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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Tennessee |
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(State or other jurisdiction of incorporation or organization) | 20-8839445 (I.R.S. Employer Identification No.) | ||||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Common Stock, no par value per share | FSB | New York Stock Exchange | ||||||
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
| Large accelerated filer |
| Accelerated filer |
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Non-accelerated filer |
| Smaller reporting company | ☐ | |||||||||||
Emerging growth company |
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☐
14,859,704.
The information required by Part III is incorporated by reference to portions of the definitive proxy statement to be filed within 120 days after December 31, 2018, pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with the annual meeting of stockholders to be held on May 23, 2019.
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•disruption from the proposed merger with customer, supplier, or employee relationships;
•the concentration of our loan portfolio in real estate loans and changes in the prices, values and sales volumes of commercial and residential real estate;
•the concentration of our business within our geographic areas of operation in Middle Tennessee;
•credit and lending risks associated with our commercial real estate, residential real estate, commercial and industrial, and construction and land development portfolios;
•increased competition in the banking and mortgage banking industry, nationally, regionally and locally;
•our ability to execute our business strategy to achieve profitable growth;
•the dependence of our operating model on our ability to attract and retain experienced and talented bankers in each of our markets;
•risks that our cost of funding could increase, in the event we are unable to continue to attract stable, low-cost deposits and reduce our cost of deposits;
•our ability to increase our operating efficiency;
•failure to keep pace with technological change or difficulties when implementing new technologies;
•risks related to our acquisition, disposition, growth and other strategic opportunities and initiatives;
•negative impact on our mortgage banking services, including declines in our mortgage originations or profitability due to rising interest rates and increased competition and regulation;
•our ability to attract and maintain business banking relationships with well-qualified businesses, real estate developers and investors with proven track records in our market areas;
•our ability to attract sufficient loans that meet prudent credit standards, including in our commercial and industrial and commercial real estate loan categories;
•failure to maintain adequate liquidity and regulatory capital and comply with evolving federal and state banking regulations;
•inability of our risk management framework to effectively mitigate credit risk, interest rate risk, liquidity risk, price risk, compliance risk, operational risk, strategic risk and reputational risk;
•failure to develop new, and grow our existing, streams of non-interest income;
•our ability to maintain expenses in line with our current projections;
•our dependence on our management team and our ability to motivate and retain our management team;
•risks related to any future acquisitions, including failure to realize anticipated benefits from future acquisitions;
•inability to find acquisition candidates that will be accretive to our financial condition and results of operations;
•system failures, data security breaches (including as a result of cyber-attacks), or failures to prevent breaches of our network security;
•data processing system failures and errors;
•fraudulent and negligent acts by individuals and entities that are beyond our control;
•fluctuations in our market value and its impact inon the securities held in our securities portfolio;
1
•the adequacy of our reserves (including allowance for loan losses) and the appropriateness of our methodology for calculating such reserves;
•the makeup of our asset mix and investments;
•our focus on small and mid-sized businesses;
•an inability to raise necessary capital to fund our growth strategy or operations, or to meet increased minimum regulatory capital levels;
•the sufficiency of our capital, including sources of such capital and the extent to which capital may be used or required;
•interest rate shifts and its impact on our financial condition and results of operation;
•the expenses that we incur to operate as a public company;
•the institution and outcome of litigation and other legal proceeding against us or to which we become subject;
•changes in accounting standards;
•the impact of recent and future legislative and regulatory changes;
•governmental monetary and fiscal policies;
•changes in the scope and cost of Federal Deposit Insurance Corporation, or FDIC, insurance and other coverage; and
•future equity issuances under our Amended and Restated 2017 Omnibus Equity Incentive Plan and future sales of our common stock by us or our executive officers or directors.
| ITEM 1. BUSINESS. |
3
We have expanded our footprint into Wilson County, Tennessee with opening a loan and deposit operations facility in February 2020.
fifth in that market.
4
2018.
As of December 31, 2018, the Bank had $2.7 billion in loans, including loans held for sale, assets of $4.2 billion, deposits of $3.4 billion, and equity of $372.8 million. As of June 30, 2018, the Bank was number one in deposit market share in Williamson County, and was number two in deposit market share in Rutherford County.
Legislative relief and regulatory changes implemented in mid-2018 allow for the reciprocation of local government deposits, eliminating the requirement for the Bank to pledge securities as collateral on such deposits. Therefore, the Bank accelerated the previously planned balance sheet rotation that will ultimately re-deploy $300 million from the securities portfolio into higher-yielding assets. The Bank reduced the bond portfolio by $246 million through sales and principal payments from the mortgage backed securities (MBS) portfolio, recognizing a pre-tax loss of $4.2 million. The majority of the realized loss generated by the securities sales had an immaterial impact on the Company’s capital since previous, unrealized securities losses had been accounted for through accumulated other comprehensive income (AOCI).
14, 2020.
In January 2019, the Company’s Board of Directors authorized the repurchase of up to $30 million of the Company’s common stock, which will remain in effect until January 2020. The timing and amount of additional common share repurchases will be subject to market conditions, regulatory requirements, and other considerations, as the Company deems appropriate. The Company’s repurchases may be executed using open market purchases, privately negotiated transactions, accelerated share repurchase programs or other transactions. There have been no repurchases of stock under the program.
On March 8, 2019, Richard E. Herrington retired from his position as President, Chief Executive Officer and Chairman of FFN and as the Chairman and Chief Executive Officer of the Bank. J. Myers Jones, III, Executive Vice President and Chief Credit Officer of the Bank, has been appointed to serve as interim Chief Executive Officer of the Company while the Board conducts a search for the Company’s next Chief Executive Officer, and Lee Moss, President of the Bank, has been appointed to serve as interim President of FFN. The Board has an active search process underway to select the next chief executive officer from internal and external candidates. On March 8, 2019, weFB Financial (“Merger Sub”), entered into an Executive Transition Agreement with Mr. Herrington,and Plan of Merger (the “Merger Agreement”) pursuant to which, Mr. Herrington has agreedon the terms and subject to remain an employeethe conditions set forth therein, Merger Sub will merge with and into FFN, with FFN continuing as the surviving corporation (the “Merger”). Immediately following the Merger, FFN will merge with and into FB Financial, with FB Financial continuing as the surviving corporation (the “Upstream Merger”). Immediately following the Upstream Merger, FSB will merge with and into FirstBank, a Tennessee state-chartered bank and a wholly owned subsidiary of FB Financial (“FirstBank”), with FirstBank continuing as the surviving bank (the “Bank Merger,” and, together with the Merger and the Upstream Merger, the “Mergers”).
5
FACTORS—Competition For Deposits And Loans Is Intense, and No Assurance Can Be Given That We Will Be Successful in Our Efforts to Compete with Other Financial Institutions.”
6
7
a final ruling by the courts. Failure of the Attorney General to challenge an acquisition does not, however, exempt the holding company from complying with both state and federal antitrust laws after the acquisition is consummated or immunize the acquisition from future challenge under the anti-monopolization provisions of the Sherman Act.
8
ramp”“off-ramp” exempting certain banking organizations with less than $10 billion in consolidated assets and a low-risk profile from generally applicable leverage capital and risk-based capital requirements if such banking organization maintained a leverage ratio to be set by the federal banking regulators (the “Community Bank Leverage Ratio”). The EGRRCPA requires the federal banking regulators to set the Community Bank Leverage Ratio between 8% and 10%. On November 21, 2018,October 29, 2019, the federal banking regulators proposedadopted a rule to implement Section 201 of the EGRRCPA. The proposed rule would setsets the Community Bank Leverage Ratio at 9%. To date, the proposedThe rule implementing Section 201 of the EGRRCPA has not been finalized.
regarding community bank leverage ratios became effective for us January 1, 2020.
9
10
•Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminate the ceiling and increase the size of the floor of the DIF, and offset the impact of the increase in the minimum floor on institutions with less than $10 billion in assets.
•Make permanent the $250,000 limit for federal deposit insurance.
•Repeal the federal prohibition on payment of interest on demand deposits, thereby permitting depositing institutions to pay interest on business transaction and other accounts.
•Centralize responsibility for consumer financial protection by creating the Consumer Financial Protection Bureau (the “CFPB”), responsible for implementing federal consumer protection laws, although banks below $10 billion in assets will continue to be examined and supervised for compliance with these laws by their federal bank regulator.
•Restrict the preemption of state law by federal law and disallow national bank subsidiaries from availing themselves of such preemption.
•Impose new requirements for mortgage lending, including new minimum underwriting standards, prohibitions on certain yield-spread compensation to mortgage originators, special consumer protections for mortgage loans that do not meet certain provision qualifications, prohibitions and limitations on certain mortgage terms and various new mandated disclosures to mortgage borrowers.
•Apply the same leverage and risk based capital requirements that apply to insured depository institutions to holding companies.
•Permit national and state banks to establish de novo interstate branches at any location where a bank based in that state could establish a branch, and require that bank holding companies and banks be well-capitalized and well managed in order to acquire banks located outside their home state.
•Impose new limits on affiliated transactions and cause derivative transactions to be subject to lending limits.
•Implement corporate governance revisions, including with regard to executive compensation and proxy access to shareholders that apply to all public companies not just financial institutions.
11
•The Federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
•The Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;
•The Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;
•The Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;
•The Fair Debt Collection Practices Act, governing the manner in which consumer debts may be collected by collection agencies; and
•The rules and regulations of the various governmental agencies charged with the responsibility of implementing these federal laws.
12
future legislative and regulatory changes affecting financial institutions and the resulting impact on those institutions is very unpredictable at this time. Bills are currently pending which may have the effect of changing the way the Bank conducts its business.
2020.
| ITEM 1A. RISK FACTORS. |
13
14
demand for loans could be adversely affected. Out-of-market and brokered deposits and other secondary sources may not be sufficient to meet our liquidity needs.
Our Company has grown quickly. Furthermore,
15
flows.
16
period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income. Furthermore, an increase in interest rates may negatively affect the market value of securities in our investment portfolio. A reduction in the market value of our portfolio will increase the unrealized loss position of our available-for-sale investments. Any of these events could materially adversely affect our results of operations or financial condition
condition.
17
a gain. In fact, as rates rise, we expect increasing industry-wide competitive pressures related to changing market conditions to reduce our pricing margins and mortgage revenues generally. If our level of mortgage production declines, our continued profitability will depend upon our ability to reduce our costs commensurate with the reduction of revenue from our mortgage operations. If we are unable to do so, our continued profitability may be materially and adversely affected.
18
values of such mortgaged properties. In the event of such a deterioration, the Bank may be forced to write down the value of the loans, which could have a negative effect on the Bank’s capital ratios and earnings. A sustained period of increased payment delinquencies, foreclosures, or losses caused by adverse market or economic conditions in the state of Tennessee, or more specifically the Bank’s market area in Williamson County, Rutherford County and Davidson County in Middle Tennessee, could adversely affect the value of our assets, revenues, results of operations, and financial condition.
Our Financial Condition and Results of Operations Could be Affected if Long-Term Business Strategies Are Not Effectively Executed
Although the Bank’s primary focus in the near term will be organically growing its balance sheet, over the longer term, management may pursue a growth strategy for the Bank’s business through de novo branching. The Bank’s prospects must be considered in light of the risks, expenses, and difficulties occasionally encountered by financial services companies in growth stages, which may include the following:
Operating Results: There is no assurance that existing offices or future offices will maintain or achieve deposit levels, loan balances, or other operating results necessary to avoid losses or produce profits. The Bank’s growth strategy necessarily entails growth in overhead expenses as it routinely adds new offices and staff. Historical results may not be indicative of future results or results that may be achieved as the Bank continues to increase the number and concentration of the Bank’s branch offices.
19
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Regulatory and Economic Factors: Growth and expansion plans may be adversely affected by a number of regulatory and economic developments or other events. Failure to obtain required regulatory approvals, changes in laws and regulations, or other regulatory developments and changes in prevailing economic conditions or other unanticipated events may prevent or adversely affect continued growth and expansion. Failure to successfully address the issues identified above could have a material adverse effect on the Bank’s business, future prospects, financial condition, or results of operations, and could adversely affect the Bank’s ability to successfully implement its longer term business strategy.
The Accuracy of Our Financial Statements and Related Disclosures Could be Affected if the Judgments, Assumptions or Estimates Used in Our Critical Accounting Policies are Inaccurate
20
companies, our independent registered public accounting firm will beis required to report on the effectiveness of our internal control over financial reporting, beginning as ofwith this Annual Report on Form 10-K for the first annual report after ceasingyear ended December 31, 2019, which is when we ceased to be an emerging growth company.
If
human error or malicious internal actors, of our workforce or our vendors’ personnel.
21
own confidential information, and in some instances may impose indemnity obligations on us relating to unlawful or unauthorized disclosure of any such information.
Recently passed legislation
compliance, and increase the risk of regulatory enforcement and private litigation with respect to our privacy and security practices.
•general or local economic conditions;
•environmental cleanup liability;
22
•interest rates;
•real estate tax rates;
•operating expenses of the mortgaged properties;
•supply of and demand for rental units or properties;
•ability to obtain and maintain adequate occupancy of the properties;
•zoning laws;
•governmental rules, regulations and fiscal policies; and
•tornadoes, floods or other natural or man-made disasters and hazard losses.
We May Be Subject to Claims and Litigation Asserting Lender Liability
From time to time, and particularly during periods of economic stress, customers, including real estate developers and consumer borrowers, may make claims or otherwise take legal action pertaining to performance of our responsibilities. These claims are often referred to as “lender liability” claims and are sometimes brought in an effort to produce or increase leverage against us in workout negotiations or debt collection proceedings. Lender liability claims frequently assert one or more of the following allegations: breach of fiduciary duties, fraud, economic duress, breach of contract, breach of the implied covenant of good faith and fair dealing, and similar claims. Whether customer claims and legal action related to the performance of our responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a favorable manner, they may result in significant financial liability and/or adversely affect our market reputation, products, and services, as well as potentially affecting customer demand for those products and services. Any financial liability or reputation damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition, results of operation, and liquidity.
23
If We Do Not Successfully Manage the Transition Associated with the Retirement of Our Former Chief Executive Officer and the Appointment of a New Chief Executive Officer, It Could Be Viewed Negatively by Our Customers and Shareholders and Could Have an Adverse Impact on Our Business
On March 8, 2019, Richard E. Herrington retired from his position as President, Chief Executive Officer and Chairman of the Company and as the Chairman and Chief Executive Officer of the Bank. J. Myers Jones, III, Executive Vice President and Chief Credit Officer of the Bank, has been appointed to serve as interim Chief Executive Officer of the Company while the Board conducts a search for the Company’s next Chief Executive Officer, and Lee Moss, President of the Bank, has been appointed to serve as interim President of the Company. The Board has an active search process underway to select the next chief executive officer from internal and external candidates. Such leadership transitions can be inherently difficult to manage, and an inadequate transition of our chief executive officer may cause disruption to our business, including to our relationships with customers, vendors and employees. In addition, if we are unable to attract and retain a qualified candidate to become our permanent chief executive officer in a timely manner, our ability to meet our financial and operational goals and strategic plans may be adversely impacted, as well as our financial performance. It may also make it more difficult to retain and hire key employees.
Our ability to realize the anticipated benefits of any acquisition of other financial institutions, bank branches and/or mortgage operations in target markets will depend, to a large extent, on our ability to successfully integrate the acquired businesses. Such an acquisition strategy will involve significant risks, including the following:
•finding suitable markets for expansion;
•finding suitable candidates for acquisition;
•finding suitable financing sources to fund acquisitions;
•attracting and retaining qualified management;
•maintaining adequate regulatory capital;
•obtaining federal and state regulatory approvals; and
•closing on suitable acquisitions on terms that are favorable to us.
•The effect of the acquisition on competition;
•The financial condition, liquidity, results of operations, capital levels and future prospects of the applicant and the bank(s) involved;
•The quantity and complexity of previously consummated acquisitions;
•The managerial resources of the applicant and the bank(s) involved;
•The convenience and needs of the community, including the record of performance under the CRA;
•The effectiveness of the applicant in combating money-laundering activities;
•The applicant’s regulatory compliance record; and
•The extent to which the acquisition would result in greater or more concentrated risk to the stability of the United States banking or financial system.
acquisition.
25
business and financial results of all commercial banks and bank holding companies, the cost of compliance could adversely affect our ability to operate profitably. Non-banking financial institutions, such as securities brokerage firms, insurance companies, and money market funds now offer services, which compete directly with services offered by banks. See “BUSINESS—Supervision and Regulation.”
26
government to finance the government debt may also cause fluctuations in interest rates and have similar effects on the operating results of such institutions. See “BUSINESS—Supervision and Regulation.”
27
Justice, federal banking agencies and other Federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s compliance with fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions, restrictions on dividends, and restrictions on expansion and new lines of business. Private parties may also have the ability to challenge an institution’s performance under fair lending lawnslaws in private class action litigation. Such actions could have a material adverse effect on our assets, business, cash flow, condition (financial or otherwise), liquidity, prospects, reputation or results of operation.
28
Assets Control. If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have an adverse effect on our business, financial condition and results of operations.
On July 27,
Weoperations of FB Financial and FFN and could prevent or delay the consummation of the merger.
On December 22, 2017,as of September 30, 2019 on a pro forma basis giving effect to the Tax Cutsmerger, the combined company will have approximately $10 billion in total consolidated assets. Accordingly, the combined company will become subject to certain regulations that apply only to depository institution holding companies or depository institutions with total consolidated assets of $10 billion or more.
any particular shareholder will depend on that shareholder’s individual situation.
We strongly urge you to consult your own tax advisor to determine the particular tax consequences of the merger to you.29
ceases coverage of the Company, or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.
•our quarterly or annual earnings, or those of other companies in our industry;
•actual or anticipated fluctuations in our operating results, financial condition or asset quality;
•changes in economic or business conditions;
•the public reaction to our press releases, other public announcements or statements and our filings with the SEC;
•perceptions in the market place involving our competitors and/or us;
•changes in business, legal or regulatory conditions, or other developments affecting participants in our industry, and publicity regarding our business or any of our significant customers or competitors;
•changes in governmental monetary policies, including the policies of the Federal Reserve;
•regulatory actions that impact us, including actions taken by the Federal Reserve and the TDFI;
•changes in financial estimates and recommendations by securities analysts following our stock, or the failure of securities analysts to cover or continue to cover our common stock;
•changes in earnings estimates by securities analysts or our performance as compared to those estimates;
•significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving our competitors or us;
•the trading volume of our common stock;
•future sales of our common stock;
our treatment as an “emerging growth company” under federal securities laws;
•additions or departures of key personnel;
•changes in accounting standards, policies, guidance, interpretations or principles;
•failure to integrate acquisitions or realize anticipated benefits from our acquisitions;
•rapidly changing technology; and
•other news, announcements or disclosures (whether by us or others) related to us, our competitors, our core market or the bank and non-bank financial services industries.
30
directors and consultants in order to advance the interests of the Company and its subsidiaries. The award of any such incentives could result in an immediate and potentially substantial dilution to our existing shareholders and could result in a decline in the value of our stock price. The exercise of these options and the sale of the underlying shares of common stock and the sale of common stock issued pursuant to restricted share awards may have an adverse effect upon the price of our common stock.
We Are an Emerging Growth Company and We Cannot Be Certain if the Reduced Disclosure Requirements Applicable to Emerging Growth Companies Will Make Our Common Stock Less Attractive to Investors
We are an emerging growth company. For as long as we continue to be an emerging growth company, among other things, we may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and
31
proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, even if we comply with the greater obligations of public companies that are not emerging growth companies, we may avail ourselves of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as we are an emerging growth company. We became an emerging growth company effective and approved by the SEC on May 14, 2014, and will retain the emerging growth company status until the end of the fiscal year ending December 31, 2019 and all subsequent filings. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
| ITEM 1B. UNRESOLVED STAFF COMMENTS. |
| ITEM 2. PROPERTIES. |
32
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Neither we nor
|
33
|
|
| Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as part of Publicly Announced Plans or Programs (1) | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands) | ||||||||||||||||||||||
| October 1, 2019 to October 31, 2019 | 200 | $ | 29.01 | 200 | 23,488 | |||||||||||||||||||||
| November 1, 2019 to November 30, 2019 | 0 | 0 | 0 | 23,488 | ||||||||||||||||||||||
| December 1, 2019 to December 31, 2019 | 0 | 0 | 0 | 23,488 | ||||||||||||||||||||||
The repurchase program expired on January 23, 2020, and no additional shares were purchased after December 31, 2019.
Recent Sales of Unregistered Securities
There were Therefore, while we currently expect to continue to pay dividends, there can be no unregistered sales of our equity securities during the year ended December 31, 2018.
assurance that we will be able to do so.
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| Year ended December 31, |
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|
| 2018 |
|
| 2017 |
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| 2016 |
|
| 2015 |
|
| 2014 |
| |||||
SUMMARY OF OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
| $ | 169,945 |
|
| $ | 132,453 |
|
| $ | 99,907 |
|
| $ | 68,721 |
|
| $ | 43,432 |
|
Total interest expense |
|
| 64,442 |
|
|
| 35,407 |
|
|
| 18,323 |
|
|
| 9,306 |
|
|
| 5,739 |
|
Net interest income |
|
| 105,503 |
|
|
| 97,046 |
|
|
| 81,584 |
|
|
| 59,415 |
|
|
| 37,693 |
|
Provision for loan losses |
|
| 2,254 |
|
|
| 4,313 |
|
|
| 5,240 |
|
|
| 5,030 |
|
|
| 2,374 |
|
Net interest income after provision for loan losses |
|
| 103,249 |
|
|
| 92,733 |
|
|
| 76,344 |
|
|
| 54,385 |
|
|
| 35,319 |
|
Non-interest income |
|
| 10,662 |
|
|
| 14,721 |
|
|
| 15,140 |
|
|
| 12,830 |
|
|
| 10,051 |
|
Non-interest expense |
|
| 73,478 |
|
|
| 60,824 |
|
|
| 51,681 |
|
|
| 42,114 |
|
|
| 31,822 |
|
Income before income taxes |
|
| 40,433 |
|
|
| 46,630 |
|
|
| 39,803 |
|
|
| 25,101 |
|
|
| 13,548 |
|
Income tax expense |
|
| 5,912 |
|
|
| 18,531 |
|
|
| 11,746 |
|
|
| 9,021 |
|
|
| 5,134 |
|
Net income |
|
| 34,521 |
|
|
| 28,099 |
|
|
| 28,057 |
|
|
| 16,080 |
|
|
| 8,414 |
|
Preferred stock dividend requirement |
|
| — |
|
|
| — |
|
|
| (23 | ) |
|
| (100 | ) |
|
| (100 | ) |
Earnings attributable to noncontrolling interest |
|
| (16 | ) |
|
| (16 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Net income available to common shareholders |
| $ | 34,505 |
|
| $ | 28,083 |
|
| $ | 28,034 |
|
| $ | 15,980 |
|
| $ | 8,314 |
|
PER COMMON SHARE DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 2.44 |
|
| $ | 2.14 |
|
| $ | 2.56 |
|
| $ | 1.62 |
|
| $ | 1.32 |
|
Diluted earnings per share |
| $ | 2.34 |
|
| $ | 2.04 |
|
| $ | 2.42 |
|
| $ | 1.54 |
|
| $ | 1.27 |
|
Common equity per common share outstanding |
| $ | 25.65 |
|
| $ | 23.01 |
|
| $ | 20.73 |
|
| $ | 16.92 |
|
| $ | 14.41 |
|
Dividends per common share |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Preferred shares outstanding |
|
| — |
|
|
| — |
|
|
| - |
|
|
| 10 |
|
|
| 10 |
|
Actual common shares outstanding |
|
| 14,538 |
|
|
| 13,237 |
|
|
| 13,037 |
|
|
| 10,571 |
|
|
| 7,756 |
|
Weighted average common shares outstanding, including participating securities |
|
| 14,169 |
|
|
| 13,145 |
|
|
| 10,933 |
|
|
| 9,885 |
|
|
| 6,320 |
|
Diluted weighted average common shares outstanding, including participating securities |
|
| 14,710 |
|
|
| 13,780 |
|
|
| 11,608 |
|
|
| 10,390 |
|
|
| 6,557 |
|
BALANCE SHEET DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
| $ | 4,249,439 |
|
| $ | 3,843,526 |
|
| $ | 2,943,189 |
|
| $ | 2,167,792 |
|
| $ | 1,355,827 |
|
Loans held for sale |
|
| 11,103 |
|
|
| 12,024 |
|
|
| 23,699 |
|
|
| 14,079 |
|
|
| 18,462 |
|
Loans, net of unearned income |
|
| 2,665,399 |
|
|
| 2,256,608 |
|
|
| 1,773,592 |
|
|
| 1,303,826 |
|
|
| 787,188 |
|
Allowance for loan losses |
|
| 23,451 |
|
|
| 21,247 |
|
|
| 16,553 |
|
|
| 11,587 |
|
|
| 6,680 |
|
Total securities |
|
| 1,152,285 |
|
|
| 1,214,737 |
|
|
| 983,649 |
|
|
| 734,038 |
|
|
| 449,037 |
|
Total deposits |
|
| 3,431,807 |
|
|
| 3,167,228 |
|
|
| 2,391,818 |
|
|
| 1,814,039 |
|
|
| 1,172,233 |
|
Federal Home Loan Bank advances |
|
| 368,500 |
|
|
| 272,000 |
|
|
| 132,000 |
|
|
| 57,000 |
|
|
| 19,000 |
|
Other borrowed funds |
|
| 58,693 |
|
|
| 89,519 |
|
|
| 141,638 |
|
|
| 101,086 |
|
|
| 39,078 |
|
Preferred shareholders’ equity |
|
| — |
|
|
| — |
|
|
| - |
|
|
| 10,000 |
|
|
| 10,000 |
|
Common equity |
|
| 372,740 |
|
|
| 304,550 |
|
|
| 270,258 |
|
|
| 178,816 |
|
|
| 111,799 |
|
Total shareholders’ equity |
|
| 372,740 |
|
|
| 304,550 |
|
|
| 270,258 |
|
|
| 188,816 |
|
|
| 121,799 |
|
Noncontrolling interest in consolidated subsidiary |
|
| 93 |
|
|
| 103 |
|
|
| 103 |
|
|
| — |
|
|
| — |
|
Total equity |
|
| 372,833 |
|
|
| 304,653 |
|
|
| 270,361 |
|
|
| 188,816 |
|
|
| 121,799 |
|
Average total assets |
|
| 4,112,436 |
|
|
| 3,445,654 |
|
|
| 2,557,268 |
|
|
| 1,750,697 |
|
|
| 1,049,689 |
|
Average loans(1) |
|
| 2,482,353 |
|
|
| 2,031,883 |
|
|
| 1,554,482 |
|
|
| 1,009,130 |
|
|
| 609,714 |
|
Average interest-earning assets |
|
| 3,995,592 |
|
|
| 3,361,320 |
|
|
| 2,496,361 |
|
|
| 1,685,073 |
|
|
| 1,008,156 |
|
Average deposits |
|
| 3,343,732 |
|
|
| 2,787,656 |
|
|
| 2,153,712 |
|
|
| 1,478,801 |
|
|
| 896,674 |
|
Average interest-bearing deposits |
|
| 3,046,506 |
|
|
| 2,535,380 |
|
|
| 1,942,932 |
|
|
| 1,314,517 |
|
|
| 796,569 |
|
Average interest-bearing liabilities |
|
| 3,465,110 |
|
|
| 2,891,943 |
|
|
| 2,125,986 |
|
|
| 1,409,753 |
|
|
| 848,993 |
|
Average total shareholders’ equity |
|
| 337,378 |
|
|
| 290,436 |
|
|
| 207,763 |
|
|
| 168,933 |
|
|
| 97,567 |
|
SELECTED FINANCIAL RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
| 0.84 | % |
|
| 0.82 | % |
|
| 1.10 | % |
|
| 0.92 | % |
|
| 0.80 | % |
Return on average equity |
|
| 10.23 | % |
|
| 9.67 | % |
|
| 13.50 | % |
|
| 9.52 | % |
|
| 8.62 | % |
Average equity to average total assets |
|
| 8.20 | % |
|
| 8.43 | % |
|
| 8.12 | % |
|
| 9.65 | % |
|
| 9.29 | % |
Dividend payout |
|
| — | % |
|
| — | % |
|
| — | % |
|
| — | % |
|
| — | % |
Efficiency ratio(2) |
|
| 63.25 | % |
|
| 54.42 | % |
|
| 53.43 | % |
|
| 58.29 | % |
|
| 66.65 | % |
Net interest margin(3)(5) |
|
| 2.71 | % |
|
| 3.06 | % |
|
| 3.42 | % |
|
| 3.62 | % |
|
| 3.74 | % |
Net interest spread(4)(5) |
|
| 2.46 | % |
|
| 2.89 | % |
|
| 3.29 | % |
|
| 3.51 | % |
|
| 3.63 | % |
CAPITAL RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity Tier 1 ratio |
|
| 12.18 | % |
|
| 11.37 | % |
|
| 11.75 | % |
|
| 10.08 | % |
| N/A |
| |
Tier 1 leverage ratio |
|
| 8.76 | % |
|
| 8.25 | % |
|
| 9.28 | % |
|
| 8.48 | % |
|
| 8.57 | % |
Tier 1 risk-based capital |
|
| 12.18 | % |
|
| 11.37 | % |
|
| 11.75 | % |
|
| 10.51 | % |
|
| 11.58 | % |
Total risk-based capital |
|
| 14.91 | % |
|
| 14.40 | % |
|
| 15.09 | % |
|
| 11.21 | % |
|
| 12.30 | % |
ASSET QUALITY RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) to average loans |
|
| 0.00 | % |
|
| (0.02 | )% |
|
| 0.02 | % |
|
| 0.01 | % |
|
| 0.10 | % |
Allowance to period end loans(6) |
|
| 0.88 | % |
|
| 0.94 | % |
|
| 0.93 | % |
|
| 0.89 | % |
|
| 0.85 | % |
Allowance for loan losses to non-performing loans |
|
| 411.71 | % |
|
| 698.45 | % |
|
| 267.76 | % |
|
| 352.62 | % |
|
| 580.36 | % |
Non-performing assets to total assets |
|
| 0.13 | % |
|
| 0.12 | % |
|
| 0.21 | % |
|
| 0.16 | % |
|
| 0.14 | % |
OTHER DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking locations |
|
| 15 |
|
|
| 13 |
|
|
| 12 |
|
|
| 11 |
|
|
| 11 |
|
Full-time equivalent employees |
|
| 338 |
|
|
| 284 |
|
|
| 268 |
|
|
| 225 |
|
|
| 216 |
|
| Year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF OPERATIONS: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total interest income | $ | 184,692 | $ | 169,945 | $ | 132,453 | $ | 99,907 | $ | 68,721 | |||||||||||||||||||||||||||||||||||||||||||
| Total interest expense | 73,532 | 64,442 | 35,407 | 18,323 | 9,306 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | 111,160 | 105,503 | 97,046 | 81,584 | 59,415 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for loan losses | 32,047 | 2,254 | 4,313 | 5,240 | 5,030 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income after provision for loan losses | 79,113 | 103,249 | 92,733 | 76,344 | 54,385 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Non-interest income | 17,775 | 10,662 | 14,721 | 15,140 | 12,830 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Non-interest expense | 81,879 | 73,478 | 60,824 | 51,681 | 42,114 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 15,009 | 40,433 | 46,630 | 39,803 | 25,101 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | 187 | 5,912 | 18,531 | 11,746 | 9,021 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 14,822 | 34,521 | 28,099 | 28,057 | 16,080 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividend requirement | — | — | — | (23) | (100) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings attributable to noncontrolling interest | (16) | (16) | (16) | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income available to common shareholders | $ | 14,806 | $ | 34,505 | $ | 28,083 | $ | 28,034 | $ | 15,980 | |||||||||||||||||||||||||||||||||||||||||||
| PER COMMON SHARE DATA: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic earnings per share | $ | 1.01 | $ | 2.44 | $ | 2.14 | $ | 2.56 | $ | 1.62 | |||||||||||||||||||||||||||||||||||||||||||
| Diluted earnings per share | $ | 0.98 | $ | 2.34 | $ | 2.04 | $ | 2.42 | $ | 1.54 | |||||||||||||||||||||||||||||||||||||||||||
| Common equity per common share outstanding | $ | 27.68 | $ | 25.65 | $ | 23.01 | $ | 20.73 | $ | 16.92 | |||||||||||||||||||||||||||||||||||||||||||
| Dividends per common share | $ | 0.18 | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||||||
| Preferred shares outstanding | — | — | — | — | 10 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Actual common shares outstanding | 14,822 | 14,538 | 13,237 | 13,037 | 10,571 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average common shares outstanding, including participating securities | 14,633 | 14,169 | 13,145 | 10,933 | 9,885 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
|
36
|
|
|
|
| Diluted weighted average common shares outstanding, including participating securities | 14,962 | 14,710 | 13,780 | 11,608 | 10,390 | ||||||||||||||||||||||||
| BALANCE SHEET DATA: | |||||||||||||||||||||||||||||
| Assets | $ | 3,896,162 | $ | 4,249,439 | $ | 3,843,526 | $ | 2,943,189 | $ | 2,167,792 | |||||||||||||||||||
| Loans held for sale | 43,162 | 11,103 | 12,024 | 23,699 | 14,079 | ||||||||||||||||||||||||
| Loans, net of unearned income | 2,812,444 | 2,665,399 | 2,256,608 | 1,773,592 | 1,303,826 | ||||||||||||||||||||||||
| Allowance for loan losses | 45,436 | 23,451 | 21,247 | 16,553 | 11,587 | ||||||||||||||||||||||||
| Total securities | 652,132 | 1,152,285 | 1,214,737 | 983,649 | 734,038 | ||||||||||||||||||||||||
| Total deposits | 3,207,584 | 3,431,807 | 3,167,228 | 2,391,818 | 1,814,039 | ||||||||||||||||||||||||
| Federal Home Loan Bank advances | 155,000 | 368,500 | 272,000 | 132,000 | 57,000 | ||||||||||||||||||||||||
| Other borrowed funds | 58,872 | 58,693 | 89,519 | 141,638 | 101,086 | ||||||||||||||||||||||||
| Preferred shareholders’ equity | — | — | — | — | 10,000 | ||||||||||||||||||||||||
| Common equity | 410,333 | 372,740 | 304,550 | 270,258 | 178,816 | ||||||||||||||||||||||||
| Total shareholders’ equity | 410,333 | 372,740 | 304,550 | 270,258 | 188,816 | ||||||||||||||||||||||||
| Noncontrolling interest in consolidated subsidiary | 93 | 93 | 103 | 103 | — | ||||||||||||||||||||||||
| Total equity | 410,426 | 372,833 | 304,653 | 270,361 | 188,816 | ||||||||||||||||||||||||
| Average total assets | 4,031,993 | 4,112,436 | 3,445,654 | 2,557,268 | 1,750,697 | ||||||||||||||||||||||||
Average gross loans(1) | 2,836,068 | 2,480,025 | 2,022,052 | 1,574,387 | 997,873 | ||||||||||||||||||||||||
| Average interest-earning assets | 3,867,484 | 3,995,592 | 3,361,320 | 2,496,361 | 1,685,073 | ||||||||||||||||||||||||
| Average deposits | 3,181,665 | 3,343,732 | 2,787,656 | 2,153,712 | 1,478,801 | ||||||||||||||||||||||||
| Average interest-bearing deposits | 2,864,326 | 3,046,506 | 2,535,380 | 1,942,932 | 1,314,517 | ||||||||||||||||||||||||
| Average interest-bearing liabilities | 3,255,747 | 3,465,110 | 2,891,943 | 2,125,986 | 1,409,753 | ||||||||||||||||||||||||
| Average total shareholders’ equity | 394,860 | 337,378 | 290,436 | 207,763 | 168,933 | ||||||||||||||||||||||||
| SELECTED FINANCIAL RATIOS: | |||||||||||||||||||||||||||||
| Return on average assets | 0.37 | % | 0.84 | % | 0.82 | % | 1.10 | % | 0.92 | % | |||||||||||||||||||
| Return on average equity | 3.8 | % | 10.2 | % | 9.7 | % | 13.5 | % | 9.5 | % | |||||||||||||||||||
| Average equity to average total assets | 9.8 | % | 8.2 | % | 8.4 | % | 8.1 | % | 9.7 | % | |||||||||||||||||||
| Dividend payout | 17.8 | % | — | % | — | % | — | % | — | % | |||||||||||||||||||
Efficiency ratio(2) | 63.5 | % | 63.3 | % | 54.4 | % | 53.4 | % | 58.3 | % | |||||||||||||||||||
Net interest margin(3)(5) | 2.93 | % | 2.71 | % | 3.06 | % | 3.42 | % | 3.62 | % | |||||||||||||||||||
Net interest spread(4)(5) | 2.57 | % | 2.46 | % | 2.89 | % | 3.29 | % | 3.51 | % | |||||||||||||||||||
| CAPITAL RATIOS: | |||||||||||||||||||||||||||||
| Common equity Tier 1 ratio | 11.9 | % | 12.2 | % | 11.4 | % | 11.8 | % | 10.1 | % | |||||||||||||||||||
| Tier 1 leverage ratio | 10.3 | % | 8.8 | % | 8.3 | % | 9.3 | % | 8.5 | % | |||||||||||||||||||
| Tier 1 risk-based capital | 11.9 | % | 12.2 | % | 11.4 | % | 11.8 | % | 10.5 | % | |||||||||||||||||||
| Total risk-based capital | 15.0 | % | 14.9 | % | 14.4 | % | 15.1 | % | 11.2 | % | |||||||||||||||||||
| ASSET QUALITY RATIOS: | |||||||||||||||||||||||||||||
| Net charge-offs (recoveries) to average loans | 0.35 | % | — | % | (0.02) | % | 0.02 | % | 0.01 | % | |||||||||||||||||||
Allowance to period end loans(6) | 1.61 | % | 0.88 | % | 0.94 | % | 0.93 | % | 0.89 | % | |||||||||||||||||||
| Allowance for loan losses to non-performing loans | 164.09 | % | 411.71 | % | 698.45 | % | 267.76 | % | 352.62 | % | |||||||||||||||||||
Nonperforming assets to total assets(7) | 0.71 | % | 0.13 | % | 0.12 | % | 0.21 | % | 0.16 | % | |||||||||||||||||||
| OTHER DATA: | |||||||||||||||||||||||||||||
| Banking locations | 15 | 15 | 13 | 12 | 11 | ||||||||||||||||||||||||
| Full-time equivalent employees | 339 | 338 | 284 | 268 | 225 | ||||||||||||||||||||||||
|
|
|
|
|
|
37
|
|
38
selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.
and an increase of $634,272, or 18.9%, respectively, primarily due to significant growth in loans.
Interest-earning assets averaged $3,995,592, $3,361,320, and $2,496,361 during the years ended December 31, 2018, 2017 and 2016, which are increases of $634,272, or 18.9%, and $864,959, or 34.6%, respectively, primarily due to significant growth in loans and investment securities.
For the years ended December 31, 2018 and 2017, average loans increased 22.2% and 30.7%, respectively, and investment securities increased 9.9% and 38.9%, respectively. The yield on average interest-earning assets increased 21 basis points to 4.32% during the year ended December 31, 2018, and decreased 4 basis points to 4.11% during the year ended December 31, 2017, compared to 4.15% for the year ended December 31, 2016. The yield on average loans increased 37 basis points during the year ended December 31, 2018 and decreased 9 basis points during the year ended December 31, 2017.
our continued balance sheet rotation strategy.
For the years ended December 31, 2018, 2017 and 2016, the yield on held to maturity (HTM) securities was 3.69%, 4.17% and 3.90%, respectively. The decrease in yield in 20182019 is primarily due to a lower tax-equivalent yieldthe strategically-planned balance sheet rotation focused on tax exempt bonds due to a lower tax rate due to the Tax Act., and additionally, the company transferred 40 bonds from the HTM intention to the AFS intention during the fourth quarter. The increase in yields in 2017 and in 2016 was attributable to the increased volume of tax-exempt municipal securities purchased over the two-year period, generating significant tax-exempt income, combined with the slowing of prepayment amortization for the MBS portfolio.
39
Growth
costs.
2017:
|
| Year Ended December 31, |
| |||||||||||||||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||||||||||||||||||||||||||
|
| Average Balance |
|
| Interest Inc/Exp |
|
| Average Yield/Rate |
|
| Average Balance |
|
| Interest Inc/Exp |
|
| Average Yield/Rate |
|
| Average Balance |
|
| Interest Inc/Exp |
|
| Average Yield/Rate |
| |||||||||
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST-EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(1)(6) |
| $ | 2,482,353 |
|
| $ | 131,939 |
|
|
| 5.32 | % |
| $ | 2,031,883 |
|
| $ | 100,568 |
|
|
| 4.95 | % |
| $ | 1,554,482 |
|
| $ | 78,329 |
|
|
| 5.04 | % |
Securities available for sale(6) |
|
| 1,130,774 |
|
|
| 29,226 |
|
|
| 2.58 |
|
|
| 987,196 |
|
|
| 26,182 |
|
|
| 2.65 |
|
|
| 666,745 |
|
|
| 16,593 |
|
|
| 2.49 |
|
Securities held to maturity(6) |
|
| 198,147 |
|
|
| 7,303 |
|
|
| 3.69 |
|
|
| 222,222 |
|
|
| 9,267 |
|
|
| 4.17 |
|
|
| 203,884 |
|
|
| 7,943 |
|
|
| 3.90 |
|
Restricted equity securities |
|
| 20,549 |
|
|
| 1,250 |
|
|
| 6.08 |
|
|
| 16,498 |
|
|
| 928 |
|
|
| 5.62 |
|
|
| 9,904 |
|
|
| 500 |
|
|
| 5.05 |
|
Certificates of deposit at other financial institutions |
|
| 3,128 |
|
|
| 62 |
|
|
| 1.98 |
|
|
| 2,229 |
|
|
| 33 |
|
|
| 1.48 |
|
|
| 827 |
|
|
| 15 |
|
|
| 1.81 |
|
Federal funds sold and other(2) |
|
| 160,641 |
|
|
| 2,862 |
|
|
| 1.78 |
|
|
| 101,292 |
|
|
| 1,120 |
|
|
| 1.11 |
|
|
| 60,519 |
|
|
| 241 |
|
|
| 0.40 |
|
TOTAL INTEREST EARNING ASSETS |
| $ | 3,995,592 |
|
| $ | 172,642 |
|
|
| 4.32 | % |
| $ | 3,361,320 |
|
| $ | 138,098 |
|
|
| 4.11 | % |
| $ | 2,496,361 |
|
| $ | 103,621 |
|
|
| 4.15 | % |
Allowance for loan losses |
|
| (22,596 | ) |
|
|
|
|
|
|
|
|
|
| (18,729 | ) |
|
|
|
|
|
|
|
|
|
| (13,923 | ) |
|
|
|
|
|
|
|
|
All other assets |
|
| 139,440 |
|
|
|
|
|
|
|
|
|
|
| 103,063 |
|
|
|
|
|
|
|
|
|
|
| 74,830 |
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
| $ | 4,112,436 |
|
|
|
|
|
|
|
|
|
| $ | 3,445,654 |
|
|
|
|
|
|
|
|
|
| $ | 2,557,268 |
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST-BEARING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking |
| $ | 829,978 |
|
| $ | 13,466 |
|
|
| 1.62 | % |
| $ | 624,612 |
|
| $ | 5,003 |
|
|
| 0.80 | % |
| $ | 332,285 |
|
| $ | 1,411 |
|
|
| 0.42 | % |
Money market |
|
| 769,003 |
|
|
| 13,636 |
|
|
| 1.77 |
|
|
| 627,140 |
|
|
| 6,542 |
|
|
| 1.04 |
|
|
| 617,036 |
|
|
| 3,853 |
|
|
| 0.62 |
|
Savings |
|
| 47,275 |
|
|
| 141 |
|
|
| 0.30 |
|
|
| 54,952 |
|
|
| 169 |
|
|
| 0.31 |
|
|
| 49,525 |
|
|
| 162 |
|
|
| 0.33 |
|
Time deposits |
|
| 1,400,250 |
|
|
| 26,084 |
|
|
| 1.86 |
|
|
| 1,228,676 |
|
|
| 15,750 |
|
|
| 1.28 |
|
|
| 944,086 |
|
|
| 8,808 |
|
|
| 0.93 |
|
Federal funds purchased and other(3) |
|
| 23,687 |
|
|
| 419 |
|
|
| 1.77 |
|
|
| 43,402 |
|
|
| 407 |
|
|
| 0.94 |
|
|
| 48,841 |
|
|
| 303 |
|
|
| 0.62 |
|
Federal Home Loan Bank advances |
|
| 336,318 |
|
|
| 6,369 |
|
|
| 1.89 |
|
|
| 254,740 |
|
|
| 3,215 |
|
|
| 1.26 |
|
|
| 94,937 |
|
|
| 884 |
|
|
| 0.93 |
|
Subordinated notes and other borrowings |
|
| 58,599 |
|
|
| 4,328 |
|
|
| 7.39 |
|
|
| 58,421 |
|
|
| 4,321 |
|
|
| 7.40 |
|
|
| 39,276 |
|
|
| 2,902 |
|
|
| 7.39 |
|
TOTAL INTEREST BEARING LIABILITIES |
| $ | 3,465,110 |
|
| $ | 64,443 |
|
|
| 1.86 | % |
| $ | 2,891,943 |
|
| $ | 35,407 |
|
|
| 1.22 | % |
| $ | 2,125,986 |
|
| $ | 18,323 |
|
|
| 0.86 | % |
Demand deposits |
|
| 297,226 |
|
|
|
|
|
|
|
|
|
|
| 252,276 |
|
|
|
|
|
|
|
|
|
|
| 210,780 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
| 12,722 |
|
|
|
|
|
|
|
|
|
|
| 10,999 |
|
|
|
|
|
|
|
|
|
|
| 12,739 |
|
|
|
|
|
|
|
|
|
Total equity |
|
| 337,378 |
|
|
|
|
|
|
|
|
|
|
| 290,436 |
|
|
|
|
|
|
|
|
|
|
| 207,763 |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
| $ | 4,112,436 |
|
|
|
|
|
|
|
|
|
| $ | 3,445,654 |
|
|
|
|
|
|
|
|
|
| $ | 2,557,268 |
|
|
|
|
|
|
|
|
|
NET INTEREST SPREAD(4) |
|
|
|
|
|
|
|
|
|
| 2.46 | % |
|
|
|
|
|
|
|
|
|
| 2.98 | % |
|
|
|
|
|
|
|
|
|
| 3.29 | % |
NET INTEREST INCOME |
|
|
|
|
| $ | 108,199 |
|
|
|
|
|
|
|
|
|
| $ | 102,691 |
|
|
|
|
|
|
|
|
|
| $ | 85,298 |
|
|
|
|
|
NET INTEREST MARGIN(5) |
|
|
|
|
|
|
|
|
|
| 2.71 | % |
|
|
|
|
|
|
|
|
|
| 3.06 | % |
|
|
|
|
|
|
|
|
|
| 3.42 | % |
|
|
|
|
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Balance | Interest Inc/Exp | Average Yield/Rate | Average Balance | Interest Inc/Exp | Average Yield/Rate | Average Balance | Interest Inc/Exp | Average Yield/Rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ASSETS: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans(1)(6) | $ | 2,832,401 | $ | 156,560 | 5.53 | % | $ | 2,477,654 | $ | 131,529 | 5.31 | % | $ | 2,021,852 | $ | 100,142 | 4.95 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans held for sale | 20,581 | 799 | 3.88 | 10,588 | 474 | 4.48 | 10,031 | 426 | 4.25 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Taxable | 649,044 | 17,462 | 2.69 | 1,108,269 | 26,533 | 2.39 | 939,581 | 21,309 | 2.27 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax-exempt(6) | 197,216 | 7,526 | 3.82 | 220,652 | 9,996 | 4.53 | 269,837 | 14,140 | 5.24 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted equity securities | 23,986 | 1,213 | 5.06 | 20,549 | 1,250 | 6.08 | 16,498 | 928 | 5.62 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Certificates of deposit at other financial institutions | 3,642 | 85 | 2.33 | 3,128 | 62 | 1.98 | 2,229 | 33 | 1.48 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Federal funds sold and other(2) | 140,614 | 3,148 | 2.24 | 154,752 | 2,798 | 1.81 | 101,292 | 1,120 | 1.11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TOTAL INTEREST EARNING ASSETS | $ | 3,867,484 | $ | 186,793 | 4.83 | % | $ | 3,995,592 | $ | 172,642 | 4.32 | % | $ | 3,361,320 | $ | 138,098 | 4.11 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for loan losses | (26,580) | (22,596) | (18,729) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All other assets | 191,089 | 139,440 | 103,063 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TOTAL ASSETS | $ | 4,031,993 | $ | 4,112,436 | $ | 3,445,654 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LIABILITIES AND EQUITY | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest checking | $ | 765,218 | $ | 15,132 | 1.98 | % | $ | 829,978 | $ | 13,466 | 1.62 | % | $ | 624,612 | $ | 5,003 | 0.80 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Money market | 1,085,619 | 23,202 | 2.14 | 769,003 | 13,636 | 1.77 | 627,140 | 6,542 | 1.04 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Savings | 39,299 | 109 | 0.28 | 47,275 | 141 | 0.30 | 54,952 | 169 | 0.31 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Time deposits | 974,190 | 22,855 | 2.35 | 1,400,250 | 26,084 | 1.86 | 1,228,676 | 15,750 | 1.28 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Federal funds purchased and other(3) | 11,500 | 290 | 2.52 | 23,687 | 419 | 1.77 | 43,402 | 407 | 0.94 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Federal Home Loan Bank advances and other (8) | 321,145 | 7,616 | 2.37 | 336,318 | 6,369 | 1.89 | 254,740 | 3,215 | 1.26 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated notes | 58,776 | 4,328 | 7.36 | 58,599 | 4,328 | 7.39 | 58,421 | 4,321 | 7.40 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TOTAL INTEREST BEARING LIABILITIES | $ | 3,255,747 | $ | 73,532 | 2.26 | % | $ | 3,465,110 | $ | 64,443 | 1.86 | % | $ | 2,891,943 | $ | 35,407 | 1.22 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Demand deposits | 317,339 | 297,226 | 252,276 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | 64,047 | 12,722 | 10,999 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total equity | 394,860 | 337,378 | 290,436 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 4,031,993 | $ | 4,112,436 | $ | 3,445,654 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NET INTEREST SPREAD(4) | 2.57 | % | 2.46 | % | 2.89 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NET INTEREST INCOME | $ | 113,261 | $ | 108,199 | $ | 102,691 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NET INTEREST MARGIN(5) | 2.93 | % | 2.71 | % | 3.06 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
41
Net change year ended December 31, 2018 versus December 31, 2017 Net change year ended December 31, 2017 versus December 31, 2016 Volume Rate Net Change Volume Rate Net Change INTEREST INCOME Loans $ 22,298 $ 9,073 $ 31,371 $ 24,068 $ (1,829 ) $ 22,239 Securities available for sale 3,805 (761 ) 3,044 8,009 1,580 9,589 Securities held to maturity (1,004 ) (959 ) (1,963 ) 724 600 1,324 Restricted equity securities 228 94 322 334 94 428 Certificates of deposit at other financial institutions 13 16 29 25 (7 ) 18 Federal funds sold and other 659 1,082 1,741 160 719 879 TOTAL INTEREST INCOME $ 25,999 $ 8,545 $ 34,544 $ 33,320 $ 1,157 $ 34,477 INTEREST EXPENSE Deposits Interest checking $ 1,643 $ 6,820 $ 8,463 $ 1,218 $ 2,374 $ 3,592 Money market accounts 1,475 5,619 7,094 55 2,634 2,689 Savings (24 ) (4 ) (28 ) 18 (11 ) 7 Time deposits 2,196 8,138 10,334 2,642 4,300 6,942 Federal funds purchased and other (185 ) 197 12 (35 ) 139 104 Federal Home Loan Bank advances 1,028 2,126 3,154 1,490 841 2,331 Subordinated notes and other borrowings 13 (6 ) 7 1,413 6 1,419 TOTAL INTEREST EXPENSE $ 6,146 $ 22,890 $ 29,036 $ 6,801 $ 10,283 $ 17,084 NET INTEREST INCOME $ 19,853 $ (14,345 ) $ 5,508 $ 26,519 $ (9,126 ) $ 17,393 (5)Represents net interest income (annualized) divided by total average earning assets.(6)Interest income and rates include the effects of tax-equivalent adjustments to adjust tax-exempt interest income on tax-exempt loans and investment securities to a fully taxable basis.(7)Average balances are average daily balances.(8)Includes finance lease.The tables below detail the components of the changes in net interest income for the periods indicated. 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 rates, with the changes in both volumes and rates allocated to these two categories based on the proportionate absolute changes in each category. The changes noted in the table below include tax equivalent adjustments, and as a result, will not agree to the amounts reflected on the Company’s consolidated statements of income for the categories that have been adjusted to reflect tax equivalent income.Analysis of Changes in Interest Income and ExpensesNet change year ended
December 31, 2019 versus
December 31, 2018Net change year ended
December 31, 2018 versus
December 31, 2017Volume Rate Net Change Volume Rate Net Change INTEREST INCOME Loans $ 18,832 $ 6,199 $ 25,031 $ 22,576 $ 8,811 $ 31,387 Loans held for sale Loans held for sale 447 (122) 325 24 24 48 Securities: Securities: Taxable Taxable (10,994) 1,923 (9,071) 3,826 1,398 5,224 Tax-exempt Tax-exempt (1,062) (1,408) (2,470) (2,577) (1,567) (4,144) Restricted equity securities 209 (246) (37) 228 94 322 Certificates of deposit at other financial institutions 10 13 23 13 16 29 Federal funds sold and other (256) 606 350 591 1,087 1,678 TOTAL INTEREST INCOME $ 7,186 $ 6,965 $ 14,151 $ 24,680 $ 9,864 $ 34,544 INTEREST EXPENSE Deposits Interest checking $ (1,051) $ 2,717 $ 1,666 $ 1,643 $ 6,820 $ 8,463 Money market accounts 5,614 3,952 9,566 1,475 5,619 7,094 Savings (24) (8) (32) (24) (4) (28) Time deposits (7,937) 4,708 (3,229) 2,196 8,138 10,334 Federal funds purchased and other(2)Federal funds purchased and other(2)(216) 87 (129) (185) 197 12 Federal Home Loan Bank advances and other(1)Federal Home Loan Bank advances and other(1)(287) 1,534 1,247 1,028 2,126 3,154 Subordinated notes Subordinated notes 13 (13) — 13 (6) 7 TOTAL INTEREST EXPENSE $ (3,888) $ 12,977 $ 9,089 $ 6,146 $ 22,890 $ 29,036 NET INTEREST INCOME $ 11,074 $ (6,012) $ 5,062 $ 18,534 $ (13,026) $ 5,508 (1) Includes finance lease.(1) Includes finance lease.(2) Includes repurchase agreements.(2) Includes repurchase agreements.
