FBK US Equity☆

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, 2021 and 2020, and our results of operations for the years ended December 31, 2021 and 2020, 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, 2020 and 2019 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, 2020.

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, Alabama, Southern Kentucky, and North Georgia. As of December 31, 2021, our footprint included 82 full-service branches serving the following Tennessee Metropolitan Statistical Areas: Nashville, Chattanooga (including North Georgia), Knoxville, Memphis, and Jackson in addition to Bowling Green, Kentucky and Birmingham, 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, 2021, we had total assets of $12.60 billion, loans held for investment of $7.60 billion, total deposits of $10.84 billion, and total shareholders’ equity of $1.43 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, 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, 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 through our retail and online ConsumerDirect channels, as well as from mortgage servicing revenues.

As previously reported, on March 31, 2021, the Company re-evaluated its business segments and revised to align all mortgage activities with the Mortgage segment. Previously, the Company had attributed retail mortgage activities originating from geographical locations within the footprint of the Company's branches to the Banking segment. Previously disclosed results for the years ended December 31, 2020, and 2019 have been revised to reflect this realignment. See Note 20, “Segment reporting” in the notes to our consolidated financial statements for a description of these business segments.

Development in 2021

Pandemic Update

As previously disclosed, the COVID-19 health pandemic has created financial disruptions including rapid decreases in commercial and consumer activity, increases in unemployment, widening of credit spreads, dislocation of bond markets, disruption of global supply chains and changes in consumer spending behavior. During the year ended December 31, 2021, we experienced a slow improvement in commerce through much of our footprint, with many restrictions being lifted and vaccinations becoming more widely available. Despite the pickup in economic activity, commercial and consumer activity has not returned to pre-pandemic levels. Concern remains regarding the potential impact that resurgences and new virus variants may have on the global economy, the efficacy of available vaccines and boosters to protect against widespread infection, persistent supply chain delays and other political and economic variables. As such, there continues

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to be uncertainty regarding the long term effects on the global economy, which could have a material adverse impact on the our business operations, asset valuations, financial condition, and results of operations. In response to this uncertainty, we continues to take deliberate actions to ensure the continued health and strength of our balance sheet, including increases in liquidity and careful managing of assets and liabilities in order to maintain a strong capital position.

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 continued to remain at historic lows throughout the year ended December 31, 2021. Low interest rates 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 2021, our percentage of total nonperforming loans to loans held for investment decreased to 0.62% as of December 31, 2021, from 0.91% as of December 31, 2020. Our classified loans decreased to 1.66% of loans held for investment as of December 31, 2021, compared to 1.87% as of December 31, 2020. Our nonperforming assets as of December 31, 2021 were $63.0 million, or 0.50% of total assets, decreasing from $84.2 million, or 0.75% of assets as of December 31, 2020.

Our net provisions for credit losses on loans held for investment and unfunded loan commitments resulted in a reversal of $41.0 million for the year ended December 31, 2021 compared to an expense of $108.0 million for the year ended December 31, 2020. For the year ended December 31, 2021, our reversal was comprised of $39.0 million related to provision for credit losses on loans held for investment and $2.0 million related to provision for unfunded commitments. The current period reversal resulted from management’s best estimate of losses over the life of loans in our portfolio in accordance with the CECL approach, given an improvement in economic outlook and forecasts. Although the portfolio benefited from improving economic forecasts during the year ended December 31, 2021, there is uncertainty surrounding the impact of the COVID-19 pandemic and future variants, which may continue to lead to increased volatility in forecasted macroeconomic variables, a key input to our calculated level of allowance for credit losses. These evaluations weighed the impact of the current economic outlook, status of federal government stimulus programs, and geographical and demographic considerations, among other factors. See further discussion under the subheading "Allowance for credit losses."

For additional information regarding credit quality risk factors for our Company, see “Business: Risk management: Credit risk management” and “Risk factors: Credit Risks.”

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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”.

Financial highlights

The following table presents certain selected historical consolidated income statement data and key indicators as of the dates or for the years indicated. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period.

As of or for the year ended December 31,

Statement of Income Data

Net income applicable to noncontrolling interest 16 8 —

Per Common Share

Selected Ratios

Return on average:

Average shareholders' equity to average assets 11.5 % 11.5 % 12.5 %

Net interest margin (tax-equivalent basis) 3.19 % 3.46 % 4.34 %

Adjusted efficiency ratio (tax-equivalent basis)(4) 65.8 % 59.2 % 65.4 %

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Yield on interest-earning assets 3.53 % 4.09 % 5.42 %

Cost of interest-bearing liabilities 0.48 % 0.94 % 1.48 %

Credit Quality Ratios

Nonperforming loans to loans, net of unearned income 0.62 % 0.91 % 0.60 %

Capital Ratios (Company)

Total common shareholders' equity to assets 11.4 % 11.5 % 12.4 %

Tier 1 capital (to average assets) 10.5 % 10.0 % 10.1 %

Tier 1 capital (to risk-weighted assets(3) 12.6 % 12.0 % 11.6 %

Total capital (to risk-weighted assets)(3) 14.5 % 15.0 % 12.2 %

Tangible common equity to tangible assets(4) 9.51 % 9.38 % 9.69 %

Common Equity Tier 1 (to risk-weighted assets) (CET1)(3) 12.3 % 11.7 % 11.1 %

Capital Ratios (Bank)

Total common Shareholders' equity to assets 11.3 % 12.3 % 12.8 %

Tier 1 capital (to average assets) 10.2 % 10.5 % 9.90 %

Tier 1 capital (to risk-weighted assets)(3) 12.3 % 12.6 % 11.5 %

Total capital to (risk-weighted assets)(3) 14.1 % 14.9 % 12.1 %

Common Equity Tier 1 (to risk-weighted assets) (CET1)(3) 12.3 % 12.6 % 11.5 %

(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 47,549,241, 47,220,743 and 31,034,315 as of December 31, 2021, 2020 and 2019, 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) These measures are not measures recognized under 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.

(5) Excludes reserve for credit losses on unfunded commitments of $14.4 million and $16.4 million recorded in accrued expenses and other liabilities as of December 31, 2021 and 2020, respectively.

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.

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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:

Year Ended December 31,

Adjusted efficiency ratio (tax-equivalent basis)

Less merger, offering and mortgage restructuring expenses 605 34,879 7,380

Less gain on lease terminations (787) — —

Less FHLB prepayment penalties — 6,838 —

Less certain charitable contributions 1,422 — —

Less cash life insurance benefit — 715 —

Less loss on swap cancellation (1,510) — —

Less gain (loss) on other assets 323 (90) (104)

Adjusted efficiency ratio (tax-equivalent basis) 65.8 % 59.2 % 65.4 %

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.

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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:

As of December 31,

(dollars in thousands, except share and per share data) 2021 2020 2019

Tangible Assets

Adjustments:

Tangible Common Equity

Adjustments:

Total common shareholders' equity to total assets 11.4 % 11.5 % 12.4 %

Tangible common equity to tangible assets 9.51 % 9.38 % 9.69 %

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,

Return on average tangible common equity

Adjustments:

Return on average common shareholders' equity 14.0 % 6.58 % 11.6 %

Return on average tangible common equity 17.3 % 8.54 % 15.4 %

Overview of recent financial performance

Year ended December 31, 2021 compared to the year ended December 31, 2020

Our net income increased during the year ended December 31, 2021 to $190.3 million from $63.6 million for the year ended December 31, 2020. Diluted earnings per common share was $3.97 and $1.67 for the years ended December 31, 2021 and 2020, respectively. Our net income represented a ROAA of 1.61% and 0.75% for the years ended December 31, 2021 and 2020, respectively, and a ROAE of 14.0% and 6.58% for the same periods. Our ratio of ROATCE for the years ended December 31, 2021 and 2020 was 17.3% and 8.54%, respectively.

