June 7, 2019, the Company completed the sale of its third party origination
("TPO") channel and on August 1, 2019, the Company completed the sale of its correspondent channel. The Mortgage
segment incurred $1,995 in restructuring and miscellaneous charges, during the year ended December 31, 2019, related
to these sales. The restructuring charges include a one time charge of $100 in relief of goodwill associated with the TPO
channel.
The following tables provide segment financial information for the years ended December 31, 2020, 2019, and 2018 as
follows:
Year Ended December 31, 2020
Net interest income
Provisions for credit losses(1)
Mortgage banking income
Change in fair value of mortgage servicing rights, net of hedging(2)
Other noninterest income
Depreciation and amortization
Amortization of intangibles
Other noninterest mortgage banking expense
Other noninterest expense(3)
Income before income taxes
Income tax expense
Net income applicable to FB Financial Corporation and noncontrolling
interest
Net income applicable to noncontrolling interest
Net income applicable to FB Financial Corporation
Total assets
Goodwill
Banking(4)
Mortgage
265,581 $
107,967
75,426
—
46,527
6,425
5,323
49,010
212,890
5,919 $
77 $
—
214,276
(34,374)
—
584
—
101,798
1,055
76,542 $
$
$
Consolidated
265,658
107,967
289,702
(34,374)
46,527
7,009
5,323
150,808
213,945
82,461
18,832
$
10,529,812 $
242,561
$
$
677,518 $
—
63,629
8
63,621
11,207,330
242,561
(1)
(2)
(3)
(4)
Included $13,361 in provision for credit losses on unfunded commitments.
Included in mortgage banking income in the Company's consolidated statements of income.
Included $33,824 of merger costs in the Banking segment related to the acquisition and integration of Farmers National and Franklin, and $1,055 of merger costs in the
Mortgage segment related to the Franklin merger.
Banking segment includes noncontrolling interest.
Year Ended December 31, 2019
Net interest income
Provision for credit losses
Mortgage banking income
Change in fair value of mortgage servicing rights, net of hedging(1)
Other noninterest income
Depreciation and amortization
Amortization of intangibles
Other noninterest mortgage banking expense
Other noninterest expense(2)
Income before income taxes
Income tax expense
Net income
Total assets
Goodwill
$
$
$
Banking
226,098 $
7,053
30,429
—
34,481
4,670
4,339
23,216
144,658
107,072 $
5,795,888 $
169,051
Mortgage
(62) $
—
87,476
(16,989)
—
506
—
65,457
1,995
2,467 $
$
329,033 $
—
Consolidated
226,036
7,053
117,905
(16,989)
34,481
5,176
4,339
88,673
146,653
109,539
25,725
83,814
6,124,921
169,051
(1)
(2)
Included in mortgage banking income in the Company's consolidated statements of income.
Includes $5,385 in merger costs in the Banking segment related to the Atlantic Capital branch acquisition and $1,995 in mortgage restructuring charges in the Mortgage
segment.
150
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Year Ended December 31, 2018
Net interest income
Provision for loan loss
Mortgage banking income
Change in fair value of mortgage servicing rights, net of hedging(1)
Other noninterest income
Depreciation and amortization
Amortization of intangibles
Other noninterest mortgage banking expense
Other noninterest expense(2)
Income before income taxes
Income tax expense
Net income
Total assets
Goodwill
Banking
$
Mortgage
Consolidated
204,517 $
5,398
25,460
—
29,981
3,827
3,185
21,671
121,200
104,677 $
4,752,111 $
137,090
$
$
(449) $
—
83,874
(8,673)
—
507
—
73,068
—
1,177 $
$
384,653 $
100
204,068
5,398
109,334
(8,673)
29,981
4,334
3,185
94,739
121,200
105,854
25,618
80,236
5,136,764
137,190
(1)
(2)
Included in mortgage banking income in the Company's consolidated statements of income.
Included $1,594 in merger costs and $671 in costs related to follow-on secondary offering in the Banking segment.
Our Banking segment provides our Mortgage segment with a warehouse line of credit that is used to fund mortgage loans
held for sale. The warehouse line of credit, which is eliminated in consolidation, had a prime interest rate of 3.25% and
4.75% as of December 31, 2020 and 2019, respectively, and is limited based on interest income earned by the Mortgage
segment. The amount of interest paid by our Mortgage segment to our Banking segment under this warehouse line of
credit is recorded as interest income to our Banking segment and as interest expense to our Mortgage segment, both of
which are included in the calculation of net interest income for each segment. The amount of interest paid by our
Mortgage segment to our Banking segment under this warehouse line of credit was $14,810, $11,183 and $16,057 for the
years ended December 31, 2020, 2019 and 2018, respectively.
Note (22)—Minimum capital requirements:
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking
agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve
quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet
capital requirements can initiate regulatory action.
Under regulatory guidance for non-advanced approaches institutions, the Bank and Company are required to maintain
minimum capital ratios as outlined in the table below. Additionally, under U.S. Basel III Capital Rules, the decision was
made to opt out of including accumulated other comprehensive income in regulatory capital. As of December 31, 2020
and 2019, the Bank and Company met all capital adequacy requirements to which they are subject.