respect of two lending relationships in our healthcare and corporate loan portfolios. Our determination to record this additional provision was primarily the result of certain developments and circumstances regarding the collectability from these two relationships that arose following our earnings release. Under GAAP we are required to reflect the additional provision during the fourth quarter of 2019, and the specific reserve as of December 31, 2019. Accordingly, this Form 10-K contains financial information that reflects the updated provision and reserve that is different than the information previously presented in our January 21, 2020 earnings release related to the fourth quarter of 2019.
| Years Ended December 31, | 2019-2018 Percent Increase | Year Ended December 31, | 2018-2017 Percent Increase | ||||||||||||||||||||||||||||||||
| 2019 | 2018 | (Decrease) | 2017 | (Decrease) | |||||||||||||||||||||||||||||||
| Service charges on deposit accounts | $ | 317 | $ | 217 | 46.1 | % | $ | 154 | 40.9 | % | |||||||||||||||||||||||||
| Other service charges and fees | 3,724 | 3,183 | 17.0 | % | 3,039 | 4.7 | % | ||||||||||||||||||||||||||||
| Mortgage Banking revenue | 9,154 | 6,696 | 36.7 | % | 6,892 | (2.8) | % | ||||||||||||||||||||||||||||
| Wealth management | 2,880 | 2,969 | (3.0) | % | 2,613 | 13.6 | % | ||||||||||||||||||||||||||||
| Gain (loss) on sales and calls of securities | 2,043 | (4,160) | 149.1 | % | 896 | (564.3) | % | ||||||||||||||||||||||||||||
| Net (loss) gain on sale of loans held for investment | (2,003) | — | — | % | 226 | (100.0) | % | ||||||||||||||||||||||||||||
| Net gain (loss) on foreclosed assets | 7 | 91 | (92.3) | % | (7) | (1,400.0) | % | ||||||||||||||||||||||||||||
| Other | 1,653 | 1,666 | (0.8) | % | 908 | 83.5 | % | ||||||||||||||||||||||||||||
| Total non-interest income | $ | 17,775 | $ | 10,662 | 66.7 | % | $ | 14,721 | (27.6) | % | |||||||||||||||||||||||||
42
| Years Ended December 31, |
|
| 2018-2017 Percent Increase |
|
| Year Ended December 31, |
|
| 2017-2016 Percent Increase |
| |||||||||
|
| 2018 |
|
| 2017 |
|
| (Decrease) |
|
| 2016 |
|
| (Decrease) |
| |||||
Service charges on deposit accounts |
| $ | 217 |
|
| $ | 154 |
|
|
| 40.9 | % |
| $ | 185 |
|
|
| (16.8 | %) |
Other service charges and fees |
|
| 3,151 |
|
|
| 3,041 |
|
|
| 3.6 |
|
|
| 3,041 |
|
|
| 0.0 |
|
Net gains on sale of loans |
|
| 6,286 |
|
|
| 6,779 |
|
|
| (7.3 | ) |
|
| 7,183 |
|
|
| (5.6 | ) |
Wealth management |
|
| 2,939 |
|
|
| 2,577 |
|
|
| 14.0 |
|
|
| 1,894 |
|
|
| 36.1 |
|
Loan servicing fees, net |
|
| 441 |
|
|
| 336 |
|
|
| 31.3 |
|
|
| 22 |
|
|
| 1,427.3 |
|
Gain (loss) on sales and calls of securities |
|
| (4,160 | ) |
|
| 896 |
|
|
| (564.3 | ) |
|
| 2,172 |
|
|
| (58.7 | ) |
Net (gain) loss on foreclosed assets |
|
| 116 |
|
|
| (7 | ) |
|
| (1757.1 | ) |
|
| 40 |
|
|
| (117.5 | ) |
Other |
|
| 1,672 |
|
|
| 945 |
|
|
| 76.9 |
|
|
| 603 |
|
|
| 56.7 |
|
Total non-interest income |
| $ | 10,662 |
|
| $ | 14,721 |
|
|
| (27.6 | %) |
| $ | 15,140 |
|
|
| (2.8 | %) |
Service charges on deposit accounts increased 46.1% in 2019 and 40.9% in 2018 compared to a decrease of 16.8% in 2017.2018. The increase in 2018 was mainly due to $55an increase in business analysis fees of $88 and $55 in 2019 and 2018, respectively. Other service charges and fees for business analysisthe year ended December 31, 2019 increased 17.0% when comparingcompared to the2018. The increase was due to an increase of $126 in ATM (Automated Teller Machine) fees, $98 in 2017.The decreaseapplication fees, $88 in tax service chargesfees, and $80 in 2017 can be attributed to the management’s decision to waive deposit fees for two months during a core system conversion.
unused commitment fees. Other service charges and fees for the year ended December 31, 2018 increased 3.6 %4.7% when compared to 2017. The increase for 2018 was mainly due to an increase of $118 in ATM (Automated Teller Machine) fees. Other service charges
Net gains on the sale of loans include net gains realized from the sales of mortgage loans2019 and SBA loans. Net gains on the sale of mortgage loans are based,2018. The year-over-year increase in part, on differences between the carrying value of loans being sold2019 was attributable to third-party investorsan increase in production when compared to 2018. Mortgage servicing amortization was $1,289 and the selling price and the fair value adjustment of loans held for sale on a guaranteed delivery basis. Management’s decision to retain or release servicing rights also impacts the gain realized on the sale.Net gains$867, respectively, for the yearyears ended December 31, 2018 were $6,286,2019 and 2018. The increase in amortization was a result of the decrease of $493, or 7.3%,in rates causing higher prepayments leading to mortgage servicing rights being amortized over a shorter period when compared to the year ended December 31, 2017. The2018.
overall commission's income. Wealth management income for 2018 was $2,939,$2,969, an increase of 14.0%13.6% when compared with
Loan servicing fees earned on serviced residential mortgages and SBA loans offset by the amortization of the related servicing rights asset. Servicing rights are initially recorded at fair value and then amortized over the estimated life of the underlying loans. For the year ended December 31, 2018, net loan servicing fees were $441 compared to $336 for the year ended December 31, 2017. The increase in servicing fees for 2018 is attributable to both an increase in fees and a decrease in amortization as a result of an increase in the average expected life of the loans serviced for 2018 due to increasing interest rates. For the year ended December 31, 2017, net loan servicing fees were $336 compared to $22 for the year ended December 31, 2016. The increase in servicing fees in 2017 is attributable to the decrease in amortization during 2017.
respectively.
several SNC relationships during the year compared to no sales occurring during
2018. Net gain for the year ended December 31, 2018 was $0, a decrease of $226, or 100%, from the year ended December 31, 2017.
|
| Years Ended December 31, |
|
| 2018-2017 Percent Increase |
|
| Year Ended December 31, |
|
| 2017-2016 Percent Increase |
| Years Ended December 31, | 2019-2018 Percent Increase | Year Ended December 31, | 2018-2017 Percent Increas8 | |||||||||||||||||||||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| (Decrease) |
|
| 2016 |
|
| (Decrease) |
| 2019 | 2018 | (Decrease) | 2017 | (Decrease) | |||||||||||||||||||||||||||||||||||
Salaries and employee benefits |
| $ | 43,837 |
|
| $ | 35,268 |
|
|
| 24.3 | % |
| $ | 30,029 |
|
|
| 17.4 | % | Salaries and employee benefits | $ | 50,813 | $ | 43,837 | 15.9 | % | $ | 35,268 | 24.3 | % | ||||||||||||||||||||||||
Occupancy and equipment |
|
| 11,628 |
|
|
| 9,219 |
|
|
| 26.1 |
|
|
| 7,627 |
|
|
| 20.9 |
| Occupancy and equipment | 13,069 | 11,628 | 12.4 | 9,219 | 26.1 | |||||||||||||||||||||||||||||
FDIC assessment expense |
|
| 3,448 |
|
|
| 3,680 |
|
|
| (6.3 | ) |
|
| 2,068 |
|
|
| 77.9 |
| FDIC assessment expense | 1,843 | 3,448 | (46.5) | 3,680 | (6.3) | |||||||||||||||||||||||||||||
Marketing |
|
| 1,092 |
|
|
| 965 |
|
|
| 13.2 |
|
|
| 762 |
|
|
| 26.6 |
| Marketing | 1,189 | 1,092 | 8.9 | 965 | 13.2 | |||||||||||||||||||||||||||||
Professional fees |
|
| 4,362 |
|
|
| 3,395 |
|
|
| 28.5 |
|
|
| 3,546 |
|
|
| (4.3 | ) | Professional fees | 4,356 | 4,413 | (1.3) | 3,419 | 29.1 | |||||||||||||||||||||||||||||
| Amortization of core deposit intangible | Amortization of core deposit intangible | 504 | 612 | (17.6) | 473 | 29.4 | |||||||||||||||||||||||||||||||||||||||||||||||||
Other |
|
| 9,111 |
|
|
| 8,297 |
|
|
| 9.8 |
|
|
| 7,649 |
|
|
| 8.5 |
| Other | 10,105 | 8,448 | 19.6 | 7,800 | 8.3 | |||||||||||||||||||||||||||||
Total non-interest expense |
| $ | 73,478 |
|
| $ | 60,824 |
|
|
| 20.8 | % |
| $ | 51,681 |
|
|
| 17.7 | % | Total non-interest expense | $ | 81,879 | $ | 73,478 | 11.4 | % | $ | 60,824 | 20.8 | % | ||||||||||||||||||||||||
benefits of $4.1 million and $3.2 million, respectively.
2018, respectively.
Income Tax Expense
The Company recognized an income tax expense for the years ended December 31, 2018, 2017 and 2016 of $5,912, $18,531, and $11,746, respectively, equating to effective blended tax rates 14.6%, 39.7%, and 29.5%, respectively. The decrease in the effective tax rate for 2018 is primarily due to the reduction in the federal income tax rate to 21% from 35% under the Tax Act, and the Bank’s participation in Tennessee’s CITC program, which provided $660 of state tax credits.
44
The increase in the effective tax rate for 2017 is attributed to a non-recurring charge of $5,323 related to a write-down of its deferred tax asset as a result of the aforementioned reduction in the federal income tax rate under the Tax Act. Had the Tax Act not become law in 2017, the Company’s income tax expense would have been $13,208, which would have resulted in an effective tax rate of 28.3% for 2017.
during 2018.
|
| 2018 |
|
| 2017 |
|
| 2016 |
| |||
Return on assets (net income divided by average total assets) |
|
| 0.84 | % |
|
| 0.82 | % |
|
| 1.10 | % |
Return on equity (Net income divided by average equity) |
|
| 10.23 | % |
|
| 9.67 | % |
|
| 13.50 | % |
Dividend payout ratio (Dividends declared per share divided by net income per share) |
|
| — | % |
|
| — | % |
|
| — | % |
Equity to asset ratio (Average equity divided by average total assets) |
|
| 8.20 | % |
|
| 8.43 | % |
|
| 8.12 | % |
Leverage capital ratio (Equity divided by fourth quarter average total assets, excluding accumulated other comprehensive income) |
|
| 8.76 | % |
|
| 8.25 | % |
|
| 9.28 | % |
| 2019 | 2018 | 2017 | |||||||||||||||
| Return on assets (Net income divided by average total assets) | 0.37 | % | 0.84 | % | 0.82 | % | |||||||||||
| Return on equity (Net income divided by average equity) | 3.8 | % | 10.2 | % | 9.7 | % | |||||||||||
| Dividend payout ratio (Dividends declared per share divided by net income per share) | 17.8 | % | — | % | — | % | |||||||||||
| Equity to asset ratio (Average equity divided by average total assets) | 9.8 | % | 8.2 | % | 8.4 | % | |||||||||||
| Leverage capital ratio (Equity divided by fourth quarter average total assets, excluding accumulated other comprehensive income) | 10.3 | % | 8.8 | % | 8.3 | % | |||||||||||
|
| In Thousands, Except Percentages |
| |
Common Equity Tier 1 capital: |
|
|
|
|
Stockholders’ equity, excluding accumulated other comprehensive income, disallowed goodwill, other disallowed intangible assets and disallowed servicing assets |
| $ | 367,096 |
|
Tier 1 capital: |
|
|
|
|
Common Equity Tier 1 capital plus additional tier 1 capital instruments and related surplus, less additional tier 1 capital deductions |
| $ | 367,096 |
|
Tier 2 capital: |
|
|
|
|
Tier 2 capital instruments plus related surplus |
|
| 58,693 |
|
Total capital minority interest that is not included in tier 1 capital |
|
| 85 |
|
Allowable allowance for loan losses (limited to 1.25% of gross risk-weighted assets) |
|
| 23,451 |
|
Total risk-based capital |
| $ | 449,325 |
|
Risk-weighted assets, gross |
| $ | 3,013,299 |
|
Less: Excess allowance for loan and lease losses |
|
| — |
|
Risk-weighted assets, net |
| $ | 3,013,299 |
|
Risk-based capital ratios: |
|
|
|
|
Common Equity Tier 1 risk-based capital ratio |
|
| 12.18 | % |
Tier 1 risk-based capital ratio |
|
| 12.18 | % |
Total risk-based capital ratio |
|
| 14.91 | % |
| In Thousands, Except Percentages | |||||
| Common Equity Tier 1 capital: | |||||
| Stockholders’ equity, excluding accumulated other comprehensive income, disallowed goodwill, other disallowed intangible assets and disallowed servicing assets | $ | 388,199 | |||
| Tier 1 capital: | |||||
| Common Equity Tier 1 capital plus additional tier 1 capital instruments and related surplus, less additional tier 1 capital deductions | $ | 388,199 | |||
| Tier 2 capital: | |||||
| Tier 2 capital instruments plus related surplus | 58,872 | ||||
| Total capital minority interest that is not included in tier 1 capital | 84 | ||||
| Allowable allowance for loan losses (limited to 1.25% of gross risk-weighted assets) | 40,811 | ||||
| Total risk-based capital | $ | 487,966 | |||
| Risk-weighted assets, gross | $ | 3,264,861 | |||
| Less: Excess allowance for loan and lease losses | 4,625 | ||||
| Risk-weighted assets, net | $ | 3,260,236 | |||
| Risk-based capital ratios: | |||||
| Common Equity Tier 1 risk-based capital ratio | 11.9 | % | |||
| Tier 1 risk-based capital ratio | 11.9 | % | |||
| Total risk-based capital ratio | 15.0 | % | |||
45
2018
liabilities.
In Thousands |
| Dec 31, 2018 |
|
| Dec 31, 2017 |
|
| Growth |
|
| Growth Percentage |
| ||||
Total Loans |
| $ | 2,665,399 |
|
| $ | 2,256,608 |
|
| $ | 408,791 |
|
|
| 18.1 | % |
Total Securities |
|
| 1,152,285 |
|
|
| 1,214,737 |
|
|
| (62,452 | ) |
|
| -5.1 | % |
Total Assets |
|
| 4,249,439 |
|
|
| 3,843,526 |
|
|
| 405,913 |
|
|
| 10.6 | % |
Total Deposits |
|
| 3,431,807 |
|
|
| 3,167,228 |
|
|
| 264,579 |
|
|
| 8.4 | % |
Total Liabilities |
|
| 3,876,606 |
|
|
| 3,538,873 |
|
|
| 337,733 |
|
|
| 9.5 | % |
'Total Equity |
|
| 372,833 |
|
|
| 304,653 |
|
|
| 68,180 |
|
|
| 22.4 | % |
| In Thousands | December 31, 2019 | December 31, 2018 | Growth | Growth Percentage | |||||||||||||||||||
| Total loans held for investments, net of deferred fees | $ | 2,812,444 | $ | 2,672,399 | $ | 140,045 | 5.2 | % | |||||||||||||||
| Total securities | 652,132 | 1,152,285 | (500,153) | (43.4) | % | ||||||||||||||||||
| Total assets | 3,896,162 | 4,249,439 | (353,277) | (8.3) | % | ||||||||||||||||||
| Total deposits | 3,207,584 | 3,431,807 | (224,223) | (6.5) | % | ||||||||||||||||||
| Total liabilities | 3,485,736 | 3,876,606 | (390,870) | (10.1) | % | ||||||||||||||||||
| Total equity | 410,426 | 372,833 | 37,593 | 10.1 | % | ||||||||||||||||||
respectively, which is included in mortgage banking revenue on the Company's Consolidated Statements of Income.
|
| As of December 31, |
| As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Types of Loans |
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
| Types of Loans | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total loans held for investment, excluding PCI loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans held for investment | Total loans held for investment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Construction and land development |
| $ | 584,440 |
|
| $ | 494,818 |
|
| $ | 489,562 |
|
| $ | 372,767 |
|
| $ | 239,225 |
| Construction and land development | $ | 591,541 | $ | 584,440 | $ | 494,818 | $ | 489,562 | $ | 372,845 | ||||||||||||||||||||||||||||||||||||||||||
Commercial |
|
| 802,260 |
|
|
| 678,238 |
|
|
| 497,140 |
|
|
| 364,223 |
|
|
| 246,352 |
| Commercial | 993,912 | 805,260 | 678,618 | 497,534 | 365,683 | |||||||||||||||||||||||||||||||||||||||||||||||
Residential |
|
| 682,806 |
|
|
| 577,335 |
|
|
| 404,989 |
|
|
| 274,934 |
|
|
| 213,760 |
| Residential | 643,601 | 682,882 | 577,440 | 405,485 | 275,497 | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial |
|
| 590,854 |
|
|
| 502,006 |
|
|
| 376,476 |
|
|
| 283,888 |
|
|
| 76,570 |
| Commercial and industrial | 582,641 | 596,793 | 503,914 | 378,445 | 285,700 | |||||||||||||||||||||||||||||||||||||||||||||||
Consumer and other |
|
| 5,568 |
|
|
| 3,781 |
|
|
| 3,359 |
|
|
| 6,577 |
|
|
| 8,025 |
| Consumer and other | 4,769 | 5,568 | 3,781 | 3,359 | 6,577 | |||||||||||||||||||||||||||||||||||||||||||||||
Total loans—gross, excluding PCI loans |
|
| 2,665,928 |
|
|
| 2,256,178 |
|
|
| 1,771,526 |
|
|
| 1,302,389 |
|
|
| 783,932 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total PCI loans(1) |
|
| 2,015 |
|
|
| 2,393 |
|
|
| 2,859 |
|
|
| 3,913 |
|
|
| 4,315 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total gross loans |
|
| 2,667,943 |
|
|
| 2,258,571 |
|
|
| 1,774,385 |
|
|
| 1,306,302 |
|
|
| 788,247 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Less: deferred loan fees, net |
|
| (2,544 | ) |
|
| (1,963 | ) |
|
| (793 | ) |
|
| (2,476 | ) |
|
| (1,059 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans before net deferred loan fees | Loans before net deferred loan fees | 2,816,464 | 2,674,943 | 2,258,571 | 1,774,385 | 1,306,302 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred loan fees, net | Deferred loan fees, net | (4,020) | (2,544) | (1,963) | (793) | (2,476) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total loans | Total loans | 2,812,444 | 2,672,399 | 2,256,608 | 1,773,592 | 1,303,826 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses |
|
| (23,451 | ) |
|
| (21,247 | ) |
|
| (16,553 | ) |
|
| (11,587 | ) |
|
| (6,680 | ) | Allowance for loan losses | (45,436) | (23,451) | (21,247) | (16,553) | (11,587) | |||||||||||||||||||||||||||||||||||||||||||||||
Total loans, net allowance for loan losses |
| $ | 2,641,948 |
|
| $ | 2,235,361 |
|
| $ | 1,757,039 |
|
| $ | 1,292,239 |
|
| $ | 780,508 |
| Total loans, net allowance for loan losses | $ | 2,767,008 | $ | 2,648,948 | $ | 2,235,361 | $ | 1,757,039 | $ | 1,292,239 | ||||||||||||||||||||||||||||||||||||||||||
|
|
2019.
46
2019.
| SNC and Healthcare Portfolios | December 31, 2019 | September 30, 2019 | June 30, 2019 | March 31, 2019 | December 31, 2018 | QoQ (Decline) Growth (1) | YoY (Decline) Growth | ||||||||||||||||
| Total SNCs | $ | 136,658 | $ | 144,476 | $ | 231,216 | $ | 228,538 | $ | 249,033 | (21.5) | % | (45.1) | % | |||||||||
| % of Total Loans HFI | 4.9 | % | 5.2 | % | 8.0 | % | 8.1 | % | 9.3 | % | |||||||||||||
| Healthcare | $ | 289,703 | $ | 273,106 | $ | 329,818 | $ | 320,611 | $ | 290,464 | 24.1 | % | (0.3) | % | |||||||||
| SNC | 77,319 | 85,932 | 118,460 | 107,156 | 123,097 | (39.8) | % | (37.2) | % | ||||||||||||||
| Non-SNC | 212,384 | 187,174 | 211,358 | 213,455 | 167,367 | 53.4 | % | 26.9 | % | ||||||||||||||
|
| December 31, 2018 |
| December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| One year or less |
|
| Over one year to five years |
|
| Over five years |
|
| Total |
| One year or less | Over one year to five years | Over five years | Total | |||||||||||||||||||||||||||||||||||||||||
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real estate: | ||||||||||||||||||||||||||||||||||||||||
Construction and land development |
| $ | 315,191 |
|
| $ | 152,923 |
|
| $ | 116,326 |
|
| $ | 584,440 |
| Construction and land development | $ | 272,354 | $ | 190,957 | $ | 128,230 | $ | 591,541 | ||||||||||||||||||||||||||||||||
Commercial |
|
| 42,990 |
|
|
| 244,380 |
|
|
| 514,890 |
|
|
| 802,260 |
| Commercial | 46,309 | 285,016 | 662,587 | 993,912 | ||||||||||||||||||||||||||||||||||||
Residential |
|
| 41,271 |
|
|
| 153,219 |
|
|
| 488,392 |
|
|
| 682,882 |
| Residential | 42,030 | 165,027 | 436,544 | 643,601 | ||||||||||||||||||||||||||||||||||||
Commercial and industrial |
|
| 66,893 |
|
|
| 346,962 |
|
|
| 178,938 |
|
|
| 592,793 |
| Commercial and industrial | 70,845 | 420,222 | 91,574 | 582,641 | ||||||||||||||||||||||||||||||||||||
Consumer and other |
|
| 1,879 |
|
|
| 3,354 |
|
|
| 335 |
|
|
| 5,568 |
| Consumer and other | 2,910 | 1,589 | 270 | 4,769 | ||||||||||||||||||||||||||||||||||||
Total |
| $ | 468,224 |
|
| $ | 900,838 |
|
| $ | 1,298,881 |
|
| $ | 2,667,943 |
| Total | $ | 434,448 | $ | 1,062,811 | $ | 1,319,205 | $ | 2,816,464 | ||||||||||||||||||||||||||||||||
Fixed interest rate |
| $ | 135,603 |
|
| $ | 419,269 |
|
| $ | 645,458 |
|
| $ | 1,200,330 |
| Fixed interest rate | $ | 102,359 | $ | 441,005 | $ | 403,900 | $ | 947,264 | ||||||||||||||||||||||||||||||||
Variable interest rate |
|
| 332,621 |
|
|
| 481,569 |
|
|
| 653,423 |
|
|
| 1,467,613 |
| Variable interest rate | 332,089 | 621,806 | 915,305 | 1,869,200 | ||||||||||||||||||||||||||||||||||||
Total |
| $ | 468,224 |
|
| $ | 900,838 |
|
| $ | 1,298,881 |
|
| $ | 2,667,943 |
| Total | $ | 434,448 | $ | 1,062,811 | $ | 1,319,205 | $ | 2,816,464 | ||||||||||||||||||||||||||||||||
•past loan experience;
•the nature and volume of the portfolio;
•risks known about specific borrowers;
•underlying estimated values of collateral securing loans;
•current and anticipated economic conditions; and
•other factors which may affect the allowance for probable incurred losses.
47
|
| December 31, 2018 |
|
| December 31, 2017 |
|
| Increase (Decrease) |
| December 31, 2019 | December 31, 2018 | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Loan Balance |
|
| ALLL Balance |
|
| % |
|
| Loan Balance |
|
| ALLL Balance |
|
| % |
|
| Loan Balance |
|
| ALLL Balance |
|
|
|
| Loan Balance | ALLL Balance | % | Loan Balance | ALLL Balance | % | Loan Balance | ALLL Balance | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non impaired loans |
| $ | 2,568,930 |
|
| $ | 23,249 |
|
|
| 0.91 | % |
| $ | 2,201,515 |
|
| $ | 20,358 |
|
|
| 0.92 | % |
| $ | 367,415 |
|
| $ | 2,891 |
|
| -1 bps |
| Non impaired loans | $ | 2,730,684 | $ | 24,588 | 0.90 | % | $ | 2,575,930 | $ | 23,249 | 0.90 | % | $ | 154,754 | $ | 1,339 | — | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-PCI acquired loans(1) |
|
| 91,344 |
|
|
| 185 |
|
|
| 0.20 | % |
|
| 50,522 |
|
|
| 10 |
|
|
| 0.02 | % |
|
| 40,822 |
|
|
| 175 |
|
| 18 bps |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquired loans (1) | Acquired loans (1) | 58,745 | 77 | 0.13 | % | 91,344 | 185 | 0.20 | % | (32,599) | (108) | (7) | bps | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impaired loans |
|
| 5,654 |
|
|
| 17 |
|
|
| 0.30 | % |
|
| 4,141 |
|
|
| 879 |
|
|
| 21.23 | % |
|
| 1,513 |
|
|
| (862 | ) |
| -2093 bps |
| Impaired loans | 27,035 | 20,771 | 76.83 | % | 7,669 | 17 | 0.22 | % | 19,366 | 20,754 | 7,661 | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-PCI loans |
|
| 2,665,928 |
|
|
| 23,451 |
|
|
| 0.88 | % |
|
| 2,256,178 |
|
|
| 21,247 |
|
|
| 0.94 | % |
|
| 409,750 |
|
|
| 2,204 |
|
| -6 bps |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PCI loans |
|
| 2,015 |
|
|
| — |
|
|
| 0.00 | % |
|
| 2,393 |
|
|
| — |
|
|
| 0.00 | % |
|
| (378 | ) |
|
| — |
|
| 0 bps |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total loans |
| $ | 2,667,943 |
|
| $ | 23,451 |
|
|
| 0.88 | % |
| $ | 2,258,571 |
|
| $ | 21,247 |
|
|
| 0.94 | % |
| $ | 409,372 |
|
| $ | 2,204 |
|
| -6 bps |
| Total loans | $ | 2,816,464 | $ | 45,436 | 1.61 | % | $ | 2,674,943 | $ | 23,451 | 0.88 | % | $ | 141,521 | $ | 21,985 | 74 | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
At December 31, 2018, loans identified as impaired beyond the extent of its recorded discount lead to an allowance for loan loss of $185 being recorded related to the acquired loans.
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||
Beginning balance |
| $ | 21,247 |
|
| $ | 16,553 |
|
| $ | 11,587 |
|
| $ | 6,680 |
|
| $ | 4,900 |
| Beginning balance | $ | 23,451 | $ | 21,247 | $ | 16,553 | $ | 11,587 | $ | 6,680 | ||||||||||||||||||
Loans charged-off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans charged-off: | ||||||||||||||||||||||||||||
Construction & land development |
|
| (38 | ) |
|
| — |
|
|
| (11 | ) |
|
| — |
|
|
| — |
| Construction & land development | (68) | (38) | — | (11) | — | |||||||||||||||||||||||
Commercial real estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| - |
|
|
| (540 | ) | Commercial real estate | — | — | — | — | — | |||||||||||||||||||||||
Residential real estate |
|
| (7 | ) |
|
| (1 | ) |
|
| (40 | ) |
|
| (32 | ) |
|
| (61 | ) | Residential real estate | (15) | (7) | (1) | (40) | (32) | |||||||||||||||||||||||
Commercial & industrial |
|
| (49 | ) |
|
| (310 | ) |
|
| (255 | ) |
|
| (48 | ) |
|
| (58 | ) | Commercial & industrial | (10,227) | (49) | (310) | (255) | (48) | |||||||||||||||||||||||
Consumer |
|
| (27 | ) |
|
| (49 | ) |
|
| (42 | ) |
|
| (135 | ) |
|
| — |
| Consumer | (147) | (27) | (49) | (42) | (135) | |||||||||||||||||||||||
Total loans charged-off |
|
| (121 | ) |
|
| (360 | ) |
|
| (348 | ) |
|
| (215 | ) |
|
| (659 | ) | Total loans charged-off | (10,457) | (121) | (360) | (348) | (215) | |||||||||||||||||||||||
Recoveries on loans previously charged-off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Recoveries on loans previously charged-off: | ||||||||||||||||||||||||||||
Construction & land development |
|
| 1 |
|
|
| 668 |
|
|
| — |
|
|
| — |
|
|
| — |
| Construction & land development | — | 1 | 668 | — | — | |||||||||||||||||||||||
Commercial real estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| Commercial real estate | — | — | — | — | — | |||||||||||||||||||||||
Residential real estate |
|
| 44 |
|
|
| 50 |
|
|
| 66 |
|
|
| 26 |
|
|
| 65 |
| Residential real estate | 15 | 44 | 50 | 66 | 26 | |||||||||||||||||||||||
Commercial & industrial |
|
| 11 |
|
|
| 6 |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
| Commercial & industrial | 286 | 11 | 6 | 1 | 1 | |||||||||||||||||||||||
Consumer |
|
| 15 |
|
|
| 17 |
|
|
| 7 |
|
|
| 65 |
|
|
| — |
| Consumer | 94 | 15 | 17 | 7 | 65 | |||||||||||||||||||||||
Total loan recoveries |
|
| 71 |
|
|
| 741 |
|
|
| 74 |
|
|
| 92 |
|
|
| 65 |
| Total loan recoveries | 395 | 71 | 741 | 74 | 92 | |||||||||||||||||||||||
Net recoveries (charge-offs) |
|
| (50 | ) |
|
| 381 |
|
|
| (274 | ) |
|
| (123 | ) |
|
| (594 | ) | Net recoveries (charge-offs) | (10,062) | (50) | 381 | (274) | (123) | |||||||||||||||||||||||
Provision for loan losses charged to expense |
|
| 2,254 |
|
|
| 4,313 |
|
|
| 5,240 |
|
|
| 5,030 |
|
|
| 2,374 |
| Provision for loan losses charged to expense | 32,047 | 2,254 | 4,313 | 5,240 | 5,030 | |||||||||||||||||||||||
Total allowance at end of period |
| $ | 23,451 |
|
| $ | 21,247 |
|
| $ | 16,553 |
|
| $ | 11,587 |
|
| $ | 6,680 |
| Total allowance at end of period | $ | 45,436 | $ | 23,451 | $ | 21,247 | $ | 16,553 | $ | 11,587 | ||||||||||||||||||
Total loans, gross, at end of period(1) |
| $ | 2,667,943 |
|
| $ | 2,258,571 |
|
| $ | 1,774,385 |
|
| $ | 1,306,302 |
|
| $ | 788,247 |
| Total loans, gross, at end of period(1) | $ | 2,816,464 | $ | 2,674,943 | $ | 2,258,571 | $ | 1,774,385 | $ | 1,306,302 | ||||||||||||||||||
Average gross loans(1) |
| $ | 2,474,136 |
|
| $ | 2,022,052 |
|
| $ | 1,574,387 |
|
| $ | 997,873 |
|
| $ | 594,974 |
| Average gross loans(1) | $ | 2,836,068 | $ | 2,480,025 | $ | 2,022,052 | $ | 1,574,387 | $ | 997,873 | ||||||||||||||||||
Allowance to total loans |
|
| 0.88 | % |
|
| 0.94 | % |
|
| 0.93 | % |
|
| 0.89 | % |
|
| 0.85 | % | Allowance to total loans | 1.61 | % | 0.88 | % | 0.94 | % | 0.93 | % | 0.89 | % | ||||||||||||||||||
Net charge-offs (recoveries) to average loans |
|
| 0.00 | % |
|
| (0.02 | )% |
|
| 0.02 | % |
|
| 0.01 | % |
|
| 0.10 | % | Net charge-offs (recoveries) to average loans | 0.35 | % | 0.00 | % | (0.02) | % | 0.02 | % | 0.01 | % | ||||||||||||||||||
|
|
48
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
| |||||||||||||||||||||||||
|
| Amount |
|
| % of Loan Segment to Total Loans |
|
| Amount |
|
| % of Loan Segment to Total Loans |
|
| Amount |
|
| % of Loan Segment to Total Loans |
|
| Amount |
|
| % of Loan Segment to Total Loans |
|
| Amount |
|
| % of Loan Segment to Total Loans |
| ||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development |
| $ | 4,743 |
|
|
| 21.9 | % |
| $ | 3,802 |
|
|
| 21.9 | % |
| $ | 3,776 |
|
|
| 27.6 | % |
| $ | 3,186 |
|
|
| 28.5 | % |
| $ | 2,690 |
|
|
| 30.4 | % |
Commercial |
|
| 6,725 |
|
|
| 30.1 | % |
|
| 5,981 |
|
|
| 30.0 | % |
|
| 4,266 |
|
|
| 28.0 | % |
|
| 3,146 |
|
|
| 28.0 | % |
|
| 1,494 |
|
|
| 31.5 | % |
Residential |
|
| 4,743 |
|
|
| 25.6 | % |
|
| 3,834 |
|
|
| 25.6 | % |
|
| 2,398 |
|
|
| 22.9 | % |
|
| 1,861 |
|
|
| 21.1 | % |
|
| 1,791 |
|
|
| 27.2 | % |
Total real estate |
|
| 16,211 |
|
|
| 77.6 | % |
|
| 13,617 |
|
|
| 77.5 | % |
|
| 10,440 |
|
|
| 78.5 | % |
|
| 8,193 |
|
|
| 77.6 | % |
|
| 5,975 |
|
|
| 89.1 | % |
Commercial and industrial |
|
| 7,166 |
|
|
| 22.2 | % |
|
| 7,587 |
|
|
| 22.3 | % |
|
| 6,068 |
|
|
| 21.3 | % |
|
| 3,358 |
|
|
| 21.9 | % |
|
| 650 |
|
|
| 9.9 | % |
Consumer and other |
|
| 74 |
|
|
| 0.2 | % |
|
| 43 |
|
|
| 0.2 | % |
|
| 45 |
|
|
| 0.2 | % |
|
| 36 |
|
|
| 0.5 | % |
|
| 55 |
|
|
| 1.0 | % |
|
| $ | 23,451 |
|
|
| 100.0 | % |
| $ | 21,247 |
|
|
| 100.0 | % |
| $ | 16,553 |
|
|
| 100.0 | % |
| $ | 11,587 |
|
|
| 100.0 | % |
| $ | 6,680 |
|
|
| 100.0 | % |
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amount | % of Loan Segment to Total Loans | Amount | % of Loan Segment to Total Loans | Amount | % of Loan Segment to Total Loans | Amount | % of Loan Segment to Total Loans | Amount | % of Loan Segment to Total Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction and land development | $ | 4,847 | 21.0 | % | $ | 4,743 | 21.9 | % | $ | 3,802 | 21.9 | % | $ | 3,776 | 27.6 | % | $ | 3,186 | 28.5 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | 8,113 | 35.3 | % | 6,725 | 30.1 | % | 5,981 | 30.0 | % | 4,266 | 28.0 | % | 3,146 | 28.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential | 4,462 | 22.8 | % | 4,743 | 25.6 | % | 3,834 | 25.6 | % | 2,398 | 22.9 | % | 1,861 | 21.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total real estate | 17,422 | 79.0 | % | 16,211 | 77.6 | % | 13,617 | 77.5 | % | 10,440 | 78.5 | % | 8,193 | 77.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | 27,957 | 20.7 | % | 7,166 | 22.2 | % | 7,587 | 22.3 | % | 6,068 | 21.3 | % | 3,358 | 21.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other | 57 | 0.2 | % | 74 | 0.2 | % | 43 | 0.2 | % | 45 | 0.2 | % | 36 | 0.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | 45,436 | 100.0 | % | $ | 23,451 | 100.0 | % | $ | 21,247 | 100.0 | % | $ | 16,553 | 100.0 | % | $ | 11,587 | 100.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019.
| December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nonperforming loans and assets | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nonaccrual loans | $ | 27,035 | $ | 5,488 | $ | 2,837 | $ | 3,630 | $ | 908 | |||||||||||||||||||||||||||||||||||||||||||
| Past due loans 90 days or more and still accruing interest | 654 | 208 | 205 | 2,552 | 2,378 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total nonperforming loans | 27,689 | 5,696 | 3,042 | 6,182 | 3,286 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreclosed real estate (“OREO”) and repossessed assets | — | — | 1,503 | — | 200 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total nonperforming assets | $ | 27,689 | $ | 5,696 | $ | 4,545 | $ | 6,182 | $ | 3,486 | |||||||||||||||||||||||||||||||||||||||||||
| Total nonperforming loans as a percentage of total loans | 0.98 | % | 0.21 | % | 0.13 | % | 0.35 | % | 0.25 | % | |||||||||||||||||||||||||||||||||||||||||||
| Total nonperforming assets as a percentage of total assets | 0.71 | % | 0.13 | % | 0.12 | % | 0.21 | % | 0.16 | % | |||||||||||||||||||||||||||||||||||||||||||
| Allowance for loan losses as a percentage of nonperforming loans | 164 | % | 412 | % | 698 | % | 268 | % | 353 | % | |||||||||||||||||||||||||||||||||||||||||||
49
| December 31, |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
|
|
| 2014 |
| |||||
Non-accrual loans |
| $ | 5,488 |
|
| $ | 2,837 |
|
| $ | 3,630 |
|
| $ | 908 |
|
|
|
| $ | 835 |
|
Past due loans 90 days or more and still accruing interest |
|
| 208 |
|
|
| 205 |
|
|
| 2,552 |
|
|
| 2,378 |
|
|
|
|
| 316 |
|
Total nonperforming loans |
|
| 5,696 |
|
|
| 3,042 |
|
|
| 6,182 |
|
|
| 3,286 |
|
|
|
|
| 1,151 |
|
Foreclosed real estate (“OREO”) and repossessed assets |
|
| - |
|
|
| 1,503 |
|
|
| - |
|
|
| 200 |
|
|
|
|
| 715 |
|
Total nonperforming assets |
| $ | 5,696 |
|
| $ | 4,545 |
|
| $ | 6,182 |
|
| $ | 3,486 |
|
|
|
| $ | 1,866 |
|
Total nonperforming loans as a percentage of total loans |
|
| 0.2 | % |
|
| 0.1 | % |
|
| 0.3 | % |
|
| 0.3 | % |
|
|
|
| 0.1 | % |
Total nonperforming assets as a percentage of total assets |
|
| 0.1 | % |
|
| 0.1 | % |
|
| 0.2 | % |
|
| 0.2 | % |
|
|
|
| 0.1 | % |
Allowance for loan losses as a percentage of nonperforming loans |
|
| 412 | % |
|
| 698 | % |
|
| 268 | % |
|
| 353 | % |
|
|
|
| 580 | % |
As of December 31, 2018,2019, there were twelvetwenty loans on non-accrualnonaccrual status. Please refer to the flowing table below.
|
| Total Amount |
|
| Percentage of Total Non-Accrual Loans |
|
| Number of Non-Accrual Loans |
| ||||||||||||||||||||
| Nonaccrual loans by type | Nonaccrual loans by type | Nonaccrual Loans | Percentage of Total Nonaccrual Loans | Number of Nonaccrual Loans | |||||||||||||||||||||||||
Construction loans |
| $ | 2,298 |
|
|
| 41.9 | % |
|
| 4 |
| Construction loans | $ | 30 | 0.1 | % | 1 | |||||||||||
Residential loans |
|
| 3,190 |
|
|
| 58.1 | % |
|
| 8 |
| Residential loans | 2,477 | 9.2 | % | 8 | ||||||||||||
Total non-accrual loans |
| $ | 5,488 |
|
|
| 100.0 | % |
|
| 12 |
| |||||||||||||||||
| Commercial & Industrial | Commercial & Industrial | 24,528 | 90.7 | % | 11 | ||||||||||||||||||||||||
| Total nonaccrual loans | Total nonaccrual loans | $ | 27,035 | 100.0 | % | 20 | |||||||||||||||||||||||
50
|
| (Dollars in Thousands) |
| Dollars in Thousands | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Pass |
|
| Special Mention |
|
| Substandard |
|
| Doubtful |
|
| Total |
| Pass | Special Mention | Substandard | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real estate loans: | ||||||||||||||||||||||||||||||||||||||||||||||
Construction and land development |
| $ | 580,468 |
|
| $ | 1,416 |
|
| $ | 2,556 |
|
| $ | — |
|
| $ | 584,440 |
| Construction and land development | $ | 591,293 | $ | 248 | $ | — | $ | 591,541 | ||||||||||||||||||||||||||||||||||||||
Commercial |
|
| 787,486 |
|
|
| 14,774 |
|
|
| — |
|
|
| — |
|
|
| 802,260 |
| Commercial | 991,151 | 997 | 1,764 | 993,912 | ||||||||||||||||||||||||||||||||||||||||||
Residential |
|
| 676,266 |
|
|
| 1,352 |
|
|
| 5,264 |
|
|
| — |
|
|
| 682,882 |
| Residential | 637,533 | 825 | 5,243 | 643,601 | ||||||||||||||||||||||||||||||||||||||||||
Total real estate |
|
| 2,044,220 |
|
|
| 17,542 |
|
|
| 7,820 |
|
|
| — |
|
|
| 2,069,582 |
| Total real estate | 2,219,977 | 2,070 | 7,007 | 2,229,054 | ||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial |
|
| 553,589 |
|
|
| 8,313 |
|
|
| 30,891 |
|
|
| — |
|
|
| 592,793 |
| Commercial and industrial | 539,442 | 943 | 42,256 | 582,641 | ||||||||||||||||||||||||||||||||||||||||||
Consumer and other |
|
| 5,567 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 5,568 |
| Consumer and other | 4,769 | — | — | 4,769 | ||||||||||||||||||||||||||||||||||||||||||
Total |
| $ | 2,603,376 |
|
| $ | 25,856 |
|
| $ | 38,711 |
|
| $ | — |
|
| $ | 2,667,943 |
| Total | $ | 2,764,188 | $ | 3,013 | $ | 49,263 | $ | 2,816,464 | ||||||||||||||||||||||||||||||||||||||
2018.