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These results were significantly impacted by the economic forecasts incorporated in our current expected credit loss rate model, leading to a reversal in our provisions for credit losses on loans held for investment and unfunded loan commitments of $41.0 million for the year ended December 31, 2021 compared with provision expense of $108.0 million for the year ended December 31, 2020. Our results were also impacted by merger expenses of $34.9 million for the year ended December 31, 2020 related to our acquisitions of FNB Financial Corp. and its wholly-owned subsidiary, Farmers National Bank of Scottsville (collectively, "Farmers National") in February 2020 and Franklin Financial Network, Inc. and its wholly-owned subsidiaries, including its primary banking subsidiary, Franklin Synergy Bank, (collectively "Franklin") in August 2020. There were no such business combinations during the year ended December 31, 2021.

During the year ended December 31, 2021, net interest income before provision for credit losses increased to $347.4 million compared with $265.7 million in the year ended December 31, 2020.

Our net interest margin, on a tax-equivalent basis, decreased to 3.19% for the year ended December 31, 2021 as compared to 3.46% for the year ended December 31, 2020, influenced by a sustained low interest rate environment.

Noninterest income for the year ended December 31, 2021 decreased by $73.6 million to $228.3 million, down from $301.9 million for prior year period. The decrease in noninterest income was primarily driven by a decrease in mortgage banking income of $87.8 million to $167.6 million for the year ended December 31, 2021, compared to $255.3 million for the prior year period.

Noninterest expense decreased to $373.6 million for the year ended December 31, 2021, compared with $377.1 million for the year ended December 31, 2020. The decrease in noninterest expense is reflective of a decrease in merger expenses as there were no business combinations during the year ended December 31, 2021 compared with $34.9 million in merger and conversion expenses during the year ended December 31, 2020 related to our acquisitions of Farmers National and Franklin. The decrease in merger expenses was partially offset by increases in salaries, commissions and personnel-related costs from the incremental head count increase associated with our growth and volume of transactions, including the impact of our business combinations during the year ended December 31, 2020.

Year ended December 31, 2020 compared to 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 declining economic forecasts resulting from the impact of COVID-19 incorporated in our CECL loss rate model and the impact of our acquisitions, leading our provisions for credit losses on loans held for investment and unfunded loan commitments to increase to $108.0 million for the year ended December 31, 2020 compared with $7.1 million for the year ended December 31, 2019. We adopted the CECL methodology effective January 1, 2020 using a modified retrospective approach with no adjustments to prior period comparative financial statements. Our results were also impacted by an increase in merger expenses that total $34.9 million related to our acquisitions of Franklin and Farmers National during the year ended December 31, 2020 compared with merger expenses for $5.4 million for the year ended December 31, 2019 related to our branch acquisition from Atlantic Capital Bank, N.A. ("the Branches").

During the year ended December 31, 2020, net interest income before provision for loan losses increased to $265.7 million compared to $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 year ended December 31, 2020.

Noninterest income for the year ended December 31, 2020 increased by $166.5 million to $301.9 million, up from $135.4 million for the prior year. The increase in noninterest income was primarily driven by an increase in interest rate lock volume and refinance activity influenced by declining interest rates. As a result, mortgage banking income increased $154.4 million to $255.3 million for the year ended December 31, 2020 .

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Noninterest expense increased to $377.1 million for the year ended December 31, 2020 compared to $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.

Business segment highlights

Year ended December 31, 2021 compared to year ended December 31, 2020

We operate our business in two business segments: Banking and Mortgage. As previously reported, on March 31, 2021, the Company re-evaluated its business segments and revised to align all mortgage activities with the Mortgage segment. Previously, the Company had attributed retail mortgage activities originating from geographical locations within the footprint of the Company's branches to the Banking segment. Previously disclosed results for the year ended December 31, 2020 and 2019 have been revised to reflect this realignment. See Note 20, “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 increased in the year ended December 31, 2021 to $216.6 million, compared to a loss of $20.5 million for the year ended December 31, 2020. These results were primarily driven by a net reversal in provisions for credit losses on loans held for investment and unfunded loan commitments totaling $41.0 million during the year ended December 31, 2021 compared to expense of $108.0 million in the previous year. Net interest income increased $81.8 million to $347.3 million during the year ended December 31, 2021 from $265.6 million in the same period in the prior year. Noninterest income increased to $61.1 million in the year ended December 31, 2021 as compared to $46.5 million in the year ended December 31, 2020. Noninterest expense increased to $232.8 million during the year ended December 31, 2021 compared with $224.6 million for the year ended December 31, 2020, primarily due to increased salaries, commissions and employee benefits expenses associated with incremental headcount following our acquisitions in addition to other increases due to our growth and volume of transactions.

Mortgage

Income before taxes from the Mortgage segment decreased to $26.5 million for the year ended December 31, 2021 as compared to $103.0 million for the year ended December 31, 2020 primarily due to lower interest rate lock volumes and refinancing activity coupled with compressing sales margins. Additionally, the housing market continues to face supply shortages which affected overall purchasing volume. Noninterest income decreased $88.1 million to $167.2 million during the year ended December 31, 2021 compared to $255.3 million for the year ended December 31, 2020.

Noninterest expense for the years ended December 31, 2021 and 2020 was $140.8 million and $152.4 million, respectively. This decrease during the year ended December 31, 2021 is mainly attributable to a decrease in related mortgage commissions and incentives expenses as a result of lower volume during the year.

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, 2021 and 2020.

Net interest income

Year ended December 31, 2021 compared to year ended December 31, 2020

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 or amortization of discounts or premiums on purchased loans, prepayment risk on mortgage and investment–related assets, and the composition and maturity of earning assets and interest-bearing liabilities. Loans typically generate more interest income than investment securities with similar maturities. Funding from client deposits generally costs less than wholesale funding sources. Factors such as general economic activity, Federal Reserve monetary policy, and price volatility of

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competing alternative investments, can also exert significant influence on our ability to optimize the mix of assets and funding, net interest income, and margin.

In response to economic uncertainty related to the COVID-19 pandemic, short term interest rates have been at historic lows. The Federal Funds Target Rate range was 0% - 0.25% as of December 31, 2020 and maintained this rate as of December 31, 2021. According to the Chair of the Board of Governors of the Federal Reserve, the Federal Funds Target Rate is not likely to drop below this range. However, the Federal Reserve does have other tools available that it can employ and has expressed an intention to do so in order to maintain a targeted level of liquidity. At its most recent meeting, the Federal Reserve decided to keep the target range for the federal funds rate at 0% to 0.25% and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment. Additionally, the Federal Reserve maintained their commitment to continue purchases of Treasury securities and agency mortgage-backed securities, but noted that as the economy makes progress towards its maximum employment and price stability goals, adjustments to the pace of purchases will continue in coming meetings. During the year ended December 31, 2021, the US Treasury yield curve steepened as long-term rates rose and short-term rates remained constant. This compares to the year ended December 31, 2020, as the US Treasury curve flattened as long-term and short-term decreased significantly.

