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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, 2023 and 2022, and our results of operations for the years ended December 31, 2023 and 2022, 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, 2022 and 2021 are included in the respective sections within “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, 2022.

Overview

We are a financial holding company headquartered in Nashville, Tennessee. We operate primarily through our wholly-owned bank subsidiary, FirstBank. FirstBank provides a comprehensive suite of commercial and consumer banking services to clients in select markets in Tennessee, Kentucky, Alabama and North Georgia. As of December 31, 2023, our footprint included 81 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 17 community markets throughout Tennessee, Alabama 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. As of December 31, 2023, we had total assets of $12.60 billion, loans held for investment of $9.41 billion, total deposits of $10.55 billion, and total shareholders’ equity of $1.45 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, as well as from mortgage servicing revenues.

Key factors affecting our business

Recent banking events

The banking sector experienced significant volatility during the year ended December 31, 2023, including high-profile bank failures, continuing interest rate hikes and recessionary concerns. We have proactively positioned our balance sheet to mitigate the risks affecting the Company and the overall banking industry in order to serve our clients and communities.

As of December 31, 2023, we carried on-balance sheet liquidity of $1.35 billion. We maintain the ability to access $7.08 billion of contingent liquidity from the FHLB, Federal Reserve, brokered CDs, and unsecured lines of credit. Our AFS debt securities portfolio is 11.7% of total assets and we do not maintain any held-to-maturity investment securities. Management considers our current liquidity position to be more than adequate to meet both short-term and long-term liquidity needs. Refer to the section “Liquidity and capital resources” for additional information.

Further, the capital ratios of the Company and the Bank are well above the standards to be considered well-capitalized under regulatory requirements. Refer to the section “Shareholders' equity and capital management” for additional details.

Non-performing assets were 0.69% of total assets as of December 31, 2023 and annualized net charge-offs were 0.01% of average loans HFI during the year ended December 31, 2023, which we believe reflects our disciplined underwriting and conservative lending philosophy. Refer to the section “Asset quality” for additional information.

While the March 2023 high-profile bank failures and other concerns have impacted the entire banking industry, and future events cannot be predicted, we remain committed to safe and sound community banking practices that have been a cornerstone of the Company's values and historical performance.

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, investment securities and interest-bearing deposits with other financial institutions) 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’s actions. The yields generated by our loans and securities are typically driven by short-term and long-term interest rates, which are market driven and are, at times, heavily influenced by the Federal Reserve’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.

Interest rates increased throughout the year ended December 31, 2023. Volatile 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 2023, our percentage of total nonperforming loans to loans HFI increased to 0.65% as of December 31, 2023, from 0.49% as of December 31, 2022. Our classified loans increased to 0.74% of loans HFI as of December 31, 2023, compared to 0.56% as of December 31, 2022. Our nonperforming assets as of December 31, 2023 were $86.5 million, or 0.69% of total assets compared to $87.5 million, or 0.68% of assets as of December 31, 2022.

Our net provisions for credit losses on loans HFI and unfunded loan commitments resulted in an expense of $2.5 million for the year ended December 31, 2023 compared to an expense of $19.0 million for the year ended December 31, 2022. For the year ended December 31, 2023, our expense was comprised of $16.7 million of provision for credit losses on loans HFI and $14.2 million related to reversals of credit losses on unfunded commitments. The current period expense is the result of declines in economic outlooks and forecasts which impacted our loss estimation process. These evaluations weighed the impact of the current economic outlook, including unemployment, supply chain concerns, global conflicts and other considerations. Although the portfolio was impacted by worsening economic outlooks and forecasts, management's concentrated effort to reduce unfunded loan commitments from December 31, 2022 in specific categories judged to be inherently higher risk considering the current and projected economic conditions resulted in a $913.2 million decrease in our construction category as these projects moved to permanent financing. As such, the decrease resulted in a $14.2 million decrease in required ACL related to the unfunded commitments in our construction portfolio. See further discussion under the subheading “Allowance for credit losses.”

For additional information regarding credit quality risk factors for our Company, see “Item 1. Business: Risk management: Credit risk management” and “Item 1A. Risk factors: Credit Risks.”

Competition

Our profitability and growth are affected by the highly competitive nature of the financial services industry. We compete with commercial banks, savings banks, credit unions, non-bank financial services companies, online mortgage providers, internet banks and other financial institutions operating within the areas we serve, particularly with national and regional banks that often have more resources than we do to invest in growth and technology and community banks with strong local ties, all of which target the same clients we do. Recently, we have seen increased competitive pressures on deposit rates. Continued deposit pricing pressure may continue to affect our financial results in the future.

For additional information, see “Item 1. Business: Our markets,” “Business: Competition” and “Item 1A. 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, BSA and anti-money laundering compliance, risk management and internal audit. We expect to incur increased costs for compliance, risk management and audit personnel or professional fees associated with advisors and consultants due the current economic environment.

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 “Item 1A. 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 years ended December 31,

Selected Balance Sheet Data

Allowance for credit losses on unfunded commitments 8,770 22,969 14,380

Selected Statement of Income Data

Net income applicable to noncontrolling interest 16 16 16

Per Common Share

Selected Ratios

Return on average:

Core efficiency ratio (tax-equivalent basis)(2) 62.9 % 62.7 % 65.8 %

Loans HFI to deposit ratio 89.2 % 85.7 % 70.2 %

Net interest margin (tax-equivalent basis) 3.44 % 3.57 % 3.19 %

Yield on interest-earning assets 5.72 % 4.16 % 3.53 %

Cost of interest-bearing liabilities 3.16 % 0.87 % 0.48 %

As of or for the years ended December 31,

Credit Quality Ratios

Net charge-offs as a percentage of average loans HFI (0.01) % (0.02) % (0.08) %

Nonperforming loans HFI as a percentage of loans HFI 0.65 % 0.49 % 0.62 %

Nonperforming assets as a percentage of total assets(4) 0.69 % 0.68 % 0.50 %

Capital Ratios (Company)

Total common shareholders' equity to assets 11.5 % 10.3 % 11.4 %

Tangible common equity to tangible assets(2) 9.74 % 8.50 % 9.51 %

(1)Book value per share equals our total common shareholders’ equity divided by the number of shares of our common stock outstanding as of the date presented.

(2)Non-GAAP financial measure; See "GAAP reconciliation and management explanation of non-GAAP financial measures” and non-GAAP reconciliations herein.

(3)ROAA and ROAE is calculated by dividing annualized net income or loss for that period by our average assets or average equity for the same period.

(4)Includes $21,229 and $26,211 of optional rights to repurchase delinquent GNMA loans as of December 31, 2023 and 2022, respectively. There were no such loans as of December 31, 2021.

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 consolidated 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.

Core efficiency ratio (tax-equivalent basis)

The core 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.

The following table presents, as of the dates set forth below, a reconciliation of our core efficiency ratio (tax-equivalent basis) to our efficiency ratio:

Years Ended December 31,

Core efficiency ratio (tax-equivalent basis)

Less early retirement, severance and other costs 8,449 — —

Less loss (gain) on lease terminations 1,770 (18) (805)

Less FDIC special assessment 1,788 — —

Less mortgage restructuring — 12,458 —

Less offering expenses — — 605

Less certain charitable contributions — — 1,422

Less (loss) gain from securities, net (13,973) (376) 324

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

Core efficiency ratio (tax-equivalent basis) 62.9 % 62.7 % 65.8 %

Tangible book value per common share and tangible common equity to tangible assets

Tangible book value per common share and tangible common equity to tangible assets are non-GAAP measures that exclude the impact of goodwill and other intangibles used by the Company’s management to evaluate capital adequacy. Because intangible assets such as goodwill and other intangibles vary extensively from company to company, we believe that the presentation of this information allows investors to more easily compare the Company’s capital position to other companies. The most directly comparable financial measure calculated in accordance with GAAP is book value per common share and our total shareholders’ equity to total assets.