In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC approved a final rule
to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The
final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on
regulatory capital that may result from the adoption of the new accounting standard. In March 2020, the OCC, the Board
of Governors of the Federal Reserve System, and the FDIC announced a final rule to delay the estimated impact on
regulatory capital stemming from the implementation of CECL. The final rule maintains the three-year transition option in
the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital,
relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year
transition option). The Company adopted the capital transition relief over the permissible five-year period.
151
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Actual and required capital amounts and ratios are included below for the periods presented.
Actual
Minimum Capital
adequacy with
capital buffer
To be well capitalized
under prompt corrective
action provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2020
Total Capital (to risk-weighted assets)
FB Financial Corporation
$ 1,358,897
15.0 % $
952,736
10.5 %
N/A
FirstBank
1,353,279
14.9 %
951,327
10.5 % $
906,026
Tier 1 Capital (to risk-weighted assets)
FB Financial Corporation
$ 1,090,364
12.0 % $
771,262
8.5 %
N/A
FirstBank
Tier 1 Capital (to average assets)
FB Financial Corporation
FirstBank
Common Equity Tier 1 Capital
(to risk-weighted assets)
FB Financial Corporation
FirstBank
1,142,548
12.6 %
770,122
8.5 % $
724,820
$ 1,090,364
10.0 % $
435,064
4.0 %
N/A
1,142,548
10.5 %
435,279
4.0 % $
544,098
$ 1,060,364
11.7 % $
635,157
7.0 %
N/A
1,142,548
12.6 %
634,218
7.0 % $
588,917
N/A
10.0 %
N/A
8.0 %
N/A
5.0 %
N/A
6.5 %
Actual
Minimum Capital
adequacy with
capital buffer
To be well capitalized
under prompt corrective
action provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2019
Total Capital (to risk-weighted assets)
FB Financial Corporation
$
633,549
12.2 % $
545,268
10.5 %
N/A
FirstBank
623,432
12.1 %
540,995
10.5 % $
515,233
Tier 1 Capital (to risk-weighted assets)
FB Financial Corporation
$
602,410
11.6 % $
441,421
8.50 %
N/A
FirstBank
Tier 1 Capital (to average assets)
FB Financial Corporation
FirstBank
Common Equity Tier 1 Capital
(to risk-weighted assets)
FB Financial Corporation
FirstBank
592,293
11.5 %
437,782
8.50 % $
412,030
$
602,410
10.1 % $
238,578
4.00 %
N/A
592,293
9.9 %
239,310
4.00 % $
299,138
$
572,410
11.1 % $
360,979
7.0 %
N/A
592,293
11.5 %
360,526
7.0 % $
334,774
N/A
10.0 %
N/A
8.0 %
N/A
5.0 %
N/A
6.5 %
152
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Note (23)—Employee benefit plans:
(A)—401(k) plan:
The Bank has a 401(k) Plan (the “Plan”) whereby substantially all employees participate in the Plan. Employees may
contribute the maximum amount of their eligible compensation subject to certain limits based on the federal tax laws.
During the year ended December 31, 2019, the Bank increased the employer match to 50% of participant contributions
not to exceed 6% of an employee’s total compensation. Prior to 2019, the employer match was 25% of participant
contributions not to exceed 6% of an employee's total compensation with an additional discretionary 25% match.
Additionally, during 2019, the vesting term of profit sharing contributions was changed to a three-year ratable period from
five years in 2018. For the years ended December 31, 2020, 2019 and 2018, the matching portions provided by the Bank
to this Plan were $3,198 and $2,325 and $2,211 respectively, which includes an additional discretionary contribution of
25% match for 2018.
(B)—Acquired supplemental retirement plans:
In prior years, the Company assumed certain nonqualified supplemental retirement plans for certain former employees of
acquired entities. At December 31, 2020 and 2019, other liabilities on the consolidated balance sheet included post-
retirement benefits payable of $1,112 and $1,315, respectively, related to these plans. For the years ended December 31,
2020, 2019 and 2018, the Company recorded expense of $29, $1 and $4, respectively, related to these plans and
payments to the participants were $131, $150 and $191 in 2020, 2019 and 2018, respectively. The Company also
acquired single premium life insurance policies on these individuals. At December 31, 2020 and 2019, other assets on the
consolidated balance sheet include cash surrender value of bank owned life insurance amounting to $71,977 and
$11,357, respectively. Income related to these policies (net of related insurance premium expense) amounted to $1,556,
$240 and $158 in 2020, 2019 and 2018, respectively.
(C)—Deferred compensation plans and agreements:
2012 EBI Plan— The Bank granted awards (“EBI Units”) to certain employees pursuant to the the FirstBank 2012 Equity
Based Incentive Plan (the “2012 EBI Plan”). Prior to the initial public offering, awards granted under the 2012 EBI Plan
were settled in cash only. Following the initial public offering, participants in the EBI Plans were given the one-time option
to elect, for each EBI Unit vested to such participant, either (i) an amount in cash or (ii) a number of shares of Company
common stock determined pursuant to a conversion formula that took into account the effect of the initial public offering.