On a tax-equivalent basis, net interest income increased $82.0 million to $350.5 million for the year ended December 31, 2021 as compared to $268.5 million for the year ended December 31, 2020. The increase in tax-equivalent net interest income for the year ended December 31, 2021 was primarily driven by an increase in average volume of loans HFI outstanding, coupled with a decrease in overall cost of deposits, which declined to 0.30% for the year ended December 31, 2021, a 32 basis point reduction from the year ended December 31, 2020.

Interest income, on a tax-equivalent basis, was $388.1 million for the year ended December 31, 2021, compared to $317.5 million for the year ended December 31, 2020, an increase of $70.6 million. Interest income on loans held for investment, on a tax-equivalent basis, increased $56.8 million to $334.9 million for the year ended December 31, 2021 from $278.1 million for the year ended December 31, 2020. This is primarily due to increased loan volume driven by growth in average loan held for investment balances of $1.58 billion, or 28.0%, to $7.20 billion for the year ended December 31, 2021, as compared to $5.62 billion for the year ended December 31, 2020, which was attributable both to our organic growth and the acquisition of $182.2 million in loans HFI from the Farmers National acquisition and $2.43 billion in loans HFI from the Franklin merger in the third quarter of 2020.

The tax-equivalent yield on loans held for investment was 4.65%, down 30 basis points from the year ended December 31, 2020. The decrease in yield was primarily due to the addition of new loans which were originated in a lower interest rate environment while higher yielding loans were paid off and refinanced at lower rates. Contractual loan interest rates yielded 4.27% in the year ended December 31, 2021 compared with 4.57% in the year ended December 31, 2020. Excluding PPP loans, which have a 1% contractual loan yield, our contractual loan yield would have been 4 basis points higher for the year ended December 31, 2021 compared to 14 points higher for the same period in the prior year. Also, PPP loan fee income increased our yield on origination and other loan fee income by 4 basis points for the year ended December 31, 2021 compared to 6 basis points for the same period in the prior year. Our yield on interest-earning assets decreased to 3.53% for the year ended December 31, 2021 from 4.09% for the year ended December 31, 2020.

Interest expense was $37.6 million for the year ended December 31, 2021, a decrease of $11.4 million as compared to the year ended December 31, 2020. The decrease was largely attributed to a reduction of interest rates on customer time deposits and money market deposits offset by an increases in volume in interest-bearing checking and subordinated debt. Interest expense on customer time deposits decreased to $8.4 million for the year ended December 31, 2021 from $19.7 million for the year ended December 31, 2020 and interest expense on money market deposits decreased $2.9 million for the year ended December 31, 2021 from $13.7 million for the year ended December 31, 2020. The average rate on customer time deposits decreased 85 basis points from 1.52% for the year ended December 31, 2020 to 0.67% for the year ended December 31, 2021 and the average rate on money market deposits decreased 40 basis points from 0.76% for the year ended December 31, 2020 to 0.36% for the year ended December 31, 2021. The decrease in interest expense from customer time deposits and money market deposits was partially offset by an increase in interest expense on interest-bearing checking of $1.3 million and subordinated debt of $3.0 million associated with the increase in volume from our $100.0 million subordinated note offering and additional subordinated notes acquired from Franklin in 2020.

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Overall, our NIM, on a tax-equivalent basis, decreased to 3.19% for the year ended December 31, 2021 from 3.46% for the year ended December 31, 2020, driven by the sustained low interest rate environment and change in balance sheet mix, partially attributable to our acquisition of Franklin completed in the last half of 2020 and impact of excess liquidity carried on our balance sheet. The components of our loan yield, a key driver to our net interest margin for the years ended December 31, 2021, 2020 and 2019 were as follows:

Year Ended December 31,

Loan yield components:

Syndicated loan fee income — — % — — % 206 — %

(1)Includes tax equivalent adjustment using combined marginal tax rate of 26.06%.

(2)Includes $0.8 million and $2.1 million of loan contractual interest and $3.3 million and $3.9 million of loan fees related to PPP loans for the years ended December 31, 2021 and 2020, respectively.

Net amortization on purchased loans lowered the NIM by 1 basis point for the year ended December 31, 2021 while net accretion contributed 5 basis points to the NIM for the year ended December 31, 2020. The decrease in accretion is due to the continued impact of purchase accounting resulting from our mergers, which can fluctuate based on volume of early pay-offs. The decrease is also due in part to the adoption of CECL which resulted in a net premium on our acquired Franklin portfolio. The $11.3 million premium recorded on August 15, 2020, is being amortized as a reduction to loan interest income. As of December 31, 2021 and December 31, 2020, the remaining net discount on all acquired loans amounted to $2.3 million and $1.5 million, respectively. Excluding PPP loans, our NIM would have been 4 and 8 basis points higher for the years ended December 31, 2021 and 2020, respectively.

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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.

Year Ended December 31,

Interest-earning assets:

Securities:(8)

Noninterest Earning Assets:

Interest-bearing liabilities:

Interest bearing deposits:

Other interest-bearing liabilities:

Noninterest bearing liabilities:

Noncontrolling interest 93 35 —

Interest rate spread (tax-equivalent basis) 3.05 % 3.15 % 3.94 %

Net interest margin (tax-equivalent basis) (5) 3.19 % 3.46 % 4.34 %

(1)Calculated using daily averages.

(2)Average balances of nonaccrual loans and overdrafts (before deduction of ACL) are included in average loan balances. Loan fees of $26.0 million, $16.0 million, and $13.0 million, net (amortization) accretion of $(0.9) million, $3.8 million, and $8.6 million, nonaccrual interest collections of $2.3 million, $1.4 million and $0.9 million and syndicated loan fees of $0, $0 and $0.2 million are included in interest income for the years ended December 31, 2021, 2020 and 2019, respectively.

(3)Includes investments in premises and equipment, OREO, interest receivable, mortgage servicing rights, core deposit and other intangibles, goodwill and other miscellaneous assets.

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(4)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 were $3.1 million, $2.8 million and $1.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.

(5)The NIM is calculated by dividing annualized net interest income, on a tax-equivalent basis, by average total earning assets.

(6)Includes $0.4 million and $0.4 million of accretion on subordinated debt fair value premium for the years ended December 31, 2021 and 2020, respectively.

(7)Includes $3.7 million, $0.9 million and $0 of interest rate premium accretion on money market deposits, $2.2 million, $2.0 million and $0 on customer time deposits and $0.5 million, $0.4 million and $0.1 million on brokered and internet time deposits for the years ended December 31, 2021, 2020 and 2019, respectively.

(8)Excludes the average balance for unrealized gains (losses) for mortgage loans held for sale and investments carried at fair value.

Rate/volume analysis

The tables below present the components of the changes in net interest income for the years ended December 31, 2021 and 2020. 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, 2021 compared to year ended December 31, 2020

Interest-earning assets:

Securities available-for-sale and other securities:

Federal funds sold and reverse repurchase agreements 128 (53) 75

Time deposits in other financial institutions 1,020 (1,078) (58)

Interest-bearing liabilities:

Savings deposits 81 (80) 1

Brokered and internet time deposits(4) (143) 346 203

Federal Home Loan Bank advances (1,093) — (1,093)

(1) Average loans are gross, including nonaccrual loans and overdrafts (before deduction of ACL). Loan fees of $26.0 million and $16.0 million, net (amortization) accretion of $(0.9) million and $3.8 million, and nonaccrual interest collections of $2.3 million and $1.4 million, are included in interest income for the years ended December 31, 2021 and 2020, respectively.