The following table presents, as of the dates set forth below, tangible common equity compared with total shareholders’ equity, tangible book value per common share compared with our book value per common share and common equity to tangible assets compared to total shareholders’ equity to total assets:

As of December 31,

(dollars in thousands, except share and per share data) 2023 2022 2021

Tangible assets

Adjustments:

Tangible common equity

Adjustments:

Total common shareholders' equity to total assets 11.5 % 10.3 % 11.4 %

Tangible common equity to tangible assets 9.74 % 8.50 % 9.51 %

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 used by the Company's management to provide a depiction of the Company's profitability without being impacted by its intangible assets, as intangible assets are not directly managed to generate earnings. 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:

Years Ended December 31,

Return on average tangible common equity

Adjustments:

Return on average common shareholders' equity 8.74 % 9.23 % 14.0 %

Return on average tangible common equity 10.7 % 11.4 % 17.3 %

Overview of recent financial performance

Year ended December 31, 2023 compared to the year ended December 31, 2022

Our net income decreased during the year ended December 31, 2023 to $120.2 million from $124.6 million for the year ended December 31, 2022. Diluted earnings per common share was $2.57 and $2.64 for the years ended December 31, 2023 and 2022, respectively. Our net income represented a return on average assets of 0.95% and 1.01% for the years ended December 31, 2023 and 2022, respectively, and a return on average equity of 8.74% and 9.23% for the same periods. Our ratio of return on average tangible common equity for the years ended December 31, 2023 and 2022 was 10.7% and 11.4%, respectively. See “GAAP reconciliation and management explanation of non-GAAP financial measures” in this Report for a discussion of tangible common equity and return on average tangible common equity.

During the year ended December 31, 2023, net interest income decreased to $407.2 million compared with $412.2 million in the year ended December 31, 2022. Our net interest margin, on a tax-equivalent basis, decreased to 3.44% for the year ended December 31, 2023 as compared to 3.57% for the year ended December 31, 2022, influenced by rising interest rates increasing our total cost of funds compared to the increase in the interest income on interest-earning assets during the year ended December 31, 2023.

Provision for credit losses on loans HFI and unfunded loan commitments was $2.5 million for the year ended December 31, 2023 compared $19.0 million for the year ended December 31, 2022 primarily due to a reversal of provision for credit losses on unfunded commitments of $14.2 million compared to provision expense of $8.6 million during the year ended December 31, 2022. Refer to the section “Provision for credit losses” for additional information.

Noninterest income for the year ended December 31, 2023 decreased by $44.1 million to $70.5 million, down from $114.7 million for prior year period. The decrease in noninterest income was primarily driven by a decrease in mortgage banking income of $28.9 million to $44.7 million for the year ended December 31, 2023, compared to $73.6 million for the prior year period. These results were impacted by increasing interest rates, compressing margins and a decrease in demand for residential mortgages experienced through the industry during the year ended December 31, 2023 compared with the year ended December 31, 2022. The change was also impacted by the restructuring of our mortgage business (referred to herein as “Mortgage restructuring”), including the exit of our direct-to-consumer internet delivery channel during the year ended December 31, 2022. Refer to the section “Noninterest expense” for additional information on the restructuring of our Mortgage segment. Additionally contributing to the decrease in noninterest income during the year ended December 31, 2023 was a $14.0 million net loss on investment securities primarily related to the sale of $100.5 million of AFS securities. Refer to the section “Other earnings assets” for additional information on the sale of the AFS securities.

Noninterest expense decreased to $324.9 million for the year ended December 31, 2023, compared with $348.3 million for the year ended December 31, 2022. The decrease in noninterest expense is reflective of the $28.3 million decrease in salaries, commissions and employee-related costs namely in the Mortgage segment related to the restructuring of our Mortgage segment, reduced headcount and mortgage production. Additionally, this decrease in salaries, commission and employee-benefit related costs was partially offset by an $8.4 million increase in early retirement, severance and other costs related to our efficiency and scalability initiatives and $4.7 million in regulatory fees and assessments, which includes a $1.8 million FDIC special assessment associated with the bank failures earlier in 2023. Additionally, the decrease in noninterest expense reflects $12.5 million in mortgage restructuring expenses included in expenses in the year ended December 31, 2022.

Year ended December 31, 2022 compared to year ended December 31, 2021

Our net income decreased during the year ended December 31, 2022 to $124.6 million from $190.3 million for the year ended December 31, 2021. Diluted earnings per common share was $2.64 and $3.97 for the years ended December 31, 2022 and 2021, respectively. Our net income represented a return on average assets of 1.01% and 1.61% for the years ended December 31, 2022 and 2021, respectively, and a return on average equity of 9.23% and 14.0% for the same periods. Our ratio of return on average tangible common equity for the years ended December 31, 2022 and 2021 was 11.4% and 17.3%, respectively. See “GAAP reconciliation and management explanation of non-GAAP financial measures” in this Report for a discussion of tangible common equity and return on average tangible common equity.

These results were significantly impacted by the economic forecasts incorporated in our current expected credit loss rate model, leading to a provision for credit losses on loans held for investment and unfunded loan commitments of $19.0 million for the year ended December 31, 2022 compared with a reversal in our provision for credit losses of $41.0 million for the year ended December 31, 2021.

During the year ended December 31, 2022, net interest income increased to $412.2 million compared with $347.4 million in the year ended December 31, 2021. Our net interest margin, on a tax-equivalent basis, increased to 3.57% for the year ended December 31, 2022 as compared to 3.19% for the year ended December 31, 2021, influenced by rising interest rates and growth in loans HFI volume during the year ended December 31, 2022.

Noninterest income for the year ended December 31, 2022 decreased by $113.6 million to $114.7 million, down from $228.3 million for the prior year period. The decrease in noninterest income was primarily driven by a decrease in mortgage banking income of $94.0 million to $73.6 million for the year ended December 31, 2022, compared to $167.6 million for the prior year period. These results were impacted by increasing interest rates, compressing margins and a decrease in demand for residential mortgages experienced through the industry during the year ended December 31, 2022 compared with the year ended December 31, 2021.

Noninterest expense decreased to $348.3 million for the year ended December 31, 2022, compared with $373.6 million for the year ended December 31, 2021. The decrease in noninterest expense is reflective of the $45.4 million decrease in salaries, commissions and employee-related costs in the Mortgage segment related to the reduction in mortgage production, which was partially offset by mortgage restructuring expenses of $12.5 million incurred during the year ended December 31, 2022 associated with the exit of our direct-to-consumer internet delivery channel.

Business segment highlights

We operate our business in two business segments: Banking and Mortgage. See Note 1, “Basis of presentation” and Note 18 “Segment reporting” in the notes to our consolidated financial statements for a description of these business segments.

Banking

Income before taxes from the Banking segment decreased in the year ended December 31, 2023 to $154.0 million, compared to $182.9 million for the year ended December 31, 2022. Net interest income decreased $5.0 million to $407.2 million during the year ended December 31, 2023 from $412.2 million in the same period in the prior year. The provision for credit loss expense on loans held for investment and unfunded loan commitments was $2.5 million during the year ended December 31, 2023 compared to $19.0 million in the previous year. Refer to the section “Provision for credit losses” for additional information. Noninterest income decreased to $25.8 million in the year ended December 31, 2023 as compared to $41.3 million in the year ended December 31, 2022. The decrease includes a net loss on investment securities of $14.0 million primarily related to the sale of $100.5 million of AFS securities. Noninterest expense increased to $276.5 million during the year ended December 31, 2023 compared with $251.7 million for the year ended December 31, 2022, primarily due to increases in salaries, early retirement, severance and other costs, occupancy and regulatory fees.

Mortgage

Activity in our Mortgage segment resulted in a pre-tax net loss of $3.7 million for the year ended December 31, 2023 as compared to a pre-tax net loss of $23.3 million for the year ended December 31, 2022. There was a decrease in mortgage banking income of $28.9 million to $44.7 million during the year ended December 31, 2023 compared to $73.6 million for the year ended December 31, 2022. This was a result of interest rate increases, compressing margins and a decrease in demand for residential mortgages, which lead to a 48.3% decrease in interest rate lock volume for the year ended December 31, 2023 compared with the year ended December 31, 2022.

Noninterest expense for the years ended December 31, 2023 and 2022 was $48.4 million and $96.6 million, respectively. This decrease is reflective of the mortgage restructuring expense in addition to decreases in salaries, commissions and incentive costs, advertising, legal and professional fees and occupancy associated with the decrease in production volume and headcount reduction from the Mortgage restructuring.