Consistent with the terms of the EBI Plans and approved by the Board of Directors, outstanding EBI Units were adjusted
to reflect the 100-for-one stock split that was effectuated prior to the IPO. EBI Units granted under the 2012 EBI Plan
were fully vested and paid out during the year ended December 31, 2019. No further grants will be made under the 2012
EBI Plan.
Deferred Compensation Agreement—Effective December 31, 2014, the Bank entered into an agreement with the
Bank’s Chief Executive Officer to reward his prior service, pursuant to which he is entitled to receive a fixed lump sum
cash payment equal to $3,000,000 on December 31, 2019 or the earlier occurrence of his separation of service or a
change in control of the Company. On August 19, 2016, the Bank entered into an amendment to the deferred
compensation agreement, pursuant to which the award was converted to 157,895 deferred stock units, determined by
dividing $3,000,000 by $19.00 (the IPO price). On December 31, 2019, the deferred stock units were converted on a 1-
for-1 basis into shares of Company common stock and distributed. No other awards have been made under this
agreement.
Summary—At December 31, 2019, the accompanying consolidated balance sheet included other liabilities for cash-
settled awards under the EBI Plans amounting to $993 representing 29,172 units for those employees who elected cash
settlement of EBI units. As of January 31, 2019, these cash-settled awards were fully distributed. For the years ended
December 31, 2019 and 2018, the Company incurred expenses related to these plans and agreements totaling $484 and
$3,787, respectively, which is included in salaries, commissions and employee benefits in the accompanying statement of
income. Additionally, payments under the plans totaled $1,191 and $1,818 for years ended December 31, 2019 and 2018,
respectively.
153
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Note (24)—Stock-Based Compensation
Restricted Stock Units
The Company grants restricted stock units under compensation arrangements for the benefit of employees, executive
officers, and directors. Restricted stock unit grants are subject to time-based vesting. The total number of restricted stock
units granted represents the maximum number of restricted stock units eligible to vest based upon the service conditions
set forth in the grant agreements.
The following table summarizes information about the changes in restricted stock units as of and for the year ended
December 31, 2020:
Balance at beginning of period
Granted(1)
Vested
Forfeited
Balance at end of period
(1) Includes 118,776 restricted stock units issued in replacement of those initially granted by Franklin. See Note 2, "Mergers and acquisitions" for
additional information.
826,263 $
420,521
(177,581)
(22,132)
1,047,071 $
Restricted
Stock
Units
Outstanding
Weighted
Average Grant
Date
Fair Value
23.76
31.35
31.64
33.20
26.06
The total fair value of restricted stock units vested and released was $5,619, $9,923 and $4,562 for the years ended
December 31, 2020, 2019, and 2018, respectively. The weighted average grant date fair value price was $31.35, $34.08
and $39.55 for the years ended December 31, 2020, 2019 and 2018, respectively.
The compensation cost related to stock grants and vesting of restricted stock units was $9,213, $7,089, and $7,436 for
the years ended December 31, 2020, 2019, and 2018, respectively. This included $898, $724, and $645 paid to Company
independent directors during the years ended December 31, 2020, 2019, and 2018, respectively, related to independent
director grants and compensation elected to be settled in stock.
As of December 31, 2020, there was $13,436 of total unrecognized compensation cost related to unvested restricted
stock units which is expected to be recognized over a weighted-average period of 2.5 years. As of December 31, 2020
and December 31, 2019, there were 2,240,434 and 2,377,574 shares available for issuance under the 2016-LTIP plan,
respectively. At December 31, 2020 and December 31, 2019, there were $613 and $375, respectively, accrued in other
liabilities related to dividends declared to be paid upon vesting and distribution of the underlying RSUs.
Performance Based Restricted Stock Units
During 2020, the Company began awarding performance-based restricted stock units ("PSUs") to executives and other
officers and employees. Under the terms of the award, the number of units that will vest and convert to shares of common
stock will be based on the extent to which the Company achieves specified performance criteria during the fixed three-
year performance period. The number of shares issued upon vesting will range from 0% to 200% of the PSUs granted.
The PSUs vest at the end of a three-year period based on average adjusted return on tangible equity as reported,
adjusted for unusual gains/losses, merger expenses, and other items as approved by the compensation committee of the
Company's board of directors. Compensation expense for the PSUs will be estimated each period based on the fair value
of the stock at the grant date and the most probable outcome of the performance condition, adjusted for the passage of
time within the vesting period of the awards.
The Company granted 53,147 shares of performance based restricted stock units and recorded compensation cost of
$1,001 during the year ended December 31, 2020. As of December 31, 2020, the Company determined the probability of
meeting the performance criteria, and recorded compensation cost associated with a 181% vesting, when factoring in the
conversion of PSUs to shares of common stock. During the year ended December 31, 2020. there were no forfeitures or
vestings related to these grants. As of December 31, 2020, maximum unrecognized compensation cost related to the
unvested PSUs was $2,482, and the remaining performance period over which the cost could be recognized was 2.1
years.