(2) Interest income includes the effects of the tax-equivalent adjustments to increase tax-exempt interest income to a tax-equivalent basis.

(3) Includes $0.4 million and $0.4 million of accretion on subordinated debt fair value premium for the years ended December 31, 2021 and 2020, respectively.

(4) Includes $3.7 million and $0.9 million of interest rate premium accretion on money market deposits, $2.2 million and $2.0 million on customer time deposits and $0.5 million and $0.4 million on brokered and internet time deposits for the years ended December 31, 2021 and 2020, respectively.

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Year ended December 31, 2020 compared to year ended December 31, 2019

(dollars in thousands on a tax-equivalent basis) Volume Rate Total

Interest-earning assets:

Loans held for sale - commercial 4,166 — 4,166

Securities available-for-sale and other securities:

Federal funds sold and reverse repurchase agreements 193 (567) (374)

Time deposits in other financial institutions 1,575 (2,266) (691)

Interest-bearing liabilities:

Brokered and internet time deposits(5) (17) (623) (640)

(1)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 years ended December 31, 2020 and 2019, respectively.

(2)Interest income includes the effects of the tax-equivalent adjustments to increase tax-exempt interest income to a tax-equivalent basis.

(3)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.

(4)Includes $0.4 million accretion on subordinated debt premium for the year ended December 31, 2020.

(5)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.

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 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. 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, 2021 compared to year ended December 31, 2020

We recognized a reversal of provision for credit losses on loans held for investment for the year ended December 31, 2021 of $39.0 million as compared to a expense of $94.6 million for the year ended December 31, 2020. The current period reversal resulted from management’s best estimate of losses over the life of loans in our portfolio in accordance with the CECL approach, given an improvement in economic outlook and forecasts. Although the portfolio benefited from improving economic forecasts during the year ended December 31, 2021, there is much uncertainty surrounding the impact of the COVID-19 pandemic and possible future variants, which may continue to lead to increased volatility in forecasted macroeconomic variables, a key input to our calculated level of allowance for credit losses. These evaluations weighed the impact of the current economic outlook, status of federal government stimulus programs, and geographical and demographic considerations, among other factors. In addition, the decrease in the current period when compared with

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the year ended December 31, 2020 is partially attributable to our acquisition activity, namely Farmers National and Franklin, and the impact of applying CECL on the acquired loan portfolios on their respective acquisition dates. 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 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. For the year ended December 31, 2021, the Company recorded a release to the provision for credit losses on unfunded commitments of $2.0 million compared to a provision of $13.4 million for the year ended December 31, 2020. This decrease is partially attributable to $10.5 million in provision expense recorded for unfunded commitments upon closing of our Franklin acquisition during 2020.

As of December 31, 2021 and 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 years ended December 31, 2021 or 2020.

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:

Year Ended December 31,

Gain (loss) on sales or write-downs of other real estate owned 2,504 (1,491) 545

Gain (loss) from other assets 323 (90) (104)

Year ended December 31, 2021 compared to year ended December 31, 2020

Noninterest income amounted to $228.3 million for the year ended December 31, 2021, a decrease of $73.6 million, or 24.4%, as compared to $301.9 million for the year ended December 31, 2020. 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 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 $167.6 million and $255.3 million for the years ended December 31, 2021 and 2020, respectively, representing a $87.8 million, or 34.4% decrease year-over-year.

During the year ended December 31, 2021, our mortgage operations had sales of $6.20 billion which generated a gain on sales margin of 2.97%. This compares to $6.24 billion and 3.79% for the year ended December 31, 2020. The decrease in gain on sales margin is a result of over-capacity in the industry and compressing margins. The industry benefited greatly from declining interest rates in 2020, causing a sharp increase in interest rate lock commitment volume. Sales slowed in 2021 with decline in activity as housing inventory remained low in many of our markets. Mortgage banking income from

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gains on sale and related fair value changes decreased to $150.8 million during the year ended December 31, 2021 compared to $267.6 million for the year ended December 31, 2020. Total interest rate lock volume decreased $1.78 billion, or 19.9%, during the year ended December 31, 2021 compared to the previous year. The volume mix of refinances and purchases also shifted during the year ended December 31, 2021 to 62.4% refinance volume compared with 77.6% during the same period in the previous year.

We continue to see margin compression and reduced volumes due to excess capacity in the industry, refinance fatigue and a shortage of housing in our markets. Our interest rate lock volume is expected to be materially and adversely impacted by rising interest rates and housing shortage, and we expect to see further declines in refinance activity within the mortgage industry when rates rise.

Income from mortgage servicing of $28.9 million and $22.1 million for years ended December 31, 2021 and 2020, respectively, was offset by declines in fair value of MSRs and related hedging activity of $12.1 million and $34.4 million for the years ended December 31, 2021 and 2020, respectively.

The components of mortgage banking income for the years ended December 31, 2021, 2020, and 2019 were as follows:

Year Ended December 31,

Mortgage banking income

Interest rate lock commitment volume by line of business:

Third party origination (TPO) — — 327,373

Interest rate lock commitment volume by purpose (%):

ATM and interchange fees increased $5.0 million to $19.9 million during the year ended December 31, 2021 as compared to $14.9 million for the year ended December 31, 2020. This increase is attributable to our growth in deposits and increased volume of transactions, which is partially attributed to our acquisitions completed in 2020. Though we have not yet experienced a decline, our interchange fee income is expected to decline beginning the second half of 2022 as a result of the Durbin amendment, which limits interchange fees banking institutions with asset sizes greater than $10 billion are permitted to charge.

Net gains from sales or write-downs of other real estate owned during the year ended December 31, 2021 amounted to $2.5 million compared with a loss during the year ended December 31, 2020 amounting to $1.5 million. This change was a result of specific sales and valuation transactions of other real estate during the respective periods. The gain in the current period was primarily the result of sale of one of our former branch locations, which had been vacated as a result of consolidating locations following our acquisitions.

Other noninterest income for the year ended December 31, 2021 increased $3.7 million to $19.0 million compared with $15.3 million for the year ended December 31, 2020. This includes gains associated with our commercial loans held for sale portfolio of $11.2 million for the year ended December 31, 2021 compared with $3.2 million for the million for the year ended December 31, 2020. This increase was offset by a decrease in interest rate swap fees of $3.5 million during the year ended December 31, 2021 which included a loss on the cancellation of an interest rate swap amounting to $1.5 million associated with a loan HFI that was resolved during the year.

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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:

Year Ended December 31,

Amortization of core deposit and other intangibles 5,473 5,323 4,339

Year ended December 31, 2021 compared to year ended December 31, 2020

Noninterest expense decreased by $3.5 million during the year ended December 31, 2021 to $373.6 million as compared to $377.1 million in the year ended December 31, 2020. 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 66.5% and 62.0% of total noninterest expense in the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2021, salaries and employee benefits expense increased $14.6 million, or 6.2%, to $248.3 million as compared to $233.8 million for the year ended December 31, 2020. This increase was mainly due to an increase of $25.4 million in employee salaries driven by our increase in headcount as a result of our mergers and investment in additional revenue producers in our markets. Our full-time equivalent employees increased to 1,962 as of December 31, 2021from 1,852 as of December 31, 2020. This increase was partially offset by a $14.6 million decrease in incentive compensation largely driven by the slowdown of mortgage production volume and decreased interest rate lock volume.