Further discussion on the components of mortgage banking income and additional details related to the Mortgage restructuring are included under the subheadings “Noninterest income” and “Noninterest expense,” respectively, included within this management's discussion and analysis.

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, 2023, 2022, and 2021.

Net interest income

Net interest income is the most significant component of our earnings, generally comprising over 50% of our total revenues in a given period. Net interest income and margin are shaped by many factors, primarily the volume, term structure and mix of earning assets, funding mechanisms, and interest rate fluctuations. Other factors include accretion 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 competing alternative investments, can also exert significant influence on our ability to optimize the mix of assets and funding, net interest income and margin.

During the year ended December 31, 2023, the U.S. Treasury yield curve became less inverted as long-term note and bond rates increased at a faster pace than shorter-term note rates. The curve remained inverted as of December 31, 2023, which is in contrast to the more normalized upward sloping U.S. Treasury yield curve exhibited during the year ended December 31, 2022. The Federal Funds Target Rate range was 5.25% - 5.50% and 4.25% - 4.50% as of December 31, 2023 and December 31, 2022, respectively. In December 2023, the Federal Reserve released projections whereby the midpoint of the projected appropriate target range for the federal funds rate would remain at 5.38% at the end of 2023 and subsequently decrease to 4.63% by the end of 2024. While there can be no assurance that any increases or decreases in the federal funds rate will occur, these projections imply up to a 75 basis point decrease in the federal funds rate during 2024, followed by a 100 basis point decrease in 2025. The target range for the federal funds rate has remained at 5.25% to 5.50% since the Federal Open Market Committee’s July 26th meeting.

On a tax-equivalent basis, net interest income decreased $4.7 million to $410.6 million for the year ended December 31, 2023 as compared to $415.3 million for the year ended December 31, 2022. Interest income, on a tax-equivalent basis, was $681.8 million for the year ended December 31, 2023, compared to $484.5 million for the year ended December 31, 2022, an increase of $197.3 million, which was primarily driven by increases in interest rates on loans HFI and interest-bearing deposits with other financial institutions and volume on loans HFI, partially offset by an increase in our cost of deposits. Total interest income represents an increase in yield on interest-earning assets to 5.72% for the year ended December 31, 2023 compared with 4.16% for the year ended December 31, 2022.

Interest income on loans HFI, on a tax-equivalent basis, increased $170.2 million to $596.0 million for the year ended December 31, 2023 from $425.8 million for the year ended December 31, 2022 due primarily to increasing interest rates; however, the change was also heavily influenced by an increase in volume of average loans HFI. The average yield on loans HFI increased by 139 basis points period-over-period to 6.38% for the year ended December 31, 2023 from 4.99% for the year ended December 31, 2022. Our estimated contractual loan interest yield was 6.20% in the year ended December 31, 2023 compared with 4.69% in the year ended December 31, 2022. Additionally, average loans HFI increased to $9.34 billion for the year ended December 31, 2023 compared to $8.54 billion for the year ended December 31, 2022. The increase in average loans HFI is due to strong demand in our primary markets and additional funding during the year ended December 31, 2023 of commitments made in prior periods.

The components of our loan yield for the years ended December 31, 2023, 2022, and 2021 were as follows:

Years Ended December 31,

Loans HFI yield components:

Syndicated loan fee income — — % 1,150 0.01 % — — %

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

Origination and other loan fees (including syndication fee income for the year ended December 31, 2022) impacted our NIM by 12 basis points and 21 basis points for the years ended December 31, 2023 and 2022, respectively.

Interest income on interest-bearing deposits with other financial institutions increased to $35.7 million for the year ended December 31, 2023 from $7.3 million for the year ended December 31, 2022 due to higher interest rates. The yield on interest-bearing deposits with other financial institutions increased 422 basis points to 5.08% for the year ended December 31, 2023 compared to 0.86% for the year ended December 31, 2022.

Interest expense was $271.2 million for the year ended December 31, 2023, an increase of $202.0 million as compared to $69.2 million for the year ended December 31, 2022. The increase was largely attributed to a rise in interest rates in interest-bearing deposit accounts, and specifically on money market, interest-bearing checking and customer time deposit products. Interest expense on money market deposits increased $103.3 million to $126.2 million for the year ended December 31, 2023 compared to $22.9 million for the year ended December 31, 2022. Interest expense on interest-bearing checking deposits increased $59.9 million to $81.8 million for the year ended December 31, 2023 from $21.9 million for the year ended December 31, 2022. Interest expense on customer time deposits increased $33.7 million to $45.3 million for the year ended December 31, 2023 from $11.6 million for the year ended December 31, 2022. The average rate on money market deposits increased 273 basis points from 0.80% for the year ended December 31, 2022 to 3.53% for the year ended December 31, 2023. The average rate on interest-bearing checking deposits increased 216 basis points from 0.70% for the year ended December 31, 2022 to 2.86% for the year ended December 31, 2023. The average rate on customer time deposits increased 216 basis points from 0.99% for the year ended December 31, 2022 to 3.15% for the year ended December 31, 2023. Total cost of interest-bearing deposits was 3.08% for the year ended December 31, 2023 compared to 0.74% for the year ended December 31, 2022.

Interest rates increased at a faster rate on our interest-bearing liabilities compared to our interest earning assets which resulted in our NIM, on a tax-equivalent basis, decreasing to 3.44% for the year ended December 31, 2023 from 3.57% for the year ended December 31, 2022. The effect of rising interest rates was partially offset by an increase in volume of loans HFI. Additionally, there was a shift in our balance sheet composition, including a decline in excess liquidity, which we define as interest-bearing deposits with other financial institutions in excess of 5% of average tangible assets. Excess liquidity is estimated to have negatively impacted our NIM by approximately 1 basis point for the year ended December 31, 2023 compared to approximately 7 basis points for the year ended December 31, 2022.

Average balance and interest yield/rate 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.

Years Ended December 31,

Interest-earning assets:

Investment securities:

Noninterest Earning Assets:

Interest-bearing liabilities:

Interest-bearing deposits:

Other interest-bearing liabilities:

Noninterest-bearing liabilities:

Noncontrolling interest 93 93 93

Interest rate spread (tax-equivalent basis)(2) 2.56 % 3.29 % 3.05 %

Net interest margin (tax-equivalent basis) (2)(5) 3.44 % 3.57 % 3.19 %

(1)Average balances of nonaccrual loans and overdrafts are included in average loan balances.

(2)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 tax-equivalent adjustment amounts included in income were $3.3 million, $3.0 million, and $3.1 million for years ended December 31, 2023, 2022, and 2021, respectively.

(3)Includes average net unrealized losses on investment securities available for sale of $231.5 million, $144.3 million, and $107.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.

(4)Includes average of optional rights to repurchase government guaranteed GNMA mortgage loans previously sold that have become past due greater than 90 days of $21.7 million and $13.1 million for the years ended December 31, 2023 and 2022, respectively.

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

Yield/rate and volume analysis

The tables below present the components of the changes in net interest income for the years ended December 31, 2023 and 2022. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volume and changes due to interest rates, with the changes in both volume and interest rates allocated to these two categories based on the proportionate absolute changes in each category.

Interest-earning assets:

Investment securities:

Federal funds sold and reverse repurchase agreements (4,337) 6,721 2,384

Interest-bearing liabilities:

Savings deposits (48) 39 (9)

(1)Average loans are presented gross, including nonaccrual loans and overdrafts.

(2)Interest income includes the effects of the tax-equivalent adjustments to increase tax-exempt interest income to a tax-equivalent basis. The net taxable-equivalent adjustment amounts included was $3.3 million and $3.0 million for the years ended December 31, 2023 and 2022, respectively.

Year ended December 31, 2022 compared to year ended December 31, 2021

Interest-earning assets:

Investment securities:

Federal funds sold and reverse repurchase agreements 1,186 1,849 3,035

Interest-bearing deposits with other financial institutions (5,031) 10,404 5,373

Interest-bearing liabilities:

Savings deposits 42 (7) 35

Brokered and internet time deposits (380) (118) (498)

Federal Home Loan Bank advances 5,583 — 5,583

Other borrowings (22) 25 3

(1)Average loans are presented gross, including nonaccrual loans and overdrafts.