154
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Employee Stock Purchase Plan:
The Company maintains an employee stock purchase plan (“ESPP”) under which employees, through payroll deductions,
are able to purchase shares of Company common stock. The purchase price is 95% of the lower of the market price on
the first or last day of the offering period. The maximum number of shares issuable during any offering period is 200,000
shares and a participant may not purchase more than 725 shares during any offering period (and, in any event, no more
than $25 worth of common stock in any calendar year). During the years ended December 31, 2020 and 2019, there were
30,179 and 23,171 shares of common stock issued under the ESPP, respectively. As of December 31, 2020 and
December 31, 2019, there were 2,379,006 and 2,409,185 shares available for issuance under the ESPP, respectively.
Note (25)—Related party transactions:
(A) Loans:
The Bank has made and expects to continue to make loans to the directors, certain management and executive officers of
the Company and their affiliates in the ordinary course of business, in compliance with regulatory requirements.
An analysis of loans to executive officers, certain management, and directors of the Bank and their affiliates is presented
below:
Loans outstanding at January 1, 2020
New loans and advances
Change in related party status
Repayments
Loans outstanding at December 31, 2020
$
$
30,880
10,492
(3,462)
(13,235)
24,675
Unfunded commitments to certain executive officers, certain management and directors and their associates totaled
$23,059 and $19,404 at December 31, 2020 and 2019, respectively.
(B) Deposits:
The Bank held deposits from related parties totaling $245,084 and $238,781 as of December 31, 2020 and 2019,
respectively.
(C) Leases:
The Bank leases various office spaces from entities owned by certain directors of the Company under varying terms. The
Company had $53 and $86 in unamortized leasehold improvements related to these leases at December 31, 2020 and
2019, respectively. These improvements are being amortized over a term not to exceed the length of the lease. Lease
expense for these properties totaled $510, $509, and $516 for the years ended December 31, 2020, 2019, and 2018,
respectively.
(D) Aviation time sharing agreement:
The Company is a participant to aviation time sharing agreements with entities owned by a certain director of the
Company. During the years ended December 31, 2020, 2019, and 2018, the Company made payments of $161, $266 and
$208, respectively, under these agreements.
155
FB Financial Corporation and subsidiaries
Notes to consolidated financial statements
(Dollar amounts are in thousands, except share and per share amounts)
Note (26)—Quarterly Results of Operations (Unaudited)
Summarized unaudited quarterly operating results for the Company for the years ending December 31, 2020 and 2019
are as follows:
Interest income
Interest expense
Net interest income
Provision for credit losses
Provision for credit losses on unfunded commitments
Net interest income after provision for loan losses
Noninterest income
Noninterest expense
Income tax expense (benefit)
Net income (loss) attributable to FB Financial Corporation and
noncontrolling interest
Net income applicable to noncontrolling interest
Net income (loss) applicable to FB Financial Corporation
Weighted average common shares outstanding:
Basic
Fully diluted
Earnings per share
Basic
Fully diluted
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Noninterest expense
Income tax expense
Net income
Weighted average common shares outstanding:
Basic
Fully diluted
Earnings per share
Basic
Fully diluted
2020
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
69,674 $
13,425
56,249
27,964
1,601
26,684
42,700
68,559
80
65,607 $
10,270
55,337
24,039
1,882
29,416
81,491
80,579
7,455
81,127 $
12,299
68,828
45,834
9,567
13,427
97,026
118,092
(2,040)
98,236
12,992
85,244
(3,231)
311
88,164
80,638
109,855
13,337
745 $
—
745 $
22,873 $
—
22,873 $
(5,599) $
—
(5,599) $
45,610
8
45,602
$
$
$
31,257,739 32,094,274
31,734,112 32,506,417
40,154,841
40,637,745
47,204,738
47,791,659
$
$
$
0.02 $
0.02 $
0.71 $
0.70 $
2019
(0.14) $
(0.14) $
0.97
0.95
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
65,933 $
12,917
53,016
1,391
51,625
29,039
55,101
5,975
71,719 $
14,696
57,023
881
56,142
32,979
64,119
6,314
73,242 $
14,937
58,305
1,831
56,474
38,145
62,935
7,718
71,643
13,951
57,692
2,950
54,742
35,234
62,686
5,718
$
19,588 $
18,688 $
23,966 $
21,572
30,786,684
31,349,198
30,859,596
31,378,018
30,899,583
31,425,573
30,934,092
31,470,565
$
$
0.63 $
0.62 $
0.60 $
0.59 $
0.77 $
0.76 $
0.69
0.68
156
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934 (the “Act”)) as of December 31, 2020 was carried out under the supervision and with
the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s
senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of
December 31, 2020, the Company’s disclosure controls and procedures were effective for ensuring that information the
Company is required to disclose in reports that it files or submits under the Act, as amended, is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is
accumulated and communicated to the Company’s senior management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
The information required to be provided pursuant to this item is set forth under the headings “Report on Management’s
Assessment of Internal Control over Financial Reporting” in Item 8, Financial Statements and Supplementary Data.
This Annual Report does not include an attestation report from our registered public accounting firm regarding our internal
control over financial reporting. Management’s report was not subject to attestation by our registered public accounting
firm pursuant to rules of the SEC that permit emerging growth companies, which we are, to provide only Management’s
Annual Report on Internal Control over Financial Reporting in this Annual Report.