Investment Securities
core bank.
2019.
2019.
|
| December 31, 2018 |
|
| December 31, 2017 |
| December 31, 2019 | December 31, 2018 | |||||||||||
U.S. government sponsored entities and agencies |
| $ | 21,888 |
|
| $ | 19,961 |
| U.S. government sponsored entities and agencies | $ | — | $ | 21,888 | ||||||
U.S. Treasury securities |
|
| 253,014 |
|
|
| 228,909 |
| U.S. Treasury securities | — | 253,014 | ||||||||
Mortgage-backed securities: residential |
|
| 580,699 |
|
|
| 632,566 |
| Mortgage-backed securities: residential | 375,943 | 580,699 | ||||||||
Mortgage-backed securities: commercial |
|
| — |
|
|
| 5,074 |
| Mortgage-backed securities: commercial | 17,780 | — | ||||||||
Asset-backed securities |
|
| 24,844 |
|
|
| — |
| Asset-backed securities | — | 24,844 | ||||||||
Corporate Notes |
|
| 12,424 |
|
|
| — |
| Corporate Notes | 33,361 | 12,424 | ||||||||
State and political subdivisions |
|
| 137,799 |
|
|
| 113,371 |
| State and political subdivisions | 225,048 | 137,799 | ||||||||
Total |
| $ | 1,030,668 |
|
| $ | 999,881 |
| Total | $ | 652,132 | $ | 1,030,668 | ||||||
|
| December 31, 2018 |
|
| December 31, 2017 |
| ||
U.S. government sponsored entities and agencies |
| $ | — |
|
| $ | — |
|
Mortgage backed securities: residential |
|
| 75,944 |
|
|
| 93,366 |
|
State and political subdivisions |
|
| 45,673 |
|
|
| 121,490 |
|
Total |
| $ | 121,617 |
|
| $ | 214,856 |
|
| December 31, 2019 | December 31, 2018 | ||||||||||
| Mortgage backed securities: residential | $ | — | $ | 75,944 | |||||||
| State and political subdivisions | — | 45,673 | |||||||||
| Total | $ | — | $ | 121,617 | |||||||
|
| (Dollars in Thousands) |
| (Dollars in Thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| One Year or Less |
|
| Over One Year Through Five Years |
|
| Over Five Years Through Ten Years |
|
| Over Ten Years |
|
| Total Maturities |
|
| Fair Value |
| One Year or Less | Over One Year Through Five Years | Over Five Years Through Ten Years | Over Ten Years | Total Maturities | Fair Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities: residential(1) |
| $ | — |
|
| $ | 6,141 |
|
| $ | 65,642 |
|
| $ | 524,983 |
|
| $ | 596,766 |
|
| $ | 580,699 |
| Mortgage-backed securities: residential(1) | $ | 50 | $ | 158,091 | $ | 177,557 | $ | 39,225 | $ | 374,923 | $ | 375,943 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities |
|
| 253,015 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| $ | 253,015 |
|
|
| 253,014 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. government sponsored entities and agencies |
|
| 20,544 |
|
|
| 245 |
|
|
| 720 |
|
|
| 490 |
|
|
| 21,999 |
|
|
| 21,888 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset-backed securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,744 |
|
|
| 25,744 |
|
|
| 24,844 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities: commercial | Mortgage-backed securities: commercial | — | 9,860 | 7,998 | — | 17,858 | 17,780 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate Notes |
|
| — |
|
|
| — |
|
|
| 12,480 |
|
|
| — |
|
|
| 12,480 |
|
|
| 12,424 |
| Corporate Notes | — | 26,413 | 6,412 | — | 32,825 | 33,361 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
State and political subdivisions |
|
| — |
|
|
| 1,483 |
|
|
| 3,926 |
|
|
| 136,023 |
|
|
| 141,432 |
|
|
| 137,799 |
| State and political subdivisions | 3,733 | 3,313 | 177,982 | 37,596 | 222,624 | 225,048 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total available-for-sale securities |
| $ | 273,559 |
|
| $ | 7,869 |
|
| $ | 82,768 |
|
| $ | 687,240 |
|
| $ | 1,051,436 |
|
| $ | 1,030,668 |
| Total available-for-sale securities | $ | 3,783 | $ | 197,677 | $ | 369,949 | $ | 76,821 | $ | 648,230 | $ | 652,132 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Percent of total |
|
| 26.02 | % |
|
| 0.75 | % |
|
| 7.87 | % |
|
| 65.36 | % |
|
| 100.00 | % |
|
|
|
| Percent of total | 0.58 | % | 30.50 | % | 57.07 | % | 11.85 | % | 100.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted average yield(2) |
|
| 2.44 | % |
|
| 2.57 | % |
|
| 2.82 | % |
|
| 3.47 | % |
|
| 3.15 | % |
|
|
|
| Weighted average yield(2) | 2.87 | % | 2.85 | % | 3.74 | % | 3.95 | % | 3.48 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1)Mortgage-backed securities are grouped into average lives based on |
|
|
The table below presents the maturities and yield characteristics of the HTM securities as of December 31, 2018. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or2019 prepayment penalties.
|
| (Dollars in Thousands) |
| |||||||||||||||||||||
|
| One Year or Less |
|
| Over One Year Through Five Years |
|
| Over Five Years Through Ten Years |
|
| Over Ten Years |
|
| Total Maturities |
|
| Fair Value |
| ||||||
Mortgage-backed securities: residential(1) |
| $ | — |
|
| $ | — |
|
| $ | 553 |
|
| $ | 75,391 |
|
| $ | 75,944 |
|
| $ | 72,906 |
|
State and political subdivisions |
|
| 500 |
|
|
| 502 |
|
|
| 1,051 |
|
|
| 43,620 |
|
|
| 45,673 |
|
|
| 46,049 |
|
Total held-to-maturity securities |
| $ | 500 |
|
| $ | 502 |
|
| $ | 1,604 |
|
| $ | 119,011 |
|
| $ | 121,617 |
|
| $ | 118,955 |
|
Percent of total |
|
| 0.41 | % |
|
| 0.41 | % |
|
| 1.32 | % |
|
| 97.86 | % |
|
| 100.00 | % |
|
|
|
|
Weighted average yield(2) |
|
| 4.31 | % |
|
| 3.82 | % |
|
| 3.40 | % |
|
| 3.70 | % |
|
| 3.70 | % |
|
|
|
|
|
|
|
|
Securities pledged at December 31, 20182019 and 20172018 had a carrying amount of $939,440$294,585 and $975,518,$939,440, respectively, and were pledged to secure public deposits and repurchase agreements.
1.9%.
|
| 2018 |
|
| 2017 |
| ||||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
| ||||
Acquired intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles |
| $ | 3,617 |
|
| $ | (2,665 | ) |
| $ | 3,060 |
|
| $ | (2,053 | ) |
| 2019 | 2018 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||||||||||||||||||
| Acquired intangible assets: | |||||||||||||||||||||||||||||||||||
| Core deposit intangibles | $ | 3,617 | $ | (3,169) | $ | 3,617 | $ | (2,665) | |||||||||||||||||||||||||||
2019 |
| $ | 504 |
|
2020 |
| $ | 304 |
|
2021 |
| $ | 121 |
|
2022 |
| $ | 23 |
|
2023 |
| $ | — |
|
| 2020 | $ | 304 | |||
| 2021 | 121 | ||||
| 2022 | 23 | ||||
2018.
|
| 2018 |
|
| 2017 |
|
| 2016 |
| 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In thousands, except percentages |
| Average Balance |
|
| Average Rate |
|
| Average Balance |
|
| Average Rate |
|
| Average Balance |
|
| Average Rate |
| In thousands, except percentages | Average Balance | Average Rate | Average Balance | Average Rate | Average Balance | Average Rate | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest-bearing deposits |
| $ | 297,226 |
|
|
| — | % |
| $ | 252,276 |
|
|
| — | % |
| $ | 210,780 |
|
|
| — | % | Non-interest-bearing deposits | $ | 317,339 | — | % | $ | 297,226 | — | % | $ | 252,276 | — | % | ||||||||||||||||||||||||||||||||||||||||
Interest-bearing checking accounts |
|
| 829,978 |
|
|
| 1.62 |
|
|
| 624,612 |
|
|
| 0.80 |
|
|
| 332,285 |
|
|
| 0.42 |
| Interest-bearing checking accounts | 765,218 | 1.98 | 829,978 | 1.62 | 624,612 | 0.80 | ||||||||||||||||||||||||||||||||||||||||||||||
Money market deposit accounts |
|
| 769,003 |
|
|
| 1.77 |
|
|
| 627,140 |
|
|
| 1.04 |
|
|
| 617,036 |
|
|
| 0.62 |
| Money market deposit accounts | 1,085,619 | 2.14 | 769,003 | 1.77 | 627,140 | 1.04 | ||||||||||||||||||||||||||||||||||||||||||||||
Other savings |
|
| 47,275 |
|
|
| 0.30 |
|
|
| 54,952 |
|
|
| 0.31 |
|
|
| 49,525 |
|
|
| 0.33 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Savings | Savings | 39,299 | 0.28 | 47,275 | 0.30 | 54,952 | 0.31 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Time deposits |
|
| 1,400,250 |
|
|
| 1.86 |
|
|
| 1,228,676 |
|
|
| 1.28 |
|
|
| 944,086 |
|
|
| 0.93 |
| Time deposits | 974,190 | 2.35 | 1,400,250 | 1.86 | 1,228,676 | 1.28 | ||||||||||||||||||||||||||||||||||||||||||||||
|
| $ | 3,343,732 |
|
|
| 1.59 | % |
| $ | 2,787,656 |
|
|
| 0.98 | % |
| $ | 2,153,712 |
|
|
| 0.66 | % | $ | 3,181,665 | 1.93 | % | $ | 3,343,732 | 1.59 | % | $ | 2,787,656 | 0.98 | % | |||||||||||||||||||||||||||||||||||||||||
|
| December 31, 2018 |
| |
Three months or less |
| $ | 323,109 |
|
Over three months through six months |
|
| 65,822 |
|
Over six months through 12 months |
|
| 94,598 |
|
Over one year through three years |
|
| 102,552 |
|
Over three years through five years |
|
| 51,546 |
|
Over five years |
|
| — |
|
Total |
| $ | 637,627 |
|
| December 31, 2019 | |||||
| Three months or less | $ | 33,327 | |||
| Over three months through six months | 61,326 | ||||
| Over six months through 12 months | 83,827 | ||||
| Over one year through three years | 128,630 | ||||
| Over three years through five years | 15,933 | ||||
| Over five years | — | ||||
| Total | $ | 323,043 | |||
Securitiesbanks and no securities sold under agreements to repurchase had an outstanding balance of $31,004 as of December 31, 2017, compared to $0 as of December 31, 2018. Securities sold under agreements to repurchase are financing arrangements that typically mature daily. The weighted average rate for repurchase agreements was 1.14% as of December 31, 2017.
repurchase.
54
Scheduled Maturities |
| Amount |
|
| Weighted Average Rates |
| ||
2019 |
| $ | 313,500 |
|
|
| 2.24 | % |
2020 |
|
| 55,000 |
|
|
| 1.72 | % |
Thereafter |
|
| — |
|
|
| 0.00 | % |
Total |
| $ | 368,500 |
|
|
| 2.16 | % |
| Scheduled Maturities | Amount | Weighted Average Rates | |||||||||
| 2020 | $ | 155,000 | 2.41 | % | |||||||
| March 2016 Subordinated Notes |
|
| June 2016 Subordinated Notes |
| March 2016 Subordinated Notes | June 2016 Subordinated Notes | |||||||||||
Principal amount issued | $ | 40,000 |
|
| $ | 20,000 |
| Principal amount issued | $40,000 | $20,000 | ||||||||
Maturity date † | March 30, 2026 |
|
| July 1, 2026 |
| Maturity date † | March 30, 2026 | July 1, 2026 | ||||||||||
Initial fixed interest rate | 6.875% |
|
| 7.00% |
| Initial fixed interest rate | 6.875% | 7.00% | ||||||||||
Initial interest rate period | 5 years |
|
| 5 years |
| Initial interest rate period | 5 years | 5 years | ||||||||||
First interest rate change date † | March 30, 2021 |
|
| July 1, 2021 |
| First interest rate change date † | March 30, 2021 | July 1, 2021 | ||||||||||
Interest payment frequency through year five* | Semiannually |
|
| Semiannually |
| |||||||||||||
Interest payment frequency after five years* | Quarterly |
|
| Quarterly |
| |||||||||||||
| Interest payment frequency through year five | Interest payment frequency through year five | Semiannually | Semiannually | |||||||||||||||
| Interest payment frequency after five years | Interest payment frequency after five years | Quarterly | Quarterly | |||||||||||||||
Interest repricing index and margin | 3-month LIBOR plus 5.636% |
|
| 3-month LIBOR plus 6.04% |
| Interest repricing index and margin | 3-month LIBOR plus 5.636% | 3-month LIBOR plus 6.04% | ||||||||||
Repricing frequency | Quarterly |
|
| Quarterly |
| Repricing frequency | Quarterly | Quarterly | ||||||||||
* Prior to January 14, 2019, the Company could not make interest payments on either series of subordinated notes without prior written approval from its primary regulatory agencies. Banking regulators terminated, effective as of January 14, 2019, the Memorandum of Understanding previously entered into with the Bank.
55
Prompt corrective action
56
|
| Actual |
|
| Required For Capital Adequacy Purposes |
|
| To Be Well Capitalized Under Prompt Corrective Action Regulations |
| |||||||||||||||
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-Level |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company common equity Tier 1 capital to RWA |
| $ | 367,096 |
|
|
| 12.18 | % |
| $ | 135,598 |
|
|
| 4.50 | % |
| N/A |
|
| N/A |
| ||
Company Total Capital to RWA |
| $ | 449,325 |
|
|
| 14.91 | % |
| $ | 241,064 |
|
|
| 8.00 | % |
| N/A |
|
| N/A |
| ||
Tier 1 (Core) Capital to RWA |
| $ | 367,096 |
|
|
| 12.18 | % |
| $ | 180,798 |
|
|
| 6.00 | % |
| N/A |
|
| N/A |
| ||
Tier 1 (Core) Capital to average assets |
| $ | 367,096 |
|
|
| 8.76 | % |
| $ | 167,553 |
|
|
| 4.00 | % |
| N/A |
|
| N/A |
| ||
Bank-Level |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity Tier 1 capital to RWA |
| $ | 421,335 |
|
|
| 13.98 | % |
| $ | 135,613 |
|
|
| 4.50 | % |
| $ | 195,886 |
|
|
| 6.50 | % |
Total Capital to RWA |
| $ | 444,871 |
|
|
| 14.76 | % |
| $ | 241,090 |
|
|
| 8.00 | % |
| $ | 301,363 |
|
|
| 10.00 | % |
Tier 1 (Core) Capital to RWA |
| $ | 421,335 |
|
|
| 13.98 | % |
| $ | 180,818 |
|
|
| 6.00 | % |
| $ | 241,090 |
|
|
| 8.00 | % |
Tier 1 (Core) Capital to average assets |
| $ | 421,335 |
|
|
| 10.07 | % |
| $ | 167,420 |
|
|
| 4.00 | % |
| $ | 209,275 |
|
|
| 5.00 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-Level |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity Tier 1 capital to RWA |
| $ | 299,229 |
|
|
| 11.37 | % |
| $ | 118,479 |
|
|
| 4.50 | % |
| N/A |
|
| N/A |
| ||
Total Capital to RWA |
| $ | 379,083 |
|
|
| 14.40 | % |
| $ | 210,629 |
|
|
| 8.00 | % |
| N/A |
|
| N/A |
| ||
Tier 1 (Core) Capital to RWA |
| $ | 299,229 |
|
|
| 11.37 | % |
| $ | 157,972 |
|
|
| 6.00 | % |
| N/A |
|
| N/A |
| ||
Tier 1 (Core) Capital to average assets |
| $ | 299,229 |
|
|
| 8.25 | % |
| $ | 145,100 |
|
|
| 4.00 | % |
| N/A |
|
| N/A |
| ||
Bank-Level |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity Tier 1 capital to RWA |
| $ | 353,512 |
|
|
| 13.43 | % |
| $ | 118,489 |
|
|
| 4.50 | % |
| $ | 171,151 |
|
|
| 6.50 | % |
Total Capital to RWA |
| $ | 374,851 |
|
|
| 14.24 | % |
| $ | 210,647 |
|
|
| 8.00 | % |
| $ | 263,309 |
|
|
| 10.00 | % |
Tier 1 (Core) Capital to RWA |
| $ | 353,512 |
|
|
| 13.43 | % |
| $ | 157,985 |
|
|
| 6.00 | % |
| $ | 210,647 |
|
|
| 8.00 | % |
Tier 1 (Core) Capital to average assets |
| $ | 353,512 |
|
|
| 9.75 | % |
| $ | 145,003 |
|
|
| 4.00 | % |
| $ | 181,253 |
|
|
| 5.00 | % |
| Actual | Required For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Regulations | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company-Level | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common equity Tier 1 capital to RWA | $ | 388,199 | 11.9 | % | $ | 146,711 | 4.5 | % | N/A | N/A | |||||||||||||||||||||||||||||||||||||||||||
| Total Capital to RWA | $ | 487,966 | 15.0 | % | $ | 260,819 | 8.0 | % | N/A | N/A | |||||||||||||||||||||||||||||||||||||||||||
| Tier 1 (Core) Capital to RWA | $ | 388,199 | 11.9 | % | $ | 195,614 | 6.0 | % | N/A | N/A | |||||||||||||||||||||||||||||||||||||||||||
| Tier 1 (Core) Capital to average assets | $ | 388,199 | 10.3 | % | $ | 151,456 | 4.0 | % | N/A | N/A | |||||||||||||||||||||||||||||||||||||||||||
| Bank-Level | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common equity Tier 1 capital to RWA | $ | 441,348 | 13.6 | % | $ | 146,491 | 4.5 | % | $ | 211,599 | 6.5 | % | |||||||||||||||||||||||||||||||||||||||||
| Total Capital to RWA | $ | 482,183 | 14.8 | % | $ | 260,429 | 8.0 | % | $ | 325,536 | 10.0 | % | |||||||||||||||||||||||||||||||||||||||||
| Tier 1 (Core) Capital to RWA | $ | 441,348 | 13.6 | % | $ | 195,322 | 6.0 | % | $ | 260,429 | 8.0 | % | |||||||||||||||||||||||||||||||||||||||||
| Tier 1 (Core) Capital to average assets | $ | 441,348 | 11.7 | % | $ | 151,255 | 4.0 | % | $ | 189,069 | 5.0 | % | |||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company-Level | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common equity Tier 1 capital to RWA | $ | 367,096 | 12.2 | % | $ | 135,598 | 4.5 | % | N/A | N/A | |||||||||||||||||||||||||||||||||||||||||||
| Total Capital to RWA | $ | 449,325 | 14.9 | % | $ | 241,064 | 8.0 | % | N/A | N/A | |||||||||||||||||||||||||||||||||||||||||||
| Tier 1 (Core) Capital to RWA | $ | 367,096 | 12.2 | % | $ | 180,798 | 6.0 | % | N/A | N/A | |||||||||||||||||||||||||||||||||||||||||||
| Tier 1 (Core) Capital to average assets | $ | 367,096 | 8.8 | % | $ | 167,553 | 4.0 | % | N/A | N/A | |||||||||||||||||||||||||||||||||||||||||||
| Bank-Level | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common equity Tier 1 capital to RWA | $ | 421,335 | 14.0 | % | $ | 135,613 | 4.5 | % | $ | 195,886 | 6.5 | % | |||||||||||||||||||||||||||||||||||||||||
| Total Capital to RWA | $ | 444,871 | 14.8 | % | $ | 241,090 | 8.0 | % | $ | 301,363 | 10.0 | % | |||||||||||||||||||||||||||||||||||||||||
| Tier 1 (Core) Capital to RWA | $ | 421,335 | 14.0 | % | $ | 180,818 | 6.0 | % | $ | 241,090 | 8.0 | % | |||||||||||||||||||||||||||||||||||||||||
| Tier 1 (Core) Capital to average assets | $ | 421,335 | 10.1 | % | $ | 167,420 | 4.0 | % | $ | 209,275 | 5.0 | % | |||||||||||||||||||||||||||||||||||||||||
buffer
.
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| (Dollars in Thousands) |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| One Year or Less |
|
| More Than One Year but Less Than Three years |
|
| More Than Three Years but Less Than Five Years |
|
| Five Years or More |
|
| Total |
| (Dollars in Thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2018 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
| One Year or Less | More Than One Year but Less Than Three years | More Than Three Years but Less Than Five Years | Five Years or More | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| As of December 31, 2019 | As of December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Time deposits |
| $ | 1,100,319 |
|
| $ | 178,331 |
|
| $ | 47,443 |
|
| $ | — |
|
| $ | 1,326,093 |
| Time deposits | $ | 374,096 | $ | 331,900 | $ | 43,033 | $ | — | $ | 749,029 | ||||||||||||||||||||||||||||||||||||||||||
FHLB advances |
|
| 313,500 |
|
|
| 55,000 |
|
|
| — |
|
|
| — |
|
|
| 368,500 |
| FHLB advances | 155,000 | — | — | — | 155,000 | |||||||||||||||||||||||||||||||||||||||||||||||
Subordinated notes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 60,000 |
|
|
| 60,000 |
| Subordinated notes | — | — | — | 60,000 | 60,000 | |||||||||||||||||||||||||||||||||||||||||||||||
Minimum operating lease commitments |
|
| 4,841 |
|
|
| 9,720 |
|
|
| 4,856 |
|
|
| 41,063 |
|
|
| 60,480 |
| Minimum operating lease commitments | 4,849 | 9,727 | 9,786 | 31,277 | 55,639 | |||||||||||||||||||||||||||||||||||||||||||||||
Capital lease commitment |
|
| 272 |
|
|
| 556 |
|
|
| 284 |
|
|
| 3,421 |
|
|
| 4,533 |
| Capital lease commitment | 276 | 564 | 581 | 2,840 | 4,261 | |||||||||||||||||||||||||||||||||||||||||||||||
Total |
| $ | 1,418,932 |
|
| $ | 243,607 |
|
| $ | 52,583 |
|
| $ | 104,484 |
|
| $ | 1,819,606 |
| Total | $ | 534,221 | $ | 342,191 | $ | 53,400 | $ | 94,117 | $ | 1,023,929 | ||||||||||||||||||||||||||||||||||||||||||
57
Repricing Within (In Thousands, Except Percentages) Total 1-90 Days 3 months to 12 months 1 to 5 years Over 5 years Earning assets: Loans, net of unearned income† $ 2,659,911 $ 1,196,075 $ 143,018 $ 667,496 $ 653,322 Available for sale securities 1,030,668 44,902 232,162 330,366 423,238 Held to maturity securities 121,617 500 214 5,740 115,163 Loans held for sale 11,103 — — — 11,103 Interest-bearing deposits at other financial institutions 245,184 245,184 — — — Certificates of deposit at other financial institutions 3,594 490 494 2,610 — Total earning assets 4,072,077 1,487,151 375,888 1,006,212 1,202,826 Interest-bearing liabilities: Deposits: Interest-bearing checking accounts 802,363 802,363 — — — Money market deposit accounts 970,725 970,725 — — — Other savings 42,282 42,282 — — — IRA’s and certificates of deposit, $250,000 and over 918,725 246,542 542,188 129,995 — IRA’s and certificates of deposit, under $250,000 407,132 116,199 195,394 95,539 — Federal funds purchased — — — — — Securities sold under agreement to repurchase — — — — — FHLB borrowings 368,500 112,000 201,500 55,000 — Subordinated notes 58,693 — — 58,693 — Total interest- bearing liabilities 3,568,420 2,290,111 939,082 339,227 — Interest-sensitivity gap $ (802,960 ) $ (563,194 ) $ 666,985 $ 1,202,826 Cumulative gap $ (802,960 ) $ (1,366,154 ) $ (699,169 ) $ 503,657 Interest-sensitivity gap as % of total average assets (19.53 )% (13.69 )% 16.22 % 29.25 % Cumulative gap as % of total average assets (19.53 )% (33.22 )% (17.00 )% 12.25 % For more detail regarding funding sources see Note 10 and Note 11 of the consolidated financial statements. $55,869. •“Common equity” is defined as total shareholders’ equity at end of period less the liquidation preference value of the preferred stock; •“Tangible common equity” is common equity less goodwill and other intangible assets; •“Total tangible assets” is defined as total assets less goodwill and other intangible assets; •“Other intangible assets” is defined as the sum of core deposit intangible and SBA servicing rights; •“Tangible book value per share” is defined as tangible common equity divided by total common shares outstanding. This measure is important to investors interested in changes from period-to-period in book value per share exclusive of changes in intangible assets; •“Tangible common equity ratio” is defined as the ratio of tangible common equity divided by total tangible assets. We believe that this measure is important to many investors in the marketplace who are interested in relative changes from period-to period in common equity and total assets, each exclusive of changes in intangible assets; •“Return on Average Tangible Common Equity” is defined as net income available to common shareholders divided by average tangible common equity; •“Adjusted yield on loans” is our yield on loans after excluding loan accretion from our acquired loan portfolio. Our management uses this metric to better assess the impact of purchase accounting on our yield on loans, as the effect of loan discount accretion is expected to decrease as the acquired loans mature or roll off of our balance sheet; •“Net interest margin” is defined as annualized net interest income divided by average interest-earning assets for the period; and •“Adjusted net interest margin” is net interest margin after excluding loan accretion from the acquired loan portfolio and premiums for acquired time deposits. Our management uses this metric to better assess the As of or for the Years Ended December 31, 2018 December 31, 2017 December 31, 2016 (Amounts in thousands, except share/per share data and percentages) Total shareholders’ equity $ 372,740 $ 304,550 $ 270,258 Less: Preferred stock — — — Total common equity 372,740 304,550 270,258 Less: Goodwill and other intangible assets 19,128 10,181 10,633 Tangible common equity $ 353,612 $ 294,369 $ 259,625 Common shares outstanding 14,538,085 13,237,128 13,036,954 Tangible book value per share $ 24.32 $ 22.24 $ 19.91 Net income available to common shareholders $ 34,505 $ 28,083 $ 28,034 Average tangible common equity 325,012 279,098 194,529 Return on average tangible common equity 10.62 % 10.06 % 14.41 % Efficiency Ratio: Net interest income $ 105,503 $ 97,046 $ 81,584 Noninterest income 10,662 14,721 15,140 Operating revenue 116,165 111,767 96,724 Expense Total noninterest expense 73,478 60,824 51,681 Efficiency ratio 63.25 % 54.42 % 53.43 % sensitivity and fall within a desirably neutral interest rate risk positioning. Projected Interest Rate Change Net Interest Income Net Interest Income $ Change from Base % Change from Base -200 104,783 3,687 3.65 -100 103,093 1,997 1.98 Base 101,096 - - +100 98,499 (2,597 ) (2.57 ) +200 95,405 (5,691 ) (5.63 ) +300 92,698 (8,398 ) (8.31 ) +400 89,532 (11,564 ) (11.44 ) 2019 in ensuring that the information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and were not operating in an effective manner to ensure that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Company's internal control over financial reporting as of December 31, 2019. Exhibit No. Description of Exhibit 2.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 4.1 4.3 4.4 4.5 4.6 10.2 Franklin Financial Network, Inc. and the several purchasers identified therein (incorporated herein by reference to Exhibit 10.1 to Form 8-K (File No. 001-36895) filed with the Securities and Exchange Commission on June 30, 2016). Inline XBRL Instance Document † Filed herewith. †† Furnished herewith. * Indicates a management contract or compensatory plan or arrangement. /s/ J. Myers Jones, III J. Myers Jones, III /s/ J. Myers Jones, III (Principal Executive Officer) /s/ Christopher J. Black Executive Vice President and Chief Financial Officer /s/ Jimmy E. Allen Director March Jimmy E. Allen /s/ Director March /s/ Dr. David H. Kemp Director March Dr. Anil C. Patel /s/ Director March /s/ Pamela J. Stephens Director March Pamela J. Stephens /s/ Melody J. Sullivan Director March /s/ Gregory E. Waldron Director March Gregory E. Waldron /s/ Benjamin P. Wynd Director March Benjamin P. Wynd and Shareholders of Franklin Financial Network, Inc. 2018 2018 2017 ASSETS Cash and due from financial institutions $ 280,212 $ 251,543 Certificates of deposit at other financial institutions 3,594 2,855 Securities available for sale 1,030,668 999,881 Securities held to maturity (fair value 2018—$118,955 and 2017—$217,608) 121,617 214,856 Loans held for sale, at fair value 11,103 12,024 Loans held for investment, net of deferred fees 2,665,399 2,256,608 Allowance for loan losses (23,451 ) (21,247 ) Net loans 2,641,948 2,235,361 Restricted equity securities, at cost 21,831 18,492 Premises and equipment, net 12,371 11,281 Accrued interest receivable 13,337 11,947 Bank owned life insurance 55,239 49,085 Deferred tax asset 13,189 10,007 Foreclosed assets - 1,503 Servicing rights, net 3,403 3,620 Goodwill 18,176 9,124 Core deposit intangible, net 952 1,007 Other assets 21,799 10,940 Total assets $ 4,249,439 $ 3,843,526 LIABILITIES AND EQUITY Deposits Non-interest bearing $ 290,580 $ 272,172 Interest bearing 3,141,227 2,895,056 Total deposits 3,431,807 3,167,228 Federal funds purchased and repurchase agreements — 31,004 Federal Home Loan Bank advances 368,500 272,000 Subordinated notes, net 58,693 58,515 Accrued interest payable 4,700 2,769 Other liabilities 12,906 7,357 Total liabilities 3,876,606 3,538,873 Equity Preferred stock, no par value: 1,000,000 shares authorized; Senior non-cumulative preferred stock, no par value, $10,000 liquidation value: Series A, 10,000 shares authorized; no shares outstanding at December 31, 2018 and December 31, 2017 — — Common stock, no par value: 30,000,000 shares authorized; 14,538,085 and 13,237,128 issued and outstanding at December 31, 2018 and 2017, respectively 264,905 222,665 Retained earnings 123,176 88,671 Accumulated other comprehensive loss (15,341 ) (6,786 ) Total shareholders’ equity 372,740 304,550 Noncontrolling interest in consolidated subsidiary 93 103 Total equity $ 372,833 $ 304,653 Total liabilities and equity $ 4,249,439 $ 3,843,526 2017 2018 2017 2016 Interest income and dividends Loans, including fees $ 131,854 $ 100,470 $ 78,236 Securities: Taxable 26,533 21,309 15,306 Tax-exempt 7,384 8,593 5,609 Dividends on restricted equity securities 1,250 928 500 Federal funds sold and other 2,924 1,153 256 Total interest income 169,945 132,453 99,907 Interest expense Deposits 53,326 27,464 14,234 Federal funds purchased and repurchase agreements 419 407 303 Federal Home Loan Bank advances 6,369 3,215 884 Subordinated notes and other borrowings 4,328 4,321 2,902 Total interest expense 64,442 35,407 18,323 Net interest income 105,503 97,046 81,584 Provision for loan losses 2,254 4,313 5,240 Net interest income after provision for loan losses 103,249 92,733 76,344 Noninterest income Service charges on deposit accounts 217 154 185 Other service charges and fees 3,151 3,041 3,041 Net gain on sale of loans 6,286 6,779 7,183 Wealth management 2,939 2,577 1,894 Loan servicing fees, net 441 336 22 Gain (loss) on sales and calls of securities (4,160 ) 896 2,172 Net gain (loss) on foreclosed assets 116 (7 ) 40 Other 1,672 945 603 Total noninterest income 10,662 14,721 15,140 Noninterest expense Salaries and employee benefits 43,837 35,268 30,029 Occupancy and equipment 11,628 9,219 7,627 FDIC assessment expense 3,448 3,680 2,068 Marketing 1,092 965 762 Professional fees 4,362 3,395 3,546 Other 9,111 8,297 7,649 Total noninterest expense 73,478 60,824 51,681 Income before income tax expense 40,433 46,630 39,803 Income tax expense 5,912 18,531 11,746 Net income 34,521 28,099 28,057 Dividends paid on Series A preferred stock — — (23 ) Earnings attributable to noncontrolling interest (16 ) (16 ) — Net income available to common shareholders $ 34,505 $ 28,083 $ 28,034 Earnings per share: Basic $ 2.44 $ 2.14 $ 2.56 Diluted 2.34 2.04 2.42 2017 2018 2017 2016 Net income $ 34,521 $ 28,099 $ 28,057 Other comprehensive income (loss), net of tax: Unrealized gains/losses on securities: Unrealized holding gain (loss) arising during the period (15,739 ) 4,015 (9,609 ) Reclassification adjustment for gains (losses) on sales, calls, and prepayments of securities included in net income 4,160 (896 ) (2,172 ) Net unrealized gains (losses) (11,579 ) 3,119 (11,781 ) Tax effect, includes ($1,087), $351 and $852, respectively, income tax (benefit) expense from sales of securities 3,024 (1,221 ) 4,619 Total other comprehensive income (loss) (8,555 ) 1,898 (7,162 ) Comprehensive income $ 25,966 $ 29,997 $ 20,895 See accompanying notes to consolidated financial statements. 2017 Preferred Common Stock Retained Accumulated Other Comprehensive Noncontrolling Total Stock Shares Amount Earnings Income (Loss) Interest Equity Balance at January 1, 2016 $ 10,000 10,571,377 $ 147,784 $ 31,352 $ (320 ) $ — $ 188,816 Exercise of common stock options, includes net settlement of shares — 190,389 1,571 — — — 1,571 Exercise of common stock warrants — 8,450 101 — — — 101 Redemption of Series A preferred stock (10,000 ) — — — — — (10,000 ) Dividends paid on Series A preferred stock — — — (23 ) — — (23 ) Issuance of restricted stock, net of forfeitures — 34,001 — — — — - Stock based compensation expense, net of forfeitures — — 1,641 — — — 1,641 Stock issued related to public offering, net of stock issuance costs of $4,203 — 2,242,500 67,557 — — — 67,557 Stock issued in conjunction with 401(k) employer match, net of distributions — (9,763 ) (300 ) — — — (300 ) Issuance of preferred stock of consolidated subsidiary to noncontrolling interest, net of issuance costs — — — — — 103 103 Net income — — — 28,057 — — 28,057 Other comprehensive loss — — — — (7,162 ) — (7,162 ) Balance at December 31, 2016 $ — 13,036,954 $ 218,354 $ 59,386 $ (7,482 ) $ 103 $ 270,361 Exercise of common stock options, includes net settlement of shares — 166,894 1,615 — — — 1,615 Exercise of common stock warrants — 12,461 150 — — — 150 Issuance of restricted stock, net of forfeitures — 26,718 — — — — - Stock based compensation expense, net of forfeitures — — 2,802 — — — 2,802 Stock issued in conjunction with 401(k) employer match, net of distributions — (5,899 ) (256 ) — — — (256 ) Earnings attributable to noncontrolling interest — — — — — 16 16 Net income available to common shareholders — — — 28,083 — — 28,083 Noncontrolling interest distributions — — — — — (16 ) (16 ) Reclassification of disproportionate tax effect (Note 1) — — — 1,202 (1,202 ) — — Other comprehensive loss — — — — 1,898 — 1,898 Balance at December 31, 2017 $ — 13,237,128 $ 222,665 $ 88,671 $ (6,786 ) $ 103 $ 304,653 Exercise of common stock options, includes net settlement of shares — 216,400 3,047 — — — 3,047 Issuance of restricted stock, net of forfeitures — 122,469 — — — — - Stock based compensation expense, net of forfeitures — — 6,569 — — — 6,569 Stock issued in conjunction with 401(k) employer match, net of distributions — (8,302 ) (308 ) — — — (308 ) Stock issued for acquisition, net of issuance costs — 970,390 32,932 — — — 32,932 Earnings attributable to noncontrolling interest — — — — — 16 16 Net income available to common shareholders — — — 34,505 — — 34,505 Noncontrolling interest distributions — — — — — (16 ) (16 ) Reclassification of issuance costs on preferred stock of consolidated subsidiary noncontrolling interest — — — — — (10 ) (10 ) Other comprehensive income — — — — (8,555 ) — (8,555 ) Balance at December 31, 2018 $ — 14,538,085 $ 264,905 $ 123,176 $ (15,341 ) $ 93 $ 372,833 2017 2018 2017 2016 Cash flows from operating activities Net income $ 34,521 $ 28,099 $ 28,057 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization on premises and equipment 1,713 1,482 1,330 Accretion of purchase accounting adjustments (1,338 ) (1,078 ) (1,175 ) Net amortization of securities 8,083 10,129 7,673 Amortization of loan servicing right asset 867 934 1,201 Amortization of core deposit intangible 612 473 563 Amortization of debt issuance costs 178 178 124 Provision for loan losses 2,254 4,313 5,240 Deferred income tax (benefit) 197 3,785 (964 ) Excess tax benefit related to the exercise of stock options — — (1,013 ) Origination of loans held for sale (278,559 ) (357,983 ) (371,173 ) Proceeds from sale of loans held for sale 285,116 378,243 367,369 Net gain on sale of loans (6,286 ) (6,779 ) (7,183 ) (Gain) loss on sale of available for sale securities 4,160 (896 ) (2,172 ) Income from bank owned life insurance (1,535 ) (818 ) (648 ) (Gain) loss on sale of foreclosed assets (81 ) 20 (28 ) Loss on sale of assets held for sale — — 98 Stock-based compensation 6,569 2,802 1,641 Compensation expense related to common stock issued to 401(k) plan — — - Recognition of deferred gain on sale of loans (15 ) (58 ) (64 ) Recognition of deferred gain on sale of foreclosed assets (10 ) (14 ) (12 ) Net change in: Accrued interest receivable and other assets (8,777 ) (10,020 ) (2,278 ) Accrued interest payable and other liabilities 2,638 2,826 1,610 Net cash from operating activities 50,307 55,638 28,196 Cash flows from investing activities Available for sale securities: Sales 176,016 240,175 93,873 Purchases (474,163 ) (664,894 ) (391,036 ) Maturities, prepayments and calls 359,859 175,457 103,307 Held to maturity securities: Purchases (3,347 ) (4,266 ) (94,749 ) Maturities, prepayments and calls 11,999 16,326 21,712 Net change in loans (311,118 ) (487,060 ) (468,973 ) Purchase of bank owned life insurance (119 ) (25,000 ) - Proceeds from sale of buildings held for sale — — 1,542 Purchase of restricted equity securities (2,463 ) (6,649 ) (3,845 ) Proceeds from sale of foreclosed assets 1,934 1,330 336 Purchases of premises and equipment, net (2,551 ) (3,212 ) (3,241 ) Increase in certificates of deposits at other financial institutions (239 ) (1,800 ) (805 ) Net cash acquired from acquisition (See Note 2) 24,660 — — Capitalization of foreclosed assets — (35 ) — Net cash from investing activities (219,532 ) (759,628 ) (741,879 ) Cash flows from financing activities Increase in deposits 141,417 775,410 577,779 Increase (decrease) in federal funds purchased and repurchase agreements (31,004 ) (52,297 ) (17,785 ) Proceeds from Federal Home Loan Bank advances 450,000 380,000 325,000 Repayment of Federal Home Loan Bank advances (365,000 ) (240,000 ) (250,000 ) Proceeds from other borrowings — — 10,000 Repayment of other borrowings — — (10,000 ) Proceeds from issuance of subordinated notes, net of issuance costs — — 58,213 Proceeds from exercise of common stock warrants — 150 101 Proceeds from exercise of common stock options 3,047 1,615 1,571 Proceeds from issuance of common stock, net of offering costs (242 ) — 67,557 Divestment of stock issued to 401(k) plan (308 ) (256 ) (300 ) Redemption of Series A preferred stock — — (10,000 ) Dividends paid on preferred stock — — (23 ) Noncontrolling interest distributions (16 ) (16 ) — Proceeds from issuance of preferred stock of consolidated subsidiary to noncontrolling interest, net of issuance costs — — 103 Net cash from financing activities 197,894 864,606 752,216 Net change in cash and cash equivalents 28,669 160,616 38,533 Cash and cash equivalents at beginning of period 251,543 90,927 �� 52,394 Cash and cash equivalents at end of period $ 280,212 $ 251,543 $ 90,927 Supplemental information: Interest paid $ 63,847 $ 34,562 $ 17,043 Income taxes paid 10,892 15,680 14,023 Non-cash supplemental information: Fair value of stock and stock options issued related to Civic Bank acquisition (See FN 2) $ 33,174 $ — $ — Transfers from loans to foreclosed assets 350 2,818 108 Transfers from Held to Maturity to Available for Sale 83,501 — — 2 in the notes of the consolidated financial statements. 2017. •Construction and land development loans include loans to finance the process of improving, preparatory or erecting new structures or the on-site construction of industrial, commercial, residential or farm buildings. Construction and land development loans also include loans secured by vacant land, except land known to be used or usable for agricultural purposes. Construction loans generally are made for relatively short terms. They generally are more vulnerable to changes in economic conditions. Further, the nature of these loans is such that they are more difficult to evaluate and monitor. The risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value upon completion of the project and the estimated cost (including interest) of the project. Periodic site inspections are made on construction loans. •Commercial real estate loans include loans secured by non-residential real estate, including farmland and improvements thereon. Often these loans are made to single borrowers or groups of related borrowers, and the repayment of these loans largely depends on the results of operations and management of these properties. Adverse economic conditions may affect the repayment ability of these loans. •Residential real estate loans include loans secured by residential real estate, including single-family and multi-family dwellings. Mortgage title insurance and hazard insurance are normally required. Adverse economic conditions in the Company’s market area may reduce borrowers’ ability to repay these loans and may reduce the collateral securing these loans. •Consumer and other loans include loans to individuals for household, family and other personal expenditures that are not secured by real estate. Consumer loans are generally secured by customer deposit accounts, vehicles and other household goods. The collateral securing consumer loans may depreciate over time. deferred tax expense (benefit) and unrealized gains (losses) on derivative hedging relations. Standards: retained earnings totaling $2,244. AFS debt securities. market conditions at the time of the assessment date. The amendment is effective for us on January 1, 2020. position, and liquidity. Consideration: Common stock issued to Civic shareholders $ 31,635 Fair value of stock options issued to Civic option holders 1,539 Fair value of total consideration $ 33,174 Recognized amounts of identifiable assets acquired and liabilities assumed: Cash and cash equivalents $ 24,660 Certificates of deposit at other financial institutions 500 Securities available for sale 31,734 Loans 96,385 Equity securities 876 Premises and equipment 253 Core deposit intangibles 558 Foreclosed assets 350 Other assets 5,285 Total assets acquired 160,601 Deposits 123,162 Federal Home Loan Bank advances 11,500 Other liabilities 1,817 Total liabilities assumed 136,479 Total net assets acquired 24,122 Goodwill $ 9,052 For the Year Ended December 31, Unaudited 2018 2017 Net interest income – pro forma $ 106,765 $ 103,055 Net income – pro forma $ 34,606 $ 29,368 Earnings per share – pro forma: Basic $ 2.28 $ 2.09 Diluted $ 2.20 $ 1.99 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value December 31, 2018 U.S. Treasury securities $ 253,015 $ 59 $ (60 ) $ 253,014 U.S. government sponsored entities and agencies 21,999 1 (112 ) 21,888 Mortgage-backed securities: residential 596,766 27 (16,094 ) 580,699 Asset-backed securities 25,744 — (900 ) 24,844 Corporate Notes 12,480 21 (77 ) 12,424 State and political subdivisions 141,432 863 (4,496 ) 137,799 Total $ 1,051,436 $ 971 $ (21,739 ) $ 1,030,668 December 31, 2017 U.S. Treasury securities $ 229,119 $ — $ (210 ) $ 228,909 U.S. government sponsored entities and agencies 20,125 — (164 ) 19,961 Mortgage-backed securities: residential 641,225 102 (8,761 ) 632,566 Mortgage-backed securities: commercial 5,133 — (59 ) 5,074 State and political subdivisions 113,468 1,787 (1,884 ) 113,371 Total $ 1,009,070 $ 1,889 $ (11,078 ) $ 999,881 Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Fair Value December 31, 2018 Mortgage backed securities: residential $ 75,944 $ 34 $ (3,072 ) $ 72,906 State and political subdivisions 45,673 466 (90 ) 46,049 Total $ 121,617 $ 500 $ (3,162 ) $ 118,955 December 31, 2017 Mortgage backed securities: residential 93,366 207 (1,796 ) 91,777 State and political subdivisions 121,490 4,379 (38 ) 125,831 Total $ 214,856 $ 4,586 $ (1,834 ) $ 217,608 2018 2017 2016 Proceeds from sales $ 176,016 $ 240,175 $ 93,873 Proceeds from calls and prepayments — — 11,805 Gross gains 54 1,553 2,557 Gross losses (4,214 ) (657 ) (385 ) Contents December 31, 2018 Amortized Cost Fair Value Available for sale Three months or less $ 44,941 $ 44,902 Over three months through one year 228,617 228,555 Over one year through five years 1,729 1,713 Over five years through ten years 17,126 17,079 Over ten years 136,513 132,876 Asset-backed securities 25,744 24,844 Mortgage-backed securities: residential 596,766 580,699 Total $ 1,051,436 $ 1,030,668 Held to maturity Three months or less $ 500 $ 501 Over three months through one year — — Over one year through five years 502 519 Over five years through ten years 1,051 1,060 Over ten years 43,620 43,969 Mortgage-backed securities: residential 75,944 72,906 Total $ 121,617 $ 118,955 Less Than 12 Months 12 Months or Longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2018 Available for sale U.S. Treasury securities $ 163,722 $ (60 ) $ — $ — $ 163,722 $ (60 ) U.S. government sponsored entities and agencies 1,355 (12 ) 19,937 (100 ) 21,292 (112 ) Mortgage-backed securities: residential 83,203 (755 ) 490,752 (15,339 ) 573,955 (16,094 ) Asset-backed securities 24,845 (900 ) — — 24,845 (900 ) Corporate Notes 9,839 (77 ) — — 9,839 (77 ) State and political subdivisions 10,446 (106 ) 69,238 (4,390 ) 79,684 (4,496 ) Total available for sale $ 293,410 $ (1,910 ) $ 579,927 $ (19,829 ) $ 873,337 $ (21,739 ) Less Than 12 Months 12 Months or Longer Total Fair Value Unrecognized Losses Fair Value Unrecognized Losses Fair Value Unrecognized Losses Held to maturity Mortgage-backed securities: residential $ 2,239 $ (40 ) $ 68,067 $ (3,032 ) $ 70,306 $ (3,072 ) State and political subdivisions 8,362 (39 ) 3,675 (51 ) 12,037 (90 ) Total held to maturity $ 10,601 $ (79 ) $ 71,742 $ (3,083 ) $ 82,343 $ (3,162 ) Less Than 12 Months 12 Months or Longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2017 Available for sale U.S. Treasury securities $ 228,909 $ (210 ) $ — $ — $ 228,909 $ (210 ) U.S. government sponsored entities and agencies 19,961 (164 ) — — 19,961 (164 ) Mortgage-backed securities: residential $ 301,158 $ (2,447 ) $ 311,366 $ (6,314 ) $ 612,524 $ (8,761 ) Mortgage-backed securities: commercial 5,074 (59 ) — — 5,074 (59 ) State and political subdivisions 1,298 (2 ) 62,725 (1,882 ) 64,023 (1,884 ) Total available for sale $ 556,400 $ (2,882 ) $ 374,091 $ (8,196 ) $ 930,491 $ (11,078 ) Less Than 12 Months 12 Months or Longer Total Fair Value Unrecognized Losses Fair Value Unrecognized Losses Fair Value Unrecognized Losses Held to maturity Mortgage-backed securities: residential $ 11,191 $ (69 ) $ 72,582 $ (1,727 ) $ 83,773 $ (1,796 ) State and political subdivisions 262 (2 ) 1,148 (36 ) 1,410 (38 ) Total held to maturity $ 11,453 $ (71 ) $ 73,730 $ (1,763 ) $ 85,183 $ (1,834 ) 2018. December 31, 2018 December 31, 2017 Loans that are not PCI loans Construction and land development $ 584,440 $ 494,818 Commercial real estate: Nonfarm, nonresidential 754,243 628,554 Other 48,017 49,684 Residential real estate: Closed-end 1-4 family 492,989 407,695 Other 189,817 169,640 Commercial and industrial 590,854 502,006 Consumer and other 5,568 3,781 Loans before net deferred loan fees 2,665,928 2,256,178 Deferred loan fees, net (2,544 ) (1,963 ) Total loans that are not PCI loans 2,663,384 2,254,215 Total PCI loans 2,015 2,393 Allowance for loan losses (23,451 ) (21,247 ) Total loans, net of allowance for loan losses $ 2,641,948 $ 2,235,361 Construction and Land Development Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other Total December 31, 2018 Allowance for loan losses: Beginning balance $ 3,802 $ 5,981 $ 3,834 $ 7,587 $ 43 $ 21,247 Provision for loan losses 978 744 872 (383 ) 43 2,254 Loans charged-off (38 ) — (7 ) (49 ) (27 ) (121 ) Recoveries 1 — 44 11 15 71 Total ending allowance balance $ 4,743 $ 6,725 $ 4,743 $ 7,166 $ 74 $ 23,451 Construction and Land Development Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other Total December 31, 2017 Allowance for loan losses: Beginning balance $ 3,776 $ 4,266 $ 2,398 $ 6,068 $ 45 $ 16,553 Provision for loan losses (642 ) 1,715 1,387 1,823 30 4,313 Loans charged-off — — (1 ) (310 ) (49 ) (360 ) Recoveries 668 — 50 6 17 741 Total ending allowance balance $ 3,802 $ 5,981 $ 3,834 $ 7,587 $ 43 $ 21,247 Construction and Land Development Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other Total December 31, 2016 Allowance for loan losses: Beginning balance $ 3,186 $ 3,146 $ 1,861 $ 3,358 $ 36 $ 11,587 Provision for loan losses 601 1,120 511 2,964 44 5,240 Loans charged-off (11 ) — (40 ) (255 ) (42 ) (348 ) Recoveries — — 66 1 7 74 Total ending allowance balance $ 3,776 $ 4,266 $ 2,398 $ 6,068 $ 45 $ 16,553 loans, respectively. Construction and Land Development Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other Total December 31, 2018 Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ — $ — $ — $ 17 $ — $ 17 Collectively evaluated for impairment 4,743 6,725 4,743 7,149 74 23,434 Total ending allowance balance $ 4,743 $ 6,725 $ 4,743 $ 7,166 $ 74 $ 23,451 Loans: Individually evaluated for impairment $ 2,298 $ — $ 3,189 $ 167 $ — $ 5,654 Collectively evaluated for impairment 582,142 802,260 679,617 590,687 5,568 2,660,274 Purchased credit-impaired loans — — 76 1,939 — 2,015 Total ending loans balance $ 584,440 $ 802,260 $ 682,882 $ 592,793 $ 5,568 $ 2,667,943 Construction and Land Development Commercial Real Estate Residential Real Estate Commercial and Industrial Consumer and Other Total December 31, 2017 Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ — $ — $ — $ 879 $ — $ 879 Collectively evaluated for impairment 3,802 5,981 3,834 6,708 43 20,368 Total ending allowance balance $ 3,802 $ 5,981 $ 3,834 $ 7,587 $ 43 $ 21,247 Loans: Individually evaluated for impairment $ 217 $ - $ 834 $ 3,090 $ — $ 4,141 Collectively evaluated for impairment 494,601 678,238 576,501 498,916 3,781 2,252,037 Purchased credit-impaired loans — 380 105 1,908 — 2,393 Total ending loans balance $ 494,818 $ 678,618 $ 577,440 $ 503,914 $ 3,781 $ 2,258,571 December 31, 2019. Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated December 31, 2018 With no allowance recorded: Construction and land development $ 2,298 $ 2,298 $ — Residential real estate: Closed-end 1-4 family 1,272 1,280 — Other 1,917 1,917 — Subtotal 5,487 5,495 — With an allowance recorded: Commercial and industrial 167 167 17 Subtotal 167 167 17 Total $ 5,654 $ 5,662 $ 17 December 31, 2017 With no allowance recorded: Construction and land development $ 217 $ 217 $ — Residential real estate: Closed-end 1-4 family 14 14 — Other 820 820 — Commercial and industrial 108 108 — Subtotal 1,159 1,159 — With an allowance recorded: Commercial and industrial 2,982 2,982 879 Subtotal 2,982 2,982 879 Total $ 4,141 $ 4,141 $ 879 Average Recorded Investment 2018 2017 2016 With no allowance recorded: Construction and land development $ 378 $ 921 $ 474 Commercial real estate: Nonfarm, nonresidential — 1,796 1,892 Residential real estate: Closed-end 1-4 family 715 649 747 Other 553 331 696 Commercial and industrial 655 899 207 Consumer and other — 1 8 Subtotal 2,301 4,597 4,024 With an allowance recorded: Residential real estate: Closed-end 1-4 family — 22 55 Commercial and industrial 993 2,480 490 Subtotal 993 2,502 545 Total $ 3,294 $ 7,099 $ 4,569 2017. Nonaccrual Loans Past Due Over 90 Days December 31, 2018 Construction loans $ 2,298 $ — Residential real estate: Closed-end 1-4 family 1,273 — Other 1,917 — Commercial and industrial — 208 Total $ 5,488 $ 208 December 31, 2017 Residential real estate: Closed-end 1-4 family $ 257 $ 14 Other 114 — Commercial and industrial 2,466 191 Total $ 2,837 $ 205 Nonaccrual loans and loans past due over 90 days still on accrual increased $21,993 as of December 31, 2019, mainly due to two commercial and industrial lending relationships that were downgraded during the subsequent events period that exists between December 31, 2019 and the filing of this document. 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total Past Due Loans Not Past Due PCI Loans Total December 31, 2018 Construction and land development $ 294 $ 1,986 $ 548 $ 2,828 $ 581,612 $ — $ 584,440 Commercial real estate: Nonfarm, nonresidential 515 — — 515 753,728 — 754,243 Other — — — — 48,017 — 48,017 Residential real estate: Closed-end 1-4 family 2,390 404 228 3,022 489,967 76 493,065 Other 142 — 1,810 1,952 187,865 — 189,817 Commercial and industrial 241 252 208 701 590,153 1,939 592,793 Consumer and other — — — — 5,568 — 5,568 $ 3,582 $ 2,642 $ 2,794 $ 9,018 $ 2,656,910 $ 2,015 $ 2,667,943 December 31, 2017 Construction and land development $ 1,918 $ 136 $ — $ 2,054 $ 492,764 $ — $ 494,818 Commercial real estate: Nonfarm, nonresidential — — — — 628,554 380 628,934 Other — — — — 49,684 — 49,684 Residential real estate: Closed-end 1-4 family 257 - 14 271 407,424 105 407,800 Other 146 719 114 979 168,661 — 169,640 Commercial and industrial 532 27 2,657 3,216 498,790 1,908 503,914 Consumer and other — — — — 3,781 — 3,781 $ 2,853 $ 882 $ 2,785 $ 6,520 $ 2,249,658 $ 2,393 $ 2,258,571 to credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans as well as non-homogeneous residential real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings: Pass Special Mention Substandard Total December 31, 2018 Construction and land development $ 580,468 $ 1,416 $ 2,556 $ 584,440 Commercial real estate: Nonfarm, nonresidential 739,469 14,774 — 754,243 Other 48,017 — — 48,017 Residential real estate: Closed-end 1-4 family 489,781 948 2,336 493,065 Other 186,485 404 2,928 189,817 Commercial and industrial 553,589 8,313 30,891 592,793 Consumer and other 5,567 1 — 5,568 $ 2,603,376 $ 25,856 $ 38,711 $ 2,667,943 December 31, 2017 Construction and land development $ 494,601 $ — $ 217 $ 494,818 Commercial real estate: Nonfarm, nonresidential 609,458 12,602 6,874 628,934 Other 49,303 — 381 49,684 Residential real estate: Closed-end 1-4 family 404,832 615 2,353 407,800 Other 167,886 — 1,754 169,640 Commercial and industrial 485,363 10,350 8,201 503,914 Consumer and other 3,777 4 — 3,781 $ 2,215,220 $ 23,571 $ 19,780 $ 2,258,571 2018. 2018 2017 Loan portfolios serviced for: Federal Home Loan Mortgage Corporation $ 492,761 $ 507,233 Other 3,689 4,626 2018. 2018 2017 2016 Servicing rights: Beginning of year $ 3,620 $ 3,621 $ 3,455 Additions 650 933 1,367 Amortized to expense (867 ) (934 ) (1,201 ) End of year $ 3,403 $ 3,620 $ 3,621 2018 2017 2016 Loan servicing fees, net: Loan servicing fees $ 1,308 $ 1,270 $ 1,223 Amortization of loan servicing fees (867 ) (934 ) (1,201 ) Total $ 441 $ 336 $ 22 2018 2017 Construction in progress $ 2,097 $ 3,215 Land and land improvements 33 33 Buildings 150 150 Leasehold improvements 9,487 7,582 Furniture, fixtures, and equipment 7,133 5,437 Computer equipment and software 3,700 3,380 Automobiles 29 29 22,629 19,826 Accumulated depreciation (10,258 ) (8,545 ) $ 12,371 $ 11,281 2019 $ 4,841 2020 4,849 2021 4,871 2022 4,856 2023 4,885 Thereafter 36,178 Total $ 60,480 Finance Lease: At December 31, 2019 $ 272 2020 276 2021 280 2022 284 2023 288 Thereafter 3,133 Total $ 4,533 2018. deductible. 2018 2017 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Acquired intangible assets: Core deposit intangibles $ 3,617 $ (2,665 ) $ 3,060 $ (2,053 ) 2019 504 2020 304 2021 121 2022 23 2023 - December 31, 2018 December 31, 2017 Retail $ 1,450,370 $ 1,326,909 Brokered 797,795 779,886 Local Government 782,890 1,002,584 Reciprocal and other 400,752 57,849 Total $ 3,431,807 $ 3,167,228 2019 1,100,319 2020 107,129 2021 71,202 2022 37,044 2023 10,399 'Total 1,326,093 2018. pledged to secure repurchase agreements. 2018 2017 2016 Average daily balance during the year $ 11,302 $ 32,428 $ 39,647 Average interest rate during the year 1.29 % 0.85 % 0.58 % Maximum month-end balance during the year $ 36,071 $ 33,989 $ 61,669 Weighted average interest rate at year end 0.00 % 1.14 % 0.56 % Scheduled Maturities Weighted Average Rates 2019 $ 313,500 2.24 % 2020 55,000 1.72 % Thereafter — — Total $ 368,500 2.16 % * Prior to January 14, 2019, the Company could not make interest payments on either series of subordinated notes without prior written approval from its primary regulatory agencies. Banking regulators terminated, effective as of January 14, 2019, the MOU previously entered into with the Bank. † The March 2016 Subordinated Notes are redeemable at the Company’s option in whole or in part on or after March 30, 2021, and the June 2016 Subordinated Notes are redeemable at the Company’s option in whole or in part on or after July 1, 2021. 