Costs resulting from our equity compensation grants during the years ended December 31, 2021 and 2020 amounted to $10.3 million and $10.2 million, respectively. Our one-time IPO RSU grants fully vested during the third quarter of 2021. Costs associated with these IPO grants made up $1.3 million and $2.2 million of equity compensation expense during the year ended December 31, 2021 and December 31, 2020, respectively. During the year ended December 31, 2020, we began granting performance-based stock units, which resulted in $1.4 million and $1.0 million in expense included in our equity compensation expense during the years ended December 31, 2021 and 2020, respectively. For additional discussion regarding our equity compensation grants, see Note 23, "Stock Based Compensation" in the notes to our consolidated financial statements contained herein.

Occupancy and equipment expense increased $3.8 million to $22.7 million during the year ended December 31, 2021 as compared to $19.0 million in the year ended December 31, 2020. This increase is mostly related to increased leased property, maintenance, and depreciation costs which increased as a result of our merger activity and additional locations.

Merger costs amounted to $34.9 million for the year ended December 31, 2020 of which $2.3 million related to our acquisition and conversion of Farmers National and $32.4 million related to our acquisition and conversion of Franklin. There was no such merger activity during year ended December 31, 2021.

Advertising expense increased $3.9 million to $13.9 million during the year ended December 31, 2021 compared to $10.1 million during the year ended December 31, 2020. This increase is related to a $2.3 million increase in sponsorships and $1.8 million increase in advertising expense related to our overall growth.

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

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expense increased $8.9 million during the year ended December 31, 2021 to $64.0 million compared to $55.0 million during the year ended December 31, 2020. The increase reflects a $7.5 million increase in software licenses and maintenance fees, a $2.0 million increase in mortgage servicing expenses and a $1.3 million increase in regulatory fees and other costs associated with our growth, including the impact of our 2020 acquisitions.

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 64.9% and 66.4% for the years ended December 31, 2021 and 2020, respectively. Our adjusted efficiency ratio, on a tax-equivalent basis, was 65.8% and 59.2% for the years ended December 31, 2021 and 2020, respectively. See “GAAP reconciliation and management explanation of non-GAAP financial measures” in this Report for a discussion of the adjusted efficiency ratio.

Income taxes

Our income tax expense was $52.8 million and $18.8 million for the years ended December 31, 2021 and 2020, respectively. This represents effective tax rates of 21.7% and 22.8% for the years ended December 31, 2021 and 2020, respectively. The primary differences from the enacted rates are applicable state income taxes and certain expenses that are not deductible reduced for non-taxable income and additional deductions for equity-based compensation upon vesting of restricted stock units. State taxes, net of federal benefits, increased our effective tax rate by 3.5% and 3.8% for the years ended December 31, 2021 and 2020, respectively. Additionally, during the year ended December 31, 2021, our income tax expense was reduced by a $1.7 million tax benefit related to a change in the value of the net operating loss tax asset that was acquired from Franklin. This tax benefit decreased our effective tax rate by 1.4% for the year ended December 31, 2021.

The Company is subject to Section 162(m), which limits the deductibility of compensation paid to certain individuals. The restricted stock unit plans that existed prior to the corporation being public vested after the reliance period as defined in the underlying Treasury Regulations. It is the Company’s policy to apply the Section 162(m) limitations to stock-based compensation, including our restricted stock unit plan, first and then followed by cash compensation. As a result of the vesting of these units and cash compensation paid to date, the Company has disallowed a portion of its compensation paid to the applicable individuals.

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Financial condition

The following discussion of our financial condition compares balances as of December 31, 2021 with December 31, 2020.

Loan portfolio

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:

As of December 31,

Loan Type:

Residential real estate:

Commercial real estate:

(1)Includes $4.0 million and $212.6 million of PPP loans outstanding as of December 31, 2021 and 2020, respectively.

Our loans HFI portfolio is our most significant earning asset, comprising 60.4% and 63.2% of our total assets as of December 31, 2021 and 2020, 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 in the markets we serve, but we are also party to loan syndications and participations from other banks (collectively, “participated loans”). At December 31, 2021 and 2020, loans held for investment included approximately $263.9 million and $206.8 million, respectively, related to purchased participation loans. All loans, whether or not we act as a participant, are underwritten to the same standards as all other loans we originate. We believe our loan portfolio is well-balanced, which provides us with the opportunity to grow while monitoring our loan concentrations.

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. Our lending activity is heavily concentrated in the geographic market areas we serve, with highest concentration in the state of Tennessee. This geographic concentration subjects our loan portfolio to the general economic conditions within the state. The risks created by this concentration have been considered by management in the determination of the appropriateness of the allowance for credit losses. As of December 31, 2021 and 2020, 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.

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.

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The table below shows concentration ratios for the Bank and Company as of December 31, 2021 and 2020.

As a percentage (%) of tier 1 capital plus allowance for credit losses

FirstBank FB Financial Corporation

Loan categories

The principal categories of our loans held for investment portfolio are discussed below:

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Loan maturity and sensitivities

The following table presents the contractual maturities of our loan portfolio as of December 31, 2021. 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.

Commercial real estate:

Residential real estate:

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For loans due after one year or more, the following table presents the interest rate composition for loans outstanding as of December 31, 2021. As of December 31, 2021 and 2020, the Company had $21.5 million and $22.4 million, respectively, in fixed-rate loans in which the Company has entered into variable rate swap contracts.

Loan type (dollars in thousands) Fixedinterest rate Floatinginterest rate Total

Commercial real estate:

Residential real estate:

The following table presents the contractual maturities of our loan portfolio segregated into fixed and floating interest rate loans as of December 31, 2021.

(dollars in thousands) Fixedinterest rate Floatinginterest rate Total

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Of the loans shown above with floating interest rates, many have interest rate floors as follows:

Loans with current rates above floors:

Loans at interest rate floors providing support:

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. As of December 31, 2021 and 2020, we had $63.0 million and $84.2 million, respectively, in nonperforming 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. Accrued interest receivable written off as an adjustment to interest income amounted to $0.8 million and $0.6 million for the years ended December 31, 2021 and 2020, respectively. Additionally, we had net interest recoveries on nonperforming assets previously charged off of $2.3 million and $1.4 million for the years ended December 31, 2021 and 2020, respectively.

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In addition to loans held for investment, nonperforming assets included commercial loans held for sale that were past due 90 days or more or not accruing interest. These nonperforming commercial loans held for sale represent a pool of shared national credits and institutional healthcare loans that were acquired during 2020 in our acquisition of Franklin and amounted to $5.2 million and $6.5 million as of December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, other real estate owned included $3.3 million and $5.7 million, respectively, of excess land and facilities held for sale resulting from our acquisitions. Other nonperforming assets also included other repossessed non-real estate amounting to $0.7 million and $1.2 million as of December 31, 2021and 2020, respectively.

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. At December 31, 2021 and 2020, there were $94.6 million and $151.2 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, 2021 or 2020.

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:

As of December 31,

Loan Type

Residential real estate:

Multi-family mortgage 49 57

Commercial real estate:

Total nonperforming loans held for investment 47,303 64,456

Total nonperforming assets as a percentage of total assets 0.50 % 0.75 %

Total nonaccrual loans HFI as a percentage of loans HFI 0.47 % 0.72 %

Loans restructured as troubled debt restructurings $ 32,435 $ 15,988

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 as of December 31, 2021 and 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 $26.5 million at December 31, 2021 as compared to $27.0 million at December 31, 2020.

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Loan Modifications due to COVID-19

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, 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 extended 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. This legislation expired on January 1, 2022.