Changes in Internal Controls
Beginning January 1, 2020, the Company adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments”. The Company implemented changes to the policies, processes,
and controls over the estimation of the allowance for credit losses to support the adoption of ASU 2016-13. New controls
were established over the review of the model implementation and design, model governance, and economic forecasting
projections obtained from an independent third party and controls over data and assumptions were expanded.
Additionally, the Company is working to integrate Franklin Financial Network, Inc. into its overall internal control over
financial reporting processes. Except as related to the adoption of ASU 2016‑13 and the integration of Franklin Financial
Network, Inc., there were no changes in our internal control over financial reporting that occurred during the year ended
December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Limitations on the Effectiveness of Controls
The Company’s management recognizes that a control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to
their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues, errors and instances of fraud, if any, within the Company have been detected.
ITEM 9B. Other Information
None.
157
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item will be presented in, and is incorporated herein by reference to, the Company’s
definitive proxy statement for the 2021 annual meeting of shareholders which will be filed with the SEC within 120 days of
December 31, 2020.
Item 11. Executive Compensation
The information required by this Item will be presented in, and is incorporated herein by reference to, the Company’s
definitive proxy statement for the 2021 annual meeting of shareholders which will be filed with the SEC within 120 days of
December 31, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item will be presented in, and is incorporated herein by reference to, the Company’s
definitive proxy statement for the 2021 annual meeting of shareholders which will be filed with the SEC within 120 days of
December 31, 2020.
Item 13. Certain Relationships, Related Transactions and Director Independence
The information required by this Item will be presented in, and is incorporated herein by reference to, the Company’s
definitive proxy statement for the 2021 annual meeting of shareholders which will be filed with the SEC within 120 days of
December 31, 2020.
Item 14. Principal Accountant Fees and Services
The information required by this Item will be presented in, and is incorporated herein by reference to, the Company’s
definitive proxy statement for the 2021 annual meeting of shareholders which will be filed with the SEC within 120 days of
December 31, 2020.
158
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as a part of this report.
1. Financial Statements
The following consolidated financial statements of FB Financial Corporation and our subsidiaries and related reports
of our independent registered public accounting firm are incorporated in this Item 15. by reference from Part II - Item
8. Financial Statements and and Supplementary Data of this Report.
•
•
•
•
•
•
•
Consolidated balance sheets as of December 31, 2020 and 2019
Consolidated statements of income for the years ended December 31, 2020, 2019, and 2018
Consolidated statements of comprehensive income for the years ended December 31, 2020, 2019,
and 2018
Consolidated statements of changes in shareholders' equity for the years ended December 31,
2020, 2019, and 2018
Consolidated statements of cash flows for the years ended December 31, 2020, 2019, and 2018
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedules
None are applicable because the required information has been incorporated in the consolidated financial
statements and notes thereto of FB Financial and our subsidiaries which are incorporated in this Annual Report by
reference.
3. Exhibits
The following exhibits are filed or furnished herewith or are incorporated herein by reference to other documents
previously filed with the SEC.
159
Exhibit
Number
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
10.2
10.3
10.4
10.5
10.6
10.7
EXHIBIT INDEX
Description
Agreement and Plan of Merger, dated as of January 21, 2020, by and among FB Financial Corporation,
Franklin Financial Network, Inc. and Paisley Acquisition Corporation (incorporated by reference to Exhibit 2.1
the Company's Current Report on Form 8-K (File No. 001-37875) filed on January 24, 2020)***
Amended and Restated Charter of FB Financial Corporation (incorporated by reference as Exhibit 3.1 to the
Company’s Registration Statement on Form S-1/A (File No. 333-213210), filed on September 6, 2016)
Amended and Restated Bylaws of FB Financial Corporation (incorporated by reference to Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (File No. 001-37875)
file on November 14, 2016)
Registration Rights Agreement by and between FB Financial Corporation and James W. Ayers, dated
September 15, 2016 (incorporated by reference as Exhibit 4.1 to the Company’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2016 (File No. 001-37875) filed on November 14, 2016)
Description of Registrant's Securities (incorporated by reference to Exhibit 4.2 to the Company's Annual
Report on Form 10-K for the fiscal year ending December 31, 2019 (File No. 001-37875) filed on March 13,
2020
Indenture, dated March 31, 2016, by and between Franklin Financial Network, Inc. and the U.S. Bank
National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Franklin Financial Network,
Inc.'s Current Report on Form 8-K (File No. 001-36895) filed on March 31, 2016)
First Supplemental Indenture, dated March 31, 2016, by and between Franklin Financial Network, Inc. and
U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.2 to Franklin Financial
Network, Inc.'s Current Report on Form 8-K (File No. 001-36895) filed on March 31, 2016)
Global Note representing Franklin Financial Network, Inc.'s Fixed-to-Floating Rate Subordinated Notes due
2026 (incorporated by reference to Exhibit 4.3 (included as Exhibit A to the First Supplemental Indenture filed
as Exhibit 4.2 thereto) to Franklin Financial Network, Inc.'s Current Report on Form 8-K (File No. 001-36895)
filed on March 31, 2016)
Second Supplemental Indenture, by and among Franklin Financial Network, Inc., FB Financial Corporation
and U.S. Bank, National Association (incorporated by reference to Exhibit 4.1 to Franklin Financial Network,
Inc.'s Current Report on Form 8-K (File No. 001-36895) filed on August 18, 2020
Form of 7.00% Fixed-to-Floating Rate Subordinated Note Due 2026 (incorporated by reference to Exhibit 4.1
(included as Exhibit A to the Purchase Agreement filed as Exhibit 10.1 thereto) to Franklin Financial Network,
Inc.'s Current Report on Form 8-K (File No. 001-36895) filed on June 30, 2016)
In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K, certain instruments with respect to long-term
debt of the Company have been omitted but will be furnished to the Securities and Exchange Commission
upon request.