(2)Interest income includes the effects of the tax-equivalent adjustments to increase tax-exempt interest income to a tax-equivalent basis. The net taxable-equivalent adjustment amounts included was $3.0 million and $3.1 million for both the years ended December 31, 2022 and 2021, 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.

Our allowance for credit losses calculation as of December 31, 2023 resulted from management’s best estimate of losses over the life of loans and unfunded commitments in our portfolio in accordance with the CECL approach. Our calculation included qualitative adjustments for projected slower GDP growth over the next two to three years and expected elevated unemployment levels. We also considered the current global economic environment, including continued pressures on supply chains (and more specifically, oil and energy) and increased uncertainty due to geopolitical turmoil and its impact on the U.S. economy. These factors may continue to lead to increased volatility in forecasted macroeconomic variables, a key input to our calculated level of allowance for credit losses.

We recognized a provision for credit losses on loans HFI for the year ended December 31, 2023 of $16.7 million. This compares to a provision for credit losses on loans HFI of $10.4 million recorded for the year ended December 31, 2022. The current period provision on loans HFI resulted from management’s best estimate of losses over the life of loans in our portfolio in accordance with the CECL approach and was impacted by three commercial and industrial relationships moving to nonaccrual status and the deteriorating economic forecasts as discussed in further detail above. For the year ended December 31, 2022, the increase in the provision for credit losses on loans HFI was driven by an increase in loans HFI outstanding period-over-period and the increased possibility of a future recession and inflationary pressures.

We also estimate 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, we consider the likelihood that funding will occur, the contractual period of exposure to credit loss, the risk of loss, historical loss experience, and current conditions along with expectations of future economic conditions. For the year ended December 31, 2023, we recorded a reversal of provision for credit losses on unfunded commitments of $14.2 million compared to provision expense of $8.6 million during the year ended December 31, 2022. The decrease in the provision for credit losses on unfunded commitments is primarily due to management's concentrated effort to reduce unfunded loan commitments from December 31, 2022 in specific categories judged to be inherently higher risk considering the current and projected economic conditions, including a $913.2 million decrease in our construction category as these projects moved to permanent financing. As such, the decrease resulted in a $14.2 million decrease in required ACL related to the unfunded commitments in our construction portfolio.

During the years ended December 31, 2023 and 2022, it was determined that all AFS 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 AFS debt securities during the years ended December 31, 2023 or 2022.

Noninterest income

The following table sets forth the components of noninterest income for the periods indicated:

Years Ended December 31,

(Loss) gain from investment securities, net (13,973) (376) 324

Noninterest income amounted to $70.5 million for the year ended December 31, 2023, a decrease of $44.1 million, or 38.5%, as compared to $114.7 million for the year ended December 31, 2022. 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 loan servicing fees, which includes the 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 $44.7 million and $73.6 million for the years ended December 31, 2023 and 2022, respectively, representing a $28.9 million decrease, or 39.3% year-over-year. The total decrease includes a reduction in income from gains on sale and related fair value changes, which decreased to $30.7 million during the year ended December 31, 2023 compared to $52.9 million for the year ended December 31, 2022. This change was caused by a decrease in interest rate lock volume of $1.30 billion, or 48.3%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. In addition to being impacted by the interest rate environment, affordability constraints and a decline in consumer demand, this decrease also reflects the impact of the Mortgage restructuring and discontinuance of our direct-to-consumer internet delivery channel during the second quarter of 2022. For the year ended December 31, 2022, direct-to-consumer comprised 24.6% our total interest rate lock volume and 34.5% of our sales volume, respectively.

The components of mortgage banking income for the years ended December 31, 2023, 2022, and 2021 were as follows:

Year Ended December 31,

Mortgage banking income

Interest rate lock commitment volume by delivery channel:

Interest rate lock commitment volume by purpose (%):

ATM and interchange fees decreased $5.3 million to $10.3 million during the year ended December 31, 2023 as compared to $15.6 million for the year ended December 31, 2022. The decrease was primarily attributable to the expiration of our temporary exemption from the Durbin amendment during the second half of 2022. The Durbin amendment limits the amount of interchange transaction fees that banks with asset sizes greater than $10 billion are permitted to charge retailers for debit card processing. Interchange fee income varies with size and volume of transactions, which can fluctuate with seasonality, consumer spending habits and economic conditions. While our volume of interchange transactions increased approximately 7.00% during the year ended December 31, 2023 from the previous year, interchange fee income declined by 35.7%, the majority of which related to the application of the fee cap imposed by the Durbin amendment impacting the current period.

Net loss from investment securities was $14.0 million and $0.4 million for the years ended December 31, 2023 and 2022, respectively. The net loss from investment securities during the year ended December 31, 2023 is primarily the result of management's election to sell $100.5 million of available-for-sale debt securities to reinvest the proceeds of the sale into higher yielding AFS securities. Refer to the section “Other earning assets” for additional information on the sale of the AFS securities.

Other income increased $0.9 million to $6.1 million during the year ended December 31, 2023 as compared to $5.2 million during the year ended December 31, 2022. This increase is primarily related to a $2.1 million loss associated with the change in fair value of the commercial loans held for sale portfolio during the year ended December 31, 2023 compared to a $5.1 million loss for the year ended December 31, 2022. Additional information on our commercial loans held for sale portfolio is included under the subheading 'Loans held for sale' within this management's discussion and analysis.

Noninterest expense

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 3,659 4,585 5,473

Mortgage restructuring expense — 12,458 —

Noninterest expense decreased by $23.4 million during the year ended December 31, 2023 to $324.9 million as compared to $348.3 million in the year ended December 31, 2022. 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 expense representing 62.6% and 60.7% of total noninterest expense for the years ended December 31, 2023 and 2022, respectively. For the year ended December 31, 2023, salaries and employee benefits expense decreased $8.1 million, or 3.81%, to $203.4 million as compared to $211.5 million for the year ended December 31, 2022. The decrease was attributable to a $10.9 million decrease in salaries in the Mortgage segment due to the Mortgage restructuring. Additionally, the decrease was attributable to a $11.5 million decrease in incentive and commission-based compensation during the year ended December 31, 2023, which was driven by the decrease in mortgage production volume and decline in profitability during the period. The decrease was partially offset by a $8.4 million increase in early retirement, severance and other costs primarily associated with our efficiency and scalability initiatives.

Occupancy and equipment expense increased $4.6 million during the year ended December 31, 2023 to $28.1 million compared to $23.6 million during the year ended December 31, 2022. This increase includes a $1.8 million loss on lease terminations primarily associated with branch closures.

Legal and professional expense decreased by $6.1 million during the year ended December 31, 2023 to $8.9 million as compared to $15.0 million during the year ended December 31, 2022. The decrease in legal and professional expenses was due to decreases in consulting, legal, and other fees as these were temporarily increased during the year ended December 31, 2022 due to the acceleration of some of our internal projects.

Advertising expense includes expenses related to sponsorships, advertising, marketing, customer relations and business development, and public relations. During the year ended December 31, 2023, advertising expense decreased $2.9 million to $8.3 million compared to $11.2 million during the year ended December 31, 2022. This decrease is primarily attributable to realigning and decreasing our expenses after the Mortgage restructuring to reflect the decrease in production.

Mortgage restructuring expense of $12.5 million was reported during the year ended December 31, 2022 related to the exit from our direct-to-consumer internet delivery channel. These expenses primarily include $10.0 million related to salaries, commissions and employee benefits expense, including the acceleration of vesting on restricted stock units. Other components of this expense include $1.1 million related to software license and maintenance fees, $0.4 million impairment of our operating lease right-of-use assets, and $0.9 million loss on disposal of fixed assets.

Other noninterest expense primarily includes mortgage servicing expenses, regulatory fees and deposit insurance assessments, software license and maintenance fees and various other miscellaneous expenses. Other noninterest expense increased $2.6 million during the year ended December 31, 2023 to $63.3 million compared to $60.7 million during the year ended December 31, 2022. This increase is primarily due to a $4.7 million increase in regulatory fees and assessments which was driven by a 2 basis point increase in the base deposit insurance assessment rate for insured depository institutions from the FDIC that began with the first quarterly assessment period of 2023, resulting in an additional $2.2 million in FDIC assessment expense during the year ended December 31, 2023. Additionally, the increase in regulatory fees and assessments includes a $1.8 million FDIC special assessment during the year ended December 31, 2023 to recover the loss to the Deposit Insurance Fund associated with protecting uninsured depositors following the bank failures earlier in 2023.