We have numerous customers that experienced financial distress as a direct result of COVID-19, and in response we offered financial relief in the form of a payment deferral program. The majority of 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, recorded balances in total loans in deferral status under this program amounted to $202.5 million. There were no such loans remaining in deferral status as of December 31, 2021. As of December 31, 2021 and 2020, the total amortized cost of loans that had previously been deferred as part of this program that were no longer in deferral status amounted to $1.19 billion and $1.40 billion, respectively.

Allowance for credit losses

Beginning January 1, 2020, with the adoption of CECL, we calculated the allowance for credit losses under the current expected credit losses methodology. Additional details surrounding the adoption in addition to transition disclosures can be found within our consolidated financial statements in Form 10-K filed March 12, 2021.

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 accrued interest receivable determined to be uncollectible. 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 Estimates- Allowance for credit losses" for additional information regarding our methodology.

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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:

As of December 31,

Loan Type:

Residential real estate:

Commercial real estate:

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The following table summarizes activity in our allowance for credit losses during the periods indicated:

Year Ended December 31,

Impact of adopting ASC 326 on non-purchased credit deteriorated loans — 30,888 —

Impact of adopting ASC 326 on purchased credit deteriorated loans — 558 —

Charge-offs:

Construction (30) (18) —

Residential real estate:

Residential line of credit (18) (22) (309)

Multi-family mortgage (1) — —

Commercial real estate:

Owner occupied — (304) —

Recoveries:

Residential real estate:

Multi-family mortgage — — —

Commercial real estate:

Non-owner occupied — — —

(a) Excludes reserve for credit losses on unfunded commitments of $14.4 million, $16.4 million recorded in accrued expenses and other liabilities at December 31, 2021 and 2020, respectively.

(b) Prior to adopting CECL on January 1, 2020, we calculated our allowance for loan losses using an incurred loss approach.

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The following table details our provision for credit losses and net charge-offs to average loans outstanding by loan category during the periods indicated:

(dollars in thousands)

Residential real estate:

Commercial real estate::

Residential real estate:

Commercial real estate::

Residential real estate:

Multi-family mortgage (22) — 72,673 — %

Commercial real estate::

The allowance for credit losses was $125.6 million and $170.4 million and represented 1.65% and 2.41% of loans held for investment as of December 31, 2021 and 2020, 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 as of December 31, 2020. There was no ACL attributable to PPP loan balances of $4.0 million outstanding as of December 31, 2021. PPP loans are federally guaranteed as part of the CARES Act, provided the remaining PPP loan recipients receive loan forgiveness under the SBA regulations. As such, there is minimal credit risk associated with these loans.

The primary reason for the decrease in the allowance for credit losses is due to changes in reasonable and supportable forecasts of macroeconomic variables during the year ended December 31, 2021, which resulted in projected decrease in lifetime losses and overall decrease in the ACL. Specifically, we performed additional qualitative evaluations for certain categories within our loan portfolio, in line with our established qualitative framework. This includes, but not limited to, the following: weighting the impact of the current economic outlook, status of federal government stimulus programs, and identifying specific industries or borrowers seeing credit improvement or deterioration specific to the COVID-19 pandemic. Specific industries subject to increased monitoring as a result of the COVID-19 pandemic included loans within retail

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lending, healthcare, hotel, transportation, restaurants and other leisure and recreational industries. As of December 31, 2021, our evaluation showed an improvement when compared to December 31, 2020, resulting in lower loss rates from improving economic variables. Additionally, we experienced an improvement in credit quality indicators including lower nonaccrual loans, lower special mention and classified assets, and lower past due loans compared to December 31, 2020. Charge-offs were most concentrated in our commercial and industrial portfolio, with a single relationship representing approximately 67% of loans within that segment. Continued loan growth or a decrease in net charge-offs could result in an increase in provision expense. Additionally, with the adoption of CECL beginning on January 1, 2020, our ACL is more sensitive to changes in CECL model assumptions and inputs, creating greater volatility in the amount of ACL recorded.

We also maintain an allowance for credit losses on unfunded commitments, which decreased to $14.4 million as of December 31, 2021 from $16.4 million as of December 31, 2020, also as a result of the improving macroeconomic forecasts incorporated into our CECL loss rate model.

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 a fair value of $79.3 million as of December 31, 2021 compared to $215.4 million as of December 31, 2020. The decrease is primarily attributable to loans within the portfolio being paid off through external refinancing and pay-downs. This decrease also includes a gain of $4.9 million recognized on the change in fair value of the portfolio; in addition, the Company recognized a gain of $6.3 million related to the pay-off of a loan that had been partially charged off prior to acquisition of the portfolio. These items resulted in a total gain of $11.2 million for the year ended December 31, 2021 which is included in 'other noninterest income' on the consolidated statement of income. This compares to gains on changes in fair value for the year ended December 31, 2020 of $3.2 million for valuation changes from the August 15, 2020 acquisition date through December 31, 2020.

Mortgage loans held for sale

Mortgage loans held for sale were $672.9 million at December 31, 2021 compared to $683.8 million at December 31, 2020. Interest rate lock volume for the years ended December 31, 2021 and 2020, totaled $7.16 billion and $8.94 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 decrease in interest rate lock volume during the year ended December 31, 2021 reflects the slow down experienced across the industry compared with the year ended December 31, 2020 which benefited from historically low interest rates pre-empted by the COVID-19 Pandemic. Interest rate lock commitments in the pipeline were $0.49 billion as of December 31, 2021 compared with $1.19 billion as of December 31, 2020.

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 $10.84 billion and $9.46 billion as of December 31, 2021 and 2020, respectively. Noninterest-bearing deposits at December 31, 2021 and 2020 were $2.74 billion and $2.27 billion, respectively, while interest-bearing deposits were $8.10 billion and $7.18 billion at December 31, 2021 and 2020, respectively. This deposit growth includes increases

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of $926.9 million and $164.1 million in interest-bearing demand and money market deposits, respectively, in each case compared to December 31, 2020. This was offset by declines in customer time and brokered and internet time deposits of $272.1 million and $34.1 million, respectively, in each case as of December 31, 2021 compared to balances as of December 31, 2020. This change in deposit composition is a result of our balance sheet management and focus on replacing 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 $127.6 million and $148.0 million at December 31, 2021 and 2020, respectively. Additionally, our deposits from municipal and governmental entities (i.e. "public deposits") totaled $2.29 billion at December 31, 2021, compared to $1.68 billion at December 31, 2020.

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 24, "Related party transactions" in the notes to our consolidated financial statements included in this Report.

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.

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The following table sets forth the distribution by type of our deposit accounts as of the dates indicated:

As of December 31,

Deposit Type

Customer Time Deposits

Brokered and Internet Time Deposits

At December 31, 2021, we held an estimated $4.88 billion in uninsured deposits. As of December 31, 2021, time deposits in excess of the FDIC insurance limit and the estimated portion of time deposits outstanding that are otherwise uninsured by maturity were as follows:

Months to maturity:

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Other Earning Assets

Securities purchased under agreements to resell ("reverse repurchase agreements")

We enter into agreements with certain customers to purchase investment securities under agreements to resell at specific dates in the future. This investment deploys some of our liquidity position into an instrument that improves the return on those funds in the current low rate environment. Additionally, we believe it positions us more favorably for a potential rising interest rate environment in the future. Securities purchased under agreements to resell totaled $74.2 million at December 31, 2021. There were no such securities outstanding as of December 31, 2020.