Employment Agreement between FB Financial Corporation and Christopher T. Holmes (incorporated by
reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1/A (File No. 333-213210)
filed on September 6, 2016) †
FB Financial Corporation 2016 Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s
Registration Statement on Form S-1/A (File No. 333-213210) filed on September 6, 2016) †
Form of Restricted Stock Unit Award Certificate pursuant to the FB Financial Corporation 2016 Long-Term
Incentive Plan (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form
S-1/A (File No. 333-213210) filed September 6, 2016) †
Form of Restricted Stock Unit Award Certificate (2017) pursuant to the FB Financial Corporation 2016
Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for
the fiscal year ending December 31, 2016 (File No. 001-37875) filed on March 31, 2017) †
Form of Restricted stock Unit Award Certificate (2018) pursuant to the FB Financial Corporation 2016
Incentive Plan (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the fiscal year ending December 31, 2017 (File No. 001-37875) filed on March 16, 2018) †
Form of Restricted Stock Unit Award Certificate (2020) pursuant to the FB Financial Corporation 2016
Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2020 (File No. 001-37875) filed on May 11, 2020) †
Form of Performance Based Restricted Stock Unit Award Certificate (2020) pursuant to the FB Financial
Corporation 2016 Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2020 (File No. 001-37875) filed on May 11, 2020) †
160
10.8
10.9
10.10
10.11
10.12
21
23.1
24.1
31.1
31.2
32.1
Shareholder's Agreement, dated as of September 15, 2016, by and between FB Financial Corporation and
James W. Ayers (incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-
Q for the quarter ended September 30, 2016 (File No. 001-37875) filed on November 14, 2016)
First Amendment to Shareholder's Agreement, dated as of January 21, 2020, by and between FB Financial
Corporation and James W. Ayers (incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K (File No. 001-37875) filed on January 24, 2020)
Second Amendment to Shareholder's Agreement, dated as of October 29, 2020, by and between FB
Financial Corporation and James W. Ayers (incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K (File No. 001-37875) filed on November 4, 2020)
Franklin Financial Network, Inc. Amended and Restated 2017 Omnibus Equity Incentive (incorporated by
reference to Exhibit 10.1 to Franklin Financial Network, Inc.’s Current Report on Form 8-K (File No.
001-36895) filed on April 13, 2018) †
Employment Agreement, dated November 27, 2020, among FB Financial Corporation, FirstBank, and
Michael M. Mettee *†
Subsidiaries of FB Financial Corporation*
Consent of Independent Registered Public Accounting Firm (Crowe LLP)*
Powers of Attorney contained on the signature pages of this Annual Report on Form 10-K and incorporated
herein by reference*
Rule 13a-14(a) Certification of Chief Executive Officer*
Rules 13a-14(a) Certification of Chief Financial Officer*
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer**
101.INS
Inline XBRL Instance Document*
101.SCH Inline XBRL Taxonomy Extension Schema Document*
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB
101.PRE
Inline XBRL Taxonomy Extension Label Linkbase Document*
Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104
*
**
***
†
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
Filed herewith.
Furnished herewith.
As directed by Item 601(a)(5) of Regulation S-K, certain schedules and exhibits to this exhibit are omitted from
this filing. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the
SEC upon request.
Represents a management contract or a compensatory plan or arrangement.
161
ITEM 16. FORM 10-K SUMMARY
None.
162
Signatures
Pursuant to the requirements of the section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
March 11, 2021
FB Financial Corporation
/s/ Christopher T. Holmes
Christopher T. Holmes
President and Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Christopher T. Holmes and Michael M. Mettee and each of them, his or her true and lawful attorney(s)-in-fact and
agent(s), with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments to this report and to file the same, with all exhibits and schedules
thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said
attorney(s)-in-fact and agent(s) full power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney(s)-in-fact and agent(s), or their substitute(s), may lawfully do
or cause to be done by virtue hereof.