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 68.0% and 66.1% for the years ended December 31, 2023 and 2022, respectively. Our adjusted efficiency ratio, on a tax-equivalent basis, was 62.9% and 62.7% for the years ended December 31, 2023 and 2022, 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

Income tax expense was $30.1 million and $35.0 million for the years ended December 31, 2023 and 2022, respectively. This represents effective tax rates of 20.0% and 21.9% for the years ended December 31, 2023 and 2022, 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, decreased our effective tax rate by 0.10% and increased our effective tax rate 2.41% for the years ended December 31, 2023 and 2022, respectively. Municipal interest income, net of interest disallowance decreased our effective tax rate by 1.20% and 1.11% for the years ended December 31, 2023 and 2022, respectively.

Financial condition

The following discussion of our financial condition compares balances as of December 31, 2023 and 2022.

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:

December 31,

Loan Type:

Residential real estate:

Commercial real estate:

Our loans HFI portfolio is our most significant earning asset, comprising 74.6% and 72.4% of our total assets at December 31, 2023 and 2022, 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”). As of December 31, 2023 and 2022, loans held for investment included approximately $254.6 million and $280.5 million, respectively, related to participated loans. We also sell loan participations to unaffiliated third-parties as part of our credit risk management and balance sheet management strategy. During the years ended December 31, 2023 and 2022, we sold $55.8 million and $160.8 million in loan participations, respectively. 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 the highest concentration in 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 on loans HFI. As of December 31, 2023 and 2022, there were no concentrations of loans exceeding 10% of total loans other than our exposure to Tennessee, Alabama and 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 guidelines 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 our ratios are in excess of one or both of these guidelines, banking regulators generally require an increased level of monitoring in these lending areas by management. The table below shows concentration ratios for the Bank and Company as of December 31, 2023 and 2022.

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

FirstBank FB Financial Corporation

As part of our lending policy and risk management activities, the Company tracks lending exposure of commercial and industrial and owner-occupied commercial real estate by industry classification (as defined by the North American Industry Classification System) and type to determine potential risks associated with industry concentrations, and if any risk issues could lead to additional credit loss exposure. The table below provides a summary of our commercial and industrial and owner-occupied commercial real estate portfolios by industry classification.

(dollars in thousands) Committed Amount Outstanding Nonperforming

Commercial and industrial

Other services (except public administration) 91,073 52,295 —

Commercial real estate owner-occupied

Management of companies and enterprises 16,057 14,187 —

Additionally, the Company tracks lending exposure of non-owner occupied commercial real estate and construction by collateral property type to determine potential risks associated with collateral types, and if any risk issues could lead to additional credit loss exposure. The following table provides a summary of our non-owner occupied commercial real estate and construction loan portfolios by collateral property type:

(dollars in thousands) Committed Amount Outstanding Nonperforming

Commercial real estate non-owner occupied

Assisted living and special care facilities 82,045 81,626 —

Construction

Consumer:

Commercial:

Residential Development:

Loan maturity and sensitivities

The following table presents the contractual maturities of our loan portfolio as of December 31, 2023. 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.

Residential real estate:

Commercial real estate:

For loans due after one year or more, the following table presents the interest rate composition for loans outstanding as of December 31, 2023.

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

Residential real estate:

Commercial 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, 2023. As of December 31, 2022, we had $17.4 million in fixed-rate loans in which we have entered into variable rate swap contracts. There were no such loans outstanding as of December 31, 2023.

(dollars in thousands) Fixedinterest rate Floatinginterest rate Total

Of the loans shown above with floating interest rates as of December 31, 2023, 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. 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 repossessed non-earning assets. As of December 31, 2023 and 2022, we had $86.5 million and $87.5 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 $1.1 million for both the years ended December 31, 2023 and 2022. Additionally, we had net interest recoveries on nonperforming assets previously charged off of $1.4 million and $2.7 million for the years ended December 31, 2023 and 2022, respectively.

Nonperforming loans HFI increased $15.1 million to $60.9 million as of December 31, 2023 compared to $45.8 million as of December 31, 2022. The increase is primarily attributable to three commercial and industrial relationships moving to nonaccrual status.

In addition to loans HFI, we also included loans HFS that have stopped accruing interest or become 90 days or more past due. Our nonperforming commercial loans HFS represented a pool of acquired commercial loans. These loans amounted to $9.3 million as of December 31, 2022. There were no such loans outstanding as of December 31, 2023.

As of December 31, 2023 and 2022, we had $21.2 million and $26.2 million, respectively, of delinquent GNMA optional repurchase loans previously sold included on our consolidated balance sheets in loans held for sale. These are considered nonperforming assets as we do not earn any interest on the unexercised option to repurchase these loans.

As of December 31, 2023 and 2022, other real estate owned included $0.1 million and $2.1 million, respectively, of excess land and facilities held for sale resulting from our prior acquisitions. Other repossessed assets also included other repossessed non-real estate amounting to $1.1 million and $0.4 million as of December 31, 2023 and 2022, respectively.

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:

December 31,

Loan Type:

Residential real estate:

Multi-family mortgage 32 42

Commercial real estate:

Commercial loans held for sale — 9,289

Nonperforming assets as a percentage of total assets 0.69 % 0.68 %

Nonaccrual loans HFI as a percentage of loans HFI 0.51 % 0.30 %

We have evaluated our loans HFI classified as nonperforming and believe all nonperforming loans have been adequately reserved for in the allowance for credit losses on loans HFI as of December 31, 2023 and 2022. Management also continually monitors past due loans for potential credit quality deterioration. Loans not considered nonperforming include loans 30-89 days past due that continue to accrue interest amounting to $47.0 million at December 31, 2023 as compared to $31.3 million at December 31, 2022. The increase from December 31, 2022 to December 31, 2023 was primarily noted in our 1-to-4 family mortgage and our construction portfolios.

Allowance for credit losses

The allowance for credit losses represents the portion of the loan's amortized cost basis that we do not expect to collect due to credit losses over the loan's life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions. Loan losses are charged against the allowance when we believe the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for credit losses is based on the loan's amortized cost basis, excluding accrued interest receivable, as we promptly charge off uncollectible accrued interest receivable.

We calculate our expected credit loss using a lifetime loss rate methodology. We utilize probability-weighted forecasts, which consider multiple macroeconomic variables from Moody's that are applicable to each type of loan. See “Critical Accounting Estimates - Allowance for credit losses” and Note 3 “Loans and allowance for credit losses” in the notes to the consolidated financial statements for additional information regarding our methodology.

The following table presents the allocation of the allowance for credit losses on loans HFI by loan category as well as the ratio of loans by loan category compared to the total loan portfolio as of the dates indicated:

December 31,

Loan Type:

Residential real estate:

Commercial real estate:

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

Years Ended December 31,

Charge-offs:

Construction — — (30)

Residential real estate:

Residential line of credit — — (18)

Multi-family mortgage — — (1)

Commercial real estate:

Owner-occupied (144) (15) —

Recoveries:

Residential real estate:

Residential line of credit 1 17 115

Commercial real estate:

Non-owner occupied 1,833 — —

Provision for (reversal of) credit losses on loans HFI 16,738 10,393 (38,995)

The following tables details our provision for credit losses on loans HFI and net (charge-offs) recoveries to average loans HFI 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:

Commercial real estate:

The ACL on loans HFI was $150.3 million and $134.2 million and represented 1.60% and 1.44% of loans HFI as of December 31, 2023 and 2022, respectively. For further information related to the change in the ACL refer to “Provision for credit losses” section herein and Note 3, “Loans and allowance for credit losses on loans HFI” in the notes to our consolidated financial statements. For the year ended December 31, 2023, we experienced net charge-offs of $0.6 million, or 0.01% of average loans HFI, compared to net charge-offs of $1.8 million, or 0.02% for the year ended December 31, 2022. Our ratio of total nonperforming loans HFI as a percentage of total loans HFI increased by 16 basis points to 0.65% as of December 31, 2023 compared to December 31, 2022 primarily due to three commercial and industrial relationships moving to nonaccrual status.