2018 2017 2016 Computed “expected” tax expense $ 8,491 $ 16,321 $ 13,931 Increase (reduction) in tax expense resulting from: State tax expense, net of federal tax effect (612 ) 333 805 Effect of statutory rate changes enacted (1) - 5,323 — Non-deductible merger costs 67 19 114 Incentive stock options 475 506 254 Bank owned life insurance (320 ) (286 ) (227 ) Tax-exempt interest income, net of expense (1,296 ) (2,585 ) (1,801 ) Insurance premiums (293 ) (347 ) (364 ) Excess tax benefit from exercise of stock options and vesting of restricted stock (647 ) (805 ) (1,013 ) Other 47 52 47 Income tax expense $ 5,912 $ 18,531 $ 11,746 2018 2017 2016 Current expense Federal $ 6,399 $ 13,653 $ 11,416 State (684 ) 1,093 1,294 Deferred expense Federal 288 (957 ) (908 ) State (91 ) (581 ) (56 ) Deferred tax revaluation expense — 5,323 — Income tax expense $ 5,912 $ 18,531 $ 11,746 2018 2017 Deferred tax assets: Organizational and start-up costs $ 51 $ 64 Allowance for loan losses 5,881 5,367 Unrealized loss on securities 5,427 2,403 Net operating loss carry forward 2,035 2,317 Purchase accounting fair value adjustments 844 1,006 Accrued other expenses 701 567 Nonaccrual loan interest 105 355 Loan fees 656 511 Other 1,421 552 Total deferred tax asset 17,121 13,142 Deferred tax liabilities: Mortgage servicing rights $ (879 ) $ (933 ) Premises and equipment (1,204 ) (753 ) Prepaid expenses (702 ) (469 ) Purchase accounting fair value adjustments (250 ) (264 ) Other (897 ) (716 ) Total deferred tax liability (3,932 ) (3,135 ) Net deferred tax asset $ 13,189 $ 10,007 Beginning balance $ 29,187 New loans/advances 4,507 Effect of changes in composition of related parties 4,576 Repayments (15,569 ) Ending balance $ 22,701 $40,273. 2018 2017 Stock warrants exercised: Intrinsic value of warrants exercised $ - $ 329 Cash received from warrants exercised - 150 The warrants expired on March 30, 2017; therefore, at December 31, 2018 2017 2016 Risk-free interest rate 3.10 % 2.05 % 1.59 % Expected term 7.5 years 6.9 years 7.5 years Expected stock price volatility 30.79 % 33.21 % 30.45 % Dividend yield 0.00 % 0.03 % 0.22 % Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at December 31, 2015 1,312,791 $ 13.04 Granted 299,587 28.85 Exercised (214,947 ) 11.31 Forfeited, expired, or cancelled (2,415 ) 19.43 Outstanding at December 31, 2016 1,395,016 $ 16.70 Granted 295,820 37.68 Exercised (180,555 ) 11.87 Forfeited, expired, or cancelled (3,113 ) 25.37 Outstanding at December 31, 2017 1,507,168 $ 21.37 Granted 572,637 30.48 Exercised (244,309 ) 16.83 Forfeited, expired, or cancelled (27,574 ) 28.66 Outstanding at December 31, 2018 1,807,922 $ 24.68 6.41 $ 9,581 Vested or expected to vest 914,368 $ 24.68 6.41 $ 9,102 Exercisable at December 31, 2018 798,994 $ 18.59 5.23 $ 8,750 2018 2017 2016 Stock options exercised: Intrinsic value of options exercised $ 4,873 $ 4,878 $ 4,725 Cash received from options exercised 3,047 1,615 1,571 Tax benefit realized from option exercises 565 484 843 Non-vested Shares Shares Weighted- Average Grant-Date Fair Value Non-vested at December 31, 2015 105,864 $ 15.89 Granted 36,496 28.47 Vested (33,407 ) 17.06 Forfeited (2,495 ) 16.97 Non-vested at December 31, 2016 106,458 $ 19.81 Granted 27,282 37.35 Vested (38,995 ) 18.40 Forfeited (564 ) 28.66 Non-vested at December 31, 2017 94,181 $ 25.42 Granted 126,288 33.04 Vested (40,134 ) 26.69 Forfeited (3,819 ) 31.80 Non-vested at December 31, 2018 176,516 $ 31.07 Actual Required For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Regulations Amount Ratio Amount Ratio Amount Ratio December 31, 2018 Company-Level Common equity Tier 1 capital to RWA $ 367,096 12.18 % $ 135,598 4.50 % N/A N/A Total Capital to RWA $ 449,325 14.91 % $ 241,064 8.00 % N/A N/A Tier 1 (Core) Capital to RWA $ 367,096 12.18 % $ 180,798 6.00 % N/A N/A Tier 1 (Core) Capital to average assets $ 367,096 8.76 % $ 167,553 4.00 % N/A N/A Bank-Level Common equity Tier 1 capital to RWA $ 421,335 13.98 % $ 135,613 4.50 % $ 195,886 6.50 % Total Capital to RWA $ 444,871 14.76 % $ 241,090 8.00 % $ 301,363 10.00 % Tier 1 (Core) Capital to RWA $ 421,335 13.98 % $ 180,818 6.00 % $ 241,090 8.00 % Tier 1 (Core) Capital to average assets $ 421,335 10.07 % $ 167,420 4.00 % $ 209,275 5.00 % December 31, 2017 Company-Level Common equity Tier 1 capital to RWA $ 299,229 11.37 % $ 118,479 4.50 % N/A N/A Total Capital to RWA $ 379,083 14.40 % $ 210,629 8.00 % N/A N/A Tier 1 (Core) Capital to RWA $ 299,229 11.37 % $ 157,972 6.00 % N/A N/A Tier 1 (Core) Capital to average assets $ 299,229 8.25 % $ 145,100 4.00 % N/A N/A Bank-Level Common equity Tier 1 capital to RWA $ 353,512 13.43 % $ 118,489 4.50 % $ 171,151 6.50 % Total Capital to RWA $ 374,851 14.24 % $ 210,647 8.00 % $ 263,309 10.00 % Tier 1 (Core) Capital to RWA $ 353,512 13.43 % $ 157,985 6.00 % $ 210,647 8.00 % Tier 1 (Core) Capital to average assets $ 353,512 9.75 % $ 145,003 4.00 % $ 181,253 5.00 % Under these dividend restrictions, and while maintaining its "well capitalized" status, the Bank could pay aggregate dividends of approximately 80,072 to the Company, at December 31, 2019. This amount is not necessarily indicative of amounts that may be paid or available to be paid in future periods. financial instruments that are measured at fair value on a recurring basis: Fair Value Measurements at December 31, 2018 Using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) U.S. Treasury $ 253,014 $ — $ — U.S. government sponsored entities and agencies — 21,888 — Mortgage-backed securities: residential — 580,699 — Asset-backed securities — 24,844 — Corporate Notes — 12,424 — State and political subdivisions — 137,799 — Total securities available for sale $ 253,014 $ 777,654 $ — Loans held for sale $ — $ 11,103 $ — Mortgage banking derivatives $ — $ 206 $ — Financial Liabilities Mortgage banking derivatives $ — $ 129 $ — Fair Value Measurements at December 31, 2017 Using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) U.S. Treasury $ 228,909 $ — $ — U.S. government sponsored entities and agencies — 19,961 — Mortgage-backed securities: residential — 632,566 — Mortgage-backed securities: commercial — 5,074 — State and political subdivisions — 113,371 — Total securities available for sale $ 228,909 $ 770,972 $ — Loans held for sale $ — $ 12,024 $ — Mortgage banking derivatives $ — $ 175 $ — Financial Liabilities Mortgage banking derivatives $ — $ 35 $ — 2018: fair value of $739 resulting in an additional provision for loan losses of $20,771 recorded related to impaired loans recorded at fair value of collateral. At December 31 2018, Fair Value Measurements at Carrying December 31, 2018 Using: Amount Level 1 Level 2 Level 3 Total Financial assets Cash and cash equivalents $ 280,212 $ 280,212 $ — $ — $ 280,212 Securities available for sale 1,030,668 253,014 777,654 — 1,030,668 Certificates of deposit held at other financial institutions 3,594 — 3,594 — 3,594 Securities held to maturity 121,617 — 118,955 — 118,955 Loans held for sale 11,103 — 11,103 — 11,103 Net loans 2,641,948 — — 2,622,386 2,622,386 Restricted equity securities 21,831 n/a n/a n/a n/a Servicing rights, net 3,403 — — 4,836 4,836 Accrued interest receivable 13,337 71 5,539 7,727 13,337 Financial liabilities Deposits $ 3,431,807 $ 2,105,951 $ 1,319,326 $ — $ 3,425,277 Federal funds purchased and repurchase agreements - — — — — Federal Home Loan Bank advances 368,500 — 366,786 — 366,786 Subordinated notes 58,693 — — 59,852 59,852 Accrued interest payable 4,700 146 3,866 688 4,700 Fair Value Measurements at Carrying December 31, 2017 Using: Amount Level 1 Level 2 Level 3 Total Financial assets Cash and cash equivalents $ 251,543 $ 251,543 $ — $ — $ 251,543 Securities available for sale 999,881 228,909 770,972 — 999,881 Certificates of deposit held at other financial institutions 2,855 — 2,855 — 2,855 Securities held to maturity 214,856 — 217,608 — 217,608 Loans held for sale 12,024 — 12,024 — 12,024 Net loans 2,235,361 — — 2,230,607 2,230,607 Restricted equity securities 18,492 n/a n/a n/a n/a Servicing rights, net 3,620 — — 5,089 5,089 Accrued interest receivable 11,947 73 5,724 6,150 11,947 Financial liabilities Deposits $ 3,167,228 $ 1,911,928 $ 1,224,041 $ — $ 3,135,969 Federal funds purchased and repurchase agreements 31,004 — 31,004 — 31,004 Federal Home Loan Bank advances 272,000 — 270,311 — 270,311 Subordinated notes 58,515 — — 59,951 59,951 Accrued interest payable 2,769 51 2,030 688 2,769 The methods and assumptions not previously described used to estimate fair values are described as follows: mortgage banking revenue. 2018 2017 2016 Forward contracts related to mortgage loans held for sale and interest rate contracts $ 94 $ 32 $ (37 ) Interest rate contracts for customers 31 (54 ) (182 ) 2018 2017 Notional Amount Fair Value Notional Amount Fair Value Included in other assets (liabilities): Interest rate contracts for customers $ 28,731 $ 206 $ 21,656 $ 175 Forward contracts related to mortgage loans held for sale $ 31,519 $ (129 ) $ 35,566 $ (35 ) 2018 2017 Fixed Rate Variable Rate Fixed Rate Variable Rate Commitments to make loans $ 28,731 $ — $ 21,656 $ — Unused lines of credit 128,313 526,271 124,997 480,184 Standby letters of credit 8,293 31,731 9,223 36,401 December 31, 2018 2017 ASSETS Cash and cash equivalents $ 3,364 $ 5,958 Investment in banking subsidiary 426,979 358,833 Investment in other subsidiaries 1,919 2,393 Other assets 1,617 235 Total assets $ 433,879 $ 367,419 LIABILITIES AND EQUITY Subordinated notes $ 58,693 $ 58,515 Accrued expenses and other liabilities 2,446 4,354 Shareholders’ equity 372,740 304,550 Total liabilities and shareholders’ equity $ 433,879 $ 367,419 Years ended December 31, 2018 2017 2016 Dividends from subsidiaries $ 5,925 $ 4,000 $ 2,050 Other income 203 171 305 Interest expense 4,328 4,321 2,902 Other expense 5,163 2,890 2,842 Loss before income tax and undistributed subsidiaries income (3,363 ) (3,040 ) (3,389 ) Income tax benefit (2,229 ) (2,671 ) (2,320 ) Equity in undistributed subsidiaries income 35,655 28,468 29,126 Net income $ 34,521 $ 28,099 $ 28,057 Comprehensive income $ 25,966 $ 29,997 $ 20,895 Years ended December 31, 2018 2017 2016 Cash flows from operating activities Net income $ 34,521 $ 28,099 $ 28,057 Adjustments: Equity in undistributed subsidiaries income (35,655 ) (28,468 ) (29,126 ) Amortization of debt issuance costs 178 178 124 Stock-based compensation 1,008 219 105 Change in other assets (1,367 ) 728 (34 ) Change in other liabilities (1,908 ) 686 3,058 Net cash from operating activities (3,223 ) 1,442 2,184 Cash flows from investing activities Investments in subsidiaries (26,512 ) (1,359 ) (116,850 ) Net cash acquired from acquisition (See Note 2) 24,660 — — Net cash from investing activities (1,852 ) (1,359 ) (116,850 ) Cash flows from financing activities Proceeds from other borrowings — — 10,000 Repayment of other borrowings — — (10,000 ) Proceeds from issuance of subordinated notes, net of issuance costs — — 58,213 Proceeds from exercise of common stock warrants — 150 101 Proceeds from exercise of common stock options 3,047 1,615 1,571 Proceeds from issuance of common stock, net of offering costs (242 ) — 67,557 Divestment of common stock issued to 401(k) plan (308 ) (256 ) (300 ) Redemption of Series A preferred stock — — (10,000 ) Dividends paid on preferred stock (16 ) — (23 ) Net cash from financing activities 2,481 1,509 117,119 Net change in cash and cash equivalents (2,594 ) 1,592 2,453 Beginning cash and cash equivalents 5,958 4,366 1,913 Ending cash and cash equivalents $ 3,364 $ 5,958 $ 4,366 Non-cash supplemental information: Transfers from subsidiary stock based compensation expense to parent company only additional paid-in capital $ 5,561 $ 2,583 $ 1,536 Years Ended December 31, 2018 2017 2016 Basic Net income available to common shareholders $ 34,505 $ 28,083 $ 28,034 Less: earnings allocated to participating securities (372 ) (219 ) (284 ) Net income allocated to common shareholders $ 34,133 $ 27,864 $ 27,750 Weighted average common shares outstanding including participating securities 14,169,294 13,145,005 10,933,095 Less: Participating securities (152,638 ) (102,650 ) (110,628 ) Average shares 14,016,656 13,042,355 10,822,467 Basic earnings per common share $ 2.44 $ 2.14 $ 2.56 Diluted Net income allocated to common shareholders $ 34,133 $ 27,864 $ 27,750 Weighted average common shares outstanding for basic earnings per common share 14,016,656 13,042,355 10,822,467 Add: Dilutive effects of assumed exercises of stock options 540,302 633,738 655,485 Add: Dilutive effects of assumed exercises of stock warrants — 1,578 12,667 Average shares and dilutive potential common shares 14,556,958 13,677,671 11,490,619 Dilutive earnings per common share $ 2.34 $ 2.04 $ 2.42 Gross proceeds $ 71,760 Less: Stock offering costs (4,203 ) Net proceeds from issuance of common stock $ 67,557 NOTE 23 – QUARTERLY FINANCIAL RESULTS (UNAUDITED) 2018 2017 Fourth Quarter Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter† Second Quarter† First Quarter† Income Statement Data ($): Interest income $ 46,045 $ 43,717 $ 42,136 $ 38,047 $ 35,121 $ 33,780 $ 33,011 $ 30,541 Interest expense 19,125 17,155 15,231 12,931 10,513 9,454 8,542 6,898 Net interest income 26,920 26,562 26,905 25,116 24,608 24,326 24,469 23,643 Provision for loan losses 975 136 570 573 1,295 590 573 1,855 Noninterest income (383 ) 3,442 4,147 3,456 3,264 3,569 3,880 4,008 Noninterest expense 21,689 18,251 18,050 15,488 �� 15,987 15,278 15,283 14,276 Net income before taxes 3,873 11,617 12,432 12,511 10,590 12,027 12,493 11,520 Income tax expense 122 1,068 2,263 2,459 8,188 3,138 3,619 3,586 Net income 3,751 10,549 10,169 10,052 2,402 8,889 8,874 7,934 Net income available to common shareholders 3,743 10,549 10,161 10,052 2,394 8,889 8,866 7,934 Earnings per share, basic $ 0.26 $ 0.73 $ 0.71 $ 0.76 $ 0.18 $ 0.67 $ 0.68 $ 0.61 Earnings per share, diluted $ 0.25 $ 0.70 $ 0.68 $ 0.73 $ 0.17 $ 0.65 $ 0.64 $ 0.58 FHLB advances include arrangements under various FHLB credit programs. Long-term FHLB debt is more fully described under the caption “FHLB Advances” in Note 1011 of our Consolidated Financial Statements. Subordinated notes include two issuances that occurred in the first and second quarters of 2016, respectively. The subordinated notes are more fully described in Note 11,12, “Subordinated Notes” of our Consolidated Financial Statements. Operating and capital lease commitments include leases for branch and office sites and are included in Note 6, “Premises and Equipment, and Leases”7, “Leases”.64Interest Rate SensitivityThe following schedule details the Company’s interest rate sensitivity at December 31, 2018:2019: Repricing Within (In Thousands, Except Percentages) Total 1-90 Days 3 months
to 12
months1 to 5 years Over 5
yearsEarning assets: Loans, net of unearned income† $ 2,785,409 $ 1,276,838 $ 128,059 $ 996,062 $ 384,450 Loans held for sale Loans held for sale 43,162 — — — 43,162 Available for sale securities 652,132 — — 7,571 644,561 Interest-bearing deposits at other financial institutions 195,888 195,888 — — — Certificates of deposit at other financial institutions 3,590 490 735 2,115 250 Total earning assets 3,680,181 1,473,216 128,794 1,005,748 1,072,423 Interest-bearing liabilities: Deposits: Interest-bearing checking accounts 843,475 843,475 — — — Money market deposit accounts 1,255,438 1,255,438 — — — Savings Savings 39,611 39,611 — — — IRA’s and certificates of deposit, $250,000 and over 142,435 13,644 65,161 63,630 — IRA’s and certificates of deposit, under $250,000 606,622 68,115 227,203 311,304 — FHLB borrowings 155,000 90,000 65,000 — — Subordinated notes 58,872 — — 58,872 — Total interest-bearing liabilities Total interest-bearing liabilities 3,101,453 2,310,283 357,364 433,806 — Interest-sensitivity gap $ 578,728 $ (837,067) $ (228,570) $ 571,942 $ 1,072,423 Cumulative gap $ (837,067) $ (1,065,637) $ (493,695) $ 578,728 Interest-sensitivity gap as % of total average assets (20.76) % (5.67) % 14.19 % 26.60 % Cumulative gap as % of total average assets (20.76) % (26.43) % (12.24) % 14.36 % †Loans, net of unearned income, excludes non-accrual loans.LiquidityLiquidity is defined as the ability to meet anticipated customer demands for funds under credit commitments and deposit withdrawals at a reasonable cost and on a timely basis.58Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liabilities, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost-effectively and to meet current and future potential obligations such as loan commitments, lease obligations, and unexpected deposit outflows. In this process, management focuses on both assets and liabilities and on the manner in which they combine to provide adequate liquidity to meet the Company’s needs. Our source of funds to pay interest on our March 2016 Notes and June 2016 Notes is generally in the form of a dividend from the Bank to the Company, or those payments may be serviced from cash balances held by the Company. The Bank’s ability to pay a dividend may be restricted due to regulatory requirements as well as the Bank’s future earnings and capital needs.Funds are available from a number of basic banking activity sources including the core deposit base, the repayment and maturity of loans, payments of principal and interest as well as sales of investments classified as available-for-sale, and sales of brokered deposits. As of December 31, 2018, $1,030,668 of2019, the entire investment securities portfolio, totaling $652,132, was classified as AFS and is reported at fair value on the consolidated balance sheet. Another $121,617None of the portfolio was classified as HTM and is reported at amortized cost.December 31, 2019. Approximately $939,440$294,585 of the total $1,152,285$652,132 investment securities portfolio on hand at December 31, 2018,2019, was pledged to secure public deposits and repurchase agreements.CRA investments. Other funding sources available include repurchase65agreements, federal funds purchased, and borrowings from the FHLB.Effects of Inflation and Changing PricesThe accompanying consolidated financial statements have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on the performance of a financial institution than the effects of general levels of inflation. Although interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services, increases in inflation generally have resulted in increased interest rates. In addition, inflation affects financial institutions’ increased cost of goods and services purchased, the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Commercial and other loan originations and refinancing tend to slow as interest rates increase, and can reduce the Company’s earnings from such activities.Off Balance Sheet ArrangementsThe Company generally does not have any off-balance sheet arrangements other than approved and unfunded loans and lines and letters of credit to customers in the ordinary course of business. At December 31, 2018,2019, the Company had unfunded loan commitments outstanding of $28,731,$48,999, unused lines of credit of $654,584,$790,366, and outstanding standby letters of credit of $40,024.GAAP Reconciliation and Management Explanation of Non-GAAP Financial MeasuresSome of the financial data included in our selected historical consolidated financial information are not measures of financial performance recognized by GAAP. Our management uses these non-GAAP financial measures in its analysis of our performance:59•“Efficiency ratio” is defined as noninterest expenses divided by our operating revenue, which is equal to net interest income plus noninterest income;•“Efficiency ratio” is defined as noninterest expenses divided by our operating revenue, which is equal to net interest income plus noninterest income;66impact of purchase accounting on net interest margin, as the effect of loan discount accretion and accretion of net discounts and premiums related to deposits is expected to decrease as the acquired loans and deposits mature or roll off of our balance sheet.We believe these non-GAAP financial measures provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however, we acknowledge that our non-GAAP financial measures have a number of limitations. As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use.The following reconciliation table provides a more detailed analysis of these non-GAAP financial measures: As of or for the Years Ended December 31, 2019 December 31, 2018 December 31, 2017 (Amounts in thousands, except share/per share data and percentages) Total shareholders’ equity $ 410,333 $ 372,740 $ 304,550 Less: Preferred stock — — — Total common equity 410,333 372,740 304,550 Less: Goodwill and other intangible assets 18,652 19,128 10,181 Tangible common equity $ 391,681 $ 353,612 $ 294,369 Common shares outstanding 14,821,594 14,538,085 13,237,128 Tangible book value per share $ 26.43 $ 24.32 $ 22.24 Net income available to common shareholders $ 14,806 $ 34,505 $ 28,083 Average tangible common equity 379,502 325,012 279,098 Return on average tangible common equity 3.9 % 10.6 % 10.1 % Efficiency Ratio: Net interest income $ 111,160 $ 105,503 $ 97,046 Noninterest income 17,775 10,662 14,721 Operating revenue 128,935 116,165 111,767 Expense Total noninterest expense 81,879 73,478 60,824 Efficiency ratio 63.5 % 63.3 % 54.4 % Effective as of December 31, 2019, the Company isno longer qualified as an “emergingemerging growth company,” as defined in and therefore can no longer rely on the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),scaled disclosure requirements and may take advantage of certain exemptions from various reporting requirements that are applicableafforded to public companies that are not emerging growth companies, including, but not limited to, not beingcompanies.As a public company, we are required to comply with the auditor attestation requirements ofSarbanes-Oxley Act and other rules that govern public companies. We are required to certify our compliance with Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions fromwhich requires us to furnish annually a report by management on the requirementseffectiveness of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.our internal control over financial reporting. In addition, even ifour independent registered public accounting firm is required to report on the Company complieseffectiveness of our internal control over financial reporting, beginning with this Annual Report on Form 10-K for the greater obligations of public companies that are not emerging growth companies, the Company may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as the Company is an emerging growth company. The Company will continue to be an emerging growth company until the earliest to occur of: (1)year ended December 31, 2019, (i.e. the end of the fiscal year following the fifth anniversary of the date of the first sale of common equity securities under our Registration Statement on Form S-4, which was declared effective by the SEC on May 14, 2014); (2) the last day of the fiscal year in which we have $1.07 billion or more in annual revenues; (3) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act; or (4) the date on which we have, during the previous three-year period, issued publicly or60privately, more than $1.0 billion in non-convertible debt securities. Management cannot predict if investors will find the Company’s common stock less attractive because it will rely on these exemptions. If some investors find the Company’s common stock less attractive as a result, there may be a less active trading market for its common stock and the Company’s stock price may be more volatile.Further, the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective and do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, it adopts the new or revised standard at the time public companies adopt the new or revised standard. This election is irrevocable.Recently Adopted and Issued Accounting PronouncementsSee "Part II- Item 8. Financial Statements and Supplementary Data - Note 1. - Summary of Significant Accounting Policies" of this Report for further information.Other EventsIn January 2019, the Company declared an initial dividend of $0.04 per share, which was paid on February 28, 2019 to shareholders of record as of February 15, 2019.On January 15, 2019, the Company announced that its Memorandum of Understanding (MOU) with banking authorities had been terminated.In January 2019, the Company’s Board of Directors authorized the repurchase of up to $30 million of the Company’s common stock, which will remain in effect until January 2020. The timing and amount of additional common share repurchases will be subject to market conditions and other considerations, as the Company deems appropriate. The Company’s repurchases may be executed using open market purchases, privately negotiated transactions, accelerated share repurchase programs or other transactions. To date there have been no repurchases of stock under the program.On March 8, 2019, Richard E. Herrington retired from his position as President, Chief Executive Officer and Chairman of FFN and as the Chairman and Chief Executive Officer of the Bank. J. Myers Jones, III, Executive Vice President and Chief Credit Officer of the Bank, has been appointed to serve as interim Chief Executive Officer of the Company while the Board conducts a search for the Company’s next Chief Executive Officer, and Lee Moss, President of the Bank, has been appointed to serve as interim President of FFN. The Board has an active search process underway to select the next chief executive officer from internal and external candidates. On March 8, 2019, we entered into an Executive Transition Agreement with Mr. Herrington, pursuant to which Mr. Herrington has agreed to remain an employee of the Company through September 8, 2019 to provide services to the Company on a transitional basis. On March 8, 2019, the Board elected James W. Cross, IV to serve as the Chairman of the Board to fill the vacancy left by Mr. Herrington’s departure. Also on March 8, 2019, Kevin A. Herrington notified the Company that he is resigning from his position as Executive Vice President and Chief Operating Officer of the Bank, effective as of March 8, 2019. Kevin Herrington has also agreed to remain an employee of the Company through September 8, 2019 to provide services to the Company on a transitional basis. On March 8, 2019, the Board appointed Terry Howell as interim Chief Operating Officer of the Bank and Eddie Maynard as Chief Credit Officer of the Bank.None.ITEM 7A.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.67Our primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which possess a short term to maturity. Based upon the nature of our operations, we are not subject to foreign currency exchange or commodity price risk.61Management seeks to maintain profitability in both immediate and long-term earnings through funds management/interest rate risk management. Interest rate risk (sensitivity) management deals with the potential impact on earnings associated with changing interest rates using various rate change (shock) scenarios. Our rate sensitivity position has an important impact on earnings. Senior management monitors our rate sensitivity position throughout each month, and the Asset Liability Committee (“ALCO”) of the Bank meets on a quarterly basis to analyze the rate sensitivity position and other aspects of asset/liability management. These meetings cover the spread between the cost of funds and interest yields generated primarily through loans and investments, rate shock analyses, liquidity and dependency positions, and other areas necessary for proper balance sheet management.Management believes interest rate risk is best measured by earnings simulation modeling. The simulation is run using the prime rate as the base with the assumption of rates increasing 100, 200, 300 and 400 basis points or decreasing 100 and 200 basis points. All rates are increased or decreased parallel to the change in prime rate. As a result of the simulation run as of December 31, 2018,2019, net interest income was estimated to decrease 2.57%increase 0.96% and 5.63%1.96% if rates were to increase 100 basis points and 200 basis points, respectively, and was estimated to increase 1.98%1.90% and 3.65%4.01% in a 100 basis points and 200 basis points declining rate assumption, respectively. These results are in line with the Company’s guidelines for rate sensitivity.The following chart reflects the Company’s sensitivity to changes in interest rates as indicated as of December 31, 2018.2019.Projected Interest Rate Change Net Interest
IncomeNet Interest
Income $
Change from
Base% Change
from Base-200 124,178 4,793 4.01 -100 121,659 2,274 1.90 Base 119,385 — — +100 120,532 1,147 0.96 +200 121,720 2,335 1.96 +300 122,445 3,060 2.56 +400 123,234 3,849 3.22 The preceding sensitivity analysis is a modeling analysis, which changes periodically and consists of hypothetical estimates based upon numerous assumptions including interest rate levels, changes in the shape of the yield curve, prepayments on loans and spreads between key market rates, and other assumptions. In addition, there is no input for growth or a change in asset mix. While assumptions are developed based on the current economic and market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change. As market conditions vary from those assumed in the sensitivity analysis, actual results will differ. Also, these results do not include any management action that might be taken in responding to or anticipating changes in interest rates. The simulation results are one indicator of interest rate risk, and actual net interest income is largely impacted by the allocation of assets, liabilities, and product mix.We utilize derivative financial instruments as part of an ongoing effort to mitigate interest rate risk exposure to interest rate fluctuations and facilitate the needs of our customers.The Company has entered into interest rate swap contract to hedge interest rate exposure on short term liabilities, which is accounted for as a cash flow hedge, with the Company receiving a variable rate of interest and paying a fixed rate of interest. Additionally, the Company has entered into interest rate swap contracts to hedge interest rate exposure on the changes in fair value of fixed rate available-for-sale securities, which are accounted for as fair value hedges, with the Company receiving a variable rate of interest and paying a fixed rate of interest.The Company enters into rate lock commitments and forward loan sales contracts as part of our ongoing efforts to mitigate our interest rate risk exposure inherent in our mortgage pipeline and held for sale portfolio. Under the interest rate lock68commitments, interest rates for a mortgage loan are locked in with the client for a period of time. Once an interest rate lock commitment is entered into with a client, we also enter into a forward commitment to sell the residential mortgage loan to secondary market investors. Forward loan sale contracts are contracts for delayed sale and delivery of mortgage loans to a counter party. We agree to deliver on a specified future date, a specified instrument, at a specified price or yield. The credit risk inherent to us arises from the potential inability of counterparties to meet the terms of their contracts. In the event of non-acceptance by the counterparty, we would be subject to the credit and inherent (or market) risk of the loans retained.For more information about our derivative financial instruments, see Note 19, “Derivatives” in the notes to our consolidated financial statements.ITEM 8.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.The financial statements required by this Item are included as a separate section of this report commencing on page F-1.ITEM 9.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.None.ITEM 9A.ITEM 9A. CONTROLS AND PROCEDURES.Evaluation of Disclosure Controls and ProceduresOur management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2018,2019, as based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer have concluded that, because of the material weakness described below in Management's Report on Internal Control Over Financial Reporting, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of December 31, 2018.62Notwithstanding the identified material weakness related to the Company's control environment, Franklin Financial Network, Inc. believes the consolidated financial statements included in this Form 10-K fairly represent in all material respects the Company's financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.Management’s Report on Internal Control Over Financial ReportingThe management of Franklin Financial Network, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Franklin Financial Network, Inc.’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.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 policies or procedures may deteriorate.Franklin Financial Network, Inc.’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018.2019. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).Based on thisthe assessment of the Company’seffectiveness of the Company's internal control over financial reporting discussed above, management believesconcluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2018,2019 due to a material weakness arising from certain control deficiencies existing during 2019 related to the69Company’s precision of review regarding the valuation of impaired loans. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The Company's internal controls are designed such that all impaired loans being assessed to determine if a specific reserve is warranted are reviewed by someone independent of the valuation function to ensure the valuation is reasonable. In the fourth quarter of 2019, management determined this control was not operating at a level sufficiently precise to adequately challenge the assumptions and inputs used in the valuation of impaired loans. No restatement of prior period financial statements and no change in previously issued financial results were required as a result of this material weakness in internal control, however, a reasonable possibility exists that material misstatements in the Company’s financial statements would not be prevented or detected on a timely basis.The Company’s management is taking steps to remediate this material weakness by evaluating the Company's policies and procedures for and resources allocated to the review control over the valuation of impaired loans. As of December 31, 2019, the Company’s internal control over financial reporting was not effective based on those criteria.This Annual Report on Form 10-K does not include an attestation report ofdue to this matter.Crowe LLP, the Company’sindependent registered public accounting firm due to a transition period established by rulesthat audited the Company's financial statements included in this Form 10-K, has also audited the Company's internal control over financial reporting as of December 31, 2019. Their report on the Company's internal control over financial reporting, which is included herein, expressed an adverse opinion on the effectiveness of the SEC for an emerging growth company.Changes in Internal Control Over Financial ReportingThere wasExcept for the foregoing, there were no changechanges in our internal control over financial reporting that occurred during the fourth quarter of 20182019 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.ITEM 9B.ITEM 9B. OTHER INFORMATION.None.6370PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.Information Regarding Our DirectorsIncluded below is certain information regarding our directors. Each of our directors is elected annually to serve for a one-year term. There are no family relationships between any of the Company’s executive officers or directors, and there are no arrangements or understandings between a director and any other person pursuant to which such person was elected as director.No director or officer of the Company has, during the last 10 years, been subject to or involved in any legal proceedings described under Item 401(f) of Regulation S-K, been convicted of any criminal proceeding (excluding traffic violations or similar misdemeanors), or been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, United States federal or state securities laws or finding any violations with respect to such laws.ITEM 10.Name Age Position Jimmy E. Allen 80 Director James W. Cross, IV 56 Chairman of the Board Dr. David H. Kemp 61 Director Dr. Anil C. Patel 62 Director Paul M. Pratt, Jr. 56 Director Pamela J. Stephens 61 Director Melody J. Sullivan 67 Director Gregory E. Waldron 57 Director Benjamin P. Wynd 42 Director Jimmy E. Allen, age 80, is a director of FFN and the Bank. Mr. Allen is the owner of Venture Express, Inc. since 1980; Creative Transportation since 1999; Allen’s Cartage Company, LaVergne, Tennessee since 1980; and co-owner of Center Hill Marina & Yacht Club since 1994. He attended Austin Peay State University, Clarksville, Tennessee and the University of Tennessee, Nashville. Mr. Allen formerly served as a member of the board of directors of MidSouth, Rutherford Bank & Trust, Murfreesboro and Independent Bank, Gallatin, Tennessee. He served as past chairman of Tennessee Trucking Association and Nashville Motor Freight. His past accomplishments include being selected as Nashville Business Journal’s Executive of the Year. He is a supporter of Vanderbilt Children’s Hospital and Ronald McDonald House.Director Qualifications:•Extensive Knowledge of the Financial Services Industry—Mr. Allen formerly served as a member of the board of directors of multiple banks.•Relevant Executive/Leadership Experience—Mr. Allen is the President of three companies and the co-owner of a marina and yacht club.•Relevant Governance Experience—Mr. Allen served as past chairman of two organizations.James W. Cross, IV, age 56, has been a director of FFN since March 8, 2019 and a director of the Bank since July of 2009 and was previously a director of FFN from July 2009 to February 23, 2016 and from May 25, 2017 to May 24, 2018. Mr. Cross serves as President of Century Investment Partners, a site development firm also based in Franklin, Tennessee. Mr. Cross has more than 30 years of business experience in Tennessee, beginning his career at Century Construction Company, Inc., a firm started by his father, James W. Cross, III in 1958. Mr. Cross served on the board of directors of Franklin Financial Corporation, parent of Franklin National Bank and the Tennessee affiliate board of directors of Fifth Third Bank in Franklin, Tennessee. Mr. Cross is a member of the board of directors of Williamson Medical Center. He previously served on the board of directors of Franklin Tomorrow, Leadership Franklin, Youth Leadership Franklin, the Franklin-Williamson County Chamber of Commerce, the Williamson County Library, the Williamson County Library Foundation and Battle Ground Academy.71Director Qualifications:•Extensive Knowledge of Our Company—Mr. Cross has been a director of FFN since March 8, 2019 and a director of the Bank since July of 2009 and was previously a director of FFN from July 2009 to February 23, 2016 and from May 25, 2017 to May 24, 2018.•Extensive Knowledge of the Financial Services Industry��Mr. Cross served on the board of directors of Franklin Financial Corporation, parent of Franklin National Bank and the Tennessee affiliate board of directors of Fifth Third Bank in Franklin, Tennessee.•Relevant Executive/Leadership Experience—Mr. Cross has more than 30 years of business experience in Tennessee.Dr. David H. Kemp, age 61, has been a director of the Bank since its inception and was previously a director of FFN from its inception until May 25, 2017 and from May 24, 2018 to the present. Dr. Kemp has more than 30 years of healthcare experience in Franklin, Tennessee. Dr. Kemp opened Kemp Orthodontics (now Kemp & Rice Orthodontics) in Franklin in 1986 and has owned and operated the business since that time. Dr. Kemp serves as an advocate speaker for 3M Oral Care and he furthers his education by participating in and lecturing to various dental study clubs, both locally and internationally. Dr. Kemp hosts in office courses to orthodontists promoting his ultra aesthetic orthodontic technique he has developed. From 1993 to April 2007, Dr. Kemp served as an Advisory Board member to First Tennessee Bank in Franklin, supporting Regional Presidents in the accomplishment of their responsibilities by assisting in contacts with community leaders. Dr. Kemp holds a Bachelor of Science from the University of Tennessee, Martin, Tennessee. Dr. Kemp is also a graduate of The information calledUniversity of Tennessee, Center for the Health Sciences, Memphis, Tennessee and holds both a Doctor of Dental Science and a Postdoctoral Master of Science in Orthodontics.Director Qualifications:•Extensive Knowledge of Our Company—Dr. Kemp has been a member of the board of directors of the Bank since inception and was previously a director of FFN from FFN’s inception until May 25, 2017 and from May 24, 2018 to the present.•Extensive Knowledge of the Financial Services Industry—In addition to his service on the boards of directors of FFN and the Bank, Dr. Kemp served on the Advisory Board for First Tennessee Bank in Franklin, Tennessee from 1993 to April 2007.•Extensive Knowledge of the Healthcare Industry— Dr. Kemp has more than 30 years of healthcare experience in Franklin, Tennessee.Dr. Anil C. Patel, age 62, was elected to the board of directors of FFN and the Bank effective April 1, 2018, pursuant to the requirements of the Agreement and Plan of Reorganization and Bank Merger dated December 14, 2015, by and among the Bank, Civic, and FFN, as amended by Amendment No. 1, dated May 9, 2016, Amendment No. 2, dated March 30, 2017, and Amendment No. 3, dated September 29, 2017. Dr. Patel has been providing gastroenterology services to his patients at his endoscopy center in Clarksville, Tennessee since 1993. Dr. Patel has also been involved with the construction of several Marriott hotels and retirement communities in the Middle Tennessee area, and in 2005, he helped organize Civic Bank & Trust (“Civic”). He served as Chairman of the board of directors of Civic since Civic’s organization until its merger with and into the Bank, effective April 1, 2018. He earned his bachelor’s and medical degrees from the University of Zambia in 1979 and 1982, respectively. He completed his residency in Internal Medicine at Baptist Hospital in 1988, his fellowship training in Gastroenterology at Vanderbilt University in 1990, and his Masters of Business Administration at the Vanderbilt Owen Graduate School of Business in 1998.Director Qualifications:•Extensive Business Experience—Dr. Patel has extensive business experience and knowledge of the Nashville and broader Middle Tennessee markets. His connection to, and business experience in, both the Nashville and greater Middle Tennessee markets will provide valuable insight into those markets.•Relevant Governance Experience—Dr. Patel previously served chairman of the board of directors of Civic.Paul M. Pratt, Jr., age 56, has been a member of the board of directors of the Bank since inception and was previously a director of FFN from its inception until February 23, 2016 and from May 25, 2017 to May 24, 2018 and from March 8, 2019 to present. Mr. Pratt has 30 years of financial services and business experience in Franklin, Tennessee. In 1983, Mr. Pratt began his financial services career with Full Service Insurance, an independent insurance broker in Franklin, Tennessee. He rose through the ranks to become President, the position he holds today. Mr. Pratt is a 1983 graduate of Columbia State Community College with an Associate Degree in Engineering. Mr. Pratt is a Past President of the Board of Directors of the Franklin Noon Rotary Club and a former board member of Williamson Medical Foundation, a non-72profit dedicated to philanthropic community gifts to Williamson Medical Center in Franklin, Tennessee. Mr. Pratt also served on the Williamson County Advisory Board of Cumberland Bank until April 2007.Director Qualifications:•Extensive Knowledge of Our Company—Mr. Pratt has been a member of the board of directors of the Bank since inception and was previously a director of FFN from FFN’s inception until February 23, 2016 and from May 25, 2017 to May 24, 2018.•Extensive Knowledge of the Financial Services Industry—Mr. Pratt has 30 years of financial services and business experience in Franklin, Tennessee.•Relevant Executive/Leadership Experience—Mr. Pratt serves as President of an independent insurance broker.Pamela J. Stephens, age 61, has been a director of FFN and the Bank since July of 2009. Ms. Stephens is a Funeral Director and part owner and President of Williamson Memorial Funeral Home & Cremation Services in Franklin, Tennessee and joined the firm in 1995, part owner and Secretary/Treasurer of Williamson Memorial Gardens in Franklin, Tennessee and joined the firm in 1995, and part owner and Vice President of Spring Hill Memorial Park, Funeral Home and Cremation Services in Spring Hill, Tennessee and started the firm along with family in 1998. From 2003 to 2007, Ms. Stephens served on the board of directors of Cumberland Bank in Franklin, Tennessee. Ms. Stephens was the recipient of the Walk of Fame Award in 2015 presented by CABLE, a women's professional organization. Ms. Stephens is the recipient of the Paul Harris Fellow and was awarded this itemachievement twice. She served as charter president of the Rotary Club of Spring Hill and current member of the Franklin Downtown Rotary Club. She is a past president of the Cemetery Association of Tennessee, past president of the Tennessee Funeral Directors Association and past president of the Southern Cemetery and Funeral Association. Ms. Stephens is currently serving as a director on the Board of Directors for the Williamson Medical Center Foundation Board, and is a member of Mt. Carmel Cumberland Presbyterian Church.Director Qualifications:•Extensive Knowledge of Our Company—Ms. Stephens has been a director of FFN and the Bank since July of 2009.•Relevant Executive/Leadership Experience—Ms. Stephens serves in leadership positions and is the part owner of multiple businesses in the funeral services industry.•Relevant Governance Experience—Ms. Stephens previously served on the board of directors of Cumberland Bank and is the past president of multiple organizations. She also has served on various legislative committees in the funeral industry.Melody J. Sullivan, age 67, has been a director of FFN and the Bank since May of 2010. Ms. Sullivan founded the first woman-owned CPA firm in Franklin, Tennessee’s Historic Downtown business district in July of 1986 after working as a staff accountant for one of Nashville’s most respected business owners and CPA firms, and serving as comptroller for a local food service company. Ms. Sullivan served as Owner of Smiley CPAs (now known as Smiley, Smith, Wynd, LLC) from July 1986 through November 2014 and retired in April 2015. She served on the board of directors of Franklin National Bank for 14 years and Fifth Third Bank for five years. Ms. Sullivan is a member and past president of the Franklin Breakfast Rotary Club. She served on the board of directors for Waves in Franklin, Tennessee, an organization dedicated to enabling individuals with intellectual and developmental disabilities to progress toward their full potential. She is a past president of the board of directors of Franklin Family YMCA and has served on the board of directors of United Way of Williamson County, Franklin Tomorrow, the Williamson County-Franklin Chamber of Commerce, The March of Dimes, Williamson County CASA, and Historic Carnton Plantation. Ms. Sullivan is a graduate of Leadership Franklin. She is a past chairperson of the Small Business Development Division of the Williamson County-Franklin Chamber of Commerce.Director Qualifications:•Extensive Knowledge of Our Company—Ms. Sullivan has been a director of FFN and the Bank since May of 2010.•High Level of Financial Literacy—Ms. Sullivan has over 30 years of experience as a CPA. She founded the first woman-owned CPA firm in downtown Franklin, Tennessee, served as a staff accountant for one of Nashville’s most respected business owners and CPA firms, served as comptroller for a local food service company and has been designated as our “audit committee financial expert” on our audit committee.•Extensive Knowledge of the Financial Services Industry—Ms. Sullivan served on the board of directors of Franklin National Bank for 14 years and Fifth Third Bank for five years.73Gregory E. Waldron, age 57, has been a director of FFN and the Bank since April 28, 2015. Mr. Waldron is a partner and managing member of Waldron Enterprises, LLC in Murfreesboro, Tennessee, which he joined in 1986. He received a Bachelor of Science in Engineering Science from Lipscomb University in Nashville, Tennessee in 1985. Waldron Enterprises, LLC is involved in building and selling new homes, building and managing apartments, developing residential lots, and developing commercial investment property for retail and office use. He formerly served on the board of directors of MidSouth from 2003 to 2014 and as its Vice Chairman from 2012 to 2014; on the board of directors of Middle Tennessee Christian School from 1999 to 2007 and as its Vice Chairman from 2006 to 2007; on the Community Board of Cavalry Banking from 2000 to 2003; on the board of directors of Trans Financial Bank of Tennessee from 1997 to 1999; and on the Rutherford County Home Builders Association from 1994 to 1995.Director Qualifications:•Extensive Knowledge of Our Company—Mr. Waldron has been a director of FFN and the Bank since April of 2015.•Relevant Executive/Leadership Experience—Mr. Waldron is a partner and managing member of a company and has served in leadership roles of various organizations.•Extensive Knowledge of the Financial Services Industry—Mr. Waldron has served on the boards of multiple banks.•Extensive Knowledge of the Real Estate Industry—Mr. Waldron has extensive experience in the real estate industry.Benjamin P. Wynd, age 42, has been a director of FFN and the Bank since August 25, 2015. Mr. Wynd serves as Partner of SSW CPAs, a local Franklin, Tennessee CPA firm started in 1986, since November 2014, and as Partner of SSW Capital LLC, a locally-owned financial services and transaction advisory firm. Mr. Wynd currently serves on the board of directors for Outdoor Encounter, Inc., a Franklin, Tennessee based non-profit organization. Prior to joining SSW CPAs, Mr. Wynd was heavily involved in Nashville’s healthcare industry, serving as the Director of Financial Reporting at Tenet Healthcare/Vanguard. While at Tenet/Vanguard, he was actively engaged in working on the company’s SEC filings, including Vanguard’s initial public offering in June 2011, comprehensive debt refinancing, overseeing the financial reporting of the company’s health plans and supporting acquisition due diligence. Mr. Wynd’s experience also includes working with national accounting firms, as well as with the 2002 Olympic Winter Games in Salt Lake City, Utah. Mr. Wynd is a graduate of Transylvania University in Lexington, Kentucky. Mr. Wynd is currently a member of the Tennessee Society of Certified Public Accountants and the American Institute of Certified Public Accountants.Director Qualifications:•Extensive Knowledge of Our Company—Mr. Wynd has been a director of FFN and the Bank since August of 2015.•High Level of Financial Literacy—Mr. Wynd serves as partner of a CPA firm, is Partner of a financial services and transaction advisory firm, has worked with national accounting firms and is a member of the Tennessee Society of Certified Public Accountants and the American Institute of Certified Public Accountants.•Extensive Knowledge of the Healthcare Industry—Mr. Wynd was heavily involved in Nashville’s healthcare industry.