163
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Jimmy Allen
Jimmy Allen
/s/ William F. Andrews
William F. Andrews
/s/ James W. Ayers
James W. Ayers
/s/ J. Jonathan Ayers
J. Jonathan Ayers
/s/ William F. Carpenter III
William F. Carpenter III
/s/ Agenia W. Clark
Agenia W. Clark
/s/ James W. Cross IV
James W. Cross IV
/s/ James L. Exum
James L. Exum
/s/ Orrin H. Ingram
Orrin H. Ingram
/s/ Christopher T. Holmes
Christopher T. Holmes
/s/ Raja J. Jubran
Raja J. Jubran
/s/ Stuart C. McWhorter
Stuart C. McWhorter
/s/ Michael M. Mettee
Michael M. Mettee
/s/ Emily J. Reynolds
Emily J. Reynolds
/s/ Lisa M. Smiley
Lisa M. Smiley
/s/ Melody J. Sullivan
Melody J. Sullivan
Director
March 11, 2021
Director
March 11, 2021
Vice Chairman of the Board and Founder
March 11, 2021
Director
March 11, 2021
Director
March 11, 2021
Director
March 11, 2021
Director
March 11, 2021
Director
March 11, 2021
Director
March 11, 2021
Director, President and Chief Executive Officer
(Principal Executive Officer)
March 11, 2021
Director
March 11, 2021
Chairman of the Board
March 11, 2021
Chief Financial Officer
March 11, 2021
Director
March 11, 2021
Principal Accounting Officer
March 11, 2021
Director
March 11, 2021
164
CORPORATE OFFICERS
Christopher T. Holmes
President and Chief
Executive Officer
James G. Bowers
Chief Credit Officer
Travis K. Edmondson
Chief Banking Officer
Timothy L. Johnson
Chief Risk Officer
Beth W. Sims
General Counsel
Wilburn J. Evans
President,
FB Ventures
Michael M. Mettee
Chief Financial Officer
Robert W. Peery
Chief Administrative Officer
Lisa M. Smiley
Controller (Principal
Accounting Officer)
FB FINANCIAL CORPORATION BOARD OF DIRECTORS
Christopher T. Holmes
President and CEO
FirstBank/FB Financial
Corporation
Jimmy E. Allen
President
Venture Express, Inc., and
Creative Transportation
Agenia W. Clark, Ph.D.
President and CEO
Girl Scouts of Middle
Tennessee
Gordon E. Inman
Director Emeritus
FirstBank/FB Financial
Corporation
Stuart C. McWhorter
Chairman of the Board
Chairman, Clayton
Associates
James W. Ayers
Vice Chairman of the
Board
FirstBank/FB Financial
Corporation
William F. Andrews
Retired corporate
executive
James W. Cross, IV
Owner
Century Construction Co.
Raja J. Jubran
Co-owner and CEO
Denark Construction, Inc.
J. Jonathan Ayers
Owner
Ayers Real Estate Service
William F. Carpenter
Retired corporate
executive
James L. Exum
Executive Vice President
Emeritus
Murray Guard, Inc.
Orrin H. Ingram
President and CEO
Ingram Industries, Inc.
Emily J. Reynolds
Former Secretary
U.S. Senate
Melody J. Sullivan
Founder
Smiley CPAs
For full biographies for each Corporate Officer, visit FirstBankOnline.com.
JIM AYERS STEPS BACK AS EXECUTIVE CHAIRMAN
Jim Ayers has stepped away from the role of Executive Chairman, but will remain on the board.
Ayers, who made an investment in a small, rural West Tennessee bank in 1984 and has seen that
investment become an $11 billion regional powerhouse, announced in December that he would be
retiring from his role as Executive Chairman of the Board. Stuart McWhorter, co-founder and Chairman
of Clayton Associates, has been named to succeed Ayers as Chairman of the Board.
“The bank is strong, we have excellent leadership at the top with Chris Holmes as President and CEO,
and we have a strong and diverse board,” Ayers says. “I can go hunting and fishing, and that’s what
I intend to do.”
During Ayers’ tenure as Chairman, we’ve seen exponential growth while keeping community banking
at heart and putting the customer first. Since our humble beginnings in Scotts Hill, Tennessee, the bank
has expanded across Tennessee and into Kentucky, Georgia and Alabama and was listed on the New
York Stock Exchange in 2016.
Ayers is an invaluable asset to FirstBank and to the communities it serves. We are thankful for his
wisdom and guidance over the years and his continued service on the board.
2020 AT A GLANCE
Mergers Expand Footprint,
Add Market Strength in Middle Tennessee
FirstBank continued its impressive growth in 2020 with
two strategically important mergers. The first closed in
February when FirstBank merged with Farmers National
Bank of Scottsville, Kentucky, which expanded the
Company’s footprint into Kentucky and gave it entry
into the growing Bowling Green MSA.
In August, FirstBank merged with Franklin Synergy Bank, increased
the Company’s asset size to $11 billion, and added substantially to
its deposit share and loan portfolio.
Bowling Green
Scottsville
K E N T U C K Y
Paris
Goodlettsville
Bruceton/Hollow Rock
Camden
Waverly
Friendship
Jackson
Huntingdon
Clarksburg
Wildersville
Lexington
Parsons
Fairview
Dickson
Mt. Juliet
Nashville
Nolensville
Brentwood
Franklin
Smyrna
Murfreesboro
Spring Hill
Henderson
Scotts Hill
Linden
Shelbyville
Oakland
Bartlett
Memphis
Lynchburg
Decherd
Fayetteville
Florence
Huntsville
A L A B A M A
T E N N E S S E E
Cookeville
Smithville
Maynardville
Jefferson City
Dandridge
Woodbury
Manchester
Tullahoma
Crossville
Knoxville
Farragut
Dayton
Hixson
Chattanooga
Ooltewah
Ft. Oglethorpe
Ringgold
Dalton
G E O R G I A
The mergers allowed FirstBank to establish itself in Kentucky and to significantly increase its market size in the important
Metro Nashville region. After the merger, FirstBank relocated its primary operations center and mortgage headquarters to
the former Franklin Synergy corporate headquarters in downtown Franklin, Tennessee.