As a ratio of ACL to loans HFI by loan type, our commercial and industrial, HELOC and consumer and other portfolios incurred the largest increases period-over-period. These portfolios are heavily reliant on the strength of the economy; and therefore, they are adversely affected by inflation and high interest rates.

We also maintain an allowance for credit losses on unfunded commitments, which decreased to $8.8 million as of December 31, 2023 from $23.0 million as of December 31, 2022 due to a 18.5% or $657.2 million decrease in unfunded loan commitments during the period. Notably, there was a $913.2 million decrease in unfunded loan commitments in our construction loan category pipeline which resulted in a $14.2 million decrease in required ACL related to unfunded commitments. Our unfunded commitments in our construction loan category decreased as a result of management's concentrated effort over the last year to reduce commitments in specific categories judged to be inherently higher risk considering the current and projected economic conditions. Partially offsetting the decrease in unfunded loan commitments in our construction portfolio was a $236.2 million increase in unfunded loan commitments for commercial and industrial loans compared to December 31, 2022.

Loans held for sale

Commercial loans held for sale

Historically, our loans held for sale included a previously acquired portfolio of commercial loans. During the year ended December 31, 2023, we exited the final relationship. As of December 31, 2022, the loans had a fair value of $30.5 million.

The change in fair value of the portfolio which is included in 'Other noninterest income' on the consolidated statement of income amounted to a loss of $2.1 million for the year ended December 31, 2023 compared to a loss of $5.1 million for the year ended December 31, 2022. The portfolio experienced a net gain of $7.2 million over the life of the portfolio.

Mortgage loans held for sale

Mortgage loans held for sale consisted of $46.6 million of residential real estate mortgage loans in the process of being sold to third-party private investors or government sponsored agencies and $21.2 million of GNMA optional repurchase loans. This compares to $82.8 million of residential real estate mortgage loans in the process of being sold to third-party private investors or government sponsored agencies and $26.2 million of GNMA optional repurchase loans as of December 31, 2022.

Generally, mortgage volume decreases in rising interest rate environments and slower housing markets and increases in lower interest rate environments and robust housing markets. Interest rate lock volume for the years ended December 31, 2023 and 2022 totaled $1.40 billion and $2.70 billion, respectively. The decrease in interest rate lock volume during the year ended December 31, 2023 reflects the slow down experienced across the industry due primarily to higher interest rates. The decrease also reflects the exit from our direct-to-consumer internet delivery channel completed during 2022. Interest rate lock volume within our direct-to-consumer internet delivery channel for the year ended December 31, 2022 totaled $663.8 million. Interest rate lock commitments in the pipeline were $69.2 million as of December 31, 2023 compared with $118.3 million as of December 31, 2022.

Deposits

Deposits represent the Bank’s primary source of funding. We continue to focus on growing core customer deposits through our relationship driven banking philosophy, community-focused marketing programs and our treasury management services.

Total deposits were $10.55 billion and $10.86 billion as of December 31, 2023 and 2022, respectively. Noninterest-bearing deposits at December 31, 2023 and December 31, 2022 were $2.22 billion and $2.68 billion, respectively, while interest-bearing deposits were $8.33 billion and $8.18 billion at December 31, 2023 and 2022, respectively.

The decrease in noninterest-bearing deposits of $458.2 million from December 31, 2022 to December 31, 2023 is attributable to migration to interest-yielding products such as money market and savings deposits, which increased by $507.6 million from December 31, 2022. Also included in noninterest-bearing deposits are certain mortgage escrow deposits from our third-party mortgage servicing provider, which amounted to $63.6 million and $75.6 million as of December 31, 2023 and 2022, respectively.

Interest-bearing checking deposits decreased by $555.6 million from December 31, 2022 due largely to decreases in our deposits from municipal and governmental entities, also known as public funds, which decreased by $475.9 million during the period. The decrease in public funds was due to management's decision to not renew certain maturing public deposits due to rising costs of these deposits.

Additionally, brokered and internet time deposits increased by $149.0 million to $150.8 million as of December 31, 2023 compared to December 31, 2022, which was a result of our balance sheet and liquidity management strategy, which included issuing brokered time deposits in order to increase the liquidity of our balance sheet.

As a result of the rising interest rate environment and the shift in our deposit composition, we have experienced an increase in our cost of interest-bearing deposits and total deposits. 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.

We utilize designated fair value hedges to mitigate interest rate exposure associated with certain fixed-rate money market deposits. The aggregate fair value of these hedges included in the carrying amount of total money market deposits as of December 31, 2023 and 2022 was $4.5 million and $9.8 million, respectively.

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 22, “Related party transactions” in the notes to our consolidated financial statements included in this Report.

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

December 31,

Deposit Type

Customer Time Deposits(2)

Brokered and Internet Time Deposits(2)

(1) Average rates are presented for the years ended December 31, 2023, 2022, and 2021, respectively.

(2) Rates are presented as of period-end.

Further details related to our deposit customer base is presented below as of the dates indicated:

December 31,

(dollars in thousands) Amount % of total deposits Amount % of total deposits

Deposits by customer segment(1)

(1) Segments are determined based on the customer account level.

The tables below set forth maturity information on time deposits and amounts in excess of the FDIC insurance limit as of December 31, 2023:

(dollars in thousands) Amount Weighted average interest rate at period end

Time deposits of $250 and less

Months to maturity:

Time deposits of greater than $250

Months to maturity:

Uninsured deposits are defined as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit and amounts in any other uninsured investment or deposit account that are classified as deposits and are not subject to any federal or state deposit insurance regimes. Collateralized deposits are included within our total uninsured deposits.

As of December 31, 2023, the estimated portion of time deposits outstanding that are otherwise uninsured by maturity were as follows:

(dollars in thousands) Amount

Months to maturity:

Further details related to our estimated insured or collateralized deposits and uninsured and uncollateralized deposits is presented below as of the dates indicated:

December 31,

Estimated uninsured and uncollateralized deposits(1) $ 3,134,063 $ 3,567,193

(1) Amounts are shown on a fully consolidated basis and exclude deposits of affiliates that are eliminated in consolidation.

(2) Amounts are shown on an unconsolidated basis consistent with regulatory reporting requirements.

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. Securities purchased under agreements to resell totaled $47.8 million and $75.4 million at December 31, 2023 and 2022, respectively.

Federal Funds Sold

Federal funds may fluctuate from period to period depending upon our liquidity position at the time and our strategy for deploying liquidity. Federal funds sold totaled $35.5 million and $135.1 million at December 31, 2023 and 2022, respectively.

AFS debt securities 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 certain deposit types, various lines of credit and other borrowings. The investment objectives guide the portfolio allocation among security types, maturities, and other attributes.

The fair value of our AFS debt securities portfolio was $1.47 billion as of both December 31, 2023 and 2022. Included in the fair value of AFS debt securities were net unrealized losses of $186.8 million and $234.4 million as of December 31, 2023 and 2022, respectively. Current net unrealized losses are due to interest rate increases.

During the year ended December 31, 2023, we sold $100.5 million of AFS debt securities. The sales contributed to a pre-tax loss on securities of $14.0 million. We primarily sold collateralized mortgage obligations, U.S. government agency securities and municipal securities. We reinvested the proceeds from the sales primarily into U.S. government agency AFS debt securities in order increase the effective yield of our portfolio. Including the reinvestment of these proceeds, we purchased $202.1 million of AFS debt securities during the year ended December 31, 2023 and had maturities and calls of securities which totaled $128.2 million.

During the year ended December 31, 2022, we sold $1.2 million of AFS debt securities. During the same period, we purchased $242.9 million of AFS debt securities. Maturities and calls of securities totaled $204.7 million for the year ended December 31, 2022.

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

December 31,

U.S. Treasury securities:

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

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

U.S. government agency securities:

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

Municipal securities:

Mortgage-backed securities - residential and commercial:

Maturing within one year 126 — % 1.57 % — — % — %

Corporate securities:

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

Maturing in one to five years — — % — % 373 — % 5.00 %

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

(1)Yields on a tax-equivalent basis.

Equity Securities

We had $3.0 million in marketable equity securities recorded at fair value that primarily consisted of mutual funds as of December 31, 2022. There were no such securities outstanding as of December 31, 2023. During the years ended December 31, 2023 and 2022, the change in the fair value of equity securities resulted in net gain of $0.1 million and a net loss of $0.4 million, respectively.

