The governing body laid out its detailed findings in a 63-page document released on Friday morning.
The regulatory commission said Terry's explanation for using the words "f*****g black c***" towards Anton Ferdinand was not credible, and his defence was "improbable, implausible and contrived".
Terry admits using the words in question but maintains he was asking Ferdinand if he thought he had said the offensive term to him.
However, the FA report says Terry used the term as an insult, leading them to ban him for four games.
"The commission is entitled to use its collective experience of life and people to judge demeanour," the report reads.
"We have watched the film footage many times. In the critical phase, during which he uses the words, Mr Terry can be seen to be smiling initially, before his facial expression changes to disdainful and contemptuous.
"At no point is his demeanour and facial expression that of someone who is imploring, injured, or even quizzical in the face of an unfounded allegation by Mr Ferdinand that he had just been racially abusive towards him.
"Anger is a conceivable reaction to such an accusation, but at no time does Mr. Terry convey any sense of 'no, I didn't' with his facial expression, or body language.
"In the light of those findings, the commission is quite satisfied, on the balance of probabilities, that there is no credible basis for Mr Terry's defence that his use of the words were directed at Ferdinand by way of forceful rejection and/or inquiry.
"Instead, we are quite satisfied, and find on the balance of probabilities, that the offending words were said by way of insult."
The report adds: "It is not the FA's case that Mr. Terry is a racist. There is a large body of testimonial evidence, including statements from black footballers, to say that he is not."
Explaining the discrepancy between the punishments handed out to Terry and Liverpool striker Luis Suarez, who was banned for eight games, the commission explained that Terry only used the offensive term once.
Suarez was found to have used the word "negro" seven times when racially abusing Manchester United's Patrice Evra.
The report reads: "In contrast with a previous high profile FA disciplinary case involving racial abuse,Terry‟s racist insult was issued only once."
In July Terry was cleared of a racially aggravated public order offence by Westminster Magistrates' Court. Terry now has until October 18 to appeal against his FA punishment.
A Chelsea statement read: "We recognise that John has the right to appeal. In view of this it would be inappropriate for us to comment further."
Chelsea's club secretary David Barnard was also criticised in the report (see below). Chelsea said in a statement: "David co-operated fully with the FA at all times. He stands by his evidence and does not accept the criticism that has been made.
"It should also be noted that David was not given the opportunity to give oral evidence to the commission, so we feel any criticism is unjustified."
Other key findings in the Terry report:
- Mr. Laidlaw (FA counsel) described Terry's comments as “perhaps an almost unconscious stream of invective”, delivered in anger, and “without thinking through the consequences of what he was about to say.”
- The FA counsel cited Terry's dismissal for kicking Barcelona's Alexis Sanchez in the Champions League last season and subsequent denial that he intentionally hurt the player as evidence of his unreliability.
- In further evidence that was not considered by the Magistrates' Court, the commission cited a statement from Terry on October 23, in which the Chelsea captain said "I responded aggressively (to Ferdinand), saying that I never used that term.” The commission found this was inconsistent with Terry's explanation.
- The commission said it had "very real concerns" over the part played by Chelsea's club secretary David Barnard, who requested, on behalf of Ashley Cole, to amend the player's draft witness statements. The report found "Mr Barnard's recollections to be materially defective" when discussing the "evolution" of Cole's evidence.
- Barnard sent an email to the FA on November 3 requesting that the word "black" was added to Cole's draft statement. It was not mentioned in his initial interview with the FA. The interview notes and subsequent amendments were regarded as "cogent new evidence" as the Chief Magistrate was not in possession of them in the criminal case.
- The report added that "the new evidence undermines Mr. Cole's corroboration for Mr. Terry's claim that when he used the words “f*****g black c***”, he did so by way of forceful rejection/inquiry."
- The commission found "that Mr. Cole did not hear, and could not have believed, understood or misunderstood Mr. Ferdinand to have used the word 'black' or any other word beginning with the word 'B' that had any reference to, or context with, skin colour, race or ethnicity."
- In explaining the sanction of a four-game ban and £220,000 fine, the FA said an aggravating factor was "Mr. Terry's position as an international footballer of exceptional ability playing for one of the best known-teams in the world and, at the time of the offence, captain of both his club and the England national side."
- The FA stated Terry's “conduct undermines the FA’s efforts to promote inclusivity, equality and diversity and in combating racism in football."
- Another aggravating factor was that "Mr. Ferdinand makes it plain that he has been badly affected by the incident. He has been the subject of hateful abuse and adverse comments, but has acted with restraint and dignity. He had to give evidence before the Criminal Court, an experience that he did not relish, and was ready to give evidence to the Commission. It was no doubt an ordeal for him."
- A mitigating factor was that "Prior to this offence, Mr. Terry has had a 'clean' disciplinary record for at least the past five years. He has an exceptional disciplinary record for a central defender, receiving only four red cards (none for verbal abuse) during a professional career in which he has played 668 matches."
- Another mitigating factor was that "A significant number of those who are, or have been, involved in the game of professional football have provided character references for Mr. Terry. They include black players who attest to the fact that, as Chelsea club captain, he welcomes every player to the club and looks after them, irrespective of skin colour, race or ethnicity. The statement of Ryan Bertrand is perhaps the most notable."