Michael Mettee Named CFO
Michael Mettee was named Chief Financial Officer of FirstBank and its parent company, FB
Financial Corporation, in November after being named interim CFO in April. He previously
served as CFO/Banking and Director of Capital Markets.
CEO Chris Holmes called Mettee “an extremely talented leader who brings a strong level
of bank and mortgage financial experience to our executive team,” and said FirstBank’s
ability to name a new CFO from within its ranks “reflects our ongoing commitment to talent
development.”
Mettee’s team supports numerous accounting, finance and investment initiatives for the bank,
including capital markets, commercial loan hedging, mortgage trading and hedging, investor
relations, and budgeting and forecasting.
“I am truly honored to be named CFO of a bank with the reputation and track record for
success that FirstBank has built,” Mettee said.
Ayers Selected as Ernst & Young
Entrepreneur of the Year
FirstBank’s former Executive Chairman Jim Ayers was named Ernst & Young LLP’s
Entrepreneur 2020 Southeast Lifetime Achievement honoree.
EY’s award program recognizes entrepreneurs and leaders of high-growth
companies. The Entrepreneur of the Year Lifetime Achievement award is
presented to distinguished, renowned business leaders who have an established
track record of entrepreneurial success and a personal commitment to their
communities.
“I am truly honored to receive this award, and I am thankful to my wife, Janet, and
all the great executive leaders and associates at FirstBank who have helped me
succeed in business and in life,” Ayers said.
Ayers, one of the state’s most successful entrepreneurs and leading
philanthropists, served as Chairman of the Board as FirstBank grew from a single
branch in rural West Tennessee into the third largest Tennessee-based bank. He
retired as Executive Chairman of the FirstBank board of directors at the end of the
year, but he remains on the board.
Bowling Green
Scottsville
K E N T U C K Y
Bruceton/Hollow Rock
Huntingdon
Clarksburg
Wildersville
Friendship
Jackson
Paris
Goodlettsville
Camden
Waverly
Dickson
Mt. Juliet
Fairview
Nashville
Nolensville
Brentwood
Franklin
Smyrna
Murfreesboro
Spring Hill
Lexington
Parsons
Henderson
Scotts Hill
Linden
Shelbyville
Oakland
Bartlett
Memphis
Lynchburg
Decherd
Fayetteville
T E N N E S S E E
Maynardville
Cookeville
Smithville
Jefferson City
Dandridge
Crossville
Knoxville
Farragut
Woodbury
Manchester
Tullahoma
Dayton
Hixson
Chattanooga
Ooltewah
Ft. Oglethorpe
Florence
Huntsville
A L A B A M A
Ringgold
Dalton
G E O R G I A
New Knoxville
Headquarters:
In November, FirstBank
officially opened its new
Knoxville headquarters
office building. The
17,000-square-foot facility
includes a full-service
financial center and will
be home to more than
50 FirstBank associates,
including members of
the Knoxville market
leadership team.
PPP: FirstBank provided customers
with over $315 million in Paycheck
Protection Program funding,
further assisting companies and
employees through the pandemic.
Subordinated Notes: In August,
FirstBank raised $100 million in
subordinated notes. The notes
provide FirstBank with capital that
can be used for future growth.
Record Mortgage Profitability:
FirstBank’s mortgage operations
delivered pre-tax contributions
of over $100 million in 2020. This
profitability counterbalanced
declining rates and provided
capital for future growth.
Leadership Award: FirstBank
was recognized by the Mortgage
Bankers Association with the
2020 Diversity and Inclusion
Residential Leadership award. The
initiative concentrates on product
development, talent retention,
and providing numerous training
opportunities and resources.
Great Place To Work:
FirstBank was recognized
as one of the Best Banks to
Work For by American Banker
Magazine and named a Top
Workplace by The Tennessean
for the sixth year in a row.
Corporate Headquarters
211 Commerce Street, Suite 300
Nashville, TN 37201
615-313-0080
Investors.FirstBankOnline.com
Stock Listing
Shares of FB Financial Corporation
common stock are traded under the symbol
“FBK” on the New York Stock Exchange.
Transfer Agent and Registrar
Computershare Investor Services
www-us.computershare.com/investor
Auditors
Crowe LLP
Franklin, Tennessee
Shareholder Inquiries and
Availability of Form 10-K Report
Shareholders and others seeking a copy
of the Company’s public filings should
visit our Investor Relations website at
Investors.FirstBankOnline.com or contact:
Investor Relations
FB Financial Corporation
211 Commerce Street, Suite 300
Nashville, TN 37201
615-564-1212
Investors@FirstBankOnline.com
Annual Meeting of Shareholders
The 2021 annual meeting of shareholders will be held virtually Thursday, May 20, 2021, at 8:00
a.m. Central time. Additional information regarding the annual meeting can be found in our
definitive proxy statement for the annual meeting which accompanies this Annual Report.