Borrowed funds

Deposits are the primary source of funds for our lending activities and general business purposes. However, we may also obtain advances from the FHLB, borrow from the Federal Reserve’s Discount Window, leverage the Bank Term Funding Program from the Federal Reserve, purchase federal funds and engage in overnight borrowing with 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 sources of funds to satisfy those needs, in addition to the overall interest rate environment and cost of public funds.

Securities sold under agreements to repurchase and federal funds purchased

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 products as a short-term return for their excess funds. Securities sold under agreements to repurchase totaled $19.3 million and $21.9 million at December 31, 2023 and 2022, respectively.

We also maintain lines with certain correspondent banks that provide borrowing capacity in the form of federal funds purchased. Federal funds purchased are short-term borrowings that typically mature within one to ninety days. Borrowings against these lines (i.e., federal funds purchased) totaled $89.4 million and $65.0 million as of December 31, 2023 and 2022, respectively.

FHLB short-term advances

As a member of the FHLB system, we may utilize advances from the FHLB in order to provide additional liquidity and funding. Under these short-term agreements, we maintain a line of credit that as of December 31, 2023 and 2022 and had total borrowing capacity of $1.76 billion and $1.27 billion, respectively. As of December 31, 2023 and 2022, we had qualifying loans pledged as collateral securing these lines amounting to $3.01 billion and $2.67 billion, respectively. Overnight cash advances against this line totaled $175.0 million as of December 31, 2022. There were no FHLB advances outstanding as of December 31, 2023.

Bank Term Funding Program

In March 2023, the Federal Reserve established the Bank Term Funding Program to make available funding to eligible depository institutions in order to help assure they have the ability to meet the needs of their depositors following the March 2023 high-profile bank failures. The program allows for advances for up to one year secured by eligible high-quality securities at par value extended at the one-year overnight index swap rate, plus 10 basis points, as of the day the advance is made. The interest rate is fixed for the term of the advance and there are no prepayment penalties. At December 31, 2023, we had outstanding borrowings of $130.0 million under the BTFP at a borrowing rate of 4.85% and a maturity date of December 26, 2024.

Subordinated debt

During the year ended December 31, 2003, we formed two separate trusts which issued $9.0 million and $21.0 million of floating rate trust preferred securities as part of a pooled offering of such securities. We issued junior subordinated debentures of $9.3 million, which included proceeds of common securities which we purchased for $0.3 million, and junior subordinated debentures of $21.7 million which included proceeds of common securities of $0.7 million. 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 us. Both issuances were to the trusts in exchange for the proceeds of the securities offerings, which represent the sole asset of the trusts.

Additionally, during the year ended December 31, 2020, we placed $100.0 million of ten year fixed-to-floating rate subordinated notes, maturing September 1, 2030. We mitigate our interest rate exposure associated with these notes through the use of fair value hedging instruments. See Note 15, “Derivatives” in the notes to the consolidated financial statements for additional details related to these instruments.

Further information related to our subordinated debt as of December 31, 2023 is detailed below:

Subordinated debt issued by trust preferred securities:

Additional subordinated debt:

Unamortized debt issuance costs (612)

Fair value hedge (See Note 15, “Derivatives”) (673)

Total subordinated debt, net $ 129,645

Other borrowings

Other borrowings on our consolidated balance sheets includes our finance lease liability totaling $1.3 million and $1.4 million as of December 31, 2023 and 2022, respectively. In addition, other borrowings on our consolidated balance sheets include guaranteed rebooked GNMA loans previously sold that have become past due over 90 days and are eligible for repurchase totaling $21.2 million and $26.2 million as of December 31, 2023 and 2022, respectively. See Note 7, “Leases” and Note 16, “Fair value of financial instruments” within the notes to our consolidated financial statements herein for additional information regarding our finance lease and guaranteed GNMA loans eligible for repurchase, respectively.

Liquidity and capital resources

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 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 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 optimize our net interest margin. We also monitor our liquidity requirements in light of interest rate trends, changes in the economy and the scheduled maturity and interest rate sensitivity of the investment and loan portfolios and deposits.

As part of our liquidity management strategy, we 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. 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. Increasing interest rates generally attracts customers to higher cost interest-bearing deposit products as they seek to maximize their yield.

Our investment portfolio is another alternative for meeting liquidity needs. These assets generally have readily available markets that offer conversions to cash as needed. AFS debt securities within our investment portfolio are used to secure government, public, trust and other deposits and as collateral for short-term borrowings, letters of credit and derivative instruments. As of December 31, 2023 and 2022, we had pledged securities related to these items with carrying values of $929.5 million and $1.19 billion, respectively.

Additional sources of liquidity include federal funds purchased, 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. Overnight 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. As of December 31, 2022, we had outstanding overnight cash advances from the FHLB totaling $175.0 million.

As of December 31, 2023, there were no outstanding cash advances from the FHLB. As of December 31, 2023, there was $1.76 billion available to borrow against with a remaining capacity of $1.30 billion. As of December 31, 2022, there was $1.27 billion available to borrow against with a remaining capacity of $830.0 million.

We also maintained unsecured lines of credit with other commercial banks totaling $370.0 million and $350.0 million as of December 31, 2023 and 2022, respectively. These are unsecured, uncommitted lines of credit typically maturing at various times within the next twelve months. Borrowings against these lines (i.e., federal funds purchased) totaled $89.4 million and $65.0 million as of December 31, 2023 and 2022, respectively. As of both December 31, 2023 and 2022, we also had $50.0 million available through the IntraFi network, which allows us to offer banking customers access to FDIC insurance protection on deposits through our Bank which exceed FDIC insurance limits.

Our current on-balance sheet liquidity and available sources of liquidity are summarized in the table below:

December 31,

Current on-balance sheet liquidity:

Equity securities, at fair value — 2,990

Available sources of liquidity:

On-balance sheet liquidity as a percentage of total assets 10.7 % 10.2 %

(1)Includes capacity available per internal policy in the form of brokered deposits and unsecured lines of credit.

(2)Amounts are shown on a fully consolidated basis and exclude deposits of affiliates that are eliminated in consolidation.

The Company also maintains the ability to access capital markets to meet its liquidity needs. The Company may utilize various methods to raise capital, including through the sale of common stock, preferred stock, depository shares, debt securities, rights, warrants and units. Specific terms and prices would be determined at the time of any such offering. In the past, the Company has utilized capital markets to generate liquidity in the form of common stock and subordinated debt primarily for the purpose of funding acquisitions.

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 by the Bank to the Company. 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 - Dividends,” within this 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 TDFI. Based upon this regulation, as of December 31, 2023 and December 31, 2022, $218.4 million and $161.3 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 both the years ended December 31, 2023 and 2022, there were $49.0 million in cash dividends approved by the Board for payment from the Bank to the holding company. None of these required approval from the TDFI. Subsequent to December 31, 2023, the Board approved a dividend from the Bank to the holding company to be paid in the first quarter for $8.5 million that also did not require approval from the TDFI.

During the year ended December 31, 2023, the Company declared shareholder dividends of $0.60 per share, or $28.3 million. During the year ended December 31, 2022, the Company declared shareholder dividends of $0.52 per share, or $24.7 million. Subsequent to December 31, 2023, the Company declared a quarterly dividend in the amount of $0.17 per share, payable on February 27, 2024, to stockholders of record as of February 13, 2024.

Shareholders’ equity and capital management

Our total shareholders’ equity was $1.45 billion as of December 31, 2023 and $1.33 billion as of December 31, 2022. Book value per common share was $31.05 as of December 31, 2023 and $28.36 as of December 31, 2022. The increase in shareholders’ equity was primarily attributable to an increase in retained net income, net of dividends declared and paid and an increase in unrealized value of $47.6 million within our AFS debt securities portfolio from December 31, 2022. The increase in shareholders’ equity as of December 31, 2023 was partially off-set by dividends declared and paid of $28.3 million.

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, 2023 and 2022, we met all capital adequacy requirements for which we were subject. See additional discussion regarding our capital adequacy and ratios within Note 19, “Minimum capital requirements” in the notes to our consolidated financial statements contained herein.