•Extensive Public Company Experience—Mr. Wynd served as the Director of Financial Reporting at Tenet Healthcare/Vanguard and was actively engaged in working on the company’s SEC filings, including Vanguard’s initial public offering in June 2011, comprehensive debt refinancing, overseeing the financial reporting of the company’s health plans and supporting acquisition due diligence.Committees of the Board of DirectorsOur board of directors has established the following committees: an audit committee, a compensation committee and a nominating and corporate governance committee. The composition and responsibilities of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors.Audit CommitteeThe purpose of the audit committee is set forth in the audit committee charter and includes assisting the board of directors in overseeing:74•the quality and integrity of our financial statements;•our compliance with legal and regulatory requirements;•the independent auditor’s qualification, performance and independence; and•the design and implementation of our internal audit function.The audit committee consists of Jimmy E. Allen, Pamela J. Stephens, Melody J. Sullivan, Gregory E. Waldron and Benjamin P. Wynd, with Mr. Wynd serving as chairman. Our board has determined each of these members is an independent director under the applicable SEC rules and the NYSE listing standards for audit committee members, and Ms. Sullivan is an “audit committee financial expert” within the meaning of Item 407 of Regulation S-K. Each member of the audit committee has the ability to read and understand fundamental financial statements. Our board of directors has adopted a written charter under which the audit committee operates. A copy of the charter, which satisfies the applicable standards of the SEC and the NYSE, is available on our corporate website (www.franklinsynergybank.com), accessible from the “Governance Documents” link on the “Investor Relations” subpage of our website. Information from this website is not incorporated herein by reference into this Annual Report on Form 10-K.Nominating and Corporate Governance CommitteeThe purpose of the nominating and corporate governance committee is set forth in the nominating and corporate governance committee charter and includes:•identifying individuals qualified to become members of our board of directors, and selecting, or recommending that our board of directors select, the director nominees for each annual meeting of shareholders or to otherwise fill vacancies or newly created directorships on the board of directors;•overseeing the evaluation of the performance of our board of directors and management;•reviewing and recommending to our board of directors committee structure, membership and operations•developing and recommending to our board of directors a set of corporate governance guidelines applicable to us; and;•leading our board of directors in its annual review process.The nominating and corporate governance committee currently consists of Jimmy E. Allen, Pamela J. Stephens, Melody J. Sullivan and Gregory E. Waldron, with Mr. Allen serving as chairman. Our board has determined each of these members is an independent director under the applicable SEC rules and NYSE listing standards. Our board of directors has adopted a written charter under which the nominating and corporate governance committee operates. A copy of the charter, which satisfies the applicable standards of the NYSE, is available on our corporate website (www.franklinsynergybank.com), accessible from the “Governance Documents” link on the “Investor Relations” subpage of our website. Information from this website is not incorporated by reference into this Annual Report on Form 10-K.Compensation CommitteeThe purpose of the compensation committee is set forth in the compensation committee charter and includes:•oversight of our executive compensation policies and practices;•reviewing and approving, or recommending to our board of directors to review and approve, matters related to the definitive Proxy Statement forcompensation of our Chief Executive Officer and our other executive officers; and•overseeing administration and monitoring of our incentive and equity-based compensation plans.The compensation committee currently consists of Jimmy E. Allen, Pamela J. Stephens, Melody J. Sullivan and Benjamin P. Wynd, with Ms. Stephens serving as chair. Our board has determined each of these members is an independent director under the applicable SEC rules and NYSE listing standards. Our board of directors has adopted a written charter under which the compensation committee operates. A copy of the charter, which satisfies the applicable standards of the SEC and the NYSE, is available on our corporate website (www.franklinsynergybank.com), accessible from the “Governance Documents” link on the “Investor Relations” subpage of our website. Information from this website is not incorporated by reference into this Annual MeetingReport on Form 10-K.Corporate Governance Guidelines and Code of StockholdersBusiness Conduct and EthicsOur board of directors has adopted corporate governance guidelines, which set forth a flexible framework within which our board of directors, assisted by board committees, directs the affairs of our company. The guidelines address, among other things, the composition and functions of our board of directors, director independence, compensation of directors, management succession and review, board committees and selection of new directors.75We have adopted a code of business conduct and ethics applicable to be heldour directors, officers and employees including specific standards and guidelines applicable to our principal executive, financial and accounting officers and all persons performing similar functions. A copy of that code, and the corporate governance guidelines, is available on May 23, 2019, whichour corporate website (www.franklinsynergybank.com), accessible from the “Governance Documents” link on the “Investor Relations” subpage of our website. We expect that any amendments to such code and guidelines, or any waivers of their requirements, will be fileddisclosed on our corporate website and by other means required by SEC and NYSE rules.Shareholder NominationsOur nominating and corporate governance committee has no set procedures or policy on the selection of nominees or evaluation of shareholder recommendations and will consider these issues on a case-by-case basis. Our nominating and corporate governance committee will consider shareholder recommendations for director nominees that are properly received in accordance with our bylaws and the applicable rules and regulations of the SEC. Our nominating and corporate governance committee screens all potential candidates in the same manner. Our nominating and corporate governance committee review will typically be based on all information provided with respect to the potential candidate. Our nominating and corporate governance committee has not established specific minimum qualifications that must be met by a nominee for a position on our board of directors or specific qualities and skills for a director. Our nominating and corporate governance committee may consider the diversity of qualities and skills of a nominee, but our nominating and corporate governance committee has no formal policy in this regard. Information Regarding Our Executive OfficersIncluded below is certain information regarding our executive officers. Our executive officers are elected annually by our board of directors and serve at the discretion of our board of directors. Name Age Position J. Myers Jones, III 69 Chief Executive Officer Christopher J. Black 45 Executive Vice President and Chief Financial Officer Steven E. Groom 68 Executive Vice President, General Counsel and Chief Human Resources Officer Terry R. Howell 62 Executive Vice President, Corporate Risk Officer and Interim Chief Operating Officer Eddie A. Maynard, Jr. 44 Chief Credit Officer David McDaniel 52 Executive Vice President, Chief Lending Officer and Williamson County President Lee M. Moss 68 President J. Myers Jones, III, age 69, serves as Chief Executive Officer of FFN and the Bank since September 2019 and served as Interim Chief Executive Officer from March 2019 to September 2019. Mr. Jones previously served as Executive Vice President and Chief Credit Officer from 2011 to March 2019. Mr. Jones has more than 40 years of local community banking experience, most recently with Cadence Bank in Franklin, Tennessee, where he served as Executive Vice President of Commercial Lending. Prior to his service at Cadence Bank, Mr. Jones served as President and CEO of Franklin National Bank in Franklin, Tennessee, for 13 years prior to Franklin National’s acquisition by Fifth Third Bank. In addition to Franklin National Bank and Cadence Bank, Mr. Jones was instrumental in the success of several other area banks, including Sovran Bank and Commerce Union Bank. Mr. Jones is a graduate of Austin Peay State University in Clarksville, Tennessee and the Herbert V. Prochnow Graduate School of Banking at the University of Wisconsin in Madison, Wisconsin. In addition, Mr. Jones is a graduate of the ABA National Commercial Lending School at the University of Oklahoma.Christopher J. Black, age 45, is the Executive Vice President and Chief Financial Officer of FFN and the Bank since December 12, 2018. Mr. Black previously served as the Company’s Executive Vice President, Strategy from November 16, 2018 to December 12, 2018. Prior to joining the Company, Mr. Black was at FirstBank, a bank headquartered in Downtown Nashville, serving as Senior Vice President and Chief Financial Officer, Banking from August 2017 to November 2018 and as Director of Strategic Finance from May 2016 to August 2017. From 2014 to 2016, Mr. Black served as Chief Risk Officer, Managing Director for Kingswell Capital Management, LLC, a financial services company, and from 2010 to 2013, Mr. Black served as Sr. Research Analyst, Principal for Rinehart Capital Partners, LLC, a company providing investment advisory services. Previously, Mr. Black worked in the investment management and investment research industries in New York City, specializing in the banking sector while serving as Vice President at Merrill Lynch & Co. from 2006 to 2009 and as Associate Managing Director at ISI Group, Inc. from 2009 to 2010. Prior to working in the private sector, Mr. Black served for over nine years as an Officer and pilot in the United States Air Force.76Steven E. Groom, age 68, is the Executive Vice President, General Counsel and Chief Human Resources Officer of FFN since July 2019. Mr. Groom previously served as Of Counsel at the Nashville law firm of Neal & Harwell from January 2018 to July 2019 and as Of Counsel in the Nashville office of law firm Butler Snow from April 2017 to January 2018. Prior to Butler Snow, Mr. Groom served as Executive Vice President and General Counsel for CoreCivic (formerly Corrections Corporation of America) from April 2010 to June 2016. Mr. Groom has more than 40 years of experience as an attorney and has spent more than 27 years in executive and general counsel roles with two large public companies. He earned his bachelor's degree from Lipscomb University and earned his J.D. from the University of Memphis Law School. Mr. Groom also has attended executive education programs at Harvard University, the Wharton School, and the Kellogg School of Management at Northwestern University.Terry R. Howell, age 62, is the Interim Chief Operating Officer of the Bank since March 2019 and the Executive Vice President, Corporate Risk Officer of FFN since November 2016. Mr. Howell joined the Company in June 2016 from Civic Bank & Trust, where he served as Chief Operating Officer since 2015. Prior to that, Mr. Howell served as Chief Operating Officer for Red River Bank in central Louisiana for five years. Mr. Howell received a BSBA degree from the University of Tennessee and an Executive MBA from the Fogelman College of Business and Economics, University of Memphis. He has more than thirty years of financial industry experience.Eddie Maynard, age 44, is the Executive Vice President, Chief Credit Officer of the Bank since March 2019. Mr. Maynard previously served as Senior Vice President and Assistant Chief Credit Officer of the Bank from February 2018 to March 2019, Senior Vice President - Division Executive from 2016 to February 2018 and Senior Vice President, Senior Commercial Lender from 2014 to 2016. Mr. Maynard joined the Company in January 2008 from Colonial Bank where he served as a Vice President, head of the Nashville LPO. Prior to that he worked for Franklin National Bank from 1998-2006 and transitioned over to Fifth Third Bank upon its acquisition. Mr. Maynard received a BSBA degree from West Virginia University. He also graduated from the Graduate School of Banking at Louisiana State University. He has more than 20 years of financial industry experience.David J. McDaniel, age 52, is the Executive Vice President, Chief Lending Officer, and Williamson County President of the Bank since 2015. From 2011 to 2013, Mr. McDaniel was Senior Vice President, Investment Management of the Bank, and from 2013 to 2015, he was Executive Vice President and Chief Retail Officer of the Bank. Mr. McDaniel is a Brentwood native and served as Regional President at Community First Bank & Trust in Cool Springs prior to joining the Bank. In a banking career that spans more than 18 years, Mr. McDaniel has held roles at AmSouth Bank, First American Bank, Equitable Securities and Merrill Lynch. He holds a B.S. in Finance and an M.B.A. from the University of Tennessee in Knoxville, Tennessee. He is a graduate of Brentwood Academy in Brentwood. Mr. McDaniel is a graduate of Leadership Franklin, a member of the Williamson County/Franklin Chamber of Commerce, and a Health and Educational Facilities Board member of the City of Franklin.Lee M. Moss, age 68, is President of FFN since September 2019 and President of the Bank and a director of the Bank since July 1, 2014. He served as Interim President of FFN from March 2019 to September 2019. Mr. Moss was the Chairman and Chief Executive Officer of MidSouth from its inception in 2003 until our acquisition of MidSouth effective July 1, 2014. He served on MidSouth’s Loan and Executive Committee (Executive Chairman), Trust Committee (Chairman), Executive Leadership Committee (Chairman) and the Asset/Liability Committee. In 1973, Mr. Moss graduated from the University of Tennessee with a Bachelor of Science degree, majoring in Banking. He graduated from the National Commercial Lending School in 1978 and the Graduate School of Banking of the South in 1983. Mr. Moss worked for Valley Fidelity Bank in Knoxville for one year after graduating from the University of Tennessee, and then worked 28 years with Third National Bank/SunTrust Bank in Nashville. He served in numerous leadership capacities in both the Retail and Commercial divisions of the bank, and in January 1995, he moved to Murfreesboro where he served as Regional President, overseeing Rutherford and Wilson Counties. In January 2003, Mr. Moss served as one of the organizers for MidSouth. Since moving to Murfreesboro, Mr. Moss formerly served as Chair of St. Thomas Rutherford Hospital’s Board and currently serves as Chair-Elect of Tennessee Bankers Association, member of Saint Thomas Health Services Board in Nashville, Business Education Partnership Board, and as a Sunday School teacher and Administrative board member for First United Methodist Church. Mr. Moss is a graduate of Leadership Rutherford and Leadership Middle Tennessee.Delinquent Section 16(a) Reports Section 16(a) of the Securities Exchange Act of 1934, as amended, requires each director, officer, and individual beneficially owning more than 10% of a registered security to file with the SEC, pursuantwithin specified time frames, initial statements of beneficial ownership (Form 3) and statements of changes in beneficial ownership (Forms 4 and 5). Based solely on such forms filed electronically with the SEC and with respect to Regulation 14A under the Exchange Act.fiscal year ended December 31, 2019 or written representations that no additional forms were required, to the best of our knowledge, all required Section 16(a) filings were timely and correctly77made by reporting persons for 2019, except for (i) one late Form 4 for J. Myers Jones, III, filed on May 20, 2019 to report one transaction, the exercise of a stock option on May 15, 2019; (ii) one Form 4 for James W. Cross, IV, filed on April 17, 2019, reported an incorrect number of shares awarded to Mr. Cross on April 15, 2019, which was corrected in a Form 4 amendment filed on September 13, 2019 to correct the number of securities granted to Mr. Cross and to correct the number of securities beneficially owned by Mr. Cross following the transaction; and (iii) one Form 4 for Benjamin Wynd, filed on April 17, 2019, reported an incorrect number of shares awarded to Mr. Wynd on April 15, 2019, which was corrected in a Form 4 amendment filed on September 13, 2019 to correct the number of securities granted to Mr. Wynd and to correct the number of securities beneficially owned by Mr. Wynd following the transaction.ITEM 11. EXECUTIVE COMPENSATION.Compensation Discussion and AnalysisThis Compensation Discussion and Analysis outlines the principles underlying our executive compensation policies and decisions as it relates to the Company’s “Named Executive Officers,” which under the SEC’s executive compensation disclosure rules consist of all persons who served as our principal executive officer and our principal financial officer during our last fiscal year, our next three highest-paid executive officers who were serving as executive officers at the end of our last fiscal year, as well as up to two additional individuals for whom disclosure would have been required because they were among the three highest-paid executive officers other than our principal executive and financial officers but for the fact that the individual was not serving as an executive officer at the end of the last completed fiscal year.The Company’s Named Executive Officers for 2019 were:• Richard E. Herrington, our former President, Chief Executive Officer and Chairman of the Board (until March 8, 2019);• J. Myers Jones, III, our Chief Executive Officer (since September 2019) and Interim Chief Executive Officer (from March 2019 to September 2019);• Christopher J. Black, our Chief Financial Officer;• Kevin A. Herrington, our former Executive Vice President, Chief Operating Officer of the Bank (until March 8, 2019);• David J. McDaniel, our Executive Vice President, Chief Lending Officer, and Williamson County President of the Bank;• Lee M. Moss, our President (since September 2019), Interim President (from March 2019 to September 2019) and President of the Bank; and• Eddie A. Maynard, Jr., our Executive Vice President, Chief Credit Officer of the Bank.Determining Compensation for Named Executive OfficersRole of the Compensation CommitteeThe Compensation Committee of the Board of Directors is comprised entirely of independent directors and operates under a written charter. The Compensation Committee is responsible for determining compensation for all of the Company’s Named Executive Officers including evaluating compensation policies, approving compensation for executive officers and administering our equity incentive programs.Role of ManagementOur Chief Executive Officer plays an important role in setting compensation for our other executive officers by assisting the Compensation Committee in evaluating individual goals and objectives and developing compensation recommendations for Named Executive Officers other than himself. Final decisions on the design of the compensation program, including total compensation are ultimately made by the Compensation Committee.Role of Compensation ConsultantsThe Compensation Committee is authorized to retain the services of a compensation consultant to be used to assist in the review and establishment of our compensation programs and related policies. In 2019, the Compensation Committee retained Pay Governance, LLC as its independent compensation consultant to advise it on executive officer and director compensation. Other than advising the Compensation Committee, Pay Governance, LLC did not provide any services to the78Company in 2019. The Company has determined that Pay Governance, LLC is independent and there was no conflict of interest between the Company and Pay Governance, LLC during 2019.Compensation Objectives and PhilosophyThe Compensation Committee believes that the Company's compensation program for executive officers should:• Attract, retain and motivate highly-skilled executives;• Encourage management to balance short-term goals against longer-term objectives without incentivizing excessive risk-taking; and• Align the interests of management and shareholders through the use of equity-based compensation.The Compensation Committee applied this philosophy in establishing each of the elements of executive compensation for the fiscal year ended December 31, 2019.Elements of CompensationOur executive compensation program for the Named Executive Officers consists of base salary, an annual incentive cash bonus and long-term equity incentive awards.Base SalaryBase salary is intended to attract and retain executive officers and is generally based on the scope and complexity of the role and responsibilities and individual performance. The Compensation Committee seeks to target our Named Executive Officers’ base salaries at competitive levels to recognize professional growth, success and/or increased responsibilities within the Company. Base salaries are reviewed annually to assess if adjustments are necessary.The current base salaries for Messrs. Jones, Black and Maynard were established by the Compensation Committee in connection with the employment agreements we entered into with such Named Executive Officers on August 28, 2019. See “Employment Agreements and Other Agreements with Our Named Executive Officers” for additional information regarding our employment and transition agreements with certain of our Named Executive Officers.For 2019, base salaries for our Named Executive Officers were as follows:ITEM 11.Name 2019 Base Salary Richard E. Herrington(1)$642,694 J. Myers Jones, III $453,000 Christopher J. Black $362,870 Kevin A. Herrington(1)$304,125 David J. McDaniel $360,133 Lee M. Moss $329,040 Eddie A. Maynard, Jr. $315,370 (1) Messrs. Richard and Kevin Herrington retired from their positions as executive officers of the Company effective as of March 8, 2019.Cash BonusesIn 2019, we awarded cash bonuses to our Named Executive Officers, other than Messrs. Richard and Kevin Herrington, as follows:79Name 2019 Cash Bonus Richard E. Herrington $25,482 J. Myers Jones, III $39,656 Christopher J. Black $34,943 Kevin A. Herrington $12,011 David J. McDaniel $35,466 Lee M. Moss $26,143 Eddie A. Maynard, Jr. $29,701 Our cash bonus program is designed to reward our Named Executive Officers for the achievement of annual operational and financial goals, as well as individual performance and significant non-financial achievements. In determining the size of cash bonus awards, the Compensation Committee thoroughly reviews the Company’s performance and individual performance of the Named Executive Officers. When calculating the awards for our incentive program, the Committee relied on previously established weighted targets identifying various measurements of profitability and corporate governance including ratios for core earnings per share growth, total book value per share growth, net interest margin, core return on average assets, non-performing assets ratios, and regulatory ratings for safety and soundness; Community Reinvestment Act; and consumer compliance.Long-Term Incentive Program (Equity-Based Compensation)We granted awards of restricted stock units (RSUs) to our Named Executive Officers, other than Messrs. Richard and Kevin Herrington, on August 28, 2019 to encourage retention and alignment with the long-term growth and performance of the Company, as follows:Name No. of RSUs $ Value(1)J. Myers Jones, IIII 5,244 $146,150 Christopher J. Black 6,012 $167,554 2,870 $79,987 David J. McDaniel 6,946 $193,585 Lee M. Moss 4,397 $122,544 Eddie A. Maynard, Jr. 4,751 $132,410 (1) Based on the grant date fair value of the awards, based on a price per share of common stock of $27.87.The information calledRSUs granted to our Named Executive Officers in August 2019 vest ratably over three years beginning on the first anniversary of the date of grant, assuming the Named Executive Officer is still employed by the Company as of each such vesting date, except that the award of 2,870 RSUs to Mr. Black vest ratably over a five-year period beginning on the first anniversary of the date of grant.In addition, on January 31, 2019, we granted an award of 1,255 shares of restricted stock to Christopher J. Black that vests ratably over five years beginning on the first anniversary of the date of grant, assuming Mr. Black is still employed by the Company as of each such vesting date.Risk MitigationOur executive compensation program is designed to achieve an appropriate balance between risk and reward that does not incentivize excessive risk-taking. We believe that our annual cash bonus program and equity compensation program contain appropriate risk mitigation factors, as summarized below:• Balance of short-term and long-term incentives through annual cash bonuses and long-term equity compensation;• Meaningful portion of total compensation is in the form of long-term equity awards;80• Three to five-year vesting based on continued service as of the vesting date;• Anti-hedging policy contained in our Insider Trading Compliance Policy.Other Practices, Plans and AgreementsThere is standard medical and disability insurance for officers and employees similar to other banking institutions in the area. FFN may enter into other incentive compensation, bonus, and/or pension plans with its officers and employees in the future as may be decided by this item is incorporated herein by referencethe board of directors. Officers and employees will receive salaries standard in the market and industry.Omnibus Equity Incentive PlanThe Company’s 2007 Omnibus Equity Incentive Plan (the “2007 Plan”), as amended and shareholder-approved, provided for the issuance of up to 4,000,000 shares. The 2007 Plan provided that no options intended to be incentive stock options may be granted after April 9, 2017. As a result, the Company’s board of directors approved, and recommended to its shareholders for approval, a new equity incentive plan, the 2017 Omnibus Equity Incentive Plan (the “2017 Plan”). The Company’s shareholders approved the 2017 Plan at the 2017 annual meeting of shareholders. The terms of the 2017 Plan are substantially similar to the definitive Proxy Statementterms of the 2007 Plan it was intended to replace, except that the 2017 Plan provided for the issuance of up to 5,000,000 shares. The Company is no longer issuing awards under the 2007 Plan. On April 12, 2018, the Compensation Committee approved the Amended and Restated 2017 Omnibus Equity Incentive Plan (the “Amended and Restated 2017 Plan”) in order to make the following amendments to the 2017 Plan in response to feedback the Company received from its shareholders:• reduce the number of shares of common stock available for issuance from 5,000,000 shares under the 2017 Plan to 3,500,000 shares under the Amended and Restated 2017 Plan;• revise the definition of Change in Control to include only actual changes in control (and removed triggering events that represented a potential change in control);• remove the Compensation Committee's authority to accelerate vesting (other than in cases of termination of the participant's employment);• remove certain provisions allowing recycling of shares and to clarify that (1) shares tendered in payment of an option, (2) shares delivered or withheld to satisfy tax withholding obligations and (3) shares covered by a stock-settled SAR or other awards that were not issued upon settlement of the award will not be available for issuance under the Amended and Restated 2017 Plan; and• remove the ability to grant reload options (automatic granting of new options at the time of exercise).The Amended and Restated 2017 Plan did not require approval by the Company's shareholders. At December 31, 2019, there were 2,410,486 authorized shares available for issuance under the Amended and Restated 2017 Plan.Employee, organizer and director awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have a vesting period of two to five years and have a ten-year contractual term. The Company assigns discretion to its Compensation Committee to make grants either as qualified incentive stock options or as non-qualified stock options. All employee grants are intended to be treated as qualified incentive stock options, if allowable. All other grants are expected to be treated as non-qualified.Additionally, the Company’s 2007 Plan and the Amended and Restated 2017 Plan provide for the granting of restricted share awards and other performance related incentives. When restricted shares are awarded, a participant receives voting and dividend rights with respect to the shares, but is not able to transfer the shares until the restrictions have lapsed. All outstanding restricted share awards have a vesting period of two to seven years and vest in equal annual installments on the anniversary date of the grant.Employment Agreements and Other Agreements with Our Named Executive Officers2019 Employment AgreementsOn August 28, 2019, FFN and the Bank entered into employment agreements (collectively, the “2019 Employment Agreements”) with each of J. Myers Jones, III, Christopher J. Black, David J. McDaniel, IV, Lee M. Moss and Eddie A. Maynard, Jr. In addition, on August 28, 2019, each of these Named Executive Officers also entered into non-compete and non-solicitation agreements, pursuant to which, among other things, each of such Named Executive Officers agreed, during the term81of his employment and for a period of 12 months thereafter, not to (i) solicit customers, employees or independent contractors of the Bank and (ii) engage in certain activities that would compete with the Bank.The terms of the 2019 Employment Agreements are summarized below.J. Myers Jones, III Employment AgreementPursuant to the terms of Mr. Jones’ employment agreement, Mr. Jones is entitled to, among other things:• An annual base salary of not less than $453,000 for the 12-month period ending August 28, 2020 and not less than $498,000 for the remainder of the term, subject to annual review for increase (but not decrease);• Be eligible to receive (but not entitled to) discretionary cash bonuses or other incentive compensation, including equity compensation;• Participate in the Company’s equity compensation plans and any employee benefit plans available to similarly situated employees;• If Mr. Jones’ employment is terminated by the Company or the Bank without Cause (as defined in Mr. Jones’ employment agreement), by Mr. Jones with Good Reason (as defined in Mr. Jones’ employment agreement) or upon the Term Expiration (as defined in Mr. Jones’ employment agreement), (i) his base salary through the date of termination, (ii) an amount equal to two times the base salary to be paid to Mr. Jones for the second 12 month period of the term of his employment agreement (which base salary amount is $498,000), payable in equal monthly installments over 24 months, (iii) an amount equal to two times his three-year average annual cash incentive payments, payable in equal monthly installments over 24 months, and (iv) all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the termination date;• If Mr. Jones’ employment is terminated due to death or Disability (as defined in Mr. Jones’ employment agreement), (i) his base salary through the end of the next pay period following the date of termination, and (ii) all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the termination date; and• Upon a Change In Control (as defined in the Amended and Restated 2017 Plan), all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the date of such Change In Control.Unless earlier terminated pursuant to the terms of his employment agreement, the term of Mr. Jones’ employment agreement will end on October 15, 2021, subject to automatic annual renewals for additional one-year terms unless either party gives written notice of its election to terminate the agreement at least 150 days prior to the end of any such term.Christopher J. Black Employment AgreementPursuant to the terms of Mr. Black’s employment agreement, Mr. Black is entitled to, among other things:• An annual base salary of not less than $362,870, subject to annual review for increase (but not decrease);• Be eligible to receive (but not entitled to) discretionary cash bonuses or other incentive compensation, including equity compensation;• Participate in the Company’s equity compensation plans and any employee benefit plans available to similarly situated employees;• If Mr. Black’s employment is terminated by the Company or the Bank without Cause (as defined in Mr. Black’s employment agreement) or by Mr. Black with Good Reason (as defined in Mr. Black’s employment agreement), (i) his base salary through the date of termination, (ii) an amount equal to two times his then-current base salary, payable in equal monthly installments over 24 months, (iii) an amount equal to two times his three-year average annual cash incentive payments, payable in equal monthly installments over 24 months, and (iv) all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the termination date;• If Mr. Black’s employment is terminated due to death or Disability (as defined in Mr. Black’s employment agreement), (i) his base salary through the end of the next pay period following the date of termination, and (ii) all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the termination date; and• Upon a Change In Control (as defined in the Amended and Restated 2017 Plan), all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the date of such Change In Control.82Unless earlier terminated pursuant to the terms of his employment agreement, the term of Mr. Black’s employment agreement will end on August 28, 2022, subject to automatic annual renewals for additional one-year terms unless either party gives written notice of its election to terminate the agreement at least 150 days prior to the end of any such term.David J. McDaniel, IV Employment AgreementPursuant to the terms of Mr. McDaniel’s employment agreement, Mr. McDaniel is entitled to, among other things:• An annual base salary of not less than $360,133, subject to annual review for increase (but not decrease);• Be eligible to receive (but not entitled to) discretionary cash bonuses or other incentive compensation, including equity compensation;• Participate in the Company’s equity compensation plans and any employee benefit plans available to similarly situated employees;• If Mr. McDaniel’s employment is terminated by the Bank without Cause (as defined in Mr. McDaniel’s employment agreement) or by Mr. McDaniel with Good Reason (as defined in Mr. McDaniel’s employment agreement), (i) his base salary through the date of termination, (ii) an amount equal to two times his then-current base salary, payable in equal monthly installments over 24 months, (iii) an amount equal to two times his three-year average annual cash incentive payments, payable in equal monthly installments over 24 months, and (iv) all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the termination date;• If Mr. McDaniel’s employment is terminated due to death or Disability (as defined in Mr. McDaniel’s employment agreement), (i) his base salary through the end of the next pay period following the date of termination, and (ii) all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the termination date; and• Upon a Change In Control (as defined in the Amended and Restated 2017 Plan), all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the date of such Change In Control.Unless earlier terminated pursuant to the terms of his employment agreement, the term of Mr. McDaniel’s employment agreement will end on August 28, 2022, subject to automatic annual renewals for additional one-year terms unless either party gives written notice of its election to terminate the agreement at least 150 days prior to the end of any such term.Lee M. Moss Employment AgreementPursuant to the terms of Mr. Moss’s employment agreement, Mr. Moss is entitled to, among other things:• An annual base salary of not less than $329,040, subject to annual review for increase (but not decrease);• Be eligible to receive (but not entitled to) discretionary cash bonuses or other incentive compensation, including equity compensation;• Participate in the Company’s equity compensation plans and any employee benefit plans available to similarly situated employees;• If Mr. Moss’s employment is terminated by the Bank without Cause (as defined in Mr. Moss’s employment agreement) or by Mr. Moss with Good Reason (as defined in Mr. Moss’s employment agreement), (i) his base salary through the date of termination, (ii) an amount equal to two times his then-current base salary, payable in equal monthly installments over 24 months, (iii) an amount equal to two times his three-year average annual cash incentive payments, payable in equal monthly installments over 24 months, and (iv) all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the termination date;• If Mr. Moss’s employment is terminated due to death or Disability (as defined in Mr. Moss’s employment agreement), (i) his base salary through the end of the next pay period following the date of termination, and (ii) all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the termination date; and• Upon a Change In Control (as defined in the Amended and Restated 2017 Plan), all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the date of such Change In Control.Unless earlier terminated pursuant to the terms of his employment agreement, the term of Mr. Moss’s employment agreement will end on August 28, 2022, subject to automatic annual renewals for additional one-year terms unless either party gives written notice of its election to terminate the agreement at least 150 days prior to the end of any such term.83Eddie A. Maynard, Jr. Employment AgreementPursuant to the terms of Mr. Maynard’s employment agreement, Mr. Maynard is entitled to, among other things:• An annual base salary of not less than $315,370, subject to annual review for increase (but not decrease);• Be eligible to receive (but not entitled to) discretionary cash bonuses or other incentive compensation, including equity compensation;• Participate in the Company’s equity compensation plans and any employee benefit plans available to similarly situated employees;• If Mr. Maynard’s employment is terminated by the Bank without Cause (as defined in Mr. Maynard’s employment agreement) or by Mr. Maynard with Good Reason (as defined in Mr. Maynard’s employment agreement), (i) his base salary through the date of termination, (ii) an amount equal to two times his then-current base salary, payable in equal monthly installments over 24 months, (iii) an amount equal to two times his three-year average annual cash incentive payments, payable in equal monthly installments over 24 months, and (iv) all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the termination date;• If Mr. Maynard’s employment is terminated due to death or Disability (as defined in Mr. Maynard’s employment agreement), (i) his base salary through the end of the next pay period following the date of termination, and (ii) all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the termination date; and• Upon a Change In Control (as defined in the Amended and Restated 2017 Plan), all outstanding, unearned and unvested equity awards will automatically become earned or vest in full on the date of such Change In Control.Unless earlier terminated pursuant to the terms of his employment agreement, the term of Mr. Maynard’s employment agreement will end on August 28, 2022, subject to automatic annual renewals for additional one-year terms unless either party gives written notice of its election to terminate the agreement at least 150 days prior to the end of any such term.Executive Transition Agreement with Richard E. HerringtonOn March 8, 2019, Richard E. Herrington entered into an Executive Transition Agreement with FFN and the Bank, pursuant to which Mr. Herrington retired from his position as an executive officer of the company and a member of the board of directors, in each case effective as of March 8, 2019. Mr. Herrington also agreed to remain an employee of the company through September 8, 2019 to provide services to the company on a transitional basis. The Executive Transition Agreement provides that Mr. Herrington was entitled to receive, in exchange for his release of all potential claims against the Company, a payment of the gross amount of $1,322,018.00. Mr. Herrington also received a payment of $661,009.00 pursuant to the terms of his Confidentiality, Non-Competition, and Non-Solicitation Agreement dated as of January 29, 2014, and, pursuant to the terms of his employment agreement with the Bank dated as of January 29, 2014, all of his outstanding, unvested equity awards became fully-vested on September 8, 2019.84SUMMARY COMPENSATION TABLEThe following table sets forth information concerning total compensation for our Named Executive Officers for 2019, 2018 and 2017 (as applicable). For additional information on the compensation summarized below and other benefits, please refer to “Compensation Discussion and Analysis” above.Name and Principal Position Year Salary ($) Bonus ($) Stock Awards(1)($)Option Awards(1) ($)All Other Compensation ($) Total
($)Richard Herrington 2019 $642,697 $25,482 $59,238 $223,290 $2,029,764 (2) $2,980,471 Former Chief Executive Officer 2018 $587,001 $25,482 $59,837 $244,080 $94,373 $1,010,773 2017 $530,880 $19,366 $57,407 $191,947 $78,996 $878,596 J. Myers Jones, III 2019 $453,000 $39,656 $146,150 $0 $28,746 (3) $667,552 Chief Executive Officer 2018 $278,280 $16,241 $38,090 $119,435 $32,258 $484,304 2017 $269,906 $10,525 $39,740 $104,318 $30,737 $455,226 Christopher J. Black 2019 $362,870 $34,943 $287,538 $0 $15,006 (4) $700,357 Chief Financial Officer 2018 $300,000 $43,617 $167,800 $0 $667 $512,084 Kevin A. Herrington 2019 $304,125 $12,011 $36,872 $105,277 $968,147 (5) $1,426,432 Former Chief Operating Officer of the Bank 2018 $276,334 $12,011 $37,299 $115,047 $40,795 $481,486 2017 $245,630 $8,932 $40,824 $91,299 $37,985 $424,670 David J. McDaniel 2019 $360,133 $35,466 $193,585 $0 $35,692 (6) $624,876 Chief Lending Officer and Williamson County President 2018 $327,607 $21,509 $41,912 $140,576 $34,940 $566,544 2017 $303,672 $14,394 $42,542 $118,265 $32,921 $511,794 Lee M. Moss 2019 $329,040 $26,143 $122,544 $0 $33,396 (7) $511,123 President 2018 $257,040 $9,745 $32,686 $89,289 46,943 $435,703 2017 $255,780 $13,626 $33,316 $90,856 $43,035 $436,613 Eddie A. Maynard, Jr. 2019 $315,370 $29,701 $132,410 $0 $28,535 (8) $506,016 Chief Credit Officer 2018 $254,563 $23,367 $22,175 $95,634 $26,752 $422,491 2017 $205,750 $11,004 $22,373 $64,250 $23,818 $327,195 (1) The amounts in the Stock Awards and Option Awards columns represent grant date fair values computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation (FASB ASC Topic 718). The assumptions used in determining the values of option awards are provided in Note 15 to FFN’s Consolidated Financial Statements included in FFN’s Annual MeetingReport on Form 10-K for the year ended December 31, 2019.(2) For 2019, includes: a company car allowance of Stockholders$7,400; country club membership dues of $10,255; 401(k) company matching contributions of $12,695; life insurance and disability premiums of $1,460; director fees of $5,583; health insurance premiums of $9,344 and severance payments of $1,983,027.(3) For 2019, includes: a company car allowance of $2,975; 401(k) company matching contributions of $12,813; life insurance and disability premiums of $1,913; split dollar insurance of $1,712; and health insurance premiums of $9,333.(4) For 2019, includes: a company car allowance of $3,225; 401(k) company matching contributions of $9,809; and life insurance and disability premiums of $1,972.(5) For 2019, includes: a company car allowance of $5,800; 401(k) company matching contributions of $8,740; life insurance and disability premiums of $1,449; health insurance premiums of $13,010; country club dues of $854; split dollar insurance premiums of $155; and severance payments totaling $938,139.(6) For 2019, includes: a company car allowance of $3,675; 401(k) company matching contributions of $11,200; country club dues of $1,027; split dollar premiums of $437; life insurance and disability premiums of $2,000; and health insurance premiums of $17,353.(7) For 2019, includes: a company car allowance of $3,600; 401(k) company matching contributions of $10,789; life insurance and disability premiums of $1,865; health insurance premiums of $10,383; split dollar premiums of $731; and country club dues of $6,028.(8) For 2019, includes: a company car allowance of $1,650; 401(k) company matching contributions of $11,200; life insurance and disability premiums of $1,990; split dollar premiums of $94; and health insurance premiums of $13,601.85GRANTS OF PLAN-BASED AWARDSThe table below summarizes all grants of plan-based awards during the year ended December 31, 2019 to our Named Executive Officers.Name Grant
DateEstimated Future Payouts Under Non-Equity Incentive Plan Awards Target
($)All Other
Stock Awards:
Number of
Shares of
Stock or
Units
(#)All Other Option Awards; Number of Securities Underlying Options
(#)Exercise or Base Price of Option or Awards
($/sh)Grant Date Fair Value ($) Richard E. Herrington 04/15/19 $0 2,124 — $27.89 $59,238 04/15/19 $0 — 23,091 $9.67 $223,290 J. Myers Jones, III 08/28/19 $0 5,244 — $27.87 $146,150 Christopher J. Black 08/28/19 $0 6,012 — $27.87 $167,554 08/28/19 $0 2,870 — $27.87 $79,987 01/31/19 $0 1,255 — $31.87 $39,997 Kevin A. Herrington 04/15/19 $0 1,323 — $27.87 $36,872 04/15/19 $0 — 10,887 $9.67 $105,277 David J. McDaniel 08/28/19 $0 6,946 — $27.87 $193,585 Lee M. Moss 08/28/19 $0 4,397 — $27.87 $122,544 Eddie A. Maynard, Jr. 08/28/19 $0 4,751 — $27.87 $132,410 86Outstanding Equity Awards at Fiscal Year EndThe table below summarizes all outstanding equity awards at December 31, 2019 for our Named Executive Officers.Option Awards(1)Stock Awards(3)Name Number of
Securities
Underlying
Unexercised
Options (Exercisable)
(#)Number of
Securities
Underlying
Unexercised
Options (Unexercisable)
(#)Option
Exercise
Price
($)OptionExpirationDate(2)Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)MarketValue ofShares orUnits ofStock ThatHave NotVested(4)($)Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)Richard E. Herrington 4,627 — $10.00 07/22/20 — — — — 11,735 — $10.50 06/02/21 — — — — J. Myers, Jones, III 8,735 — $10.50 06/02/21 7,207 $247,416 — — 14,282 — $12.00 06/01/22 — — — — 6,045 — $13.00 05/31/23 — — — — 6,498 — $13.50 04/15/24 — — — — 5,847 1,462 $20.69 04/30/25 — — — — 5,408 3,606 $27.00 04/01/26 — — — — 5,021 2,511 $37.35 04/14/27 — — — — 2,949 5,898 $32.95 04/16/28 — — — — Christopher J. Black — — $0.00 — 13,470 $462,425 — — Kevin A. Herrington — — $0.00 — — — — — David A. McDaniel 6,328 — $12.00 06/01/22 8,998 $308,901 — — 3,914 — $13.00 05/31/23 — — — — 6,394 — $13.50 04/15/24 — — — — 5,342 1,335 $20.69 04/30/25 — — — — 5,283 3,522 $27.00 04/01/26 — — — — 5,693 2,846 $37.35 04/14/27 — — — — 3,471 6,942 $32.95 04/16/28 — — — — Lee M. Moss 19,167 19,167 $8.57 11/30/22 6,005 $206,152 — — 3,467 867 $20.69 04/30/25 — — — — 4,666 3,110 $27.00 04/01/26 — — — — 4,373 2,187 $37.35 04/14/27 — — — — 2,205 4,409 $32.95 04/16/28 — — — — Eddie A. Maynard, Jr. 279 — $13.00 05/31/23 5,619 $192,900 — — 759 — $13.50 04/15/24 — — — — 866 432 $20.69 04/30/25 — — — — 2,613 2,613 $27.00 04/01/26 — — — — 3,093 1,546 $37.35 04/14/27 — — — — 4,722 3,387 $32.95 04/16/28 — — — — 87(1) Options vest in five equal increments beginning on the first anniversary of grant, except for the July 1, 2014 options which vested upon close of the merger with MidSouth bank, and the April 14, 2017 and April 16, 2018 options, which vest in three equal increments.(2) The expiration date of each option occurs ten years after the date of grant for each option other than the options granted July 1, 2014.(3) Restricted stock awards were granted on May 31, 2013, April 15, 2014, April 30, 2015, April 1, 2016, April 17, 2017 and April 16, 2018 as part of FFN’s equity incentive plans and vest in five equal increments over five years, except for the April 17, 2017 and April 16, 2018 restricted stock awards, which vest in three equal increments over three years. Restricted stock units were granted on August 28, 2019 and vest in three equal increments over three years.(4) Based on a share price of $34.33, the last reported sale of FFN’s common stock on December 31, 2019, the last business day of the 2019 fiscal year.OPTION EXERCISES AND STOCK VESTEDThe following table sets forth information regarding each exercise of stock options by our Named Executive Officers during the year ended December 31, 2019 and the vesting during the year ended December 31, 2019 of nonvested stock held by our Named Executive Officers.Option Awards Stock Awards Name Number of
Shares
Acquired on Exercise
(#)Value Realized
on Exercise
($)Number of Shares
Acquired on Vesting
(#)Value Realized
on Exercise
($)Richard E. Herrington 140,774 $1,671,087 7,717 $221,319 J. Myers Jones, III 4,000 $60,640 1,738 $49,099 Christopher J. Black — $0 1,667 $56,978 Kevin A. Herrington 73,480 $698,056 4,824 $138,317 David J. McDaniel 1,500 $33,615 1,789 $50,504 Lee M. Moss — $0 1,037 $29,353 Eddie A. Maynard, Jr. — $0 749 $21,114 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROLExecutive Benefits ($) Change in Control without Termination of Employment on 12/31/2019
($)Termination without Cause or Resignation with Good Reason as of 12/31/2019 (no Change in Control)
($)Termination without Cause or Resignation with Good Reason on 12/31/2019 following a Change in Control
($)Permitted Retirement on 12/31/2019
($)Disability on 12/31/2019
($)Death on 12/31/2019
($)J. Myers Jones Base Severance Payment $0 $1,533,237 $1,533,237 $1,533,237 $0 $0 Accelerated Vesting of Nonvested Stock, Options to purchase shares of Company common stock or Restricted Stock Units* $301,924 $301,924 $304,924 $304,924 $304,924 $304,924 Other $0 $0 $0 $0 $0 $204,720 Total $301,924 $1,835,161 $1,835,161 $1,835,161 $304,924 $509,644 88Richard E. Herrington Base Severance Payment $0 $0 $0 $1,983,027 $0 $0 Accelerated Vesting of Nonvested Stock, Options to purchase shares of Company common stock or Restricted Stock Units $0 $0 $0 $200,259(1) $0 $0 Other $0 $0 $0 $0 $0 $0 Total $0 $0 $0 $2,183,286 $0 $0 Christopher J. Black Base Severance Payment $0 $1,219,461 $1,219,461 $1,219,461 $0 $0 Accelerated Vesting of Nonvested Stock, Options to purchase shares of Company common stock or Restricted Stock Units* $462,425 $462,425 $462,425 $462,425 $462,425 $462,425 Other $0 $0 $0 $0 $0 $0 Total $462,425 $1,681,886 $1,681,886 $1,681,886 $462,425 $462,425 Kevin A. Herrington Base Severance Payment $0 $0 $0 $938,139 $0 $0 Accelerated Vesting of Nonvested Stock, Options to purchase shares of Company common stock or Restricted Stock Units $0 $0 $0 $116,791(1) $0 $0 Other $0 $0 $0 $0 $0 $0 Total $0 $0 $0 $1,054,930 $0 $0 David J. McDaniel Base Severance Payment $0 $1,128,234 $1,128,234 $1,128,234 $0 $0 Accelerated Vesting of Nonvested Stock, Options to purchase shares of Company common stock or Restricted Stock Units* $362,512 $362,512 $362,512 $362,512 $362,512 $362,512 Other $0 $0 $0 $0 $0 $243,727 Total $362,512 $1,490,746 $1,490,746 $1,490,746 $362,512 $606,239 Lee M. Moss Base Severance Payment $0 $998,377 $998,377 $998,377 $0 $0 89Accelerated Vesting of Nonvested Stock, Options to purchase shares of Company common stock or Restricted Stock Units* $246,859 $246,859 $246,859 $246,859 $246,859 $246,859 Other $0 $0 $0 $0 $0 $186,750 Total $246,859 $1,245,236 $1,245,236 $1,245,236 $246,859 $433,609 Eddie A. Maynard, Jr. Base Severance Payment $0 $969,481 $969,481 $969,481 $0 $0 Accelerated Vesting of Nonvested Stock, Options to purchase shares of Company common stock or Restricted Stock Units* $224,467 $224,467 $224,467 $224,467 $224,467 $224,467 Other $0 $0 $0 $0 $0 $205,027 Total $224,467 $1,193,948 $1,193,948 $1,193,948 $224,467 $429,494 *Based on closing stock price at 12/31/19 of $34.33.(1) Calculated based on an acceleration date of 9/6/19. Subsequently, Mr. Richard Herrington exercised 2,137 shares on October 1, 2019; 5,077 shares on October 4, 2019; 800 shares on October 7, 2019; 7,117 shares on October 11, 2019; 35,814 shares on October 23, 2019; 18,080 shares on October 29, 2019; and 49,312 shares on November 26, 2019 while Mr. Kevin Herrington exercised 18,119 shares on October 23, 2019; 1,172 shares on October 25, 2019; and 8,522 shares on October 28, 2019.Compensation Committee Interlocks and Insider ParticipationJimmy E. Allen, Pamela J. Stephens, Melody J. Sullivan and Benjamin P. Wynd served as members of FFN’s compensation committee in 2019. None of the members of the compensation committee is a current or former officer of FFN. There is not, nor was there during 2019, any compensation committee interlock or insider participation on the compensation committee required to be helddisclosed under Item 407 of Regulation S-K.Compensation Committee ReportThe Compensation Committee has reviewed and discussed with management the information contained in the Compensation Discussion and Analysis contained in this Annual Report on May 23, 2019, which willForm 10-K and, based on such review and discussions, recommended to the Board of Directors that the Compensation Discussion and Analysis be filed withincluded in this Annual Report on Form 10-K for the SEC pursuant to Regulation 14A underyear ended December 31, 2019.Submitted by the Exchange Act.Compensation Committeeof the Board of Directors:Pamela J. Stephens (Chair)Jimmy E. AllenMelody J. SullivanBenjamin P. WyndITEM 12.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.Security Ownership Table90The following table sets forth information called for by this item is incorporated herein by referencewith respect to the definitive Proxy Statementbeneficial ownership of our common stock as of January 31, 2020, unless otherwise indicated, for (i) each person known by us to beneficially own more than five percent of our Annual Meetingcommon stock in accordance with Rule 13d-3 under the Securities Exchange Act of Stockholders1934, as amended; and (ii) each of our directors; each of our named executive officers; and all of our executive officers and directors as a group.Beneficial ownership for the purposes of the following table is determined in accordance with rules and regulations of the SEC and generally includes any shares over which a person exercises sole or shared voting and/or investment power. Shares of common stock subject to options and restricted stock currently exercisable or exercisable within 60 days are deemed outstanding for purposes of computing the percentage ownership of the person holding the options or restricted stock but are not deemed outstanding for purposes of computing the percentage ownership of any other person. Except as otherwise indicated, we believe the beneficial owners of the common stock listed below, based on information furnished by them, have sole voting and investment power with respect to the number of shares listed opposite their names.Unless otherwise indicated, the address of each of the individuals named in the table below under “Named Executive Officers and Directors” is c/o Franklin Financial Network, Inc., 722 Columbia Avenue, Franklin, Tennessee 37064.Shares