Investment portfolio

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 lines of credit and other borrowings. The investment objectives guide the portfolio allocation among securities types, maturities, and other attributes.

The fair value of our available-for-sale debt securities portfolio at December 31, 2021 was $1.68 billion compared to $1.17 billion at December 31, 2020. As of December 31, 2021 and 2020, the Company had $3.4 million and $4.6 million, respectively, in equity securities recorded at fair value that primarily consisted of mutual funds.

During the years ended December 31, 2021 and 2020, we purchased $847.2 million and $425.0 million in investment securities, respectively (excluding those acquired from Farmers National and merged from Franklin during the year ended December 31, 2020). The trade value of available-for-sale securities sold was $8.9 million during the year ended December 31, 2021 compared to $146.5 million during the year ended December 31, 2020. During the years ended December 31, 2021 and 2020, maturities and calls of securities totaled $296.3 million and $220.5 million, respectively.

As of December 31, 2021 and 2020, net unrealized gains of $4.7 million and $34.6 million, respectively, were included in the fair value of available-for-sale debt securities. During the years ended December 31, 2021 and 2020, the change in the fair value of equity securities and gain on sale resulted in a net gain of $198 thousand and $296 thousand, respectively.

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The following table sets forth the fair value, scheduled maturities and weighted average yields for our available-for-sale debt securities portfolio as of the dates indicated below:

As of December 31,

Treasury securities:

Maturing within one year $ — — % — % $ 16,628 1.4 % 1.57 %

Maturing in one to five years 14,908 0.9 % 1.24 % — — % — %

Maturing in five to ten years — — % — % — — % — %

Maturing after ten years — — % — % — — % — %

Government agency securities:

Maturing within one year — — % — % — — % — %

Maturing in one to five years 20,141 1.2 % 1.33 % — — % — %

Maturing after ten years — — % — % — — % — %

Municipal securities:

Maturing within one year — — % — % — — % — %

Corporate securities:

Maturing within one year — — % — % — — % — %

Maturing after ten years — — % — % — — % — %

(1)Yields on a tax-equivalent basis.

Borrowed funds

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 purchased, and subordinated debt.

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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 $40.7 million and $32.2 million at December 31, 2021 and 2020, 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, 2021 and 2020, 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 (3.37% and 3.40% at December 31, 2021 and 2020, respectively) for the $21.7 million debenture and 3-month LIBOR plus 325 basis points (3.47% and 3.50% at December 31, 2021 and 2020, 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. The Company classified both debentures as additional Tier 1 capital as of December 31, 2021 and 2020.

Additionally, during 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 $1.4 million and $1.8 million, as Tier 2 capital at December 31, 2021 and 2020, respectively.

We also assumed two issues of subordinated debt, totaling $60,000, as part of the Franklin merger. The notes, issued by Franklin 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"). During the year ended December 31, 2021, we redeemed the two issues of subordinated debt in full. Additionally, during the year ended December 31, 2021, we recorded accretion of a purchase accounting premium of $369 thousand and $436 thousand, respectively, as a reduction to interest expense on borrowings. There was $60.0 million related to these issuances included as Tier 2 capital as of December 31, 2020.

Other borrowings

During the year ended December 31, 2020, we initiated a credit line in the amount of $20.0 million and borrowed $15.0 million against the line to fund the cash consideration paid in connection with the Farmers National transaction. The line of credit matured on February 21, 2021 and was repaid in full. Other borrowings on our consolidated balance sheets also includes our finance lease liability totaling $1.5 million and $1.6 million as of December 31, 2021 and 2020, respectively. See Note 9, "Leases" within the Notes to our consolidated financial statements for additional information regarding our finance lease.

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

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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.

Considering uncertainty surrounding 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 the pandemic 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. As of December 31, 2021 and 2020, securities with a carrying value of $1.23 billion and $0.80 billion, respectively, were pledged to secure government, public, trust and other deposits and as collateral for short-term borrowings, letters of credit and derivative instruments.

Additional sources of liquidity include federal funds purchased, reverse repurchase agreements, FHLB borrowings, and lines of credit. Interest is charged at the prevailing market rate on federal funds purchased, reverse repurchase agreements 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 or other advances with the FHLB as of December 31, 2021 or 2020. There was $1.23 billion and $1.18 billion as of December 31, 2021 and 2020, respectively available to borrow against.

We also maintain lines of credit with other commercial banks totaling $325.0 million and $335.0 million as of December 31, 2021 and 2020, 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 as of December 31, 2021 or 2020. Additionally, as of December 31, 2021, we had an additional $50.0 million available through the promontory network. No such line was available as of December 31, 2020.

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. Based upon this regulation, as of December 31, 2021 and 2020, $170.8 million and $185.7 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, 2021, there were $122.5 million in cash dividends approved by the board for payment from the Bank to the holding company. During the year ended December 31, 2020, the board approved a quarterly dividend from the Bank to the holding company amounting to approximately $48.8 million. None of these required approval from the TDFI. Subsequent to December 31, 2021, the board approved a dividend from the Bank to the holding company for $17.3 million that also did not require approval from the TDFI.

During the year ended December 31, 2021, the Company declared and paid shareholder dividends of $0.44 per share, or $21.2 million, respectively. During the year ended December 31, 2020, the Company declared and paid dividends of $0.36 per share, or $14.5 million, respectively. Subsequent to December 31, 2021, the Company declared a quarterly dividend in the amount of $0.13 per share, payable on February 22, 2022, to stockholders of record as of February 8, 2022.

The Company is party to a registration rights agreement with its former majority shareholder entered into in connection with the 2016 initial public offering, under which the Company is responsible for payment of expenses (other than

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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. During the year ended December 31, 2021, the Company paid $0.6 million under this agreement related to the secondary offering completed during the second quarter of 2021. No such expenses were incurred during the year ended December 31, 2020.

Shareholders’ equity and capital management

Our total shareholders’ equity was $1.43 billion at December 31, 2021 and $1.29 billion at December 31, 2020. Book value per share was $30.13 at December 31, 2021 and $27.35 at December 31, 2020, respectively. The growth in shareholders’ equity during 2021 was primarily attributable to earnings retention, partially offset by changes in accumulated other comprehensive income, declared dividends and activity related to equity-based compensation.

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. The Federal Reserve and the FDIC have issued guidelines governing the levels of capital that banks must maintain. As of December 31, 2021 and 2020, we met all capital adequacy requirements for which we are subject. See additional discussion regarding our capital adequacy and ratios at within Note 21, "Minimum capital requirements" in the notes to our consolidated financial statements contained herein.

Critical accounting estimates

Our financial statements are prepared in accordance with U.S. generally accepted accounting principles and general practices within the banking industry. A summary of our accounting policies is included in "Part II- Item 8. Financial Statements and Supplementary Data - Note 1, "Basis of Presentation" of this Report. Certain of these policies require management to apply significant judgement and estimates, which can have a material impact on the carrying value of certain assets and liabilities, and we consider the below policies to be our critical accounting policies.

Allowance for credit losses

Description of policy and management's estimates:

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. 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

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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.

Sensitivity of estimates:

Evaluations of the portfolio and individual credits are inherently subjective, as they require estimates, assumptions and judgments as to the facts and circumstances associated with particular situations. Determining the ACL is complex and requires judgement by management about the effect of matters that are inherently uncertain. While management utilizes its best judgment and information available, the ultimate adequacy of the Company's ACL is dependent on a variety of factors beyond its control, including the performance of the portfolios and macroeconomic variables that go into economic forecasts provided by a third party. Management selects the macroeconomic forecast that is most reflective of expectations as of the evaluation date and changes to these variables could cause a significant increase or decrease in the level of ACL. Given the nature of the many factors, forecasts and assumptions in the ACL methodology, it is not possible to provide meaningful estimates of the impact of any such potential change.