December 31, 2023 FB Financial Corporation FirstBank To be Well-Capitalized(1)

Total Risk-Based Capital ratio 14.5 % 14.2 % 10.0 %

Common Equity Tier 1 ratio (CET1) 12.2 % 12.2 % 6.5 %

(1) Applicable to Bank level capital.

Capital ratios are well above regulatory requirements for well-capitalized institutions. Management uses risk-based capital ratios in its analysis of the measures to assess the quality of capital and believes that investors may find it useful in their analysis of the Company.

Critical accounting estimates

Our consolidated 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 “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

The allowance for credit losses represents management’s best estimate of expected credit losses over the life of our loan portfolios as measured at each respective recent balance sheet date. However, significant downturns in circumstances relating to loan quality or economic conditions could necessitate additional provisions or reductions in the ACL. Unanticipated changes and events could have a significant impact on the financial performance of our loan customers and their ability to perform as agreed. The economic indices sourced from economic forecasts and used in developing the ACL include the unemployment rate, changes in the U.S. gross domestic product, changes in commercial real estate prices and BBB spread.

Given the dynamic relationship between macroeconomic variables within our modeling framework it is difficult to estimate the impact of a change in any one individual variable on the ACL. However, to illustrate a hypothetical sensitivity, we calculated a quantitative allowance using an alternative negative economic scenario. Under this alternative negative economic scenario, a significant deterioration in economic conditions was assumed which would negatively impact the

underlying economic variables, compared to our baseline forecast. Below is a comparison of key economic assumptions between these scenarios at the end of each period noted below.

December 31,

Baseline forecast:

Negative economic scenario:

Excluding the impact of qualitative considerations, using only the negative economic scenario would result in a hypothetical increase over ending ACL of approximately $52.7 million at December 31, 2023.

The preceding sensitivity analysis results do not represent our view of expected credit losses nor is it intended to estimate future changes in provisioning for credit losses due to:

•highly uncertain and speculative economic environment;

•inter-relatedness and non-linearity of economic variables resulting inability to extrapolate to additional changes in variables; and

•sensitivity analysis does not consider any quantitative or qualitative adjustments and associated risk profile components incorporated by management as part of its overall ACL framework.

Mortgage servicing rights

We account for our mortgage servicing rights at fair value at each reporting date with changes in the fair value reported in earnings in the period in which the changes occur. We retain the right to service certain mortgage loans that we sell to secondary market investors. These mortgage servicing rights are recognized as a separate asset on the date the corresponding mortgage is sold.

The retained mortgage servicing right is initially measured 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 techniques require management to make estimates regarding future servicing cash flows, taking into consideration historical and forecasted residential mortgage loan prepayment rates, discount rates, escrow balance and servicing costs. Changes in interest rates and prepayments speeds or other factors impact the fair value of the MSR which impacts earnings. The fair value of the MSR was $164.2 million at December 31, 2023.

Based on a hypothetical sensitivity analysis, we estimate that an increase in discount rates of 100 basis points and 200 basis points would reduce the December 31, 2023 fair value of the MSR by approximately 4.65% (or $7.6 million) and 8.90% (or $14.6 million), respectively. Separately, a 10% and 20% increase on the prepayment rates would reduce the December 31, 2023 fair value of the MSR by approximately 2.81% (or $4.6 million) and 5.43% (or $8.9 million), respectively.

The above summary demonstrates the sensitivity of fair value to hypothetical changes in primary interest rates. This sensitivity analysis does not reflect the expected outcome.

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 ALCO, which is authorized by our Board of Directors, monitors our interest rate sensitivity and makes decisions relating to that process. The ALCO’s goal is to structure our asset/liability composition to maximize net interest income while managing interest rate risk so as to minimize the adverse impact of changes in interest rates on net interest income and capital in either a rising or declining interest rate environment. Profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact our earnings because the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis.

We monitor the impact of changes in interest rates on our net interest income and economic value of equity using rate shock analysis. Net interest income simulations measure the short-term earnings exposure from changes in market rates of interest in a rigorous and explicit fashion. Our current financial position is combined with assumptions regarding future business to calculate net interest income under varying hypothetical rate scenarios. EVE measures our long-term earnings exposure from changes in market rates of interest. EVE is defined as the present value of assets minus the present value of liabilities at a point in time. A decrease in EVE due to a specified rate change indicates a decline in the long-term earnings capacity of the balance sheet assuming that the rate change remains in effect over the life of the current balance sheet. For purposes of calculating EVE, a zero percent floor is assumed on discount factors.

The following analysis depicts the estimated impact on net interest income and EVE of immediate changes in interest rates at the specified levels for the periods presented:

Percentage change in:

Net interest income (1)

Change in interest rates 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 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, 2023 and 2022 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 customer deposits. Our variable-rate loan portfolio is indexed to market rates and timing of repricing of loans and deposits varies in proportion to market rate fluctuations. We actively monitor and perform stress tests on our deposit betas as part of our overall management of interest rate risk. This requires the use of various assumptions based on historical relationships of these variables in reaching any conclusion. Since these correlations are based on competitive pricing in the market, we anticipate that our future results will likely be different from the scenario results presented above and such differences could be material.

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. For more information about our derivative financial instruments, see Note 15, “Derivatives” in the notes to our consolidated financial statements.

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 79

Reports of Independent Registered Public Accounting Firm (PCAOB ID: 173) 80

Consolidated Financial Statements:

Consolidated balance sheets 82

Consolidated statements of income 83

Consolidated statements of comprehensive income 84

Consolidated statements of changes in shareholders’ equity 85

Consolidated statements of cash flows 86

Notes to consolidated financial statements 88

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, 2023. 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, 2023, 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, 2023.

The effectiveness of the Company's internal control over financial reporting as of December 31, 2023, has been audited by Crowe LLP, an independent registered public accounting firm, as stated in their report which appears herein.

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, 2023 and 2022, the related consolidated statements of income, comprehensive (loss) income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023 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, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

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

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 3 – Loans and allowance for credit losses on loans HFI, 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 held for investment on December 31, 2023 was $150.3 million. The provision for credit losses on loans held for investment for the year ended December 31, 2023 was $16.7 million.

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 qualitative adjustments to the ACL model.

/s/ Crowe LLP

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

Franklin, Tennessee

February 27, 2024

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 83,324 210,536

Interest-bearing deposits in financial institutions 581,066 556,644

Investments:

Equity securities, at fair value — 2,990

Federal Home Loan Bank stock, at cost 34,190 58,641

Less: allowance for credit losses on loans HFI 150,326 134,192

Core deposit and other intangibles, net 8,709 12,368

LIABILITIES

Deposits

SHAREHOLDERS' EQUITY

Accumulated other comprehensive loss, net (134,725) (169,433)

Total FB Financial Corporation common shareholders' equity 1,454,794 1,325,425

Noncontrolling interest 93 93

See the accompanying notes to the consolidated financial statements.

FB Financial Corporation and subsidiaries

Consolidated statements of income

(Amounts are in thousands, except per share amounts)

Years Ended December 31,

Interest income:

Interest on investment securities

Interest expense:

Provision for (reversal of) credit losses on loans HFI 16,738 10,393 (38,995)

Noninterest income:

(Loss) gain from investment securities, net (13,973) (376) 324

Noninterest expenses:

Amortization of core deposit and other intangibles 3,659 4,585 5,473

Mortgage restructuring expense — 12,458 —

Net income applicable to noncontrolling interest 16 16 16

Earnings per common share:

See the accompanying notes to the consolidated financial statements.

FB Financial Corporation and subsidiaries

Consolidated statements of comprehensive income (loss)

(Amounts are in thousands)

Years Ended December 31,

Other comprehensive income (loss), net of tax:

Comprehensive income applicable to noncontrolling interest 16 16 16

See the accompanying notes to the consolidated financial statements.

FBK US Equity

FBK · 10-K · period ended 2023-12-31

ITEM 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations

ITEM 7A — Quantitative and Qualitative Disclosures About Market Risk

ITEM 8 – Financial Statements and Supplementary Data

FBK US Equity☆

FBK · 10-K · period ended 2023-12-31

ITEM 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations

ITEM 7A — Quantitative and Qualitative Disclosures About Market Risk

ITEM 8 – Financial Statements and Supplementary Data

FBK US Equity