Beneficially OwnedName Number Percentage(1)5% Shareholders: BlackRock, Inc. 2,136,509 (2) 14.40% The Vanguard Group 908,862 (3) 6.13% Dimensional Fund Advisors LP 879,578 (4) 5.93% Named Executive Officers and Directors: Jimmy E. Allen 141,021 (5) * Christopher J. Black 6,468 (6) * James W. Cross, IV 52,900 (7) * Kevin Herrington(8) 24,411 (9) * Richard E. Herrington(10) 316,922 (11) 2.09% J. Myers Jones, III 80,498 (12) * Dr. David H. Kemp 339,136 (13) 2.28% Eddie A. Maynard, Jr. 12,492 (14) * David J. McDaniel 53,648 (15) * Lee M. Moss 80,363 (16) * Dr. Anil C. Patel 160,657 (17) 1.08% Paul M. Pratt, Jr. 46,915 (18) * Pamela J. Stephens 48,933 (19) * Melody J. Sullivan 53,575 (20) * Gregory E. Waldron 102,163 (21) * Benjamin P. Wynd 24,030 (22) * All Named Executive Officers and Directors as a group (16 persons**) 1,210,634 7.95% *Amount represents less than 1.0% of outstanding common stock.**Excludes Messrs. Kevin Herrington and Richard Herrington, who are no longer officers or directors.(1) Based on 14,834,005 shares of common stock outstanding on January 31, 2020, plus shares that can be heldacquired through the exercise of options within 60 days thereafter by the specified individual or group.(2) This disclosure is based on May 23, 2019, which will bea Schedule 13G/A filed with the SEC pursuantby BlackRock, Inc. on February 4, 2020, reporting beneficial ownership as of December 31, 2019. BlackRock, Inc. reported it has sole voting power over 2,101,454 of the shares and sole dispositive power over all 2,136,509 of the shares. The address for BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055.91(3) This disclosure is based on a Schedule 13G/A filed with the SEC by The Vanguard Group on February 12, 2020, reporting beneficial ownership as of December 31, 2019. The Vanguard Group reported it has sole voting power over 13,025 of the shares and sole dispositive power over 896,843 of the shares. The address for The Vanguard Group is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.(4) This disclosure is based on a Schedule 13G/A filed with the SEC by Dimensional Fund Advisors LP on February 12, 2020, reporting beneficial ownership as of December 31, 2019. Dimensional Fund Advisors LP reported it has sole voting power over 834,717 of the shares and sole dispositive power over all 879,578 of the shares. The address for The Vanguard Group is Building One, 6300 Bee Cave Road, Austin, Texas 78746.(5) Includes 109,474 shares of our outstanding common stock beneficially owned by Mr. Allen. Also includes 26,147 shares of common stock issuable upon the exercise of options exercisable on January 31, 2020 or within 60 days thereafter. Mr. Allen also has 5,400 shares of unvested restricted stock of which he has the right to Regulation 14Avote.(6) Includes 1,918 shares of our outstanding common stock beneficially owned by Mr. Black. Mr. Black also has 4,337 shares of unvested restricted stock of which he has the right to vote and 213 shares of common stock held in our 401(k) Plan.(7) Includes 18,685 shares of our outstanding common stock beneficially owned by Mr. Cross jointly. Also includes 28,815 shares of common stock issuable upon the exercise of options exercisable on January 31, 2020 or within 60 days thereafter. Mr. Cross also has 5,400 shares of unvested restricted stock of which he has the right to vote. Mr. Cross has 6,985 shares pledged as security for an obligation.(8) Mr. Kevin Herrington retired from his position as an executive officer of the company, effective as of March 8, 2019.(9) Based on Mr. Herrington’s most recent Form 4 filed with the SEC.(10) Mr. Richard Herrington retired from his position as an executive officer of the company and as a member of the board of directors, effective as of March 8, 2019.(11) Based on Mr. Herrington’s most recent Form 4 filed with the SEC.(12) Includes 18,072 shares of our outstanding common stock beneficially owned by Mr. Jones. Also includes 2,000 shares held by Mr. Jones’s spouse, and 54,786 shares of common stock issuable upon the exercise of options exercisable on January 31, 2020 or within 60 days thereafter. Mr. Jones also has 1,963 shares of unvested restricted stock of which he has the right to vote, and 3,677 shares of common stock held in our 401(k) Plan.(13) Includes 174,620 shares of our outstanding common stock beneficially owned by Dr. Kemp. Also includes 140,756 shares held by Dr. Kemp’s spouse, and 18,360 shares of common stock issuable upon the exercise of options exercisable on January 31, 2020 or within 60 days thereafter. Dr. Kemp also has 5,400 shares of unvested restricted stock of which he has the right to vote.(14) Includes 1,360 shares of our outstanding common stock beneficially owned by Mr. Maynard and 9,971 shares of common stock issuable upon the exercise of options exercisable on January 31, 2020 or within 60 days thereafter. Mr. Maynard also has 868 shares of unvested restricted stock of which he has the right to vote, and 293 shares of common stock held in our 401(k) Plan.(15) Includes 12,469 shares of our outstanding common stock beneficially owned by Mr. McDaniel and 36,424 shares of common stock issuable upon the exercise of options exercisable on January 31, 2020 or within 60 days thereafter. Mr. McDaniel also has 2,052 shares of unvested restricted stock of which he has the right to vote, and 2,703 shares of common stock held in our 401(k) Plan.(16) Includes 43,147 shares of our outstanding common stock beneficially owned by Mr. Moss and 33,878 shares of common stock issuable upon the exercise of options exercisable on January 31, 2020 or within 60 days thereafter. Mr. Moss also has 1,608 shares of unvested restricted stock of which he has the right to vote, and 1,730 shares of common stock held in our 401(k) Plan.(17) Includes 60,702 shares of our common stock beneficially owned by Dr. Patel. Also includes 46,402 shares held by Dr. Patel’s spouse. Also includes options to purchase 39,624 shares of our common stock in connection with the merger of Civic with and into the Bank and 8,529 shares of common stock issuable upon the exercise of options exercisable on January 31, 2020 or within 60 days thereafter. Dr. Patel also has 5,400 shares of unvested restricted stock of which he has the right to vote.(18) Includes 12,700 shares of our outstanding common stock beneficially owned by Mr. Pratt. Also includes 28,815 shares of common stock issuable upon the exercise of options exercisable on January 31, 2020 or within 60 days thereafter. Mr. Pratt also has 5,400 shares of unvested restricted stock of which he has the right to vote.(19) Includes 7,233 shares of our common stock beneficially owned by Ms. Stephens. Also includes 36,300 shares of common stock issuable upon the exercise of options exercisable on January 31, 2020 or within 60 days thereafter. Ms. Stephens also has 5,400 shares of unvested restricted stock of which she has the right to vote.(20) Includes 12,325 shares of our outstanding common stock beneficially owned by Ms. Sullivan. Also includes 35,850 shares of common stock issuable upon the exercise of options exercisable on January 31, 2020 or within 60 days thereafter. Ms. Sullivan also has 5,400 shares of unvested restricted stock of which she has the right to vote.(21) Includes 10,733 shares of our outstanding common stock beneficially owned by Mr. Waldron. Also includes 2,771 shares of common stock held by Mr. Waldron’s spouse, 63,459 shares held by an IRA, and 19,800 shares of common stock issuable upon the exercise of options exercisable on January 31, 2020 or within 60 days thereafter. Mr. Waldron also has 5,400 shares of unvested restricted stock of which he has the right to vote.(22) Includes 2,303 shares of our outstanding common stock beneficially owned by Mr. Wynd. Also includes 226 shares of our common stock held by his children, and 16,101 shares of common stock issuable upon the exercise of options exercisable on January 31, 2020 or within 60 days thereafter. Mr. Wynd also has 5,400 shares of unvested restricted stock of which he has the right to vote.92Equity Compensation Plan InformationThe following information is provided as of December 31, 2019 with respect to our equity compensation plans under the Exchange Act.which our common stock is authorized for issuance:Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)Weighted-average exercise price of outstanding options,
warrants and rights
(b)Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders 1,499,570 $25.86 2,410,486 Equity compensation plans not approved by security holders — — — Total 1,499,570 $25.86 2,410,486 ITEM 13.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.The information called for by this itemBank is incorporated herein by referencesubject to the definitive Proxy Statementprovisions of Section 23A of the Federal Reserve Act, which places limits on the amount of loans or extensions of credit to, or investments in, or certain other transactions with, affiliates and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. The Bank is also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibits an institution from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for our Annual Meetingcomparable transactions with nonaffiliated companies.Policies and Procedures for Related Person TransactionsFFN has a written related person transactions policy, pursuant to which FFN’s executive officers, directors and principal shareholders, including their immediate family members, are not permitted to enter into a related person transaction with FFN without the consent of StockholdersFFN’s audit committee. Any request for FFN to enter into a transaction with an executive officer, director, principal shareholder or any of such persons’ immediate family members, other than transactions available to all employees generally or involving less than $5,000 when aggregated with similar transactions, must be heldpresented to FFN’s audit committee for review, consideration and approval, unless the transaction involves an employment or other compensatory arrangement approved by the compensation committee. All of FFN’s directors, executive officers and employees are required to report to FFN’s audit committee any such related person transaction. In approving or rejecting the proposed agreement, FFN’s audit committee will take into account, among other factors it deems appropriate, whether the proposed related person transaction is on May 23, 2019, whichterms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, the extent of the person’s interest in the transaction and, if applicable, the impact on a director’s independence. After consideration of these and other factors, the audit committee may approve or reject the transaction. Consistent with the policy, if FFN should discover related person transactions that have not been approved, the audit committee will be filednotified and will determine the appropriate action, including ratification, rescission or amendment of the transaction.Certain Transactions with Officers and DirectorsBanking transactions with directors, officers, and employees may be performed in the ordinary course of business. Any extensions of credit to these individuals is made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and will not involve more than the normal risk of repayment. Outstanding loans to executive officers, directors, principal shareholders, and companies with whom they are associated as of December 31, 2019, were approximately $16.4 million.93Our directors are required to devote only so much of their time to the business of the Bank and FFN as in their judgment is reasonably required. Our directors, and their affiliates, may engage, and are presently engaging, for their own accounts in other business ventures, including management and the formation of other corporations or ventures. Such activities may result in conflicts of interest.Based on competitive bids, FFN is using Full Service Insurance to provide various insurance coverage including health, director’s and officer’s liability, personal property and bond coverage. Full Service Insurance is an affiliate of Paul M. Pratt, Jr. where he serves as President. Since January 1, 2019, payments to Full Service Insurance totaled $1,026,954.52.In addition to the Columbia Avenue offices, the Bank has signed a lease with Berry Farms Real Estate Partners, LLC, consisting of directors Brockman, Kemp, and, until December 31, 2013, director nominee Pratt, for the Bank’s Berry Farms branch, which opened in September 2013. Since January 1, 2019, payments to Berry Farms Real Estate Partners, LLC totaled $155,178.43.In September 2013, the Bank entered into an agreement with Aspen Development of Cool Springs, LLC, comprised of directors Brockman and Kemp, to relocate the Bank’s Cool Springs branch. That lease commenced in June 2014. Since January 1, 2019, payments to Aspen Development of Cool Springs, LLC totaled $350,703.89.On March 30, 2016, the Bank and Gateway Real Estate Partners, LLC entered into a Triple Net Office Lease Agreement for office space for the Bank in a building under development in Murfreesboro, Tennessee. Gateway Real Estate Partners, LLC is an affiliate of Henry W. Brockman, Jr. who was a director of the Bank and Dr. David H. Kemp who was a Director of the Company and the Bank in 2019. The lease has a term of 15 years. Since January 1, 2019, lease payments to Gateway Real Estate Partners, LLC totaled $653,042.97.On July 25, 2017, the Bank and Petra Real Estate Partners II, LLC entered into a Triple Net Office Lease Agreement (the “Spring Hill Lease”). The Spring Hill Lease relates to the relocation of the Bank’s Spring Hill, Tennessee branch, which is currently located at 2035 Wall Street, Spring Hill, Tennessee 37174, to the premises subject to the Spring Hill Lease, which is located at 4824 Main Street, Suite 120, Spring Hill, Tennessee 37174. Petra Real Estate Partners II, LLC is an affiliate of Henry W. Brockman, Jr. who was a director of the Bank and Dr. David H. Kemp who was a director of the Bank and the Company in 2019. The Spring Hill Lease has a term of 15 years, which the Bank has the option to renew for two successive five year periods, and provides for monthly rent payments of $10,176.58 per month for the first year of the term of the Spring Hill Lease, subject to annual adjustment thereafter. Since January 1, 2019, lease payments to Petra Real Estate Partners II, LLC totaled $157,881.30.The Bank leases a facility from 204 9th Avenue Partners, LLC in Downtown Franklin to house certain operational areas. 204 9th Avenue Partners is an affiliate of Henry W. Brockman and Dr. David H. Kemp. Mr. Brockman was a director of the Bank and Dr. Kemp was a director of FFN and the Bank during 2019. Since January 1, 2019 payments to 204 9th Avenue Partners, LLC totaled $275,337.26.On August 28, 2018, the Bank and South Royal Oaks Partners, LLC entered into a Triple Net Office Lease Agreement (the “Royal Oaks Lease”) for operations space at 231 South Royal Oaks Boulevard, Franklin, Tennessee. South Royal Oaks Partners, LLC is an affiliate of Henry W. Brockman, Jr. who was a director of the Bank and Dr. David H. Kemp, who was a director of the Bank and Company in 2019. The Royal Oaks Lease has a term of 15 years, which the Bank has the option to renew for two successive five year periods, and provides for monthly rent payments of $22,641.67 per month for the first year of the term of the Royal Oaks Lease, subject to annual adjustment thereafter. Since January 1, 2019, lease payments to South Royal Oaks Partners, LLC totaled $252,949.29.On May 6, 2019, the Bank and Nolensville Real Estate Partners, LLC entered into a Triple Net Office Lease Agreement (the “2019 Nolensville Lease”) related to the planned relocation of the Bank’s Nolensville, Tennessee branch, which is currently located at 7177 Nolensville Road, Suite A3, Nolensville, Tennessee 37135, to the premises subject to the Lease, which is located at 7216 Nolensville Road, Suite 100, Nolensville, Tennessee 37135. Nolensville Real Estate Partners, LLC is an affiliate of Henry W. Brockman, Jr., who is a director of the Bank, and Dr. David H. Kemp, who is a director of the Company and the Bank. The 2019 Nolensville Lease has a term of 15 years, which the Bank has the option to renew for two successive five year periods, and provides for monthly rent payments of $9,453 per month for the first year of the term of the 2019 Nolensville Lease, subject to annual adjustments thereafter. As of the date of this Annual Report on Form 10-K, no lease payments have been made under the 2019 Nolensville Lease.Kevin Herrington, the former Executive Vice President, Chief Operating Officer of the Bank, is the son of Richard E. Herrington, the former President, Chief Executive Officer and Chairman of the Board of FFN. During 2019, the Company paid94Kevin Herrington total compensation of $1,422,054, consisting of salary, severance payment, value of equity awards and benefits, including 401(k) match, car allowance, country club membership, healthcare benefits and insurance.Director IndependenceOur amended and restated bylaws require our board of directors to have not less than five directors nor more than 25 directors. The board of directors may determine the number of directors from time to time by the vote of the majority of the whole board. The size of the FFN board of directors is currently set at nine directors. The Tennessee Banking Act and the bylaws of the Bank require the Bank to have a board of directors consisting of not less than five nor more than 25 members. Each of the directors of the Bank during his or her whole term of service must be a citizen of the United States. A majority of the Bank’s directors must reside either within the State of Tennessee or within 100 miles of the location of any branch for at least one year immediately preceding their election and during the entire term of their service as directors. The board of directors of the Bank is currently set at eleven directors.Under the rules of the New York Stock Exchange (“NYSE”), the national securities exchange on which our common stock is listed, independent directors must comprise a majority of our board of directors. The rules of the NYSE, as well as those of the SEC, pursuantalso impose several other requirements with respect to Regulation 14Athe independence of our directors. Our board of directors has undertaken a review of the independence of each director based upon these rules. Applying these standards, our board of directors has affirmatively determined that Dr. Patel, Messrs. Allen, Cross, Waldron and Wynd, Ms. Stephens and Ms. Sullivan qualify as independent directors under applicable rules. In making these determinations, our board of directors considered the Exchange Act.current and prior relationships that each director and director nominee has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each director, and the transactions involving them described above in the section titled “Certain Transactions with Officers and Directors.” In addition, in determining that Dr. Patel is independent, our board of directors considered the fact that Dr. Patel’s wife owns a small ownership interest in an entity that receives lease payments from the Company for the Bank’s branch in Nashville acquired in the Company’s merger with Civic Bank & Trust. Our board of directors determined that Dr. Patel’s wife’s interest in that entity would not interfere with Dr. Patel’s exercise of independent judgment in carrying out the responsibilities of a director.ITEM 14.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.Audit and Non-Audit ServicesOur audit committee is directly responsible for the appointment, compensation, and oversight of our independent auditor. It is the policy of our audit committee to pre-approve all audit and non-audit services provided by our independent registered public accountants. Our audit committee has considered whether the provision by Crowe LLP of services of the varieties described below is compatible with maintaining the independence of Crowe LLP. Our audit committee believes the audit and tax services provided to us do not jeopardize the independence of Crowe LLP.The information calledtable below sets forth the aggregate fees we paid to Crowe LLP for audit and non-audit services provided to us in 2019 and 2018.Fees 2019 2018 Audit Fees $643,843 $549,000 Audit-Related Fees $99,016 $42,306 Tax Fees $140,503 $139,995 All Other Fees $0 $0 Total $883,362 $731,301 In the above table, in accordance with the SEC’s definitions and rules, “audit fees” are fees for professional services for the audit of a company’s financial statements included in the annual report on Form 10-K, for the review of a company’s financial statements included in the quarterly reports on Form 10-Q, and for services that are normally provided by this item is incorporated herein by referencethe accountant in connection with statutory and regulatory filings or engagements; “audit-related fees” are fees for assurance and related services that are reasonably related to the definitive Proxy Statementperformance of the audit or review of a company’s financial statements; “tax95fees” are fees for our Annual Meetingtax compliance, tax advice, and tax planning; and “all other fees” are fees for any services not included in the first three categories.96PART IVITEM 15.ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULESFinancial StatementsThe list of financial statements contained herein is set forth on page F-1 hereof.Financial Statement SchedulesNoneExhibitsThe Exhibits are listed in the Exhibit Index required by Item 601 of Regulation S-K preceding the signature page of this report.ITEM 16.ITEM 16. FORM 10-K SUMMARY.None.6597EXHIBIT INDEX 2.2 2.3 2.4 2.5 3.1664.2† See Exhibits 3.1 through 3.4 and Exhibits 3.6 through 3.8 for provisions 4.7 10.19810.3 10.3 10.4 10.5* 10.6* 10.7* 10.8*6710.9*10.10*10.11*10.12*10.13*10.14*10.15*10.16*10.17*10.18*10.19*10.20*10.21*10.22*10.236810.12 10.2510.2610.2710.2810.2910.3010.3110.3210.3310.3410.3510.366910.37Form of Subordinated Note Purchase Agreement, dated as of June 30, 2016, by and among9910.3810.3910.4010.22 10.4110.23 10.42†10.24 10.43†10.25 10.44†10.45†10.46†10.27 10.47†10.28 10.48†Lease Agreement, by and between IMJETLAGGED, Inc. and Franklin Synergy Bank, on October 1, 2016.10.49†10.50*†10.30* 10.51*†10.52*†10.31* 10.53*†10.32* 10.54*†10.33* 7010.55*†10.35* 10.36 10010.37* 10.38 10.39 10.40 10.41* Employment Agreement, by and among Franklin Financial Network, Inc., Franklin Synergy Bank and J. Myers Jones, III (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 3, Employment Agreement, by and among Franklin Financial Network, Inc., Franklin Synergy Bank and J. Myers Jones, III (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 3, 2019).)10.42* 10.43* 10.44* 10.45* 10.46* 10.47†* 10.48†* 10.49†* 10.50†* 21.1† 23.1† 23.1†31.1† 31.1†32.1†† 32.2†† 31.2†32††Certification Pursuant to 18 U.S.C. Section 1350.1350 - Sarbanes-Oxley Act of 2002.101†101.SCH† Inline XBRL Schema Documents 101.CAL† Inline XBRL Calculation Linkbase Document 101101.LAB† Inline XBRL label Linkbase Document 101.PRE† Inline XBRL Presentation Linkbase Document 101.DEF† Inline XBRL Definition Linkbase Document 104 The following financial informationcover page from Franklin Financial Network, Inc.’sthe Company's Annual Report on Form 10-K for the periodyear ended December 31, 2018, filed with the SEC on March 18, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheet as of December 31, 2018 and December 31, 2017; (ii) the Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016; (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016; (iv) the Consolidated Statements of ChangesInline XBRL (included in Shareholders’ Equity for the years ended December 31, 2018, 2017 and 2016; (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016; and (vi) Notes to Consolidated Financial Statements.Exhibit 101) †††*71102Table of ContentsSIGNATURESSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.March 18, 201916, 2020FRANKLIN FINANCIAL NETWORK, INC. By: FRANKLIN FINANCIAL NETWORK, INC.By:Interim Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacitycapacities and on the dates indicated.Signature Title Date Signature TitleDateChief Executive Officer March 16, 2020 J. Myers Jones, III Interim CEOMarch 18, 2019Christopher J. BlackMarch 16, 2020 Christopher J. Black (Principal Financial and Accounting Officer) March 18, 201918, 2019HankJames W. Brockman18, 2019HankJames W. BrockmanDirector March 16, 2020 Dr. David H. Kemp /s/ Dr. Anil C. Patel 18, 2019Dr. David H. Kemp18, 2019Dr. David H. Kemp18, 201918, 2019Melody J. Sullivan18, 201918, 201972103INDEX TO FINANCIALFINANCIAL STATEMENTSThe following financial statements are included in Part II, Item 8:PagePage F-2F-3F-4F-5F-6F-7F-8F-1
Crowe LLPIndependent Member Crowe GlobalReport of Independent Registered Public Accounting FirmStockholders and the 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of DirectorsFranklin, TennesseeOpinionOpinions on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Franklin Financial Network, Inc. (the "Company") as of December 31, 20182019 and 2017,2018, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the three-year period ended December 31, 2018,2019, and the related notes (collectively referred to as the "financial"consolidated financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182019 and 2017,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2019, in conformity with accounting principles generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 16, 2020 expressed an adverse opinion.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ Crowe LLPWe have served as the Company's auditor since 2007.Franklin, TennesseeMarch 18,16, 2020F-2Crowe LLPIndependent Member Crowe Global
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and Shareholders of Franklin Financial Network, Inc.Franklin, TennesseeOpinion on Internal Control over Financial ReportingWe have audited Franklin Financial Network, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2019,F-2A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to controls over the precision of review regarding the valuation of impaired loans has been identified and included in Management Report on Internal Control over Financial Reporting.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively referred to as the "consolidated financial statements") and our report dated March 16, 2020 expressed an unqualified opinion. We considered the material weakness identified above in determining the nature, timing, and extent of audit procedures applied in our audit of the 2019 consolidated financial statements, and this report on Internal Control over Financial Reporting does not affect such report on the financial statements.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. 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 audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA 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 generallyF-3accepted 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.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./s/ Crowe LLPWe have served as the Company's auditor since 2007.Franklin, TennesseeMarch 16, 2020F-4CONSOLIDATED BALANCE SHEETSDecember 31, 20182019 and 2017(Dollar amounts in thousands, except share and per share data)2019 2018 ASSETS Cash and due from financial institutions $ 234,991 $ 280,212 Certificates of deposit at other financial institutions 3,590 3,594 Securities available for sale 652,132 1,030,668 Securities held to maturity (fair value 2019—$0 and 2018—$118,955) Securities held to maturity (fair value 2019—$0 and 2018—$118,955) — 121,617 Loans held for sale, at fair value 43,162 11,103 Loans held for investment, net of deferred fees 2,812,444 2,672,399 Allowance for loan losses (45,436) (23,451) Net loans 2,767,008 2,648,948 Restricted equity securities, at cost 24,802 21,831 Premises and equipment, net 12,141 12,371 Accrued interest receivable 12,362 13,337 Bank owned life insurance 56,726 55,239 Deferred tax asset 14,229 13,189 Servicing rights, net 3,246 3,403 Goodwill 18,176 18,176 Core deposit intangible, net 448 952 Other assets 53,149 14,799 Total assets $ 3,896,162 $ 4,249,439 LIABILITIES AND EQUITY Deposits Non-interest bearing $ 319,373 $ 290,580 Interest bearing 2,888,211 3,141,227 Total deposits 3,207,584 3,431,807 Federal Home Loan Bank advances 155,000 368,500 Subordinated notes, net 58,872 58,693 Accrued interest payable 4,201 4,700 Other liabilities 60,079 12,906 Total liabilities 3,485,736 3,876,606 Equity Preferred stock, no par value: 1,000,000 shares authorized; Senior non-cumulative preferred stock, no par value, $10,000 liquidation value: Series A, 10,000 shares authorized; 0 shares outstanding at December 31, 2019 and December 31, 2018 Preferred stock, no par value: 1,000,000 shares authorized; Senior non-cumulative preferred stock, no par value, $10,000 liquidation value: Series A, 10,000 shares authorized; 0 shares outstanding at December 31, 2019 and December 31, 2018 — — Common stock, no par value: 30,000,000 shares authorized; 14,848,017 issued and 14,821,594 outstanding at December 31, 2019, and 14,538,085 issued and outstanding at December 31, 2018 Common stock, no par value: 30,000,000 shares authorized; 14,848,017 issued and 14,821,594 outstanding at December 31, 2019, and 14,538,085 issued and outstanding at December 31, 2018 275,412 264,905 Retained earnings 133,102 123,176 Accumulated other comprehensive income (loss) Accumulated other comprehensive income (loss) 1,819 (15,341) Total shareholders’ equity 410,333 372,740 Noncontrolling interest in consolidated subsidiary 93 93 Total equity $ 410,426 $ 372,833 Total liabilities and equity $ 3,896,162 $ 4,249,439 See accompanying notes to consolidated financial statements.F-3F-5CONSOLIDATED STATEMENTS OF INCOMEYears ended December 31, 2019, 2018 2017 and 2016(Dollar amounts in thousands, except share and per share data)2019 2018 2017 Interest income and dividends Loans, including fees $ 157,225 $ 131,918 $ 100,470 Securities: Taxable 17,462 26,533 21,309 Tax-exempt 5,559 7,384 8,593 Dividends on restricted equity securities 1,213 1,243 928 Federal funds sold and other 3,233 2,867 1,153 Total interest income 184,692 169,945 132,453 Interest expense Deposits 61,298 53,326 27,464 Federal funds purchased and repurchase agreements 290 419 407 Federal Home Loan Bank advances 7,616 6,369 3,215 Subordinated notes and other borrowings 4,328 4,328 4,321 Total interest expense 73,532 64,442 35,407 Net interest income 111,160 105,503 97,046 Provision for loan losses 32,047 2,254 4,313 Net interest income after provision for loan losses 79,113 103,249 92,733 Noninterest income Service charges on deposit accounts 317 217 154 Other service charges and fees 3,724 3,183 3,039 Mortgage banking revenue Mortgage banking revenue 9,154 6,696 6,892 Wealth management 2,880 2,969 2,613 Gain (loss) on sales and calls of securities 2,043 (4,160) 896 Net (loss) gain on sale of loans held for investment Net (loss) gain on sale of loans held for investment (2,003) — 226 Net gain (loss) on foreclosed assets 7 91 (7) Other 1,653 1,666 908 Total noninterest income 17,775 10,662 14,721 Noninterest expense Salaries and employee benefits 50,813 43,837 35,268 Occupancy and equipment 13,069 11,628 9,219 FDIC assessment expense 1,843 3,448 3,680 Marketing 1,189 1,092 965 Professional fees 4,356 4,413 3,419 Amortization of core deposit intangible Amortization of core deposit intangible 504 612 473 Other 10,105 8,448 7,800 Total noninterest expense 81,879 73,478 60,824 Income before income tax expense 15,009 40,433 46,630 Income tax expense 187 5,912 18,531 Net income 14,822 34,521 28,099 Earnings attributable to noncontrolling interest (16) (16) (16) Net income available to common shareholders $ 14,806 $ 34,505 $ 28,083 Earnings per share: Basic $ 1.01 $ 2.44 $ 2.14 Diluted 0.98 2.34 2.04 See accompanying notes to consolidated financial statements.F-4F-6CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEYears ended December 31, 2019, 2018 2017 and 2016(Dollar amounts in thousands, except share and per share data)2019 2018 2017 Net income $ 14,822 $ 34,521 $ 28,099 Other comprehensive income (loss), net of tax: Unrealized gains/losses on securities: Unrealized holding gains (losses) arising during the period Unrealized holding gains (losses) arising during the period 26,713 (15,739) 4,015 Reclassification adjustment for (gains) losses on sales, calls, and prepayments of securities included in net income Reclassification adjustment for (gains) losses on sales, calls, and prepayments of securities included in net income (2,043) 4,160 (896) Tax effect, includes $534, $(1,087), and $351, respectively, income tax (benefit) expense from sales of securities Tax effect, includes $534, $(1,087), and $351, respectively, income tax (benefit) expense from sales of securities(6,334) 3,024 (1,221) Net unrealized gains (losses) on securities Net unrealized gains (losses) on securities 18,336 (8,555) 1,898 Unrealized gains/losses on cash flow hedge: Unrealized gains/losses on cash flow hedge: Unrealized holding gain (loss) arising during the period (1,592) — — Tax effect Tax effect 416 — — Net unrealized gains (losses) on cash flow hedge Net unrealized gains (losses) on cash flow hedge (1,176) — — Total other comprehensive income (loss) 17,160 (8,555) 1,898 Comprehensive income $ 31,982 $ 25,966 $ 29,997 NOTE: No other comprehensive income is allocated to noncontrolling interest.F-5See accompanying notes to consolidated financial statements.F-7CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYYears ended December 31, 2019, 2018 2017 and 2016(Dollar amounts in thousands, except share and per share data)Preferred
StockCommon Stock Retained
EarningsAccumulated
Other
Comprehensive
Income (Loss)Noncontrolling
InterestTotal
EquityShares Amount Balance at Balance at Balance at January 1, 2017 $ — 13,036,954 $ 218,354 $ 59,386 $ (7,482) $ 103 $ 270,361 Exercise of common stock options, includes net settlement of shares — 166,894 1,615 — — — 1,615 Exercise of common stock warrants — 12,461 150 — — — 150 Issuance of restricted stock, net of forfeitures — 26,718 — — — — — Stock based compensation expense, net of forfeitures — — 2,802 — — — 2,802 Reclassification of disproportionate tax effect — — — 1,202 (1,202) — — Stock issued in conjunction with 401(k) employer match, net of distributions — (5,899) (256) — — — (256) Net income — — — 28,099 — — 28,099 Earnings attributable to noncontrolling interest — — — (16) — — (16) Other comprehensive loss — — — — 1,898 — 1,898 Balance at December 31, 2017 $ — 13,237,128 $ 222,665 $ 88,671 $ (6,786) $ 103 $ 304,653 Exercise of common stock options, includes net settlement of shares — 216,400 3,047 — — — 3,047 Issuance of restricted stock, net of forfeitures — 122,469 — — — — — Stock based compensation expense, net of forfeitures — — 6,569 — — — 6,569 Stock issued in conjunction with 401(k) employer match, net of distributions — (8,302) (308) — — — (308) Stock issued for acquisition, net of issuance costs — 970,390 32,932 — — — 32,932 Net income — — — 34,521 — — 34,521 Earnings attributable to noncontrolling interest — — — (16) — — (16) Reclassification of issuance costs on preferred stock of consolidated subsidiary noncontrolling interest — — — — — (10) (10) Other comprehensive loss — — — — (8,555) — (8,555) Balance at December 31, 2018 $ — 14,538,085 $ 264,905 $ 123,176 $ (15,341) $ 93 $ 372,833 Cumulative effect of accounting change related to adoption of ASU 2017-08 — — — (2,244) — — (2,244) Exercise of common stock options, includes net settlement of shares — 307,855 5,307 — — — 5,307 Issuance of restricted stock awards, net of forfeitures, and vesting of restricted stock units — 3,074 — — — — — Stock based compensation expense, net of restricted share forfeitures — — 5,917 — — — 5,917 Stock issued with 401(k) employer match, net of distributions — (997) — — — — — Purchase of treasury stock — (26,423) (717) — — — (717) Cash dividends - Common stock ($0.18 per share) — — — (2,636) — — (2,636) Net income — — — 14,822 — — 14,822 Earnings attributable to noncontrolling interest — — — (16) — — (16) Other comprehensive income — — — — 17,160 — 17,160 Balance at December 31, 2019 $ — 14,821,594 $ 275,412 $ 133,102 $ 1,819 $ 93 $ 410,426 See accompanying notes to consolidated financial statements.F-6F-8CONSOLIDATED STATEMENTS OF CASH FLOWSYears ended December 31, 2019, 2018 2017 and 2016(Dollar amounts in thousands, except share and per share data)2019 2018 2017 Cash flows from operating activities Net income $ 14,822 $ 34,521 $ 28,099 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization on premises and equipment 1,800 1,713 1,482 Accretion of purchase accounting adjustments (700) (1,338) (1,078) Net amortization of securities 6,876 8,083 10,129 Amortization of loan servicing right asset 1,289 867 934 Amortization of core deposit intangible 504 612 473 Amortization of debt issuance costs 179 178 178 Provision for loan losses 32,047 2,254 4,313 Deferred income tax (benefit) (6,957) 197 3,785 Excess tax benefit related to share-based compensation Excess tax benefit related to share-based compensation (86) (565) (484) Origination of loans held for sale (655,546) (278,559) (357,983) Proceeds from sale of loans held for sale 631,572 285,116 378,469 Gain on sale of loans held for sale Gain on sale of loans held for sale (9,217) (6,286) (6,779) Loss (gain) on sale of loans held for investment Loss (gain) on sale of loans held for investment 2,003 — (226) (Gain) loss on sale of available for sale securities (2,043) 4,160 (896) Income from bank owned life insurance (1,487) (1,535) (818) (Gain) loss on sale of foreclosed assets — (81) 20 Stock-based compensation 5,917 6,569 2,802 Recognition of deferred gain on sale of loans (15) (15) (58) Recognition of deferred gain on sale of foreclosed assets (14) (10) (14) Net change in: Accrued interest receivable and other assets 6,597 (8,212) (9,536) Accrued interest payable and other liabilities (3,730) 2,638 2,826 Net cash from operating activities 23,811 50,307 55,638 Cash flows from investing activities Available for sale securities: Sales 582,950 176,016 240,175 Purchases (208,661) (474,163) (664,894) Maturities, prepayments and calls 145,203 359,859 175,457 Held to maturity securities: Purchases (4,909) (3,347) (4,266) Maturities, prepayments and calls 8,116 11,999 16,326 Net change in loans (228,259) (311,118) (487,060) Proceeds from sale of loans held for investment Proceeds from sale of loans held for investment 76,849 — — Purchase of bank owned life insurance — (119) (25,000) Purchase of restricted equity securities (2,971) (2,463) (6,649) Proceeds from sale of foreclosed assets — 1,934 1,330 Purchases of premises and equipment, net (1,569) (2,551) (3,212) Decrease (increase) in certificates of deposits at other financial institutions Decrease (increase) in certificates of deposits at other financial institutions 4 (239) (1,800) Net cash acquired from acquisition (See Note 2) — 24,660 — Capitalization of foreclosed assets — — (35) Net cash from investing activities 366,753 (219,532) (759,628) Cash flows from financing activities (Decrease) Increase in deposits (Decrease) Increase in deposits (224,223) 141,417 775,410 Increase (decrease) in federal funds purchased and repurchase agreements — (31,004) (52,297) Proceeds from Federal Home Loan Bank advances 525,000 450,000 380,000 Repayment of Federal Home Loan Bank advances (738,500) (365,000) (240,000) Proceeds from exercise of common stock warrants — — 150 Proceeds from exercise of common stock options 5,307 3,047 1,615 Proceeds from issuance of common stock, net of offering costs — (242) — Divestment of stock issued to 401(k) plan — (308) (256) Dividends paid on common stock Dividends paid on common stock (2,636) — — Purchase of treasury stock Purchase of treasury stock (717) — — Noncontrolling interest distributions (16) (16) (16) Net cash from financing activities (435,785) 197,894 864,606 Net change in cash and cash equivalents (45,221) 28,669 160,616 Cash and cash equivalents at beginning of period 280,212 251,543 90,927 Cash and cash equivalents at end of period $ 234,991 $ 280,212 $ 251,543 Supplemental information: Interest paid $ 74,031 $ 63,847 $ 34,562 Income taxes paid 9,994 10,892 15,680 Non-cash supplemental information: Fair value of stock and stock options issued related to Civic Bank acquisition (See FN 2) $ — $ 33,174 $ — Transfers from loans to foreclosed assets — 350 2,818 Transfers from Held to Maturity to Available for Sale 116,203 83,501 — Establishment of lease liability and right of use asset Establishment of lease liability and right of use asset 43,723 — — See accompanying notes to consolidated financial statements.F-7F-9NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollar amounts in thousands, except share and per share data)NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESNature of Operations and Principles of Consolidation: The consolidated financial statements include Franklin Financial Network, Inc. ("FFN") and its wholly-owned subsidiaries, Franklin Synergy Bank (the “Bank”) and Franklin Synergy Risk Management, Inc., together referred to as “the Company.” Intercompany transactions and balances are eliminated in consolidation.FFNThe Company was incorporated under the laws of the State of Tennessee on April 5, 2007. FSBThe Bank was incorporated under the laws of the State of Tennessee and received its Certificate of Authority from the Tennessee Department of Financial Institutions and approval of Federal Deposit Insurance Corporation (FDIC) insurance on November 2, 2007. FSBThe Bank is also a Federal Reserve member bank.The Company provides financial services through its offices in Franklin, Brentwood, Spring Hill, Murfreesboro, Nashville, Nolensville, and Smyrna, Tennessee. Its primary deposit products are checking, savings, and certificate of deposit accounts, and its primary lending products are commercial and residential construction, commercial, installment loans and lines secured by home equity. Substantially all loans are secured by specific items of collateral including commercial and residential real estate, business assets, and consumer assets. Commercial loans are expected to be repaid by cash flow from operations of businesses. The Company also focuses on electronic banking products such as internet banking, remote deposit capture and lockbox services.On July 1, 2014, Mid-South Bancorp (“Mid-South”) merged into the Bank with the Bank continuing as the surviving company.On December 28, 2015, the Company invested in a wholly-owned subsidiary, FSRM, which provides risk management services to the Company in the form of enhanced insurance coverages.On March 1, 2016, the Bank invested in a wholly-owned subsidiary, Franklin Synergy Investments of Tennessee, Inc. (“FSIT”), which provides investment services to the Bank. Also on March 1, 2016, FSIT invested in a wholly-owned subsidiary, Franklin Synergy Investments of Nevada, Inc. (“FSIN”), to provide investment services to FSIT. In addition, on March 1, 2016, FSIN invested in a subsidiary, Franklin Synergy Preferred Capital, Inc. (“FSPC”), to serve as a real estate investment trust (“REIT”), to allow the Bank to sell real estate loans to the REIT to obtain a tax benefit. FSIN has a controlling interest in the REIT, but the REIT also has a group of investors that own a noncontrolling interest in the preferred stock of the REIT.On April 1, 2018, Civic Bank & Trust merged with and into the Bank with the Bank continuing as the surviving company. (SeeSee Note 2)On January 21, 2020, FFN, FB Financial Corporation, a Tennessee corporation (“FB Financial”), and Paisley Acquisition Corporation, a Tennessee corporation and a direct, wholly-owned subsidiary of FB Financial (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which, on the terms and subject to the conditions set forth therein, Merger Sub will merge with and into FFN, with FFN continuing as the surviving corporation (the “Merger”). Immediately following the Merger, FFN will merge with and into FB Financial, with FB Financial continuing as the surviving corporation (the “Upstream Merger”). Immediately following the Upstream Merger, FSB will merge with and into FirstBank, a Tennessee state-chartered bank and a wholly owned subsidiary of FB Financial (“FirstBank”), with FirstBank continuing as the surviving bank (the “Bank Merger,” and, together with the Merger and the Upstream Merger, the “Mergers”).Under the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of the common stock, no par value (the “FFN Common Stock”), issued and outstanding immediately prior to the Effective Time (except for certain shares of FFN Common Stock owned by FFN as treasury stock or by FB Financial, as provided in the Merger Agreement) will be converted, in accordance with the procedures set forth in the Merger Agreement, into the right to receive, without interest, (1) 0.9650 shares (the “Exchange Ratio”) of common stock, par value $1.00 per share, of FB Financial (“FB Financial Common Stock”) and (2) $2.00 in cash (the “Per Share Cash Consideration” and, collectively with the FB Financial Common Stock to be issued pursuant to the preceding clause (1), the “Merger Consideration”).F-11The completion of the Mergers is subject to customary conditions, including (i) receipt of FFN shareholder approval and FB Financial shareholder approval, (ii) authorization for listing on the New York Stock Exchange of the shares of FB Financial Common Stock to be issued in the Merger, (iii) the receipt of required regulatory approvals, including the approval of the Federal Reserve Board, the Federal Deposit Insurance Corporation and the Tennessee Department of Financial Institutions, (iv) effectiveness of the registration statement on Form S-4 for the FB Financial Common Stock to be issued in the Merger, and (v) the absence of any order, injunction or other legal restraint preventing or making illegal the completion of the Merger or any of the other transactions contemplated by the Merger Agreement.Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.Cash Flows: Cash and cash equivalents include cash, deposits with other financial institutions with maturities under 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions and federal funds purchased.Interest-Bearing Deposits in Financial Institutions: Interest-bearing deposits in other financial institutions are carried at cost.Securities: Debt securities arewere classified as HTMheld to maturity (HTM) and carried at amortized cost when management hashad the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale (AFS) when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.F-8Management evaluates securities for other-than-temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Management assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. NoNaN OTTI has been recognized for the years ended December 31, 2019, 2018 2017 or 2016.Loans Held for Sale: Loans originated and intended for sale in the secondary market are carried at fair value as of the balance sheet date as determined by outstanding commitments from investors and includes the servicing value of the loans. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.Certain loans held for sale are sold with servicing rights retained. The carrying value of loans sold with retained servicing is reduced by the amount allocated to the servicing right. Gains and losses on sales of loans are based on the difference between the selling price and the carrying value of the related loan sold.Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of purchase discounts, deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.Interest income on mortgage loans and commercial loans held for investment is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to non-accrual status in accordance with the Company’s policy, typically after 90 days of non-payment.F-12All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.The banking agencies define a “Shared National Credit” (“SNC”) as any loan extended to a borrower which aggregates $100 million or more and is shared by three or more banks. The SNC portfolio totaled $136,658 at December 31, 2019, decreasing 45.1% from $249,033 at December 31, 2018, driven by the sales and paydowns of $112,375 of SNCs during 2019. The entire outstanding balance of SNCs was included in the commercial and industrial portfolio. To meet the needs of our customers, SNC participations are entered into during the normal course of business and are reviewed at least quarterly for credit quality.Concentration of Credit Risk: Most of the Company’s business activity is with customers located within Williamson County, Davidson County, and Rutherford County; therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy in the Williamson County, Davidson County, and Rutherford County areas. The Company believes there are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is dependent on the real estate and general economic conditions in the area.Purchased Credit Impaired (PCI) Loans: The Company purchases individual loans and groups of loans, some of which have shown evidence of credit deterioration since origination. These purchased credit impaired loans are recorded at the amount paid, such that there is no carryover of the seller’s allowance for loan losses. After acquisition, losses are recognized by an increase in the allowance for loan losses.Such purchased credit impaired loans are accounted for individually or aggregated into pools of loans based on common risk characteristics such as, credit score, loan type, and date of origination. The Company estimates the amount and timing of expected cash flows for each loan or pool, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s or pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded as a provision for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.F-9Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (TDRs) and classified as impaired.Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.All loans classified by management as substandard or worse are individually evaluated for potential designation as impaired. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.Troubled debt restructurings (TDRs)F-13TDRs are separately identifiedindividually evaluated for impairment disclosures and included in the separately identified impairment disclosures. TDRs are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuringTDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. TDRs are subsequently tracked and reviewed for impairment quarterly. For TDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on a combination of the Bank’s loss history and loss history over the past three years from a group of other local banks that operate in the Middle Tennessee areas. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified:F-10•Commercial and industrial loans include loans for commercial, industrial, healthcare or agricultural purposes to business enterprises that are not secured by real estate. Commercial loans are typically made on the basis of the borrower’s ability to repay from the cash flow of the borrower’s business. Commercial and Agriculture loans are generally secured by accounts receivable, inventory and equipment. The collateral securing loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.Servicing Rights: When loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gain on sale of loans. Fair value is based on market prices for comparable servicing contracts. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported with loan servicing fees on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.F-14Servicing fee income, which is reported on the income statement as loan servicing fees, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal; or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against mortgage loan servicing fee income. Late fees and ancillary fees related to loan servicing are not material.Transfers of Financial Assets: Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation and are depreciated using the straight-line method. Depreciation periods are shorter of the asset’s useful life or lease period, ranging from three to fifteen years.Restricted Equity Securities: The Bank is a member of the Federal Reserve Bank (FRB) and the FHLB system. Members of the FRB and FHLB are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. The stock ownership in FRB and FHLB are carried at cost, classified as restricted securities, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.Company Owned Life Insurance/Bank Owned Life Insurance: The Company and the Bank have purchased life insurance policies on certain key executives. Company owned life insurance/bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.Goodwill and Other Intangible Assets: Goodwill is determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Company has selected December 31 as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the balance sheet.F-11Other intangible assets consist of core deposit and acquired customer relationship intangible assets arising from whole bank and branch acquisitions are amortized on an accelerated method over their estimated useful lives, which range from 7 to 10 years.Long-Term Assets: Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.Mortgage Banking Derivatives: Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest rate on the loan is locked. The Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into, in order to hedge the change in interest rates resulting from its commitments to fund the loans. Changes in the fair values of these derivatives are included in net gains on sale of mortgage loans.F-15Derivatives: At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company's intentions and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value hedge"), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"), or (3) as instrument with no hedging designation ("stand-alone derivative"). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. Changes in the fair value of derivatives that do not qualify for hedged accounting are reported currently in earnings, as noninterest income.Net settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in noninterest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows on the items being hedged.The Company formally documents the relationship between derivatives and hedged items, as well as the risk management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or forecasted transactions. The Company also formally assesses, both at the hedge's inception and on an ongoing bases, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted traction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as noninterest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings.The Company is exposed to losses if a counterparty fails to make its payments under a contract in which the Company is in the net receiving position. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements. All the contracts to which the Company is a party settle monthly or quarterly. In addition, the Company obtains collateral above certain thresholds of the fair value of its hedges for each counterparty based upon their credit standing and the Company has netting agreements with the dealers with which it does business.Stock-Based Compensation: Compensation cost is recognized for stock options and restricted stock awards based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period, reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. All excess tax benefits and tax deficiencies related to share-based payment awards are recognized as income tax expense or benefit in the income statement during the period in which they occur.Income Taxes: Income tax expense or benefit is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. Accordingly, deferred tax assets that waswere realized after December 31, 2017 were remeasured using the tax rates enacted as a result of the 2017 Tax Cuts and Jobs Act resulting in an additional income tax expense of $5,323 as of December 31, 2017. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.A tax position is recognized as a benefit only if it is ��more“more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.F-16The Company recognizes interest and/or penalties related to income tax matters in income tax expense.Retirement Plans: Employee 401(k) and profit sharing plan expense is the amount of matching contributions. The matching contributions are paid with employer stock.Comprehensive Income (Loss): Comprehensive income (loss) consists of the total of all components of comprehensive income (loss) including net income and other comprehensive income.(loss). Other comprehensive income includes(loss) refers to revenues, expenses, gains and losses that under U.S. GAAP are included in comprehensive income (loss) but excluded from net income (loss). Currently, the Company's other comprehensive income (loss) consists primarily of unrealized gains and losses on securities available for sale, which is recognized as a separate componentnet of equity.Earnings Per Common Share: Basic earnings per common share is net income available to common shareholders divided by the weighted average number of common shares outstanding during the period. All outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options and warrants.Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.F-12Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to shareholders.Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.Reclassifications:Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or equity.Recently Adopted New Accounting PronouncementsIn May 2014,February 2016, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“(ASU) 2016-02, "Leases (topic 842)." ASU 2014-09”),2016-02, Leases which requires an entitythe Company as lessees to recognition in the statement of financial position lease assets and lease liabilities for those leases classified as operating leases under previous GAAP. On January 1, 2019, the Company adopted ASU 2016-02, and subsequent amendments thereto, which requires the Company to recognize most leases on the amountbalance sheet. We adopted the standard under a modified retrospective approach as of revenuethe date of adoption and elected to apply several of the available practical expedients, including:•Carry over of historical lease determination and lease classification conclusions•Carry over of historical initial direct cost balances for existing leases•Accounting for lease and non-lease components in contracts in which it expectsthe Company is a lessee as a single lease componentAdoption of the leasing standard resulted in the recognition of operating right-of-use assets and operating lease liabilities of $43,723, as of January 1, 2019. These amounts were determined based on the present value of remaining minimum lease payments, discounted using the Company's incremental borrowing rate as as of the date of adoption. Prior periods were not restated and continue to be entitledpresented under legacy GAAP. Disclosures about the Company's leasing activities are presented in Note 7 - Leases.F-17In March 2017, the FASB issued ASU 2017-08, "Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities." These amendments shorten the amortization period for certain callable debt securities held at a premium to require such premiums to be amortized to the transferearliest call date unless applicable guidance related to certain pools of promised goods or servicessecurities is applied to customers.consider estimated prepayments. The ASU replaces most existing revenue recognitionamendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance in GAAP. The new standard wasbecame effective for the Company on January 1, 2018. Adoption of ASU 2014-09 did not have2019, and using a material impact on the Company’s consolidated financial statements and related disclosures as the Company’s primary sources of revenues are derived from interest earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09. The Company’s revenue recognition pattern for revenue streams within the scope of ASU 2014-09, including but not limited to service charges on deposit accounts and gains/losses on the sale of OREO, did not change significantly from current practice. The standard permits the use of either the full retrospective or modified retrospective transition method. The Company electedadoption approach, we recognized a cumulative effect reduction to use the modified retrospective transition method which requires application of ASU 2014-09 to uncompleted contracts at the date of adoption. The impact on uncompleted contracts at the date of adoption of this Update was not considered material.The Company has identified the contract with a customer, identified the performance obligations in the contract, determined the transaction price, allocated the transaction price to the performance obligations in the contract, and recognized revenue when (or as) the Company satisfied a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods. The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not impacted by the new standard. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying the new standard that significantly affects the determination of the amount and timing of revenue from contracts with customers.In January 2016,October 2018, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall: Recognition2018-16, “Derivatives and MeasurementHedging (Topic 815) - Inclusion of Financial Assets and Financial Liabilitiesthe Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.” (“ASU 2016-01”). The guidance affectsThis update expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting for equity investments, financial liabilities underby adding the fair value optionOIS rate based on the SOFR. Due to concerns about the sustainability of the London Interbank Offered Rate (“LIBOR”), a committee convened by the Federal Reserve Board and the presentation and disclosure requirementsFederal Reserve Bank of financial instruments. ASU 2016-01 was effective for the Company on January 1, 2018 and resulted in the use ofNew York initiated an exit price rather thaneffort to introduce an entrance price to determine the fair value of loans not measured at fair value on a non-recurring basis in the consolidated balance sheets. The Company does not have any equity investments that qualify for consideration under ASU 2016-01. See Note 9, “Fair Value,” for further information regarding the valuation of these loans.In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”) to improve such definition and, as a result, assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or as business combinations. The definition of a business impacts many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 was effective for the Company on January 1, 2018 and is to be applied under a prospective approach. The Company implemented ASU 2017-01 during the first quarter of 2018 and there has been no material impact on the Company’s financials.F-13In February 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” UnderASU 2018-02, entities may elect to reclassify certain income tax effects related to the changealternative reference rate in the U.S. statutory federal income taxThe committee identified SOFR as the preferred alternative reference rate underto LIBOR. The OIS rate based on SOFR was added as a U.S. benchmark interest rate to facilitate broader use in the Tax Cutsmarketplace and Jobs Act, which was enacted on December 22, 2017, from accumulated other comprehensive incomeprovide sufficient lead time for entities to retained earnings. ASU 2018-02 also requires certain accounting policy disclosures. We electedprepare for changes to adoptinterest rate risk hedging strategies. The Company adopted the provisions of ASU 2018-02 as of2018-16 on January 1, 2018 in advance of the required application date of January 1, 2019. Early adoption is permitted with retrospective application. Deferred tax assets that were realized after December 31, 2017, were remeasured using the tax rates enacted as a result of the 2017 Tax Cuts2019, and Jobs Act resulting in an additional income tax expense of $5,323 at December 31, 2017.In March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 118.” ASU 2018-05 amends the Accounting Standards Codification to incorporate various SEC paragraphs pursuant to the issuance of SAB 118. SAB 118 addresses the application of generally accepted accounting principles in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. See Note 13 - Income Taxes. ASU 2015-05 became effective January 1, 2018, andit did not have a material impact on our consolidated financial statements.In August 2017, the FASB issued ASU 2017-12, Targeted Improvements toRecent Accounting for Hedging Activities. The objective of this ASU is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition to that main objective, the amendments in this Update make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. This Update is effective for public business entities for fiscal years beginning after December 15, 2018, and early application is permitted in any interim period after issuance of the Update. ASU 2017-12 was early adopted in the fourth quarter of 2018, and subsequently transferred 40 bonds from the HTM intention to the AFS intention under a one-time exemption granted under the pronouncement. The transfer was not material as it related to unrealized gain or loss. There were no derivatives at December 31, 2018, that were impacted by this standard.In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This Accounting Standards Update addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 became effective on January 1, 2018 and was implemented with no material impact on the Company’s financials.Recently Issued,Pronouncements Not Yet Effective Accounting PronouncementsIn February 2016, the FASB issued Accounting Standards Update 2016-02, Leases which requires recognition in the statement of financial position of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP.The guidance requires that a lessee should recognize lease assets and lease liabilities as compared to previous GAAP that did not require lease assets and lease liabilities to be recognized for operating leases. The guidance becomes effective for Pinnacle Financial on January 1, 2019. In July 2016, the FASB issued Accounting Standards Update 2018-10, Codification Improvements to Topic 842,Leases which provides technical corrections and improvements to ASU 2016-02. It is not anticipated that this update will have an impact on our adoption of ASU 2016-02. In July 2016, the FASB issued Accounting Standards Update 2018-11, Leases (Topic 842):Targeted Improvements which provides an optional transition method to adopt the new requirements of ASU 2016-02 as of the adoption date with no adjustment to the presentation or disclosure of comparative prior periods included in the financial statements in the period of adoption. The Company intends to elect the optional transition method on January 1, 2019, which will result in presentation of periods prior to adoption under the prior lease guidance of ASC Topic 840. In December 2018, the FASB issued Accounting Standards Update 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors. ASU 2018-20 permits lessors to account for certain taxes as lessee costs, permits lessors to exclude from revenue certain lessor costs paid by lessees directly to third parties, and requires lessors to allocate certain variable payments to lease and non-lease components. The Company expects to record a right of use asset and lease liability between $40 and $45 million on the adoption date of January 1, 2019,In June 2016, FASB issued ASU 2016-13, "FinancialInstruments-CreditLosses (Topic (Topic326):MeasurementofCreditLossesonFinancialInstruments," (CECL) which replaces the existing incurred loss impairment methodology for loans that are collectively evaluated for impairment with a methodology that reflects management’s best estimate of Credit Losses on Financial Instruments.lifetime expected credit losses and requires consideration of reasonable and supportable economic forecasts to develop a lifetime credit loss estimate. Topic 326 requires additional qualitative and quantitative disclosure to allow users to better understand the credit risk within the portfolio and the methodologies for determining the allowance for credit losses. The ASU requiresCECL standard also simplifies the measurement of allaccounting model for purchased credit impaired loans. Franklin Synergy will adopt Topic 326 effective January 1, 2020 using the modified retrospective approach.Our methodology for estimating lifetime expected credit losses for financial assets held atour loan portfolios will include the reporting datefollowing key components:a.Segmentation of loans into pools that share common risk characteristics;b.An economic forecast period based on the relation of losses with key economic variables for each portfolio segment;c.Reversion period to historical loss experience current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking informationusing straight-line method;d.Inclusion of qualitative adjustments to better inform theirconsider factors that have not been accounted for;e.Discounted cash flow (DCF) method to measure credit loss estimates. Manyimpairment on each of our loan portfolio segments;f.Credit losses for loans that do not share similar risk characteristics are estimated on an individual basis. The lifetime losses for individually measured loans are estimated based on one of several methods, including the estimated fair value of the loss estimation techniques applied today will still be permitted, althoughunderlying collateral, observable market value of similar debt or the inputs to those techniques will change to reflect the full amountpresent value of expected credit losses. Organizations will continue to use judgment to determine which losscash flows.g.The estimation method is appropriate for theirF-14circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accountingmethodology for credit losses on unfunded lending-related commitments is similar to the process for estimating credit losses for loans, although with the addition of a probability of draw estimate that is applied to each loan portfolio segment.As part of our evaluation of the estimated impacts of CECL, we have run simulations based on our portfolio composition and current expectations of future economic conditions. The ultimate effect of CECL on our allowance for credit losses (ACL) will depend the portfolio’s credit quality and economic conditions at the time of adoption. The Company’s CECL implementation efforts are in process and continue to focus on model validation, refinement of the model assumptions, the qualitative factor, and the operational control framework to support the new process. During the first quarter of 2020, we expect all internal reviews of the adjustments to be finalized, and all processes and controls surrounding the ongoing estimate to be fully implemented and documented. At adoption, we expect to have a cumulative-effect adjustment to retained earnings for this change in the ACL, which would impact our capital. Franklin Synergy expects to continue to be well capitalized under the Basel III regulatory framework after the adoption of this standard. Franklin Synergy will avail itself of the option to phase-in over a period of three years the day one effects on regulatory capital from the adoption of CECL. For PCD loans, including Civic acquired book, the adjustment will be made through the allowance and loan balances with no impact in capital.Topic 326 also requires expected credit losses on available-for-sale (AFS) debt securities be recorded as an allowance for credit losses. For certain types of debt securities, such as U.S. Treasuries and purchased financial assetsother securities with government guarantees,F-18entities may expect zero credit deterioration. The ASU is effective forlosses. Franklin Synergy estimates that the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e.,adoption of this standard on January 1, 2020 for calendar year entities). Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018; however, the Company does not currently plan to early adopt this ASU. The Company is currently gathering information, reviewing possible vendors and working to determine the methodology to be used. The Company is gathering as much data as possible to enable review scenarios and to determine which calculations will produce the most reliable results. The Company is still evaluating thehave a material impact of this new guidance on our financial statements; however an increase in the overall ALLL is likely upon adoption to provide for expected credit losses over the lifeportfolio of the loan portfolio.In January 2017, the FASB issued Accounting Standards Update No.ASU 2017-04, "Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,," to simplify how entities other than private companies, such as public business entities and not-for-profit entities, are required to test goodwill for impairment by eliminating the comparison of the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The amendments areASU 2017-04 is effective for fiscal years beginning after December 15, 2019, including interim periods within those periods. Adoptionus on January 1, 2020. The impact of this standard is not expected to have a material impactwill depend on the Company’s consolidated financial statements.In March 2017,August 2018, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20)2018-13, Premium Amortization on Purchased Callable Debt Securities. These amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company expects to record approximately $900 thousand of additional amortization expense for our investment portfolio in 2019.ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” be effective for us on January 1, 2020, with early adoption permitted, and is not expected to have a significant impact on our financial statements.In August 2018, the FASB issued ASU 2018-14 “Compensation, "Compensation - Retirement Benefits-DefinedBenefits - Defined Benefit Plans-GeneralPlans - General (Subtopic 715-20).” " ASU 2018-14amends and modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The amendments in this update remove disclosuresdisclosure that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU 2018-14 will be effective for us on January 1, 2021, with early adoption permitted, and is not expected to have a significant impact on our financial statements.In August 2018, the FASB issued ASU 2018-15, “Intangibles“Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 2018-15 clarifies certain aspects of ASU 2015-05, “Customer’s“Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which was issued in April 2015. Specifically, ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 does not affect the accounting for the service element of a hosting arrangement that is a service contract. ASU 2018-15 will beis effective for us on January 1, 2020, with early adoption permitted, and is not expected to have a significant impact on our financial statements.In December 2019, the FASB issued ASU 2018-16, “Derivatives and Hedging2019-12, "Income Taxes (Topic 815)740) - Inclusion ofSimplifying the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest RateAccounting for Hedge Accounting Purposes.” Income Taxes." The amendmentsguidance issued in this update permit usesimplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition for deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the OIS rate based on SOFR asaccounting for franchise taxes, enacted changes in tax laws for rates, and clarifies the accounting for transactions that result in a U.S. benchmark interest rate for hedge accounting purposes under Topic 815step-up in addition to the interest rates on direct U.S. Treasury obligations, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate.tax basis of goodwill. ASU 2018-162019-12 will be effective for us on January 1, 2019 and2021, with early adoption permitted. The Company is not expected to have a significantcurrently evaluating the impact on ourits results of operations, financial statements.Other than those pronouncements discussed above and those which have been recently implemented, we do not believe there were any other recently issued accounting pronouncement that are expected to materially impact the Company.F-15NOTE 2—BUSINESS COMBINATIONSAs of April 1, 2018, Civic Bank & Trust merged with and into Franklin Synergythe Bank with Franklin Synergythe Bank continuing as the surviving company. Under the terms of the acquisition, Civic’s common shareholders received a total of 970,390 shares of the Company’sFFN's common stock in exchange for the outstanding shares of Civic common stock. With the completion of the acquisition, the Company has its first full service branch office in Nashville, Tennessee located in the Davidson County market. The results of Civic’s operations are included in the Company’s results since April 1, 2018. Acquisition-related costs of $565 are included in other noninterest expense in the Company’s income statement ended December 31, 2018. The fair value of the common shares issued as part of the consideration paid for Civic was determined using the basis of the closing price of the Company’s common shares on the acquisition date.Goodwill of $9,052 arising from the acquisition consisted largely of synergies resulting from the combining of the operations of the companies. At December 31, 2019, there were no circumstances or significant changes that have occurred inF-192019 related to the acquisition of Civic that, in management's assessment, would necessitate recording impairment of goodwill. The fair value of intangible assets related to core deposits was determined to be $558.The following table summarizes the consideration paid for Civic and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date:Consideration: Common stock issued to Civic shareholders $ 31,635 Fair value of stock options issued to Civic option holders 1,539 Fair value of total consideration $ 33,174 Recognized amounts of identifiable assets acquired and liabilities assumed: Cash and cash equivalents $ 24,660 Certificates of deposit at other financial institutions 500 Securities available for sale 31,734 Loans 96,385 Equity securities 876 Premises and equipment 253 Core deposit intangibles 558 Foreclosed assets 350 Other assets 5,285 Total assets acquired 160,601 Deposits 123,162 Federal Home Loan Bank advances 11,500 Other liabilities 1,817 Total liabilities assumed 136,479 Total net assets acquired 24,122 Goodwill $ 9,052 The fair value of net assets acquired includes fair value adjustments to certain loan receivables that were not considered impaired as of the acquisition date. As such, these receivables were not subject to the guidance relating to purchased credit-impaired loans. Receivables acquired include loans and customer receivables with a fair value and gross contractual amounts receivable of $96,385 and $96,903, respectively, on the date of acquisition.The following table presents supplemental unaudited pro forma information as if the Civic acquisition had occurred at the beginning and 2017. The unaudited pro forma information includes adjustments for interest income on loans acquired, amortization of intangibles arising from the transaction, interest expense on deposits acquired, and the related income tax effects. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates.For the Year Ended December 31, Unaudited 2018 2017 Net interest income – pro forma $ 106,765 $ 103,055 Net income – pro forma $ 34,606 $ 29,368 Earnings per share – pro forma: Basic $ 2.28 $ 2.09 Diluted $ 2.20 $ 1.99 F-20NOTE 3 - SECURITIESThe Bank started in 2018 and continued in 2019 the planned balance sheet rotation strategy to re-deploy lower-yielding securities into higher-yielding assets. In 2019 the Bank reduced the combined securities portfolio by $500,153, or 43.4%.The following table summarizes the amortized cost and fair value of the available for saleAFS securities portfolio at December 31, 20182019 and 20172018 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss.Amortized
CostGross
Unrealized
GainsGross
Unrealized
LossesFair
ValueDecember 31, 2019 December 31, 2019 Mortgage-backed securities: residential Mortgage-backed securities: residential $ 374,923 $ 1,876 $ (856) $ 375,943 Mortgage-backed securities: commercial Mortgage-backed securities: commercial 17,858 56 (134) 17,780 Corporate Notes Corporate Notes 32,825 539 (3) 33,361 State and political subdivisions State and political subdivisions 222,624 2,566 (142) 225,048 Total Total $ 648,230 $ 5,037 $ (1,135) $ 652,132 December 31, 2018 U.S. Treasury securities $ 253,015 $ 59 $ (60) $ 253,014 U.S. government sponsored entities and agencies 21,999 1 (112) 21,888 Mortgage-backed securities: residential 596,766 27 (16,094) 580,699 Asset-backed securities 25,744 — (900) 24,844 Corporate Notes 12,480 21 (77) 12,424 State and political subdivisions 141,432 863 (4,496) 137,799 Total $ 1,051,436 $ 971 $ (21,739) $ 1,030,668 Due to the continued decline in interest rates, during the third quarter of 2019, the Company elected to transfer its HTM securities portfolio to the AFS portfolio to provide more opportunities to reposition the portfolio. At the time of transfer, the securities had an amortized cost of $117,409 and a fair value of $121,964. In 2018 there, were 16 bonds transferred under a new accounting pronouncement that, upon adoption, permitted a one-time opportunity to transfer eligible securities without affecting the status of other HTM securities.There were no HTM securities at December 31, 2019. There were no calls of HTM securities during 2019, or 2018. The amortized cost and fair value of the HTM securities portfolio at December 31, 2018 and 2017 and the corresponding amounts of gross unrecognized gains and losses were as follows:Amortized
CostGross
Unrecognized
GainsGross
Unrecognized
LossesFair
ValueDecember 31, 2018 Mortgage backed securities: residential $ 75,944 $ 34 $ (3,072) $ 72,906 State and political subdivisions 45,673 466 (90) 46,049 Total $ 121,617 $ 500 $ (3,162) $ 118,955 The mortgage backed securities in which the Company has invested, both AFS and HTM, are either issued by or guaranteed by Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), or Government National Mortgage Association (GNMA).The proceeds from sales, calls, and prepayments of available for sale securities and the associated gains and losses were as follows:F-17F-21There were no callsTable of HTM securities during 2018; however, 16 bonds were transferred to the AFS intention during the fourth quarter and still held at year-end. The transfer between intentions was permitted under a new accounting pronouncement that, upon adoption, permitted a one-time opportunity to transfer eligible securities without affecting the status of other HTM securities. The transfer was part of a balance sheet rotation strategy, under which $246,000 of lower yielding, fixed rate securities was sold with the intention of rotating the proceeds into higher yielding investments and loans with the stated goal of improving net interest margin.2019 2018 2017 Proceeds from sales $ 582,950 $ 176,016 $ 240,175 Gross gains 6,074 54 1,553 Gross losses (4,031) (4,214) (657) The amortized cost and fair value of the investment securities portfolio are shown by contractual maturity. Securities not due at a single maturity date, primarily mortgage-backed securities, and asset-backed securities are shown separately.December 31, 2019 Amortized
CostFair
ValueAvailable for sale Three months or less $ — $ — Over three months through one year — — Over one year through five years 1,609 1,641 Over five years through ten years 37,406 37,918 Over ten years 216,434 218,850 Mortgage-backed securities: residential 374,923 375,943 Mortgage-backed securities: commercial 17,858 17,780 Total $ 648,230 $ 652,132 Securities pledged at December 31, 20182019 and 20172018 had a carrying amount of $294,585 and $939,440, and $975,518respectively, and were pledged to secure public deposits and repurchase agreements.At December 31, 20182019 and 2017,2018, there were no holdings of securities of any one issuer, other than the U.S. government-sponsored entities and agencies, in an amount greater than 10% of stockholders’ equity.ASU 2017-12 was early adopted in the fourth quarter of 2018, and subsequently, 40 bonds were transferred from the HTM intention to the AFS intention under a one-time exemption granted under the pronouncement. There were no derivatives as of December 31, 2018The following table summarizes the securities with unrealized and unrecognized losses at December 31, 20182019 and 2017,2018, aggregated by major security type and length of time in a continuous unrealized loss position:Less Than 12 Months 12 Months or Longer Total Fair
ValueUnrealized
LossesFair
ValueUnrealized
LossesFair
ValueUnrealized
LossesDecember 31, 2019 Available for sale Mortgage-backed securities: residential $ 49,390 $ (172) $ 91,644 $ (684) $ 141,034 $ (856) Mortgage-backed securities: commercial 4,436 (29) 7,286 (105) 11,722 (134) Corporate notes 997 (3) — — 997 (3) State and political subdivisions 29,843 (142) — — 29,843 (142) Total available for sale $ 84,666 $ (346) $ 98,930 $ (789) $ 183,596 $ (1,135) F-22Less Than 12 Months 12 Months or Longer Total Fair
ValueUnrealized
LossesFair
ValueUnrealized
LossesFair
ValueUnrealized
LossesDecember 31, 2018 Available for sale U.S. Treasury securities $ 163,722 $ (60) $ — $ — $ 163,722 $ (60) U.S. government sponsored entities and agencies 1,355 (12) 19,937 (100) 21,292 (112) Mortgage-backed securities: residential 83,203 (755) 490,752 (15,339) 573,955 (16,094) Mortgage-backed securities: commercial 24,845 (900) — — 24,845 (900) Corporate Notes 9,839 (77) — — 9,839 (77) State and political subdivisions 10,446 (106) 69,238 (4,390) 79,684 (4,496) Total available for sale $ 293,410 $ (1,910) $ 579,927 $ (19,829) $ 873,337 $ (21,739) Less Than 12 Months 12 Months or Longer Total December 31, 2018 Fair
ValueUnrecognized
LossesFair
ValueUnrecognized
LossesFair
ValueUnrecognized
LossesHeld to maturity Mortgage-backed securities: residential $ 2,239 $ (40) $ 68,067 $ (3,032) $ 70,306 $ (3,072) State and political subdivisions 8,362 (39) 3,675 (51) 12,037 (90) Total held to maturity $ 10,601 $ (79) $ 71,742 $ (3,083) $ 82,343 $ (3,162) Unrealized losses on debt securities have not been recognized into income because the issuersissuers' bonds are of high credit quality (rated investment grade or better)quality. As of December 31, 2019, management does not intend to sell, and it is more likely than not, that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The fair value is expected to recoverconverge to par as the bonds approach maturity.At December 31, 2018,2019, the Company had 200 available for sale56 AFS securities in an unrealized loss position and 390 HTM securities in an unrecognized loss position compared to 163 AFS securities in an unrealized loss position and 33 HTM securities in an unrecognized loss position at December 31, 2017.NOTE 4 - LOANSLoans at December 31, 20182019 and 20172018 were as follows:December 31,
2019December 31,
2018Loans Loans Construction and land development $ 591,541 $ 584,440 Commercial real estate: Nonfarm, nonresidential 944,021 754,243 Other 49,891 51,017 Residential real estate: Closed-end 1-4 family 455,920 493,065 Other 187,681 189,817 Commercial and industrial 582,641 596,793 Consumer and other 4,769 5,568 Loans before net deferred loan fees 2,816,464 2,674,943 Deferred loan fees, net (4,020) (2,544) Total loans Total loans 2,812,444 2,672,399 Allowance for loan losses (45,436) (23,451) Total loans, net of allowance for loan losses $ 2,767,008 $ 2,648,948 F-23The following table presents the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2019, 2018 2017 and 2016:Construction
and Land
DevelopmentCommercial
Real
EstateResidential
Real
EstateCommercial
and
IndustrialConsumer
and
OtherTotal December 31, 2019 Allowance for loan losses: Beginning balance $ 4,743 $ 6,725 $ 4,743 $ 7,166 $ 74 $ 23,451 Provision for loan losses 172 1,388 (281) 30,732 36 32,047 Loans charged-off (68) — (15) (10,227) (147) (10,457) Recoveries — — 15 286 94 395 Total ending allowance balance $ 4,847 $ 8,113 $ 4,462 $ 27,957 $ 57 $ 45,436 Construction
and Land
DevelopmentCommercial
Real
EstateResidential
Real
EstateCommercial
and
IndustrialConsumer
and
OtherTotal December 31, 2018 Allowance for loan losses: Beginning balance $ 3,802 $ 5,981 $ 3,834 $ 7,587 $ 43 $ 21,247 Provision for loan losses 978 744 872 (383) 43 2,254 Loans charged-off (38) — (7) (49) (27) (121) Recoveries 1 — 44 11 15 71 Total ending allowance balance $ 4,743 $ 6,725 $ 4,743 $ 7,166 $ 74 $ 23,451 Construction
and Land
DevelopmentCommercial
Real
EstateResidential
Real
EstateCommercial
and
IndustrialConsumer
and
OtherTotal December 31, 2017 Allowance for loan losses: Beginning balance $ 3,776 $ 4,266 $ 2,398 $ 6,068 $ 45 $ 16,553 Provision for loan losses (642) 1,715 1,387 1,823 30 4,313 Loans charged-off — — (1) (310) (49) (360) Recoveries 668 — 50 6 17 741 Total ending allowance balance $ 3,802 $ 5,981 $ 3,834 $ 7,587 $ 43 $ 21,247 For the years ended December 31, 20182019 and 2017,2018, there was $22 and $0 in allowance for loan losses for PCI loans.The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 20182019 and 2017.2018. Purchased and PCI loans are also included in the table. For purposes of this disclosure, recorded investment in loans excludes accrued interest receivable and loan fees, net due to immateriality.F-24Construction
and Land
DevelopmentCommercial
Real
EstateResidential
Real
EstateCommercial
and
IndustrialConsumer
and
OtherTotal December 31, 2019 Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ — $ — $ 17 $ 20,754 $ — $ 20,771 Collectively evaluated for impairment 4,847 8,113 4,445 7,203 57 24,665 Total ending allowance balance $ 4,847 $ 8,113 $ 4,462 $ 27,957 $ 57 $ 45,436 Loans: Individually evaluated for impairment $ 30 $ — $ 2,477 $ 24,528 $ — $ 27,035 Collectively evaluated for impairment 591,511 993,912 641,124 558,113 4,769 2,789,429 Total ending loans balance $ 591,541 $ 993,912 $ 643,601 $ 582,641 $ 4,769 $ 2,816,464 Construction
and Land
DevelopmentCommercial
Real
EstateResidential
Real
EstateCommercial
and
IndustrialConsumer
and
OtherTotal December 31, 2018 Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ — $ — $ — $ 17 $ — $ 17 Collectively evaluated for impairment 4,743 6,725 4,743 7,149 74 23,434 Total ending allowance balance $ 4,743 $ 6,725 $ 4,743 $ 7,166 $ 74 $ 23,451 Loans: Individually evaluated for impairment $ 2,298 $ — $ 3,189 $ 167 $ — $ 5,654 Collectively evaluated for impairment 582,142 805,260 679,693 596,626 5,568 2,669,289 Total ending loans balance $ 584,440 $ 805,260 $ 682,882 $ 596,793 $ 5,568 $ 2,674,943 Loans collectively evaluated for impairment reported at December 31, 20182019 include certain loans acquired from MidSouth and Civic. The acquired loans were recorded at estimated fair value at date of acquisition, which included an estimated credit discount. Acquired non-PCI loans were recorded at an estimated fair value of $178,818, comprised of contractually unpaid principal totaling $183,832 net of estimated discounts totaling $5,014 which included both credit and interest rate discount components. As ofF-212018,2019, these non-PCI loans had a carrying value of $91,344,$58,745, comprised of contractually unpaid principal totaling $92,554$59,471 and discounts totaling $1,210.$726. Management evaluated these loans for credit deterioration since acquisition and determined that a $185$77 allowance for loan losses was necessary at December 31, 2018.F-25The following table presents information related to impaired loans by class of loans as of December 31, 20182019 and 2017:2018:Unpaid
Principal
BalanceRecorded
InvestmentAllowance for
Loan Losses
AllocatedDecember 31, 2019 December 31, 2019 With no allowance recorded: With no allowance recorded: Construction and land development Construction and land development $ 30 $ 30 $ — Residential real estate: Residential real estate: Closed-end 1-4 family Closed-end 1-4 family 319 311 — Other Other 1,523 1,523 — Commercial and industrial Commercial and industrial 11 11 — Subtotal Subtotal 1,883 1,875 — With an allowance recorded: With an allowance recorded: Residential real estate: Residential real estate: Closed-end 1-4 family Closed-end 1-4 family 643 643 17 Commercial and industrial Commercial and industrial 24,517 24,517 20,754 Subtotal Subtotal 25,160 25,160 20,771 Total Total $ 27,043 $ 27,035 $ 20,771 December 31, 2018 With no allowance recorded: Construction and land development $ 2,298 $ 2,298 $ — Residential real estate: Closed-end 1-4 family 1,280 1,272 — Other 1,917 1,917 — Subtotal 5,495 5,487 — With an allowance recorded: Commercial and industrial 167 167 17 Subtotal 167 167 17 Total $ 5,662 $ 5,654 $ 17 F-26The following table presents the average recorded investment of impaired loans by class of loans for the years ended December 31, 2019, 2018 2017 and 2016:2017:F-22Average Recorded Investment 2019 2018 2017 With no allowance recorded: Construction and land development $ 301 $ 378 $ 921 Commercial real estate: Nonfarm, nonresidential 13 — 1,796 Residential real estate: Closed-end 1-4 family 587 715 649 Other 1,286 553 331 Commercial and industrial 670 655 899 Consumer and other — — 1 Subtotal 2,857 2,301 4,597 With an allowance recorded: Construction and land development 147 — — Commercial real estate Nonfarm, nonresidential 40 0 0 Residential real estate: Closed-end 1-4 family 56 — 22 Commercial and industrial 4,403 993 2,480 Subtotal 4,646 993 2,502 Total $ 7,503 $ 3,294 $ 7,099 The impact on net interest income for these loans was not material to the Company’s results of operations for the years ended December 31, 2019, 2018 2017 and 2016.The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of December 31, 20182019 and 2017:2018:Nonaccrual Loans Past Due
Over 90 DaysDecember 31, 2019 December 31, 2019 Construction loans Construction loans $ 30 $ — Residential real estate: Residential real estate: Closed-end 1-4 family Closed-end 1-4 family 954 — Other Other 1,523 — Commercial and industrial Commercial and industrial 24,528 654 Total Total $ 27,035 $ 654 December 31, 2018 Construction loans $ 2,298 $ — Residential real estate: Closed-end 1-4 family 1,273 — Other 1,917 — Commercial and industrial — 208 Total $ 5,488 $ 208 F-27Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.The following table presents the aging of the recorded investment in past due loans as of December 31, 20182019 and 20172018 by class of loans:30-59
Days
Past Due60-89
Days
Past DueGreater
Than
89 Days
Past DueTotal
Past DueLoans
Not
Past DueTotal December 31, 2019 December 31, 2019 Construction and land development Construction and land development $ 508 $ — $ 30 $ 538 $ 591,003 $ 591,541 Commercial real estate: Commercial real estate: Nonfarm, nonresidential Nonfarm, nonresidential 3,981 — — 3,981 940,040 944,021 Other Other — — — — 49,891 49,891 Residential real estate: Residential real estate: Closed-end 1-4 family Closed-end 1-4 family 2,688 224 8 2,920 453,000 455,920 Other Other 85 961 555 1,601 186,080 187,681 Commercial and industrial Commercial and industrial 663 7,156 735 8,554 574,087 582,641 Consumer and other Consumer and other — — — — 4,769 4,769 $ 7,925 $ 8,341 $ 1,328 $ 17,594 $ 2,798,870 $ 2,816,464 December 31, 2018 Construction and land development $ 294 $ 1,986 $ 548 $ 2,828 $ 581,612 $ 584,440 Commercial real estate: Nonfarm, nonresidential 515 — — 515 753,728 754,243 Other — — — — 51,017 51,017 Residential real estate: Closed-end 1-4 family 2,390 404 228 3,022 490,043 493,065 Other 142 — 1,810 1,952 187,865 189,817 Commercial and industrial 241 252 208 701 596,092 596,793 Consumer and other — — — — 5,568 5,568 $ 3,582 $ 2,642 $ 2,794 $ 9,018 $ 2,665,925 $ 2,674,943 Credit Quality Indicators:The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans asF-23Special Mention.Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.Substandard.Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.F-28Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The following table excludes deferred loan fees and includes PCI loans, which are included in the “Substandard” column. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows as of December 31, 20182019 and 2017:2018:Pass Special
MentionSubstandard Total December 31, 2019 December 31, 2019 Construction and land development Construction and land development $ 591,293 $ 248 $ — $ 591,541 Commercial real estate: Commercial real estate: Nonfarm, nonresidential Nonfarm, nonresidential 941,260 997 1,764 944,021 Other Other 49,891 — — 49,891 Residential real estate: Residential real estate: Closed-end 1-4 family Closed-end 1-4 family 452,363 825 2,732 455,920 Other Other 185,170 — 2,511 187,681 Commercial and industrial Commercial and industrial 539,442 943 42,256 582,641 Consumer and other Consumer and other 4,769 — — 4,769 $ 2,764,188 $ 3,013 $ 49,263 $ 2,816,464 December 31, 2018 Construction and land development $ 580,468 $ 1,416 $ 2,556 $ 584,440 Commercial real estate: Nonfarm, nonresidential 739,469 14,774 — 754,243 Other 51,017 — — 51,017 Residential real estate: Closed-end 1-4 family 489,781 948 2,336 493,065 Other 186,485 404 2,928 189,817 Commercial and industrial 557,589 8,313 30,891 596,793 Consumer and other 5,567 1 — 5,568 $ 2,610,376 $ 25,856 $ 38,711 $ 2,674,943 At December 31, 2018,2019, the Bank realized a $21,186 increase$12,291 decrease in classified and criticized loans compared to December 31, 2017. The increase is specifically related to two Shared National Credit2018. Commercial real estate nonfarm, nonresidential loans that were downgraded to a substandard rating subsequent to year-end 2018, during the review period that exists betweendecreased $12,013, and commercial and industrial loans increased $3,995 from December 31, 2018 and the filing of this document. These credits are still performing at this time. Troubled Debt RestructuringsAs of December 31, 2018,2019, the Company’s loan portfolio contains one1 loan in the amount of $167$311 that has been modified in a troubled debt restructuring as ofduring the year ended December 31, 2018.2019. There was one1 loan in the amount of $608$167 that has beenwas modified in troubled debt restructurings as ofduring the year ended December 31, 2017.F-24NOTE 5 - LOAN SERVICINGLoans serviced for others are not reported as assets. The principal balances of these loans at December 31, 20182019 and 20172018 are as follows:2019 2018 Loan portfolios serviced for: Federal Home Loan Mortgage Corporation $ 488,790 $ 492,761 Federal National Mortgage Association Federal National Mortgage Association 10,221 — Other 3,504 3,689 Custodial escrow balances maintained in connection with serviced loans were $2,588$2,423 and $2,672$2,588 at year-end 20182019 and 2017.The related loan servicing rights activity for the years ended December 31, 2019, 2018 2017 and 20162017 were as follows:F-292019 2018 2017 Servicing rights: Beginning of year $ 3,403 $ 3,620 $ 3,621 Additions 1,132 650 933 Amortized to expense (1,289) (867) (934) End of year $ 3,246 $ 3,403 $ 3,620 The components of net loan servicing fees for the years ended December 31, 2019, 2018 2017 and 20162017 were as follows:2019 2018 2017 Loan servicing fees, net: Loan servicing fees $ 1,261 $ 1,308 $ 1,270 Amortization of loan servicing fees (1,289) (867) (934) Total $ (28) $ 441 $ 336 The fair value of servicing rights was estimated by management to be approximately $4,836$3,922 at December 31, 2018.2019. Fair value for 20182019 was determined using a weighted average discount rate of 9.5% and a weighted average prepayment speed of 11.9%16.8%. At December 31, 2017,2018, the fair value of servicing rights was estimated by management to be approximately $5,089.$4,836. Fair value for 20172018 was determined a using weighted average discount rate of 10.5%9.5% and a weighted average prepayment speed of 9.9%11.9%.NOTE 6 - PREMISES AND EQUIPMENT AND LEASESYear-end premises and equipment were as follows:2019 2018 Construction in progress $ 286 $ 2,097 Land and land improvements 33 33 Buildings 150 150 Leasehold improvements 11,720 9,487 Furniture, fixtures, and equipment 8,075 7,133 Computer equipment and software 3,906 3,700 Automobiles 29 29 24,199 22,629 Accumulated depreciation (12,058) (10,258) $ 12,141 $ 12,371 Depreciation and amortization expense was $1,800, $1,713 $1,482 and $1,330$1,482 for the years ended December 31, 2019, 2018 and 2017, and 2016, respectively.F-25Operating Leases: The Company has entered into various leases, primarily for office space and branch facilities. RentFor rent expense related to these leases was $5,528, $4,454 and $3,602 for 2018, 2017 and 2016, respectively. At December 31, 2018, the approximate future minimum operating lease payments due under non-cancelable leases were as follows:at December 31, 2019, see Note 7, "Leases".2018,2019, the Bank had entered into a single capitalfinance lease of $3.1 million. The approximatewith an arrangement that requires monthly payments through 2033. For interest expense, rent expense, and future minimum finance lease payments due under non-cancelable leases at December 31, 2019, see Note 7, "Leases".NOTE 7 - LEASESLease ArrangementsThe Company has entered into leases in the normal course of business primarily for real property for branches and office space with terms extending through 2034.F-30The Company has elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company's balance sheet. The Company has not been reasonably certain that the Company would exercise any lease term options, and therefore, does not include lease extensions and termination options in the lease term recognized on the balance sheet.Leases are classified as operating or finance leases at the lease commencement date based on the estimated present value of lease payments over the lease term. Leases expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments when the rate implicit in a lease is not known. The Company's incremental borrowing rate is initially based on the FHLB amortizing advance rate, adjusted for the lease term and other factors.ROU assets and lease liabilities by lease type, and the associated balance sheet classification, are as follows:Lease right-of-use assets Classification December 31, 2019 Operating leases Other Assets $ 39,594 Finance lease Other Assets 2,819 Total right-of-use assets $ 42,413 Lease liabilities Classification December 31, 2019 Operating leases Other Liabilities $ 41,308 Finance lease Other Liabilities 2,942 Total lease liabilities $ 44,250 Lease ExpenseRent expense related to these leases was $5,904, $5,528 and $4,454 for 2019, 2018 and 2017, respectively. Interest expense related to the finance lease was $164 for the year ended December 31, 2019.The components of total lease cost were as follows for the period ending:Lease costs December 31, 2019 Operating lease cost $ 5,069 Variable lease cost 406 Short-term lease cost 228 Finance lease cost Interest on lease liabilities(1)164 Amortization of right-of-use asset 201 Total lease cost $ 6,068 (1) Included in interest expense on Federal Home Loan Advances and other borrowings in the Company's consolidated statement of income. All other lease costs in this table are included in occupancy and equipment expense.Lease ObligationsFuture undiscounted lease payments for finance and operating leases with initial terms of one year or more as of December 31, 2019, are as follows:F-31December 31, 2019 Finance
LeaseOperating
Leases2020 $ 276 $ 4,849 2021 280 4,871 2022 284 4,856 2023 288 4,885 2024 293 4,901 Thereafter 2,840 31,277 Total undiscounted lease payments(1)4,261 55,639 Less: imputed interest (1,319) (14,331) Net lease liabilities $ 2,942 $ 41,308 (1) On February 5, 2020, the Company purchased the properties at Columbia Avenue and 120 9th Avenue locations in Franklin, Tennessee, therefore ending the lease agreements. The total undiscounted operating lease payments at December 31, 2019 would be reduced by approximately $27,553 from $55,639 to $28,086 at December 31, 2019 taking in consideration these purchases.Supplemental Lease InformationWeighted-average remaining lease term December 31, 2019 Operating leases 11.16 years Finance lease 14.01 years Weighted-average discount rate Operating leases 5.49 % Finance lease 5.49 % Cash flow information: December 31, 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 4,743 Operating cash flows from finance leases 164 Financing cash flows from finance lease 108 We lease certain branch facilities from various partnership interests of certain directors. Payments related to these partnership leases are noted in Note 14,15, “Related Party Transactions”Transactions”.NOTE 78 – GOODWILL AND INTANGIBLE ASSETSGoodwill: Goodwill was $18,176 at December 31, 20182019 and $9,124 at December 31, 2017.Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. At December 31, 2018,2019, the Company’s reporting unit had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment. Goodwill associated with Midsouth and Civic mergers are not amortizable for book or tax deductible.Acquired Intangible Assets: As of December 31, 20182019 and 2017,2018, the Company had net core deposit intangibles of $952$448 and $1,007,$952, respectively. At the time of the acquisition of MidSouth, the Company recorded a core deposit intangible of $3,617,$3,059, which is being amortized over 8.2 years. Through December 31, 2018,2019, the Company has recognized amortization of $2,435$2,726 related to the MidSouth core deposit intangible. At the time of the acquisition of Civic, the Company recorded a core deposit intangible of $558, which is being amortized over 3.2 years. Through December 31, 2018,2019, the Company has recognized amortization of $230$443 related to the Civic core deposit intangible.F-32The following table represents acquired intangible assets at December 31, 20182019 and 2017:2018:2019 2018 Gross
Carrying
AmountAccumulated
AmortizationGross
Carrying
AmountAccumulated
AmortizationAcquired intangible assets: Core deposit intangibles $ 3,617 $ (3,169) $ 3,617 $ (2,665) Aggregate amortization expense was $504, $612 and $473 for 2019, 2018 and $563 for 2018, 2017, and 2016, respectively.F-26The following table presents the estimated remaining amortization expense for each of the next five years:expense: 2020 $ 304 2021 121 2022 23 NOTE 89 - DEPOSITSComposition of deposits is as follows:December 31, 2019 December 31, 2018 Retail $ 1,600,832 $ 1,450,370 Brokered 632,241 797,795 Local Government 386,903 782,890 Reciprocal and other 587,608 400,752 Total $ 3,207,584 $ 3,431,807 At December 31, 20182019 and 2017,2018, time deposits in denominations of $250 or greater totaled $368,635$182,435 and $392,633,$368,635, respectively. At December 31, 20182019 and 2017,2018, the Company had $142$151 and $224,$142, respectively, of deposit accounts in overdraft status and thus have been reclassified to loans on the accompanying consolidated balance sheets.Scheduled maturities of time deposits for the next five years were as follows:2020 $ 374,096 2021 243,614 2022 88,286 2023 30,919 2024 2024 12,114 Total Total $ 749,029 NOTE 910 - FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTSAs of December 31, 20182019 and 2017,2018, the Bank had federal funds lines (or the equivalent thereof) with correspondent banks totaling $217,500 and $217,500, respectively. There was $0 in outstanding federal funds purchased at December 31, 20182019 and 2017.The Bank enters into borrowing arrangements with our retail business customers and correspondent banks through agreements to repurchase (“securities sold under agreements to repurchase”) under which the bank pledges investment securities owned and under its control as collateral against these short-term borrowing arrangements. At maturity the securities underlying the agreements are returned to the Company. At December 31, 2019 and 2018, there were no repurchase agreements and December 31, 2017, these short-term borrowings totaled $0 and $31,004, respectively, and are secured by0 securities with carrying amounts of $0 and $41,618, respectively.Information concerning securities sold under agreements to repurchase is summarized as follows:F-33At December 31, 2018 there were no repurchase agreements and no securities pledged for repurchase agreements.2019 2018 2017 Average daily balance during the year $ — $ 11,302 $ 32,428 Average interest rate during the year — % 1.29 % 0.85 % Maximum month-end balance during the year $ — $ 36,071 $ 33,989 Weighted average interest rate at year end — % — % 1.14 % NOTE 1011 – FEDERAL HOME LOAN BANK ADVANCESThe Bank has established a line of credit with the FHLB of Cincinnati which is secured by a blanket pledge of 1-4 family residential mortgage loans, home equity lines of credit, and commercial real estate. The availability of the line is dependent, in part, on available collateral.At December 31, 20182019 and 2017,2018, the Company had received advances from the FHLB totaling $155,000 and $368,500, and $272,000, respectively.At December 31, 2018,2019, the scheduled maturities of these advances and interest rates were as follows:Scheduled
MaturitiesWeighted
Average
Rates2020 $ 155,000 2.41 % Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. Qualifying loans totaling approximately $675,994,$995,104, were pledged as security under a blanket pledge agreement with the FHLB at December 31, 2018.2019. Based on this collateral, the Bank is eligible to borrow up to an additional $50.1 million$633,910 as of December 31, 2018.2019.F-34NOTE 1112 – SUBORDINATED NOTESAt December 31, 2018,2019, the Company’s subordinated notes, net of issuance costs, totaled $58,693.$58,872. The Company’s subordinated notes, net of issuance costs, totaled $58,515$58,693 at December 31, 2017.2018. For regulatory capital purposes, the subordinated notes are treated as Tier 2 capital, subject to certain limitations, and are included in total regulatory capital when calculating the Company’s total capital to risk weighted assets ratio as indicated in Note 1617 of the consolidated financial statements.The Company completed the issuance of $60,000 in principal amount of subordinated notes in two separate offerings. In March 2016, $40,000 of 6.875% fixed-to-floating rate subordinated notes were issued in a public offering to accredited institutional investors, and in June 2016, $20,000 of 7.00% fixed-to-floating rate subordinated notes were issued to certain accredited institutional investors in a private offering. The subordinated notes are unsecured and will rank at least equally with all of the Company’s other unsecured subordinated indebtedness and will be effectively subordinated to all of our secured debt to the extent of the value of the collateral securing such debt. The subordinated notes will be subordinated in right of payment to all of our existing and future senior indebtedness, and will rank structurally junior to all existing and future liabilities of our subsidiaries including, in the case of the Company’s bank subsidiary, its depositors, and any preferred equity holders of our subsidiaries. The holders of the subordinated notes may be fully subordinated to interests held by the U.S. government in the event that we enter into a receivership, insolvency, liquidation, or similar proceeding.F-28The following table summarizes the terms of each subordinated note offering:March 2016
Subordinated
NotesJune 2016
Subordinated
NotesPrincipal amount issued $40,000 $20,000 Maturity date † March 30, 2026 July 1, 2026 Initial fixed interest rate 6.875% 7.00% Initial interest rate period 5 years 5 years First interest rate change date March 30, 2021 July 1, 2021 Interest payment frequency through year five* Semiannually Semiannually Interest payment frequency after five years* Quarterly Quarterly Interest repricing index and margin 3-month LIBORplus 5.636%3-month LIBORplus 6.04%Repricing frequency after five years Quarterly Quarterly *†NOTE 1213 – BENEFIT PLANSA 401(k) benefit plan was adopted to begin benefits on May 1, 2008. The 401(k) benefit plan allows employee contributions of their compensation subject to certain limitations. Employee contributions are matched in the Company’s common stock equal to 100% of the first 2% of the compensation contributed and 50% of the next 4% of the compensation contributed. Expense for the years ended December 31, 2019, 2018 and 2017 was $755, $687 and 2016 was $687, $621, and $523, respectively.NOTE 1314 – INCOME TAXESA reconciliation of the income tax expense for the years ended December 31, 2019, 2018 2017 and 20162017 to the “expected” tax expense, which was computed by applying the statutory federal income tax rate of 21 percent for 2019 and 2018 and 35 percent for 2017 and 2016 to income before income tax expense, is as follows:F-35(1)On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”), resulting in significant modifications to existing law. As a result of the changes under the Tax Act, the Company recorded incremental income tax expense of $5,323 during the year ended December 31, 2017, which consisted primarily of the remeasurement of deferred tax assets and liabilities at the new federal statutory rate of 21%. Prior to the enactment of the Tax Act, deferred tax assets and liabilities were measured at the previous federal statutory rate of 35%.F-292019 2018 2017 Computed “expected” tax expense $ 3,152 $ 8,491 $ 16,321 Increase (reduction) in tax expense resulting from: State tax expense, net of federal tax effect (1,924) (612) 333 Effect of statutory rate changes enacted (1) — — 5,323 Non-deductible merger costs — 67 19 Incentive stock options 439 475 506 Bank owned life insurance (310) (320) (286) Tax-exempt interest income, net of expense (875) (1,296) (2,585) Insurance premiums (324) (293) (347) Excess tax benefit from exercise of stock options and vesting of restricted stock (201) (647) (805) Other 230 47 52 Income tax expense $ 187 $ 5,912 $ 18,531 (1)On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”), resulting in significant modifications to existing law. As a result of the changes under the Tax Act, the Company recorded incremental income tax expense of $5,323 during the year ended December 31, 2017, which consisted primarily of the remeasurement of deferred tax assets and liabilities at the new federal statutory rate of 21%. Prior to the enactment of the Tax Act, deferred tax assets and liabilities were measured at the previous federal statutory rate of 35%.Income tax expense (benefit) was as follows:2019 2018 2017 Current expense Federal $ 7,647 $ 6,399 $ 13,653 State (503) (684) 1,093 Deferred expense Federal (5,024) 288 (957) State (1,933) (91) (581) Deferred tax revaluation expense — — 5,323 Income tax expense $ 187 $ 5,912 $ 18,531 F-36The sources of deferred income tax assets (liabilities) at December 31, 20182019 and 20172018 and the tax effect is as follows:2019 2018 Deferred tax assets: Organizational and start-up costs $ 38 $ 51 Allowance for loan losses 11,679 5,881 Unrealized loss on securities — 5,427 Net operating loss carry forward 1,753 2,035 Purchase accounting fair value adjustments 565 594 Accrued other expenses 1,284 701 Nonaccrual loan interest 110 105 Loan fees 1,050 656 Cash flow hedge Cash flow hedge 416 — Lease liability Lease liability 11,565 — Other 1,652 1,421 Total deferred tax asset 30,112 16,871 Deferred tax liabilities: Mortgage servicing rights $ (841) $ (879) Premises and equipment (1,620) (1,204) Prepaid expenses (431) (702) Lease right-of-use asset Lease right-of-use asset (11,085) — Unrealized gain on securities Unrealized gain on securities (907) — Other (999) (897) Total deferred tax liability (15,883) (3,682) Net deferred tax asset $ 14,229 $ 13,189 At December 31, 2018,2019, the federal net operating loss remaining from the acquisition of MidSouth totaled $9,690 million,$8,346, which will expire at various dates from 20252029 to 2031. The federal net operating losses that can be utilized are subject to an annual limitation of $1.3 million.$1,300. Deferred tax assets are recognized for net operating losses because the benefit is more likely than not to be realized.The Company does not0t have any uncertain tax positions and did not0t have any interest and penalties recorded in the income statement for the years ended December 31, 2019, 2018 2017 and 2016.2017. The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the state of Tennessee. The Company is no longer subject to examination by taxing authorities for years before 2015.2016.NOTE 1415 – RELATED PARTY TRANSACTIONSThe Company enters into various credit arrangements with its executive officers, directors and their affiliates.affiliates, in the ordinary course of business. These arrangements generally take the form of commercial lines of credit, personal lines of credit, mortgage loans, term loans or revolving arrangements secured by personal residences.F-30Loans to principal officers, directors, and their affiliates during 20182019 were as follows:Beginning balance $ 24,339 New loans/advances 1,144 Repayments (9,122) Ending balance $ 16,361 Deposits from principal officers, directors, and their affiliates at year end 2019 and 2018 were $49,292 and 2017 were $40,273 and $17,477.The Bank has entered into various 15-year lease agreements between 2014 and 2018 with certain outside directors of the Company for branch and office facilities within Williamson County and Rutherford County, Tennessee. At December 31, 2018, 2019,F-37the approximate future minimum operating lease payments due under non-cancelable operating and capital leases are reported in Note 6, “Premises & Equipment”7, “Leases”.Rent expense attributable to related party leases in 2019, 2018 and 2017, was $2,124, $3,893 and 2016, was $3,893, $2,582, and $2,574, respectively. The future minimum rent payments of $54,783$23,165 are associated with related parties. The Company also paid a company affiliated with an outside director $0 during 2019 and 2018, and $831 and $2,261during 2017 for construction of leasehold improvements during 2018, 2017 and 2016, respectively.improvement. In addition, the Company also paid a company affiliated with an outside director $970, $1,027 $997 and $806$997 for the procurement of various insurance policies during the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively. In 2018, the Bank sold five5 trucks for an aggregate of $325 to one of the Company’s directors.NOTE 1516 - SHARE-BASED PAYMENTSIn connection with the Company’s 2010 private offering, 32,425 warrants were issued to shareholders, one warrant for every twenty shares of common stock purchased. Each warrant allowed the shareholders to purchase an additional share of common stock at $12.00 per share. The warrants were issued with an effective date of March 30, 2010 and were exercisable in whole or in part up to seven years following the date of issuance. The warrants were detachable from the common stock. There were 0 and 12,461 warrants exercised during 2018 and 2017, respectively. A summary of the stock warrant activity for the years ended December 31, 2018 and 2017 follows:20172018 and 2018,2019, there were no0 outstanding warrants.The Company has two2 share based compensation plans as described below. Total compensation cost that has been charged against income for those plans was $5,917, $6,569, $2,802, and $1,641,$2,802, respectively, for 2019, 2018, 2017, and 2016.2017. The total income tax benefit related to vesting of restricted stock and exercises of stock options was $201, $647, $805, and $1,013,$805, respectively, for 2019, 2018 2017 and 2016.Equity Incentive Plan: 2017.Stock Options:The Company’s 2007 Omnibus Equity Incentive Plan (the “2007 Plan”), as amended and shareholder-approved, provided for authorized shares up to 4,000,000. The 2007 Plan provided that no options intended to be ISOsincentive stock options may be granted after April 9, 2017. As a result, the Company’s Board of Directors approved, and recommended to its shareholders for approval, an equity incentive plan, the 2017 Omnibus Equity Incentive Plan. ThePlan which the Company’s shareholders approved the 2017 Omnibus Equity Incentive Plan at the 2017 annual meeting of shareholders. The terms of the 2017 Omnibus Equity Incentive Plan are substantially similar to the terms of the 2007 Omnibus Equity Incentive Plan it was intended to replace. The 2017 Omnibus Equity Incentive Plan originally provided for authorized shares up to 5,000,000. On April 12, 2018, the Compensation Committee of theCompany’s Board of Directors approved the Amended and Restated 2017 Omnibus Equity Incentive Plan revising(“Amended and Restated 2017 Plan”) to make certain changes in response to feedback received from its shareholders. The terms of the numberAmended and Restated 2017 Plan are substantially similar to the terms of the 2007 Plan it was intended to replace. The Amended and Restated 2017 Plan provides for authorized from 5,000,000shares up to 3,500,000. At December 31, 2018,2019, there were 2,513,0432,410,486 authorized shares available for issuance under the Amended and Restated 2017 Omnibus Equity Incentive Plan.Employee, organizer and director awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have a vesting period of two to five years and have a ten-yearten-year contractual term with certain events allowing for accelerated vesting. The Company assigns discretion to its Board of Directors to make grants either as qualified incentive stock options or as non-qualified stock options. All employee grants are intended to be treated as qualified incentive stock options, if allowable. All other grants are expected to be treated as non-qualified.F-31The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected stock price volatility is based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior.The expected term of options granted represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.F-38The fair value of options granted was determined using the following weighted-average assumptions as of grant date.2019 2018 2017 Risk-free interest rate 1.68 % 3.10 % 2.05 % Expected term 7 years 7.5 years 6.9 years Expected stock price volatility 29.73 % 30.79 % 33.21 % Dividend yield 0.60 % — % 0.03 % The weighted average fair value of options granted for the years endingended December 31, 2019, 2018 and 2017 was $9.68, $11.50, and 2016 was $11.50, $14.43, and $10.23, respectively.A summary of the activity with respect to stock options for the years ended December 31, 2019, 2018 and 2017 and 2016 follows:Shares Weighted
Average
Exercise
PriceWeighted
Average
Remaining
Contractual
TermAggregate
Intrinsic
ValueOutstanding at January 1, 2017 Outstanding at January 1, 2017 1,395,016 $ 16.70 Granted 295,820 37.68 Exercised (180,555) 11.87 Forfeited, expired, or cancelled (3,113) 25.37 Outstanding at December 31, 2017 1,507,168 $ 21.37 Granted 572,637 30.48 Exercised (244,309) 16.83 Forfeited, expired, or cancelled (27,574) 28.66 Outstanding at December 31, 2018 1,807,922 $ 24.68 Granted Granted 102,930 27.86 Exercised Exercised (326,818) 17.87 Forfeited, expired, or cancelled Forfeited, expired, or cancelled (84,464) 33.64 Outstanding at December 31, 2019 Outstanding at December 31, 2019 1,499,570 $ 22.39 6.46 $ 12,676 Vested or expected to vest 1,424,592 $ 25.88 5.85 $ 12,042 Exercisable at December 31, 2019 Exercisable at December 31, 2019 832,993 $ 19.62 5.85 $ 12,251 2019 2018 2017 Stock options exercised: Intrinsic value of options exercised $ 4,268 $ 4,873 $ 4,878 Cash received from options exercised 5,307 3,047 1,615 Tax benefit realized from option exercises 86 565 484 As of December 31, 2018,2019, there was $6,880$3,439 of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 1.21.6 years.Restricted Stock and Restricted Stock Units:Additionally, the Company’s 2007 Omnibus Equity Incentive Plan and the Amended and Restated 2017 Omnibus Equity Incentive Plan provideeach provides for the granting of restricted share awards and other performance related incentives. When restricted shares are awarded, a participant receives voting and dividend rights with respect to the shares, but is not able to transfer the shares until the restrictions have lapsed. In April 2019, the Company began awarding restricted stock units which participants do not have voting rights or dividend rights until the restrictions have lapsed. These awards typically have a vesting period of twothree to five years with certain events allowing for accelerated vesting and vest in equal annual installments on the anniversary date of the grant. During 2018, 126,2882019, 1,255 restricted share awards were granted from the Amended and Restated 2017 Plan, and during 2017, 27,2822018, 126,288 restricted share awards were granted from the Company’s 2007 Omnibus Equity Incentive Plan. All future restricted share awards will be granted from the Amended and Restated 2017 Omnibus Equity Incentive Plan.F-32F-39A summary of activity for non-vested restricted share awards for the year ended December 31, 2019, 2018 2017 and 20162017 is as follows:Non-vested Shares Shares Weighted-
Average
Grant-Date
Fair ValueNon-vested at January 1, 2017 Non-vested at January 1, 2017 106,458 $ 19.81 Granted 27,282 37.35 Vested (38,995) 18.40 Forfeited (564) 28.66 Non-vested at December 31, 2017 94,181 $ 25.42 Granted 126,288 33.04 Vested (40,134) 26.69 Forfeited (3,819) 31.80 Non-vested at December 31, 2018 176,516 $ 31.07 Granted Granted 1,255 31.87 Vested Vested (85,151) 29.51 Forfeited Forfeited (1,628) 31.42 Non-vested at December 31, 2019 Non-vested at December 31, 2019 90,992 $ 32.54 Compensation expense associated with the restricted share awards is recognized on a straight-line basis over the time period that the restrictions associated with the awards lapse based on the total cost of the award at the grant date. As of December 31, 2018,2019, there was $2,650$1,093 of total unrecognized compensation cost related to non-vested shares granted under the 2007 Plan and Amended and Restated 2017 Plan. The cost is expected to be recognized over a weighted-average period of 1.80.7 years. The total fair value of shares vested during the years ended December 31, 2019, 2018 and 2017 was $2,395, $1,382, and 2016$1,432, respectively.The Company began granting restricted stock units in 2019. The following table outlines restricted stock units that were granted, grouped by similar vesting criteria, during the twelve months ended December 31, 2019:Grant Year Units Awarded Service Period Period in which units to be settled into shares of common stock 2019 3,447 0.5 years 2019 2019 156,804 3 years 2022 Stock compensation expense related with the restricted stock units for the twelve months ended December 31, 2019 was $1,382, $1,432,$1,288. There was no expense related to restricted stock units in 2018. This stock compensation is recognized on a straight-line basis over the time period that the restrictions associated with the awards lapse based on the total cost of the award at the grant date. As of December 31, 2019, there was $3,099 of total unrecognized compensation expense related to non-vested units granted under the 2007 Plan and $1,003, respectively.Amended and Restated 2017 Plan. The expense is expected to be recognized over a weighted-average period of 2.3 years.NOTE 1617 – REGULATORY CAPITAL MATTERSBanks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. Banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Management believes that, as of December 31, 2018,2019, the Company and Bank meet all capital adequacy requirements to which they are subject.The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. Banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under the Basel III rules, in order to avoid limitations onF-40capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of Common Equity Tier 1 Capital above its minimum risk-based capital requirements. The buffer is measured relative to RWA. Phase-in of the capital conservation buffer requirements began on January 1, 2016 and the requirements were fully phased in on January 1, 2019. The capital conservation buffer threshold for 20182019 was 1.875%2.5%. A banking organization with a buffer greater than 2.5% will not be subject to limits on capital distributions or discretionary bonus payments; however, a banking organization with a buffer of less than 2.5% will be subject to increasingly stringent limitations as the buffer approaches zero. The rule also prohibits a banking organization from making distributions or discretionary bonus payments during any quarter if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter. Effectively, the Basel III framework will require us to meet minimum capital ratios of (i) 7% for Common Equity Tier 1 Capital, (ii) 8.5% Tier 1 Capital, and (iii) 10.5% Total Capital. The eligible retained income of a banking organization is defined as its net income for the four calendar quarters preceding the current calendar quarter, based on the organization’s quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net income. Now that the new rule is fully phased in, the minimum capital requirements plus the capital conservation buffer will exceed the prompt corrective action (“PCA”) well-capitalized thresholds. PCA regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2018,2019, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.F-33There are no conditions or events since that notification that management believes have changed the institution’s category. Actual and required capital amounts and ratios are presented below as of December 31, 20182019 and 20172018 for the Company and Bank.Actual Required
For Capital
Adequacy PurposesTo Be WellCapitalized UnderPrompt CorrectiveAction Regulations(1)Amount Ratio Amount Ratio Amount Ratio December 31, 2019 December 31, 2019 Company-Level Company-Level Common equity Tier 1 capital to RWA Common equity Tier 1 capital to RWA $388,199 11.9% $146,711 4.5% N/A N/A Total Capital to RWA Total Capital to RWA $487,966 15.0% $260,819 8.0% N/A N/A Tier 1 (Core) Capital to RWA Tier 1 (Core) Capital to RWA $388,199 11.9% $195,614 6.0% N/A N/A Tier 1 (Core) Capital to average assets Tier 1 (Core) Capital to average assets $388,199 10.3% $151,456 4.0% N/A N/A Bank-Level Bank-Level Common equity Tier 1 capital to RWA Common equity Tier 1 capital to RWA $441,348 13.6% $146,491 4.5% $211,599 6.5% Total Capital to RWA Total Capital to RWA $482,183 14.8% $260,429 8.0% $325,536 10.0% Tier 1 (Core) Capital to RWA Tier 1 (Core) Capital to RWA $441,348 13.6% $195,322 6.0% $260,429 8.0% Tier 1 (Core) Capital to average assets Tier 1 (Core) Capital to average assets $441,348 11.7% $151,255 4.0% $189,069 5.0% December 31, 2018 Company-Level Common equity Tier 1 capital to RWA $367,096 12.2% $135,598 4.5% N/A N/A Total Capital to RWA $449,325 14.9% $241,064 8.0% N/A N/A Tier 1 (Core) Capital to RWA $367,096 12.2% $180,798 6.0% N/A N/A Tier 1 (Core) Capital to average assets $367,096 8.8% $167,553 4.0% N/A N/A Bank-Level Common equity Tier 1 capital to RWA $421,335 14.0% $135,613 4.5% $195,886 6.5% Total Capital to RWA $444,871 14.8% $241,090 8.0% $301,363 10.0% Tier 1 (Core) Capital to RWA $421,335 14.0% $180,818 6.0% $241,090 8.0% Tier 1 (Core) Capital to average assets $421,335 10.1% $167,420 4.0% $209,275 5.0% Note: Minimum ratios presented exclude the capital conservation buffer.F-41Dividend Restrictions: The Company’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above.NOTE 1718 - FAIR VALUEFair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.F-34Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Company has elected the fair value option, are summarized below:Fair Value Measurements at December 31, 2019 Using: Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)Significant
Other
Observable
Inputs
(Level 2)Significant
Unobservable
Inputs
(Level 3)Mortgage-backed securities: residential $ — $ 375,943 $ — Mortgage-backed securities: commercial — 17,780 — Corporate Notes — 33,361 — State and political subdivisions — 225,048 — Total securities available for sale $ — $ 652,132 $ — Loans held for sale $ — $ 43,162 $ — Other assets $ — $ 225 $ — Liabilities Other liabilities $ — $ 73 $ — F-42Fair Value Measurements at December 31, 2018 Using: Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)Significant
Other
Observable
Inputs
(Level 2)Significant
Unobservable
Inputs
(Level 3)Assets U.S. Treasury $ 253,014 $ — $ — U.S. government sponsored entities and agencies — 21,888 — Mortgage-backed securities: residential — 580,699 — Mortgage-backed securities: commercial — 24,844 — Corporate Notes — 12,424 — State and political subdivisions — 137,799 — Total securities available for sale $ 253,014 $ 777,654 $ — Loans held for sale $ — $ 11,103 $ — Other assets $ — $ 206 $ — Liabilities Other liabilities $ — $ 129 $ — The Company used the following methods and significant assumptions to estimate the fair value of each type of asset and liability:Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).DerivativesOther assets: TheIncluded in other assets are certain assets carried at fair values of derivatives are based on valuation models using observable market data as ofvalue and interest rate locks associated with the measurement date (Level 2).Impaired Loans:mortgage loan pipeline. The fair value of impaired loans with specific allocationsthe mortgage loan pipeline rate locks is based upon the projected sales price of the allowance forunderlying loans, taking into account market interest rates and other market factors at the measurement date, net of the projected fallout rate. These assets are valued using similar observable data that occurs in the market (Level 2)Loans Held For Sale: These loans are typically sold to an investor following loan losses is generallyorigination and the fair value of such accounts are readily available based on recentdirect quotes from investors or similar transactions experienced in the secondary loan market. Fair value adjustments, as well as realized gains and losses are recorded in current earnings. Fair value is determined by market prices or similar transactions adjusted for specific attributes of that loan (Level 2).Other Liabilities: The Company has certain liabilities carried at fair value including certain interest rate swap agreements to facilitate customer transactions, and the cash flow hedge and interest rate locks associated with the funding for its mortgage loan originations. The fair value of these liabilities is based on pricing models that utilize observable market inputs (Level 2).There were no transfers between levels for the years ended December 31, 2019 and 2018.F-43The following table presents assets measured at fair value on a non-recurring basis. There were no liabilities measured at fair value on a non-recurring basis as December 31, 2019 and 2018.Total carrying value in the
consolidated balance sheet Quoted market prices in
an active market
(Level 1) Models with significant
observable market parameters
(Level 2) Models with significant
unobservable market parameters
(Level 3) Total losses for the period ended December 31, 2019 Impaired loans, net: (1)Residential real estate: Closed-end 1-4 family $ 626 $ — $ — $ 626 $ — Commercial and industrial 3,763 — 3,650 113 — Total $ 4,389 $ — $ 3,650 $ 739 $ — December 31, 2018 Impaired loans, net(1)Commercial and industrial $ 150 $ — $ — $ 150 $ — (1) Amount is net of a valuation allowance of $20,771 and $17 at December 31, 2019 and 2018, respectively, as required by ASC 310-10, "Receivables."As of December 31, 2019 and 2018, the only Level 3 assets with material unobservable inputs are associated with impaired loans. The table above includes those loans that are impaired and have a carrying balance as of December 31, 2019, and 2018.Impaired Loans: A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due pursuant to the contractual terms of the loan agreement. Impairment is measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the underlying fair value of the loan's collateral. For real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classificationloans, fair value of the impaired loan's collateral is determined by third party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. The Company reviews the third party appraisal for determiningappropriateness and adjusts the value downward to consider selling and closing costs, which typically is 10% of the appraised value. For non-real estate collateral loans, the unobservable inputs will vary depending on the credit. The fair value. Non-real estatevalue of the impaired loan's collateral may be valueddetermined using ana third party appraisal, net booktransactional values, discounted cash flows (DCF), sales comparisons, asset value, per the borrower’s financial statements, or aging reports, adjusted or discounteddiscounted. As of December 31, 2019 the fair value of the non-real estate collateral loans was determined primarily based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business,transactional value, resulting in a Level 32 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Appraisals for impaired loans are generally obtained annually but may be obtained more frequently based on changing circumstances as part of the aforementioned quarterly evaluation.Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Foreclosed assets are evaluated on a quarterly basis for additional impairment and adjusted accordingly.Appraisals for both collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewreviewed and verified by the Company. Once received, a member of the credit administration department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value.Loans Held For Sale:F-44The Company measures certain assets at fair value on a non-recurring basis including impaired loans (excluding PCI loans), loans held for sale, and OREO. These fair value adjustments result from impairments recognized during the period, application of the lower of cost or fair value on loans are typically sold to an investor following loan originationheld for sale, and the application of fair value of such accounts are readily available basedless cost to sell on direct quotes from investors or similar transactions experienced in the secondary loan market. Fair value adjustments, as well as realized gainsOREO. The following tables present valuation techniques and losses are recorded in current earnings. Fair value is determined by market prices or similar transactions adjustedunobservable inputs for specific attributes of that loan (Level 2).F-35Assets and liabilitiesassets measured at fair value on a recurringnon-recurring basis including financial assets and liabilities for which the Company has elected theutilized Level 3 inputs to determine fair value option, are summarized below:There were no transfers between levels during 2018values at December 31, 2019 and 2017.Financial Instruments Recorded Using Fair Value OptionAt December 31, 20182019, the unpaid principal balance of loans held for sale was $10,722,$42,152, resulting in an unrealized gain of $381$1,010 included in gains on sale of loans. None of these loans are 90 days or more past due or on nonaccrual as of December 31, 2018.2019. At December 31, 2017,2018, the unpaid principal balance of loans held for sale was $11,681,$10,722, resulting in an unrealized gain of $343$381 included in gains on salemortgage banking revenue.Carrying
AmountLevel 1 Fair Value Measurements at December 31, 2019 Using: Total Level 2 Level 3 Assets Cash and cash equivalents $ 234,991 $ 234,991 $ — $ — $ 234,991 Securities available for sale 652,132 — 652,132 — 652,132 Certificates of deposit held at other financial institutions 3,590 — 3,590 — 3,590 Loans held for sale 43,162 — 43,162 — 43,162 Net loans 2,767,008 — — 2,753,761 2,753,761 Servicing rights, net 3,246 — — 3,922 3,922 Other assets 225 — 225 — 225 Accrued interest receivable 12,362 96 3,775 8,491 12,362 Liabilities Deposits $ 3,207,584 $ 2,458,555 $ 749,656 $ — $ 3,208,211 Federal Home Loan Bank advances 155,000 — 155,090 — 155,090 Subordinated notes 58,872 — — 60,922 60,922 Other liabilities 73 — 73 — 73 Accrued interest payable 4,201 154 687 3,360 4,201 Carrying
AmountLevel 1 Fair Value Measurements at December 31, 2018 Using: Total Level 2 Level 3 Assets Cash and cash equivalents $ 280,212 $ 280,212 $ — $ — $ 280,212 Securities available for sale 1,030,668 253,014 777,654 — 1,030,668 Certificates of deposit held at other financial institutions 3,594 — 3,594 — 3,594 Securities held to maturity 121,617 — 118,955 — 118,955 Loans held for sale 11,103 — 11,103 — 11,103 Net loans 2,648,948 — — 2,622,386 2,622,386 Servicing rights, net 3,403 — — 4,836 4,836 Other assets 206 — 206 — 206 Accrued interest receivable 13,337 71 5,539 7,727 13,337 Liabilities Deposits $ 3,431,807 $ 2,105,951 $ 1,319,326 $ — $ 3,425,277 Federal Home Loan Bank advances 368,500 — 366,786 — 366,786 Subordinated notes 58,693 — — 59,852 59,852 Other liabilities 129 — 129 — 129 Accrued interest payable 4,700 146 3,866 688 4,700 F-45At December 31, 2019 there were 10 collateral-dependent impaired loans carried at Fair Value on a Non-recurring Basis and 2017, there was one collateral dependent impaired loan carried at fair value of $150 and $1,650, respectively.Foreclosed assets measuredresulting in an additional provision for loan losses of $17 recorded related to impaired loans recorded at fair value less costs to sell, had a net carrying amount of $0 and $1,503collateral.There were no foreclosed assets as of December 31, 2019 and 2018, and 2017, respectively. Thereaccordingly, there were no properties at December 31, 2019 and 2018 that had required write-downs to fair value resulting in no write downs for the yearyears ended December 31, 2017.F-36The Company measures certain assets at fair value on a non-recurring basis including impaired loans (excluding PCI loans), loans held for sale, and OREO. These fair value adjustments result from impairments recognized during the period, and the application of fair value less cost to sell on OREO. The following tables present valuation techniques and unobservable inputs for assets measured at fair value on a non-recurring basis for which the Company has utilized Level 3 inputs to determine fair values at December 31, 2019 and 2018:The carrying amounts and estimated fair values of financial instruments, at December 31, 20182019 and 20172018 are as in the tables below. Due to the adoption of ASU 2016-01, the fair value of loans presented for 2018 uses the exit price and may not be comparable to the prior period.(a) Cash and Cash Equivalents:The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.(b) Loans:Fair values of loans, excluding loans held for sale, are estimated as follows: For variableIn accordance with ASU 2016-01, the fair value of loans held for investment, is estimated using a cash flow projection methodology that relies on three primary assumptions: (1) the expected prepayment rate loans that reprice frequently and with no significant change in credit risk, fair values areof loans; (2) the magnitude of future net losses based on carrying values resulting inexpected default rate and severity of loss; and (3) the discount rate applicable to the expected cash flows of the loan portfolio. Loans are considered a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Fair values for impaired loans are valued using the lower of cost or estimated based on the fair value of the underlying collateral. The fair value of the collateral is determined based on internal estimates and assessments provided by third-party appraisers.(c) Restricted Equity Securities: It is not practical to determine the fair value of FHLB or FRB stock due to restrictions placed on its transferability.F-37
Fair value of mortgage servicing rights is based on valuation models that calculate the present value of estimated net cash flows based on industry market data. The valuation model incorporates assumptions that market participants would use in estimating future net cash flows resulting in a Level 3 classification.(e)(d) Deposits:The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. The carrying amounts of fixed-term money market accounts approximate their fair values at the reporting date resulting in a Level 1 classification. Fair values for certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.(f)(e) Federal Funds Purchased and Repurchase Agreements:The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.(g)(f) Federal Home Loan Bank Advances:The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.(g) Subordinated Notes: The fair values of the Company's subordinated notes are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.(h) Accrued Interest Receivable/Payable:The carrying amounts of accrued interest approximate fair value resulting in a Level 1, Level 2 or Level 3 classification based on the asset/liability with which they are associated.(i) Off-balance Sheet Instruments:Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.F-46NOTE 1819 – MORTGAGE BANKING DERIVATIVESThe Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. Financial derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivatives not designated as hedges, the gain or loss is recognized in current earnings.Derivatives Designated as Fair Value HedgesFor derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate callable securities available-for-sale. The hedging strategy on securities converts the fixed interest rates to LIBOR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities.During 2019, the Company entered into 16 swap transactions with a notional amount of $101,205 designated as fair value hedges. These derivatives are intended to protect against the effects of changing interest rates on the fair values of fixed rate securities.A summary of the Company's fair value hedge relationships as of December 31, 2019 are as follows (in thousands):December 31, 2019 December 31, 2018 Balance Sheet Location Weighted Average Remaining Maturity (In Years) Weighted Average Pay Rate Receive Rate Notional
AmountEstimated
Fair ValueNotional
AmountEstimated
Fair ValueLiability derivatives Interest rate swap agreements - securities Other Liabilities 7.32 2.53 % 3 month LIBOR $ 101,205 $ 4,954 $ — $ — The effects of fair value hedge relationships reported in interest income on securities on the consolidated statements of income for the twelve months ended December 31, 2019 and 2018 were as follows (in thousands):Amount of Gain Recognized in Income Location of Gain on Hedged Item Twelve months ended December 31, 2019 2018 Liability derivatives Interest rate swap agreements - securities Interest Income $ 4,954 $ — Amount of Loss Recognized in Income Location of Loss on Derivative Twelve months ended December 31, 2019 2018 Liability derivatives Interest rate swap agreements - securities Interest Income $ (4,954) $ — F-47The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at December 31, 2019:Carrying Amount of the Hedged Assets Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018 Line item on the balance sheet Securities available-for-sale $ 101,205 $ — $ 4,954 $ — Derivatives Designated as Cash Flow HedgesFor derivative instruments that are designated and qualify as a cash flow hedge, the aggregate fair value of the derivative instrument is recorded in other assets or other liabilities with any gain or loss related to changes in fair value recorded in accumulated other comprehensive income, net of tax. The gain or loss is reclassified into earnings in the same period during which the hedged asset or liability affects earnings and is presented in the same income statement line item as the earnings effect of the hedged asset or liability. The Company uses cash flow hedge relationships in an effort to manage future interest rate exposure. The hedging strategy converts the LIBOR-based variable interest rate on forecasted borrowings to a fixed interest rate and is used in an effort to protect the Company from floating interest rate variability. A summary of the Company's cash flow hedge relationships as of December 31, 2019 are as follows (in thousands):December 31, 2019 December 31, 2018 Balance Sheet Location Weighted Average Remaining Maturity (In Years) Weighted Average Pay Rate Receive Rate Notional
AmountEstimated
Fair ValueNotional
AmountEstimated
Fair ValueLiability derivatives Interest rate swap agreements Deposits 2.34 2.23 % 1 month LIBOR $ 100,000 $ 1,592 $ — $ — There were no cash flow hedge relationships as of December 31, 2018.The effects of the Company's cash flow hedge relationships on the statement of comprehensive income (loss) during the twelve months ended December 31, 2019 and 2018 were as follows:Amount of Gain (Loss) Recognized in Other Comprehensive Income Twelve months ended December 31, 2019 2018 Interest rate swap agreements $ (1,176) $ — The cash flow hedges were determined to be highly effective during the periods presented and as a result qualify for hedge accounting treatment. If a hedge was deemed to be ineffective, the amount included in accumulated other comprehensive (loss) income would be reclassified into a line item within the statement of income that impacts operating results. The hedge would no longer be considered effective if a portion of the hedge becomes ineffective, the item hedged is no longer in existence or the Company discontinues hedge accounting. The Company expects the hedges to continue to be highly effective and qualify for hedge accounting during the remaining terms of the swaps.Mortgage Banking DerivativesF-48Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the Company’s practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated as hedge relationships. At year-end 2019, the Company had approximately $48,999 of interest rate lock commitments and approximately $62,824 of forward commitments for the future delivery of residential mortgage loans. The fair value of these mortgage banking derivatives was reflected by a derivative asset and liability of $225 and $73, respectively, at December 31, 2019. At year-end 2018, the Company had approximately $28,731 of interest rate lock commitments and approximately $31,519 of forward commitments for the future delivery of residential mortgage loans. The fair value of these mortgage banking derivatives was reflected by a derivative asset and liability of $206 and $129, respectively, at December 31, 2018. At year-end 2017, the Company had approximately $21,656 of interest rate lock commitments and approximately $35,566 of forward commitments for the future delivery of residential mortgage loans. The fair value of these mortgage banking derivatives was reflected by a derivative asset and liability of $175 and $35, respectively, at December 31, 2017. Fair values were estimated based on changes in mortgage interest rates from the date of the commitments. Changes in the fair values of these mortgage-banking derivatives are included in net gains on sale of loans.The net gains (losses) relating to free-standing derivative instruments used for risk management is summarized below:2019 2018 2017 Forward contracts related to mortgage loans held for sale and interest rate contracts $ 56 $ 94 $ 32 Interest rate contracts for customers 19 31 (54) The following table reflects the amount and fair value of mortgage banking derivatives included in the consolidated balance sheet as of December 31, 20182019 and 2017:2018:2019 2018 Notional
AmountFair
ValueNotional
AmountFair
ValueIncluded in other assets (liabilities): Interest rate contracts for customers $ 48,999 $ 225 $ 28,731 $ 206 Forward contracts related to mortgage loans held for sale $ 62,824 $ (73) $ 31,519 $ (129) F-38NOTE 1920 – LOAN COMMITMENTS AND OTHER RELATED ACTIVITIESSome financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.The contractual amounts of financial instruments with off-balance-sheet risk at year end were as follows:2019 2018 Fixed
RateVariable
RateFixed
RateVariable
RateCommitments to make loans $ 48,999 $ — $ 28,731 $ — Unused lines of credit 89,040 701,326 128,313 526,271 Standby letters of credit 7,119 48,750 8,293 31,731 Commitments to make loans are generally made for periods of over 365 days. The fixed rate loan commitments have interest rates ranging from 2.50%2.82% to 12.00% and maturity terms ranging from less than 1 year to 3025 years.F-49NOTE 2021 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATIONCondensed financial information of Franklin Financial Network, Inc. follows:CONDENSED BALANCE SHEETSDecember 31, 2019 2018 ASSETS Cash and cash equivalents $ 3,625 $ 3,364 Investment in banking subsidiary 463,496 426,979 Investment in other subsidiaries 3,527 1,919 Other assets 1,841 1,617 Total assets $ 472,489 $ 433,879 LIABILITIES AND EQUITY Subordinated notes $ 58,872 $ 58,693 Accrued expenses and other liabilities 3,284 2,446 Shareholders’ equity 410,333 372,740 Total liabilities and shareholders’ equity $ 472,489 $ 433,879 CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOMEYear ended December 31, 2019 2018 2017 Dividends from subsidiaries $ 5,500 $ 5,925 $ 4,000 Other income 249 203 171 Interest expense 4,328 4,328 4,321 Other expense 7,614 5,163 2,890 Loss before income tax and undistributed subsidiaries income (6,193) (3,363) (3,040) Income tax benefit (2,855) (2,229) (2,671) Equity in undistributed subsidiaries income 18,160 35,655 28,468 Net income $ 14,822 $ 34,521 $ 28,099 Comprehensive income $ 31,982 $ 25,966 $ 29,997 F-39F-50CONDENSED STATEMENTS OF CASH FLOWSYear ended December 31, 2019 2018 2017 Cash flows from operating activities Net income $ 14,822 $ 34,521 $ 28,099 Adjustments: Equity in undistributed subsidiaries income (18,160) (35,655) (28,468) Amortization of debt issuance costs 179 178 178 Stock-based compensation 851 1,008 219 Change in other assets (208) (1,367) 728 Change in other liabilities 839 (1,908) 686 Net cash from operating activities (1,677) (3,223) 1,442 Cash flows from investing activities Investments in subsidiaries — (26,512) (1,359) Net cash acquired from acquisition (See Note 2) — 24,660 — Net cash from investing activities — (1,852) (1,359) Cash flows from financing activities Proceeds from exercise of common stock warrants — — 150 Proceeds from exercise of common stock options 5,307 3,047 1,615 Proceeds from issuance of common stock, net of offering costs — (242) — Divestment of common stock issued to 401(k) plan — (308) (256) Redemption of Series A preferred stock — — — Purchase of Treasury Stock Purchase of Treasury Stock (717) — — Dividends paid on common stock Dividends paid on common stock (2,636) — — Noncontrolling interest distributions Noncontrolling interest distributions (16) (16) — Net cash from financing activities 1,938 2,481 1,509 Net change in cash and cash equivalents 261 (2,594) 1,592 Beginning cash and cash equivalents 3,364 5,958 4,366 Ending cash and cash equivalents $ 3,625 $ 3,364 $ 5,958 Non-cash supplemental information: Transfers from subsidiary stock based compensation expense to parent company only additional paid-in capital $ 5,066 $ 5,561 $ 2,583 F-40F-51NOTE 2122 – EARNINGS PER SHAREThe two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. The factors used in the earnings per share computation follow:Year Ended December 31, 2019 2018 2017 Basic Net income available to common shareholders $ 14,806 $ 34,505 $ 28,083 Less: earnings allocated to participating securities (120) (372) (219) Net income allocated to common shareholders $ 14,686 $ 34,133 $ 27,864 Weighted average common shares outstanding including participating securities $ 14,633,399 $ 14,169,294 $ 13,145,005 Less: Participating securities (118,747) (152,638) (102,650) Average shares 14,514,652 14,016,656 13,042,355 Basic earnings per common share $ 1.01 $ 2.44 $ 2.14 Diluted Net income allocated to common shareholders $ 14,686 $ 34,133 $ 27,864 Weighted average common shares outstanding for basic earnings per common share 14,514,652 14,016,656 13,042,355 Add: Dilutive effects of assumed exercises of stock options 352,242 540,302 633,738 Add: Dilutive effects of assumed exercises of stock warrants — — 1,578 Add: Dilutive effects of assumed vesting of restricted stock units Add: Dilutive effects of assumed vesting of restricted stock units 95,413 $ — $ — Average shares and dilutive potential common shares $ 14,962,307 $ 14,556,958 $ 13,677,671 Dilutive earnings per common share $ 0.98 $ 2.34 $ 2.04 Average stock options of 876,086, 546,325, 285,706, and 165,232285,706 shares of common stock were not considered in computing diluted earnings per common share for the year ended December 31, 2019, 2018, 2017, and 2016,2017, respectively, because they were antidilutive.NOTE 22 - CAPITAL OFFERINGThe Company completed a secondary public offeringF-52The proceeds of the offering were used to provide capital to Franklin Synergy Bank to support continued growth and for general corporate purposes.F-41The following table provides a summary of selected consolidated quarterly financial data for the years ended December 31, 20182019 and 2017:2018:2019 2018 Fourth
QuarterThird
QuarterSecond
QuarterFirst
QuarterFourth
QuarterThird
QuarterSecond
QuarterFirst
QuarterIncome Statement Data ($): Interest income $ 43,185 $ 46,531 $ 47,453 $ 47,523 $ 46,045 $ 43,717 $ 42,136 $ 38,047 Interest expense 15,072 18,269 20,088 20,103 19,125 17,155 15,231 12,931 Net interest income 28,113 28,262 27,365 27,420 26,920 26,562 26,905 25,116 Provision for loan losses 18,961 1,000 7,031 5,055 975 136 570 573 Noninterest income 4,573 4,793 4,923 3,486 (383) 3,442 4,147 3,456 Noninterest expense 21,279 18,614 19,370 22,616 21,689 18,251 18,050 15,488 Net (loss) income before taxes Net (loss) income before taxes (7,554) 13,441 5,887 3,235 3,873 11,617 12,432 12,511 Income tax (benefit) expense Income tax (benefit) expense (2,970) 2,117 706 334 122 1,068 2,263 2,459 Net (loss) income Net (loss) income (4,584) 11,324 5,181 2,901 3,751 10,549 10,169 10,052 Net income available to common shareholders (4,592) 11,324 5,173 2,901 3,743 10,549 10,161 10,052 (Loss) Earnings per share, basic(1)(Loss) Earnings per share, basic(1)$ (0.31) $ 0.77 $ 0.35 $ 0.20 $ 0.26 $ 0.73 $ 0.71 $ 0.76 (Loss) Earnings per share, diluted(1)(Loss) Earnings per share, diluted(1)$ (0.31) $ 0.75 $ 0.34 $ 0.19 $ 0.25 $ 0.70 $ 0.68 $ 0.73 (1) Quarterly rounding may vary from year-to-date totals(1) Quarterly rounding may vary from year-to-date totalsF-42F-53