Additional discussion can be found under the subheading "Asset quality" contained within management's discussion and analysis and within the notes to our consolidated financial statements contained herein, including Note 1, "Basis of Presentation" and Note 5, "Loans and allowance for credit losses".

Fair Value Measurements

Description of policy and management's estimates:

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. 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

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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, 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.

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 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 regrouped into a new Ginnie Mae guaranteed security.

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 accounts for as held for sale. The Company elects the fair value option for recording commercial loans held for sale and the fair value is determined using current secondary market prices for loans with similar characteristics. The fair value is determined using an income approach with various assumptions including expected cash flows, market discount rates, credit metrics and collateral value when appropriate. Changes in fair value from the acquisition date fair value is booked through the mark-to-market using a third party fair value model and 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.

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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 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.

A hierarchical disclosure framework associated with the level of pricing observability is utilized in measuring financial instruments at fair value. See Note. 18, "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.

Sensitivity of estimates:

Management applies various valuation methodologies to assets and liabilities which often involve a significant degree of judgment, particularly when liquid markets do not exist for those items. Quoted market prices are referred to when estimating fair values for certain assets, including most investment securities, while secondary market pricing is referred to in estimating the fair value of mortgage loans held for sale. For those items which an observable liquid market does not exist, management utilizes significant estimates and assumption to value such items. These valuations require the use of various assumptions, including, among others, estimating prepayment speeds, discount rates, cash flows, default rates, cost of servicing, and liquidation values, which are also subject to economic variables. In addition to valuation, the Company must assess whether there are any declines in value below the carrying value of assets that require recognition of a loss in the consolidated statement of income. The use of different assumptions could produce significantly different results, which could have a significant impact on the Company’s results of operations, financial condition or disclosures.

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Due to the number of estimates and judgments management applies, it is not possible to provide meaningful estimates of all those assets and liabilities measured at fair value. A sensitivity analysis on changes to key assumptions in determination of fair value of our mortgage servicing rights is included within Note 10, "Mortgage servicing rights" in the notes to the consolidated financial statements contained herein.

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, 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 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. Economic Value of Equity 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.

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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:

Percentage change in:

Net interest income (1)

Year 1 Year 2

Change in interest rates December 31, December 31,

Percentage change in:

Economic value of equity (2)

Change in interest rates December 31,

(1)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 interest income in the various rate scenarios.

(2)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, 2021 and 2020 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. The COVID-19 pandemic resulted in unprecedented 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 continue to 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

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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 17, “Derivatives” in the notes to our consolidated financial statements.

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ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Table of Contents

Page

Glossary of abbreviations and acronyms 3

Management’s Assessment of Internal Controls Over Financial Statements 84

Reports of Independent Registered Public Accounting Firm (PCAOB ID: 173) 85

Consolidated Financial Statements:

Consolidated balance sheets 87

Consolidated statements of income 88

Consolidated statements of comprehensive income 89

Consolidated statements of changes in shareholders’ equity 90

Consolidated statements of cash flows 91

Notes to consolidated financial statements 91

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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 over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 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, 2021. In making the assessment, management used the “Internal Control — Integrated Framework” promulgated by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment management has determined that, as of December 31, 2021, the Company's internal control over financial reporting is effective based on the COSO 2013 framework. Additionally, based upon management's assessment, the Company determined that there were no material weaknesses in its internal control over financial reporting as of December 31, 2021.

The effectiveness of the Company's internal control over financial reporting as of December 31, 2021, has been audited by Crowe LLP, an independent registered public accounting firm, as stated in their report which appears herein.

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Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors of FB Financial Corporation

Nashville, Tennessee

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of FB Financial Corporation (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

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 Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely

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detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses on Loans – Reasonable and Supportable Forecasts and Qualitative Adjustments

As described in Note 1, "Basis of presentation" and Note 5, "Loans and allowance for credit losses", the Company estimates expected credit losses for its financial assets carried at amortized cost utilizing the current expected credit loss (“CECL”) methodology. The allowance for credit losses (“ACL”) on loans at December 31, 2021 and 2020 was $125.6 million and $170.4 million, respectively. The provision for credit losses on loans at December 31, 2021 and 2020 was $(39.0) million and $94.6 million, respectively.

The Company calculated an expected credit loss using a lifetime loss rate methodology. The Company utilizes probability-weighted forecasts that are developed by a third-party vendor, which consider multiple macroeconomic variables 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. The Company's loss rate models then 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 then considers the need to qualitatively adjust its modeled quantitative expected credit loss estimate for information not already captured in the model loss estimation process.

The audit procedures over the determination of forecast scenarios involved a high degree of auditor judgment and required significant audit effort, including the use of more experienced audit personnel and our valuation specialists due to its complexity. Additionally, the audit procedures over the qualitative adjustments utilized in management’s methodology involved challenging and subjective auditor judgment. Therefore, we identified the following as a critical audit matter: a) auditing the forecasted macroeconomic scenario and b) auditing the identification and application of qualitative adjustments to the ACL model.

The primary audit procedures we performed to address this critical audit matter included the following:

•Tested the operating effectiveness of controls specific to:

◦Determining the reasonableness of the forecasted macroeconomic scenario used in the model,

◦The identification and application of qualitative adjustments to the ACL model,

◦The mathematical accuracy of the qualitative adjustments to the ACL model,

◦The relevance and reliability of data used by the Company’s third-party vendor to develop forecast scenarios.

◦The Company’s allowance committee’s oversight and review of the overall ACL.

•Evaluated management’s judgments in the selection and application of the forecasted macroeconomic scenarios.

•Used the work of specialists to assist in evaluating the relevance and reliability of data used by the Company’s third-party vendor to develop forecast scenarios.

•Evaluated management’s judgments in the identification and application of qualitative adjustments to the ACL model.

•Tested the completeness and accuracy of the data used in the qualitative adjustments to the ACL model

/s/ Crowe LLP

We have served as the Company's auditor since 2018.

Franklin, Tennessee

February 25, 2022

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FB Financial Corporation and subsidiaries

Consolidated balance sheets

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

December 31,

ASSETS

Federal funds sold and reverse repurchase agreements 128,087 121,153

Interest-bearing deposits in financial institutions 1,578,320 1,085,754

Investments:

Equity securities, at fair value 3,367 4,591

Federal Home Loan Bank stock, at cost 32,217 31,232

Core deposit and other intangibles, net 16,953 22,426

LIABILITIES

Deposits

Commitments and contingencies (Note 16)

SHAREHOLDERS' EQUITY

Accumulated other comprehensive income, net 5,858 27,595

Total FB Financial Corporation common shareholders' equity 1,432,602 1,291,289

Noncontrolling interest 93 93

See the accompanying notes to the consolidated financial statements.

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FB Financial Corporation and subsidiaries

Consolidated statements of income

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

5

Year Ended December 31,

Interest income:

Interest on securities

Interest expense:

Provision for credit losses on unfunded commitments (1,998) 13,361 —

Noninterest income:

Gain (loss) on sales or write-downs of other real estate owned 2,504 (1,491) 545

Gain (loss) from other assets 323 (90) (104)

Noninterest expenses: